MACEDONIA: DECENTRALIZATION MOVING FORWARD

UNCLAS SECTION 01 OF 02 SKOPJE 000226 SIPDIS SENSITIVE SIPDIS DEPT FOR EUR/SCE E.O. 12958: N/A TAGS: KDEM PGOV ECON USAID MK SUBJECT: MACEDONIA: DECENTRALIZATION MOVING FORWARD REF: 07 SKOPJE 259 Summary -------------- ¶1. (SBU) The GOM has successfully decentralized responsibility for a number of government activities to municipal governments, including such key functions as education and social policy. Decentralization of those government activities was a key requirement of the 2001 Ohrid Framework Agreement. The first phase of decentralization began in July 2005, with the second phase beginning in July 2007. With significant support from USAID and other donors, the GOM and the majority of municipalities are meeting the administrative and political challenges of implementing decentralization. End Summary. Local Governments Assume More Responsibilities -------------- - ¶2. (U) Under the 2001 Ohrid Framework Agreement, the GOM committed itself to decentralize a number of responsibilities to local municipalities (reftel). Under the first phase of decentralization, which began in July 2005, municipal authorities gained some responsibilities for education, culture, social protection, and child protection services. In addition, they assumed responsibility for public utilities such as water and street lights, as well as publicly owned companies in their territory. To finance these added responsibilities, the GOM has transferred funds to the municipalities, and the municipal governments have gained new authority to levy property taxes and collect administrative fees. ¶3. (U) The planned second phase of decentralization began in July ¶2007. Under phase two, the municipalities gained additional administrative authority over education, culture, and social protection. Initially, 42 municipalities started phase two in July ¶2007. Additional municipalities have been added as they have met the criteria. At the beginning of March, the city of Skopje and six other municipalities were added to the list, bringing the total number of municipalities in phase two to 57 out of a total of 84. Process Non-Partisan, Criteria Based -------------- ¶4. (SBU) The GOM used objective criteria to select those municipalities ready to assume the additional administrative responsibilities under phase two. The criteria included, for example, a prerequisite that a municipality employ sufficient staff to handle financial administration tasks. In addition, the GOM commission that assesses municipalities' readiness to move to phase two includes the president and vice president of the Association of Municipalities (ZELS). While the GOM's selection criteria were not particularly sophisticated, they apparently were applied fairly across the board to all municipalities. Andrej Petrov, the president of ZELS and a mayor from an opposition party, told us there was no apparent connection between those municipalities that qualified for phase two and the political affiliation of their mayors or municipal council members. ¶5. (SBU) The State Secretary of the Ministry of Local Self Government, Irfan Odai, told us recently that the remaining municipalities that are not yet included in phase two either have serious financial challenges, including large unpaid arrears or blocked financial accounts due to disputes with debtors, or are too small to hire the requisite number of staff. Odai said that the GOM is working with the remaining municipalities to find ways for them to enter phase two. For example, if the smallest municipalities sign an agreement to cooperate on decentralization tasks with a larger neighboring municipality, they would not be required to hire more staff. The GOM is also considering ways that those municipalities with outstanding debts could still enter phase two as long as they demonstrate they are resolving their financial problems. Mayors' Concern: Raising Revenue, Attracting Investors -------------- -------------- ¶6. (U) The main concern of the mayors we have talked to, regardless of whether they are members of the GOM coalition parties or opposition parties, is generating sufficient revenue to meet the new needs of their municipalities. The mayors claim that the funds transferred from the national budget to the municipalities are insufficient, and that they are not able to raise enough additional funding through local taxes and fees. ¶7. (U) In addition, all the mayors we have talked to complain that the GOM's bureaucratic barriers make it difficult for them to offer government-owned land to potential private investors. The central government maintains control of government owned land, and the mayors tell us the process for sale or lease of the land is excessively slow and bureaucratic. Mayors, and members of the USAID decentralization project, see this bureaucratic hurdle as a major SKOPJE 00000226 002 OF 002 impediment to economic growth at the local level. ¶8. (U) A few mayors from the more successful municipalities are exploring the possibility of private financing for longer-term investment projects, either by taking out loans or issuing bonds. However, these mayors say that the process for receiving approval from the Ministry of Finance for such financing is too restrictive. USAID is taking the lead on facilitating responsible borrowing by those municipalities that have sufficient financial and administrative capacity to do so. Comment: Decentralization Is Working -------------- ¶9. (SBU) Since July 2005, the central government has moved forward on decentralization and continues to assign increased responsibility to the municipalities. In turn, most of the municipalities have performed surprisingly well, with the strong support of USAID and other donors. It remains unclear when the municipalities that have not yet entered the second phase of decentralization will be included, but there appears to be the political will to help the remaining municipalities meet the criteria. The longer-term issues of increasing municipalities' financial resources and their ability to generate greater economic activity and growth still need to be resolved. Milovanovic