Kosovo has become a household name, out of proportion with
its reality as a poor, stamp-sized new country of two million
people nestled in the Balkans. Formerly a neglected province in
Titos Yugoslavia, it rose to notoriety when Serbia made
it a battered ethnic Albanian enclave, its population excluded
from public life by the Belgrade government.
Things looked up after Nato intervened militarily in 1998: a
UN mission took charge for a decade, and in February 2008,
Kosovo declared independence with the blessing of the US and
most of the EU.
Since then, the Republic of Kosovo has been taking shape. It
has adopted a constitution and holds regular elections; it
became a member of the IMF and the World Bank and has
established significant international relations. Kosovo has the
makings of a country, and much has gone well since
independence. Fears of violence and unrest following
independence did not materialize and the country has largely
stabilized and begun the process of institutionalization.
But its international status is still an issue. After
recognition by some 60 or so states, the only acknowledgements
of its right to exist over the past six months have come from
Malawi, Mauritania, Swaziland and Vanuatu. China and Russia
remain aligned with Serbia against its recognition, their veto
power dashing any prospects for Kosovos UN membership and
its benefits (including its own telephone country code, airport
code, and Fifa football team).
And even though independence is generally considered
irreversible, a pronouncement by the International Court of
Justice still clouds the issue of its legitimacy.
Belgrades opposition and that of Kosovos own
Serbian minority also remain a concern. Even UN
secretary-general Ban Ki-moon recently expressed worries over
the rising violence in these Serbian-populated areas, where
Kosovo hardly has any control and organized crime thrives.
But the main remaining worries are Kosovos
institutional progress and economic viability independent of
A DIFFICULT TRANSITION
Pieter Feith, EU special representative and international
civilian representative, is one of the protagonists of
Kosovos rebuilding. Despite its progress, Feith recently
noted that Kosovos transition from the present to a
European future is fraught with numerous challenges... the
fight against organized crime and corruption, revamping the
judicial system and ensuring full accountability of public
According to Marko Prelec, Balkans project director with the
International Crisis Group: Its almost as if there
were no functional civil law system. He says the roots of
the problem go back to the nine years that the UN
administered Kosovo, and further back to the last decade of
Serb rule, during which Kosovars were shut out.
Now the country has to build itself from scratch: unlike
other post-Yugoslav countries, Kosovo did not enjoy the option
of coopting existing institutions.
Andrea Capussela, head of the Economic and Fiscal Affairs
Unit of the International Civilian Office, says:
Kosovos institutions are young and relatively
inefficient, but they are stable, and there is broad political
consensus on the main tenets of an economic system based on the
Compared to other countries in transition, Kosovo is
freer to design more efficient institutions. With determined
political will, considerable improvements are
Some international institutions have started to scale
down. Asked by Emerging Markets about plans for their
withdrawal, prime minister Hashim Thaci forecast that it will
take place at the right time. Nato, however, said
recently that current conditions do not warrant troop
reduction. Meanwhile, white UN jeeps and KFOR military vehicles
to this day share the road with sputtering eastern bloc cars
and the sedans of the EU bodies. At Pristinas traditional
Balkan restaurants, fine European bureaucratic suits and
Nato-country military uniforms share space with the local
political high ranks. For their part, US marines broadcast a
television show combining American pop songs and entreaties to
The complex dynamics between a fledgling government and
international institutions bring numerous challenges. To this
day, the multiplicity of actors has kept Kosovos weak
institutions in an unweaned limbo.
Merita Mustafa, programme manager for the Kosovo Democracy
Institutes Transparency and Corruption Program, says the
assortment of institutions makes it possible for accusations of
corruption and blame to be passed around something that
could be avoided if the national government had ultimate
Kosovos economy and finance minister Ahmet Shala
tells Emerging Markets that the proliferation of
international entities involved in rebuilding Kosovo has at
times even impeded growth. The countrys effort to please
everybody, says Shala, has created at least a one-year
delay for the harmonization of opinion of different
stakeholders at the global level for Kosovo
Recriminations aside, Kosovo must start building. And fast.
Shala believes the strengthening of the institutional
infrastructure will follow economic development, rather than be
a precondition for it. This is kind of a chicken and egg
game, he says. The rule of law is important, but it
will come as an effective tool only when the economic
development is in place.
