[abe-forum] News: Treasury Secretary Summers on Kosovo Economy (fwd)

[Mentor Cana]

              *** Albanian Business and Economics Forum ***


Text: Treasury Secretary Summer's Press Conference, Brussels
(7/13: Key is to establish functioning economy in Kosovo)

Brussels -- In a press conference following the meeting of the High-Level
Steering Group July 13, U.S. Treasury Secretary Lawrence H. Summers said
that once basic health care and other forms of humanitarian assistance were
provided to the people of Kosovo, "what was really important was to
establish a basis for a functioning economy."

"That means suitable currency arrangements, that means a capacity to
mobilize revenues, that means a payment system that is not subject to Serb
interference ... that means establishing the basis for enforcing contracts
to create a basis for private sector exchange," he said.

Summers later explained in response to a question that by "currency
arrangements" he did not mean a "new currency," but rather "procedures for
allowing existing currencies to circulate in the area."

The High-Level Steering Group is composed of finance ministers and officials
from the European Union and World Bank. Its purpose, according to Summers,
is not only the "mobilization of funds" but, more importantly, "the question
of pursuing an economic strategy and identifying an economic strategy both
for Kosovo and for Southeastern Europe."

Summers said he was "very pleased with the meeting and, more importantly,
with the framework that I think is being established for assistance to
Southeastern Europe in general and Kosovo in particular."

Regarding the question of aid for Yugoslavia, Summers said there was "a
clear commitment to provide support as rapidly as feasible for Montenegro."

Aid to Serbia, however, will depend on whether Yugoslav President Slobodan
Milosevic goes or stays.  Summers said there was a consensus in the Steering
Group "on the importance of presenting the people of Serbia with a clear
choice between substantial efforts to promote economic expansion and a
return to economic normalcy, after Mr. Milosevic goes, with an assistance
program that would be limited to humanitarian assistance only ... in a
context where Mr. Milosevic remained."

Europeans "will take the leading role and be clearly the leading providers
of finance," Summers said.  "But we've made it clear that we also are
prepared to play a role as we already have with respect to humanitarian
assistance."

Past experience has shown that complex situations such as in Southeastern
Europe must be carefully monitored, particularly how assistance is used,
Summers said.  "The constraint is often the capacity to implement projects
rather than the quantity of finance that is available. And so it's very
important to focus on helping to develop the capacity to implement
projects," including issues such as currency arrangements and the capacity
to collect taxes.

Following is the unofficial text:

(begin text)

Secretary Lawrence Summers' Press Conference in Brussels
July 13, 1999

Secretary Summers:

Thanks very much for coming. What I want to talk primarily about is the
meeting of the high-level Steering Group. You all will have seen the
statement that came out of it. I was very pleased with the meeting and, more
importantly, with the framework that I think is being established for
assistance to Southeastern Europe in general and Kosovo in particular.

I think there were four significant things that came out of our discussions
this morning. The first was a clear commitment by the Finance Ministers to
function along with the EU and the World Bank as a steering group for the
assistance effort to Kosovo and Southeastern Europe, both with respect to
the mobilization of funds, and what I think is in many ways an even more
important issue, the question of pursuing an economic strategy and
identifying an economic strategy both for Kosovo and for Southeastern
Europe.

In terms of our discussion of Kosovo, I think that there was very much an
awareness that what one had to begin -- a crucial initial priority -- was
providing relief of the most basic sort, basic health care and other forms
of humanitarian assistance; that what was really important was to establish
a basis for a functioning economy. That means suitable currency
arrangements, that means a capacity to mobilize revenues, that means a
payment system that is not subject to Serb interference, as the payment
system in the Kosovo region has been for the last decade, that means
establishing the basis for enforcing contracts to create a basis for private
sector exchange.

I think we all discussed the experiences -- and of course, each situation is
different -- but we all discussed the experiences in Bosnia and in West
Bank/Gaza, and out of those discussions came, I think, a sense of the
importance of assistance, that the importance of developing alongside
assistance an appropriate and effective implementation framework, and one in
particular that would reduce risks of corruption.

Third, we talked about the general challenge with respect to Southeastern
Europe, and of course the ending of the military phase of the conflict
somewhat earlier than was expected at one point, and the more rapid return
of the refugees, [which] has meant that some of the economic assistance
needs and financing gaps may be somewhat smaller than had initially been
feared.

