DOCUMENT A/1765

6 December 2001

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Security in the Balkans

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Document A/1765

6 December 2001

Security in the Balkans

REPORT¹

submitted on behalf of the Political Committee²
by Mr Valk, Rapporteur

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¹ Adopted unanimously by the Committee on 26 November 2001.

² Members of the Committee: Mr Marshall (Chairman); MM Behrendt, Blaauw (Vice-Chairmen); Mr Baumel, Mrs Bolognesi, Sir Sydney Chapman (Alternate: Hancock), MM Clerfayt, Dias, Mrs Durrieu, MM Ehrmann, Eyskens, Fayot, Floros, Guardans I Cambó, Haack, Hordies, Hornhues, Lord Kirkhill, Kotsonis, Lacão, Lemoine, Liapis, van der Linden, Martínez Casañ (Alternate: Arnau Navarro), Mrs Paoletti Tangheroni, Mr Piscitello, Lord Ponsonby, MM Provera, de Puig, Puche Rodríguez, Roseta, Schmitz, Sterzing, Timmermans (Alternate: Valk), Wray (Alternate: Vis), Zacchera, N...

Associate members: MM Adamczyk, Akçali, Ms Akgönenç, MM Bielecki, Eörsi, Mrs Fossli, Ms Gülek, MM Gundersen, Irtemcelik, Jaluvka, Kasal, Lobkowicz, Pálsson, Pastusiak, Pokol, Zielinski, N .. .

N.B. The names of those taking part in the vote are printed in italics.

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RECOMMENDATION 704¹

The Assembly,

(i) Considering that recent developments in other parts of the world, including the dramatic and unprecedented terrorist attacks of 11 September 2001 and the ensuing fight against international terrorism, should not affect the European Union's strategic priority of establishing and supporting peace, stability and prosperity in south-eastern Europe;

(ii) Welcoming EU efforts to support and cooperate with the countries of that region, with a view, ultimately, to their integration into the political and economic mainstream of Europe;

(iii) Welcoming the fact that both Bulgaria and Romania have made progress in their efforts to meet the economic accession criteria and already meet the relevant political criteria for accession to the European Union;

(iv) Supporting the Stability Pact for South-Eastern Europe in encouraging and strengthening cooperation between the countries of south-eastern Europe and in streamlining ongoing efforts to support their integration in the political, economic and security structures of Europe;

(v) Noting with satisfaction the admission of the Federal Republic of Yugoslavia to the Stability Pact, in October 2000, as an important step towards its integration in European structures;

(vi) Welcoming the results of the second Regional Conference for South-East Europe, held in October 2001 in Bucharest, where donors pledged the sum of 2.4 billion euros for key infrastructure projects;

(vii) Supporting the EU's policy of offering Stability and Association Agreements to south-eastern European countries and hoping that, following the footsteps of Macedonia and Croatia which signed such agreements in April and October 2001 respectively, the remaining countries - Albania, Bosnia and Herzegovina, and the Federal Republic of Yugoslavia - will make all possible efforts to qualify for this type of agreement in the near future;

(viii) Concerned that the continuing uncertainty over future relations between Montenegro and Serbia, which in practice function as separate states in most fields, is preventing efficient economic reform, acting as a deterrent to foreign investment and standing in the way of accession to key European and Atlantic structures;

(ix) Considering that Serbia must do everything in its power to implement the May 2001 Presevo peace accord, envisaging inter alia an amnesty for all Albanian rebel fighters, greater investment in the local economy and proportional representation for Albanians in the local government and police services in order to prevent further insurgency in the region;

(x) Calling upon Serbia to cooperate fully with the International Criminal Tribunal for the former Yugoslavia (ICTY) and make sure that all its state institutions comply with the implementation of this cooperative policy;

(xi) Considering that at both government and political party level Serbia's political authorities should cease to support the armed forces and those politicians in Republika Srpska seeking to hinder the state of Bosnia and Herzegovina in the exercise and expansion of its authority over its Entities;

(xii) Aware that in Serbia internal rivalries within the ruling Democratic Opposition of Serbia (DOS) coalition are currently impeding the economic, social and judicial reforms required by foreign and international donors and which Serbia itself needs;

(xiii) Worried that more than six years after the entry into force of the Dayton Peace Agreement, extremist nationalists still attract widespread popular support in Bosnia and Herzegovina, enabling them to a large extent to frustrate efforts towards state building, notwithstanding the victory in the November 2000 elections of the non-nationalist Alliance for Change at both central government and Federation level;

(xiv) Concerned in particular that the extremist nationalist Serb Democratic Party (SDS), which became a de facto coalition partner in the Republika Srpska Government after its victory in the November 2000 legislative elections, is preventing the adoption of essential laws to reform the economy, obstructing the privatisation of profitable government-controlled companies currently being run improperly and resisting effective cooperation between Republika Srpska and the ICTY, while at state level too, together with its allies, it has consistently sought to block legislation considered of vital importance to the country's functioning;