Others disagree on the priorities. Weak administrative
capacity is a problem in Kosovo and is an obstacle to economic
growth, says Capussela of the International Civilian
Leke Musa, chief executive director of the American Chamber
of Commerce in Kosovo, points to investors lack of
exuberance toward Kosovos business environment.
Government officials and agencies are still not up to a
level that you could consider that they are business
friendly, says Musa. The countrys leaders are
not doing what they should be doing to foster the proper
Shala recognizes that the business climate is not at
the level where everybody would want it to be, but within two
years we have achieved a lot.
There is no doubt, however, that the current situation has
taken its toll. According to a draft report from the
Pristina-based Foreign Policy Club: High levels of
corruption, noted as ubiquitous in each report presented to
date, ultimately damage Kosovos chances to be considered
an attractive environment for business development... Kosovo is
lagging behind with its offer to serious potential investors
when compared to the region.
In other words: corruption is everywhere and, to this day,
there is little evidence of any concrete steps to improve this
scenario. Prelec says corruption was not seen as a
priority by the government. There was a substantial current of
opinion in the Kosovo political elite as a whole that was
comfortable with an unregulated environment and a weak and
non-functioning set of legal institutions.
Nevertheless, Prime Minister Thaci is adamant that
corruption has been properly tackled and insists on downplaying
its extent. In an interview with Emerging Markets he
repeatedly emphasizes his approach of zero
tolerance toward corruption one that few but he
appear to have noticed.
Kosovo is a country of transparency and the rule of
law. In this regard, I am very determined. There will continue
to be full transparency; there will be full respect for the
law, says Thaci.
Prelec says the government cannot be held solely to blame
for slow progress. We have to give Thaci the benefit of
the doubt, he says, as reforms have started to happen.
He is moving quite quickly... he is acting in the way
that a prime minister who is serious about this would act.
Hes doing what you would expect.
But the question remains, say observers, why Thaci has not
done more, particularly when he is in a position to rally the
country around the notion of newly gained statehood.
Corruption has just been growing since
independence, Mustafa tells Emerging Markets.
The countrys leadership has not had the will to
fight corruption. [The leadership] is only [making
pronouncements], but in practice it is not doing anything; it
is only expanding the opportunities for corruption. The
World Bank recently concluded that most economic indicators
have worsened over the last year. Procurement without tender,
for example a sure recipe for untoward practices and
lack of transparency increased dramatically.
For the time being, judges are paid half the salary of
equivalent government employees. Salary reform, not expected
until 2013, is fundamental, not just to reduce incentives to
act corruptly, but also, says Prelec, to introduce parity
between the judicial branch and the other branches. If judges
and prosecutors are making half what others are making in the
executive branch or the legislative branch, it sends the
message that what you do is not important, dont
In a possible sign of newfound willingness within the
government to stamp out graft, Eulex, the EUs Rule of Law
Mission in Kosovo, has formally placed the countrys
transportation minister under investigation. This is a marked
departure from reports in preceding months that Thaci had
rebuffed Feiths presentation of evidence of embezzlement
in the ministry. But it could also simply represent a
concession to international pressures.
Either way, much remains to be done. The EU has its
work cut out to partner with Kosovo in combating crime and
corruption, says Feith. Even the US ambassador to
Kosovo has repeatedly emphasized that members of the political
elite cannot consider themselves above the law.
Kosovos institutional weaknesses are matched by a
frail regulatory regime and subpar infrastructure, in
particular energy, and an economy waiting for triage. In sum,
the very sustainability of the state remains at issue.
Walking around Pristina one could be forgiven for thinking
all is well. Lively bars and cafés provide the backdrop
for the young and well-heeled. But lurking around corners, the
scars of its troubled past are unavoidable a fact which
renders these pockets of comfort more reminiscent of many Latin
American capitals, where the elite gather in isolated enclaves,
than the integrated middle class of most European cities. One
in 10 Kosovars lives below the poverty line.
During the 1990s, Serbia effectively shut its ethnic
Albanian population out of institutional life, leaving as sole
educational outlet underground makeshift schools in
peoples homes. The results of exclusion are felt to this
day. Kosovos population growth the highest in
Europe further contributes to an already dire
unemployment situation, as citizens are added to the workforce
faster than jobs can be created.
The roots of Kosovos current economic woes are
numerous and their starting point tragic: there is only so much
that can be expected of a post-conflict, landlocked mountainous
land without noticeable competitive advantages. Its market is
small and its workforce not particularly distinguished. Of all
resources, the soil has been blessed with lignite, or soft
brown coal, a soon-to-be anachronistic commodity.