But our focus in the discussions on Southeastern Europe was on the question
of regional integration. I was gratified by the consensus that was formed --
particularly among the European representatives -- on the importance, not
just of intra-regional integration, but also inter-regional integration. It
was recognized that the large market -- the large magnet -- was the European
Union itself, and it was recognized that, as Southeastern Europe integrated
with all of Europe, it would by nature, ipso facto, become more integrated
among the different countries. And so while the discussion was certainly not
anywhere near the question of dates for entry into EU, or anything of that
kind, I think there was a clear commitment to promote inter-regional
integration, and integration of Southeastern Europe with the European Union
-- which I think was generally felt to be really the most important thing
for Southeastern Europe's economic expansion. We also talked about
intra-regional integration, and references were made to the importance of
studying and identifying the highest priority: intra-regional projects --
bridges, airports, and the like.

Finally, we discussed the situation of Serbia and of Montenegro, and there
was I think a clear commitment to provide support as rapidly as feasible for
Montenegro. And I think there was a consensus on the importance of
presenting the people of Serbia with a clear choice between substantial
efforts to promote economic expansion and a return to economic normalcy --
after Mr. Milosevic goes -- with an assistance program that would be limited
to humanitarian assistance only with respect to the most basic and urgent
human needs in a context where Mr. Milosevic remained.

That's obviously something we've been talking about, a question that has
been under discussion for some time. All in all, I thought it was a very
useful discussion of what is going to be a continuing challenge for us all.
Having created physical security, if that physical security is going to
endure in Kosovo and beyond, what's crucial is that we create economic
security. That was really the challenge of this meeting.

I also had an opportunity to have a number of bilateral meetings with
[German Finance] Minister Eichel, with [UK Finance Minister] Gordon Brown,
and with President-elect [Romano] Prodi of the European Union...  We
discussed the issues that I have just been talking about. We also discussed
-- I think we're very 'in sync' on the importance of maintaining growth in
both Europe and the United States for the health of the global economy, and
we're very much in accord on the importance of taking forward the work of
the Cologne Summit on questions like debt relief, on questions of
international financial architecture, as we move towards the IMF/World Bank
annual meetings in September.

Let me stop there.  Questions?

Question: In your fourth point, you talked about the importance of ensuring
(inaudible) to Montenegro, while limiting aid to humanitarian while Mr.
Milosevic remains in power in Yugoslavia. What would be the mechanics of
providing aid to Montenegro given that it remains part of this federation
with Serbia?

Summers: Well, it's obviously something which will have to be worked out in
detail but, presumably by working through NGOs, by providing assistance
directly to particular institutions, within Montenegro, it should be
possible to target assistance. Certainly with respect to Montenegro, as with
respect to Kosovo, the task of assistance would be easier if and when Serbia
rejoins the community of lawful nations.

Question: How will the Serbian people be made aware of this choice they'll
have to make between keeping Milosevic versus dumping him and getting aid,
given the controls on the media in Serbia?

Summers: That's not a question that we as Finance Ministries discussed
today. I think the policy line has been a constant one, and I think there is
a growing awareness of that policy line, including the President's recent
press conference, and I think that awareness is coming to Serbia.

Question: Mr. Secretary, has there been any movement on deciding what kind
of currency will operate in Kosovo with the (inaudible) monetary policy?

Summers: There was a discussion of the importance of satisfactory currency
arrangements, but .... there was not an effort, at this meeting, to reach a
decision on the exact structure. I would anticipate that in the near term,
you would see European currency -- you'd see hard, convertible European
currencies circulate in parallel perhaps with Yugoslav dinars.

Question: I am struck by the contrast in tone in your presentation and that
of this morning -- in that, this morning, the Europeans seemed to be
speaking very little about the process of institution-building, there was no
reference to the idea of perhaps, some kind of new currency, and I am
wondering just how far along these discussions really go, in terms of the
longer-term issues of building up institutions and building up, you know, an
economic structure in Kosovo...

Summers: I did not say a new currency. I said there was an agreement on the
importance of having satisfactory currency and payment arrangements...and
that that was a crucial issue that was going to have to be addressed quite
quickly. And then I speculated that I thought for the near-term, the most
likely arrangements would involve allowing hard currency to circulate
freely, creating payments and clearing mechanisms for hard currency, without
precluding the use of Yugoslav dinars or other currencies.

