ECONOMY

Balkan nations on the road to recovery

The objective of economic integration with Europe is a powerful incentive in promoting reforms and cooperation in Southeastern Europe, while also helping communities to overcome political differences and divisions. Toward this end, Greece, now a development aid donor country, can play a key role through its government and private sector, although private firms behave less than responsibly on occasions, putting at risk longer-term relations and long-term profits, says Orsalia Kalandzopoulos, the World Bank country director and regional coordinator for Southeast Europe. Ms Kalandzopoulos, a Greek national who joined the World Bank in 1984, was recently in Thessaloniki to participate in a gathering of all World Bank staff working in SE Europe to discuss the institution’s program and strategy for the region in the coming years. What are the priorities of the World Bank in Southeastern Europe? What are the different needs of different countries? The World Bank is working closely with the countries of Southeast Europe to help them realize their economic and social development goals. In the initial stages of World Bank engagement, the first priority for countries such as Bosnia-Herzegovina and Serbia-Montenegro was focused on the reconstruction effort to help foster peace and stability. With physical and social infrastructure largely restored in post-conflict countries, bank support to SE Europe is now generally aimed at helping the different countries achieve three distinct but mutually reinforcing objectives. First, fostering private sector-led growth so that the productive sectors can rapidly expand in the framework of a market economy to ensure that more resources are generated from within the region, allowing individual countries to stand on their own feet and reduce dependence on relatively high levels of past donor assistance. Second, strengthening governance to assure stable and sustained market-based economic growth consistent with the ambition of all countries in the region to join a wider Europe. Here our efforts are largely designed to help complement the efforts of the European Union and other donor countries in the stabilization and association process. Finally, World Bank support is focused on helping the authorities progressively eradicate poverty by building financially sustainable social protection systems, strengthening human capital (education, health services) and enhancing social cohesion – among and within communities – sometimes in a difficult post-conflict environment. Obviously, areas of emphasis in these three objectives vary from country to country. In Bosnia-Herzegovina a lot of our support is directed at building a single economic area and social sustainability and cohesion within the country. In the Former Yugoslav Republic of Macedonia (FYROM) – a relatively richer country – while social cohesion is obviously still important, our program is more selective and more targeted at helping citizens move down the path of association and stabilization with Europe. Why have Balkan nations lost pace compared to Central and Eastern European economies? How fast can they regain the lost ground? Obviously a key element that constrained several of the countries in SE Europe was conflict in the region with the breakup of the former Federal Republic of Yugoslavia. Other countries, like Albania, simply had a very low starting point, being one of the poorest in Europe. The faster these countries can make the transition to market economies, the quicker they will make up for lost ground. This means sustained and whole-hearted reform across a wide spectrum of issues. Often this means confronting well-entrenched vested interests that are less willing to adapt to the rigors of a competitive market. But in our region, it also means overcoming resistance by certain communities to work together toward a common objective. Fortunately, the objective of economic integration with Europe is a powerful incentive to many communities in overcoming political differences and divisions. Forging cooperation What are the main challenges ahead for the countries in the region? I think you can see some of the key challenges that I have laid out in my answers above, but let me say that in addressing these challenges, most of my colleagues and I are increasingly convinced that a regional approach to development is critical to equitable growth throughout SE Europe. Furthermore, the countries themselves are increasingly seeing the benefits of working together on a number of different issues. For example, they have recently signed a memorandum to develop an efficient electricity market in the region, and a similar agreement to coordinate reform in the transport sector is expected to be signed soon. There are many other areas where they can mutually reinforce each other, such as in the management of the environment and water resources and in harmonizing institutional reforms for investment, compatible with EU requirements. The challenge of working together within the region is a big one but there are many positive signs that it is happening. How does ethnic conflict and corruption interfere with the work of the World Bank in the region and how does the bank ensure that assistance makes it through to the intended recipients? Obviously, it is more difficult to work in a region if there are tensions between groups. But there are many encouraging signs: In Bosnia nearly 1 million refugees and internally displaced persons have returned, and a sizable proportion of these are minority members. With regard to Kosovo, the October 14 talks in Vienna represented an important start to the dialogue between the different groups. Of course, more needs to be achieved in the area of conflict – but the progress is considerable. Turning to corruption, in countries like those of SE Europe which have weak, albeit improving, governance frameworks, we make special efforts to ensure that the bank-supported programs do benefit the intended recipients. As a result we have taken substantial measures to «ring-fence» our investment operations – which are normally implemented by Project Implementation Units with high-caliber staff – to help ensure a high level of fiduciary integrity in World Bank-supported operations, particularly with regard to procurement and financial management issues. Nevertheless, on some occasions when we have reports of fraud and corruption in some bank-supported projects, we work closely with the local authorities – supported by our own in-house fraud and corruption unit – on appropriate follow-up action. We take this matter very seriously. Nevertheless the «ring-fenced» approach is not a long-term solution for our lending. The long-term solution is for countries to have their own good governance systems in place and fully operational. To this end, we support a number of programs to strengthen transparency in public administration and corporate governance, including the setting up of modern treasury systems and independent audit agencies, while underpinning government and civil society in the implementation of open and transparent anti-corruption action plans covering many different issues, from anti-money laundering legislation and actions to the public dissemination of budgets. As with many developing countries, SE European nations still have some way to go toward strengthening their own systems. What is Greece’s role in the reconstruction of the region? How can the Greek government and the private sector help more? Greece is an important economic force in the region and the Greek private sector is making a positive difference in development and growth. Greece has a good understanding of the area through its shared history and cultural interaction, and strong political and trade linkages. The Greek government’s strategy of pursuing a positive growth agenda in the area has win-win implications for Greece and the other countries in the Balkans. For example, one clearly sees the constructive impact of the Greek EU presidency throughout Europe. The meeting on the western Balkans last week in Venice and the pledges from international organizations to finance the Thessaloniki agenda are clear demonstrations of the leadership position Greece is enjoying in the region. In addition, the Hellenic Plan for the Economic Reconstruction of the Balkans could be an important source of grant funding at a time when the demand for international financial resources are great. The World Bank is looking forward to collaborating with the Greek authorities on the program and building upon the strong partnership we have developed over the years. For instance, this past May the World Bank and the Greek government co-sponsored a regional conference on cross-boundary waterways. The Greek private sector can also play a key and constructive role, similar to the overall perceptions of the role of the government. I understand several thousand Greek companies have invested about 3 billion euros in the region, yet it must be noted that they occasionally behave less than responsibly – looking for a quick return that in the end can harm longer-term relations, prospects and long-term profits. Fortunately for the Balkans and for Greece, such an attitude is not very widespread.