KOSOVO: JULY 11 DONORS CONFERENCE A MILESTONE

C O N F I D E N T I A L SECTION 01 OF 02 PRISTINA 000354

SIPDIS

DEPT FOR INL, EUR/SCE, S/CRS, EUR/ACE,
NSC FOR HELGERSON, USAID/E&E FOR MENARCHIK

E.O. 12958: DECL: 02/28/2018
TAGS: PGOV PREL EAID KV UNMIK
SUBJECT: KOSOVO: JULY 11 DONORS CONFERENCE A MILESTONE
EVENT FOR KOSOVO

Classified By: Charge d'Affaires Tina S. Kaidanow for Reasons 1.4 (b),
(d).


1. (C) SUMMARY: The European Commission (EC) will host a
donors conference in Brussels on July 11 to mobilize funding
for Kosovo's continued development in the wake of
independence. The Government of Kosovo (GOK) will need 1.5
billion dollars over three years in donor support to address
existing needs and costs associated with the creation of a
new state. Over three years, the EC will contribute USD 614
million and the USG, USD 400 million, while major bilateral
donors such as Germany, Switzerland, Norway, Finland and
Sweden have initially pledged roughly 20 million each. Early
pledges indicate that donors have confidence in Kosovo and
are willing to back up political commitments with substantial
funding. At the conference, the GOK will share its Medium
Term Expenditure Framework (MTEF),a document that details
spending priorities and identifies associated costs over
three years and which has met with the approval of both the
EC and U.S. Rule of law, infrastructure and social stability
are the big ticket items, comprising 60 percent of its public
expenditures; budget support and debt relief are also areas
the GOK wants to address. The donors conference is key not
only to support the economic well-being of Europe's youngest
state, but to showcase the GOK commitment to a democratic,
multiethnic future, in line with its obligations under the
Ahtisaari Plan. Both elements are important to garner
greater recognition of Kosovo independence. END SUMMARY.


2. (U) With the July 11 donor's conference, Kosovo will take
an another important step in further establishing itself as a
state. PM Hashim Thaci and a cadre of ministers will attend
the conference in Brussels, hosted by the European
Commission. The meeting will bring together key EU and
international donors and international financial
institutions, as well as international and UN agencies. More
than a fund-raiser, the event will elevate Kosovo's profile
and provide a welcome venue for its government to highlight
its successes since independence and explain future plans.
In preparation for the conference, the government has
produced a report on its first 120 days, which details its
key accomplishments since independence, including adoption of
the Kosovo constitution, passage of 41 laws necessary to
implement the Ahtisaari plan, creation of new institutions,
and recognition by 43 countries, including most of the EU and
NATO member states. It has also produced a comprehensive
Medium Term Expenditure Framework (MTEF) that broadly defines
the GOK's plans for spending and growth and identifies a USD
1.5 billion funding gap over the course of the three years.
These documents tell Kosovo's story since independence and
provide donors with a guide to its future.

Pledging
--------------


3. (U) USG Coordinator for Assistance and USAID Administrator
Henrietta Fore will lead the U.S. delegation to the
conference, in which all EU members states that have
recognized Kosovo's independence (and some that have not)
will participate. In addition, major non-EU donors,
including Japan, Canada, Norway, and Switzerland, are
scheduled to attend and pledge support. The bulk of
assistance is likely to come from the EC and the U.S., with
the former pledging USD 614 million and the latter, USD 400
million dollars, over three years. In addition to the
general EC pledge, Germany, Sweden, Switzerland, Norway and
Finland are expected to make significant bilateral pledges of
roughly 20 million euro each.


4. (U) The GOK will require significant resources to pay its
inherited Yugoslav debt, should it reach agreement with
Serbia on formal assumption of payments. Also contributing
to the financing gap is the GOK decision to create a
stabilization reserve of 200 million euro for debt servicing
and/or other unanticipated costs (i.e., disaster response and
relief). A majority of donors will pledge bilateral
assistance to help the government meet its objectives, while

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others may opt to provide budget support. The World Bank has
established two trust funds, one for budget support and one
for debt relief, to assist in this effort. The USG will set
aside one-third of its assistance for debt relief.

Economic Landscape
--------------


5. (SBU) The GOK is eager to tell its story and ready to
forge partnerships with the broad spectrum of international
donors who will be present in Brussels this week. Kosovo is
one if not the poorest country in Europe: per capita gross
domestic product (GDP) is less than 1800 euro/year, economic
growth is around three percent, and unemployment is
officially estimated to be 40 percent (although some
estimates are much higher). Kosovo's schools are
overburdened by a growing population -- the youngest in
Europe -- and its infrastructure is in urgent need of repair.
In response to these challenges, the GOK has engaged
actively and collaboratively with the donor community over
the past year to develop the MTEF, a document which has won
the support of both the U.S. and the European Commission. A
key challenge for the GOK post-conference will be providing
adequate controls for the assistance offered, and ensuring
that spending is both transparent and timely. Minister for
Economy and Finance Ahmet Shala, one of the most effective
GOK ministers, has already engaged with us on mechanisms for
tracking the flow of assistance and is committed to enhancing
donor coordination to prevent unnecessary duplication of
effort.


6. (C) COMMENT: The donors conference is important not only
to provide critical funding to help establish the fledgling
state of Kosovo, but to showcase the seriousness and resolve
by which the GOK is undertaking its obligations under the
Ahtisaari Plan, particularly with regard to Kosovo Serbs.
Both elements are key to Kosovo's democratic, multiethnic
future, and a successful conference that accomplishes both
can only have a positive impact on garnering greater
recognition of Kosovo independence. We will continue to work
with the GOK on follow-up post-conference to help it
adequately track and utilize the assistance provided via the
conference. End comment.
KAIDANOW