Question (continued): That was where my question was heading: if you don't
have a separate country, the minute you start talking about a new currency
(inaudible) it seems to me that..

Summers: ...but that's why there is no -- I mean I don't think that at least
any of the near-term discussions contemplate the development of a new
currency.  They involve procedures for allowing existing currencies to
circulate in this area....

Question: A more basic question: the presentation this morning or the news
conference this morning seemed to be, to my mind at least, focused much more
on these questions of getting essential relief to figuring out what the
damage assessment were, what the reconstruction bills were going to be and
so forth, and much less on the question of institution-building. It was
alluded to, but it was not --

Summers: You know, different people have different views. Clearly, the next
stage in the work is going to be for teams from the various international
financial institutions to go to Kosovo, and make various kinds of needs
assessments, to anticipate, there will be a donors conference that will both
look at those needs assessments and also look at questions of
implementations - and so I think that -- obviously, you're going to have a
situation where you're going to be assessing the needs and you're going to
be arranging for the external support, but I think it's also very much the
Finance Ministers' view that the lessons we had learned from the previous
experiences did go also to the importance of effective implementation. But I
didn't mean to minimize the fact that there is a basic process of assessing
needs and arranging for external finance to correspond to these needs
because, clearly there are needs that can be met only through external
finance.

Question: (inaudible)....the current European currency...

Summers: I don't think there was... in the discussion. I think the Europeans
made clear what had come out of the discussions they have had yesterday,
their commitment to a sound currency, the belief in the importance of
strengthening the fundamentals of the European economy.

Question: Yesterday, you reviewed the U.S. dollar policy and, over the past
couple of days particularly Germans and Mr. Prodi have made comments that
have led people to believe that they don't particularly mind the Euro
weakening; is there any concern among the G-7 Ministers that there is any
kind of problem with the Euro weakening?

Summers: I'd rather leave it where I did.  I think the feeling is the right
focus is on the fundamentals for our economies, and I think it is understood
in Europe that in terms of focusing on fundamentals, the need is to focus on
stimulating domestic demand, and that energy for an acceleration in growth
in Europe should come from domestic demand rather than any artificial effort
to increase competitiveness -- I think that it is certainly something that
feels to me like it's understood, it is the view quite widely in Europe...

Question: Would it be wrong to hold the view that the Ministers do not
oppose a weaker Euro?

Summers: I think there were too many negatives in that sentence (do not
oppose) for me on the number of hours of sleep I had to attempt to parse
that sentence -- I think I'll leave it where I did.

Question: On Kosovo, there was a lot of grand talk about the time of the EU
Cologne Summit where the peace was reached that this was going to be a
European peace, it was going to be a European-led peace -- the implications
was the Europeans would pay for peace. Do you sense they are backing off
(inaudible)... large share of the cost... Europeans are getting more
cautious about what they might be willing to spend?

Summers: This was a planning session, not a pledging session and I would say
that it's our expectation [and] I think the European expectation that they
will. This after all, is an issue on European soil. I think that it is their
expectation that they will take the leading role and be clearly the leading
providers of finance. But we've made it clear that we also are prepared to
play a role as we already have with respect to humanitarian assistance; I
think we'll have to see where we are when the needs are assessed because I
think at this point there are very large uncertainties as to the magnitude
of the needs.

Question: (inaudible)

Summers: We continue to watch the Japanese economy carefully and to believe
that what's most important for Japan is the restoration of domestic
demand-led growth and it is important that the basis for growth be firmly
established. I may leave it at that...

Question: You said you and your colleagues on the Steering Committee had
reviewed the Bosnian and West Bank experiences. What lessons do you draw
(inaudible)... What has been done wrong then that has to be done differently
now --

Summers: I would not put it in quite that way. I think that our sense was
that one has to monitor these kinds of complex situations very carefully --
how assistance is used -- and to supervise its use in a very careful and
thorough way and that the constraint is often the capacity to implement
projects rather than the quantity of finance that is available. And so it's
very important to focus on helping to develop the capacity to implement
projects, which takes you back to some of the issues that I referred to in
terms of currency arrangements and terms of the capacity to collect taxes
and so forth.

Thank you.

(end transcript)

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Listen to statements from U.S. Officials regarding 'Operation Joint Guardian' at
http://www.usia.gov/regional/eur/balkans/kosovo/audio.htm