Kosovo imports 10 times what it exports. Even the
post-Communist silver lining of extensive state-run enterprises
has run its course, as few attractive assets remain to be
The country is still finding its place in the European
economy, Marek Belka, director of the European department
of the IMF, noted recently. Physical proximity does not equate
to European-ness: a stones throw from Mittel Europe,
Kosovo has a per capita GDP hovering around E1,700 a year
somewhere between that of Ghana and Burkina Faso.
Economically most worrisome are the dismal work prospects of
the countrys young well over one in two of whom
are out of work. And the better off among them who work for
international institutions will have to adapt to lower pay and
conditions after their generous bosses are gone.
One might think that the billions of dollars spent on
Kosovo would have compensated for some of the disadvantages and
spearheaded growth. Shala disagrees, telling Emerging
Markets that the vast majority of aid simply did not go
into the local economy: Up to 87% of the donations went
to training, technical assistance, and probably ... was pumped
back to the countries where the money came
Shala also suggests that while Kosovos marginal
involvement in international finance shielded it from the
direct impact of global financial crisis, the country was
nevertheless affected by its broad economic repercussions,
lowering the rate of growth from an estimated 67% to
slightly above 4%.
Exogenous factors aside, the government so far has proved
unable to deploy its economic tools effectively. Budgeting is
dubious, and spending flies above IMF calls for cautious fiscal
policies. The IMF forecasts a fiscal deficit of 7% of GDP
(excluding a one-off dividend income event) that
highlights the need for policy action to restore the
medium-term sustainability of public finances. It calls
on the authorities to prioritize expenditures and warns of
fiscally reckless social initiatives and civil service
The World Bank is equally nervous, and its directors
stressed the crucial need for Kosovo to reverse its
expansionary fiscal stance of 2008-2009... and the importance
of strong government commitment to institutional
Kosovos recent commitment to a $1 billion highway
project doesnt scream fiscal conservativism. While the
highway will create an important corridor through Kosovo
connecting Albania to Serbia, the public largesse aspect seems
to outweigh more practical considerations while taking care of
some political needs.
Trade with its natural partner, Serbia, is disrupted as
political bickering is put ahead of common development goals.
Even though Serbia and Kosovo are signatories of the Central
European Free Trade Agreement (Cefta), Kosovos exports to
Serbia have been stopped on a technicality (although illicit
trade flows as freely as ever between the two).
Kosovos current play for outside help places a
significant wager on the countrys possible membership in
the EBRD. Central bank governor Hashim Rexhepi had expected
membership to happen soon. The EBRD is already very
active in Kosovo, but membership would allow a more active role
in the support of the private sector, he tells
Emerging Markets. Indeed, in January EBRD president
Thomas Mirow called the possibility of Kosovos membership
an ongoing process given that there are still some EU
members that, up to now, have not recognized Kosovo as an
Membership is indeed deeply intertwined with diplomatic
recognition and is held up largely by Greece and Spain. On this
point, Shala is incensed: countries should see EBRD membership
only as a vote in favour of development and not a political
decision, he says. Hey, Greece, hey Romania, why are you
blocking Kosovos entry? Blocking that means blocking
development, and blocking development means blocking peace,
reconciliation and regional integration, he says.
Shame on us, Europeans. Its a joke that Kosovo is a
member of the IMF but is not of the EBRD.
The point is hard to dispute. Prelec, the Crisis Group
director, is equally emphatic: The only thing that can be
done by non-recognizers is to inflict additional human
suffering on the population of Kosovo, and at some point you
have to ask why this is being done.
Many of Kosovos ills are largely indicative of the
problems of recent statehood: once you have made a country,
youve got to run it. I dont think much
thought was given to that I think there very seldom
is, says Prelec.
Political adversaries that had found commonality in
the fight returned upon independence to bickering about the
practicalities of national life. I was aware of the fact
that state building and development would not be easy,
Thaci tells Emerging Markets.
Kosovo is facing a seemingly intractable set of challenges.
But hardship is a mainstay of early independence, and
resilience is ample. This is no reason to despair, concludes
Prelec. Insurmountable challenges have been surmounted
many times by many countries in the world, and I have no doubt
that it will be the same for Kosovo.