(xv) Considering it somewhat anomalous that the new government of Serbia was forced to extradite ex-President Milosevic to the ICTY in The Hague a few months after his fall from power, under pain of not being able to obtain funds for the reconstruction of Serbia from essential donors, while Radovan Karadzic and Ratko Mladic, indicted war criminals, who are still at large and under protection within Republika Srpska, more than six years after their forced withdrawal from power, and the same foreign donors continue to bail out this virtually bankrupt Entity where nationalist forces are still apparently in control;

(xvi) Noting that the other nationalist parties in Bosnia and Herzegovina, the Croat Democratic Union (HDZ) and the Bosnian Party of Democratic Action have elected or re-elected hardliners to positions of leadership, who are now using their power to pursue policies of ethnic hatred and exploitation of the Entities resources, for their own political purposes;

(xvii) Aware that progress has been made in the return of refugees and displaced persons to their former homes in Bosnia and Herzegovina, but that many related problems still remain to be solved such as the appropriate application of property law and prevention of the continuing, all too frequent ethnic violence against returnees;

(xviii) Considering that under the abovementioned circumstances there can be no doubt that the maintenance of a SFOR presence remains crucial to the continuance of a safe and secure environment conducive to the further implementation of the Dayton Peace Agreement;

(xix) Welcoming the positive trend towards greater political stability in Albania, as confirmed by the June/July 2001 general elections, but regretting that Sali Berisha and his Democratic Party are persisting in their strategy of boycotting the legislative process;

(xx) Calling upon Albania's Democratic Party to accept its defeat in the 2001 legislative elections and participate fully in the democratic process, as this is essential for Albania's integration in the Euro-Atlantic structures;

(xxi) Welcoming the adoption by the national parliament of the Former Yugoslav Republic of Macedonia², of the constitutional amendments as set out in the Ohrid Agreement, and calling upon all political parties in the country to concentrate on making a genuine cooperative effort to implement the amended Constitution;

(xxii) Considering that the continuing activities of armed ethnic Albanian extremists are undermining the implementation of the Ohrid Agreement;

(xxiii) Calling upon the Macedonian Government to show the greatest possible restraint in the use of violence in sensitive areas of the country;

(xxiv) Recognising that the 17 November Assembly elections in Kosovo were a significant step towards building a democratic society based on human rights and the rule of law;

(xxv) Concerned, however, that efforts within the new structures for provisional self-government may be directed towards establishing an independent Kosovo, while neglecting other issues which are far more important to the citizens of Kosovo, such as the development of a viable economy, the fight against crime and corruption, the return of refugees and displaced persons, good relations with neighbouring countries and the improvement of the healthcare and educational systems,

Invite the governments of the WEU countries, in particular those which are members of the EU or NATO:

1. To make their aid and assistance to Bosnia and Herzegovina and its Entities, in particular Republika Srpska, strictly contingent upon on the adoption and implementation of:

2. To ensure that SFOR discharges its responsibilities in Republika Srpska, in the same way as it has done in the Federation, by apprehending Radovan Karadzic and Ratko Mladic and handing them over for trial before the ICTY in The Hague;
3. To continue their support for the missions of SFOR in Bosnia and Herzegovina, KFOR in Kosovo and Amber Fox in the Former Yugoslav Republic of Macedonia, which will all remain essential in the foreseeable future for the maintenance of peace and security in that area;
4. To start preparations for the organisation of a "Balkan Conference" on the future of the nations and states of south-eastern Europe, for which every relevant issue will be placed on the agenda.

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EXPLANATORY MEMORANDUM

1. Introduction

1. Serbia and Montenegro are the constituent republics of the Federal Republic of Yugoslavia (FRY), the state in the heart of the Balkans which for the last decade has been the weak link in terms of regional stability and security. Indeed, the recent period has been marked by four regional wars, numerous NATO operations and the displacement and exodus of at least 1.5 million people. The issue of minorities - the major problem facing former Yugoslavia since the demise of communism - was a determining factor in the international community's policy in the Balkans and for the expansion of Serb nationalism under Slobodan Milosevic.
2. The report on "the implementation of the Stability Pact for South-Eastern Europe" stated that "there would be a dramatic improvement in the conditions conducive to peace and stability in south-eastern Europe if Milosevic's regime was replaced by a democratic and more open-minded government, as this would bring to an end the total isolation in which the country finds itself at present"³. Recent events have not only proven that analysis to be correct, but have further shown the need for the present federal government to take a single and consistent political line so that the new political forces are seen to be unanimous and credible. This is a complex task, because Yugoslavia⁴ today is confronted with three major challenges: the transition to democracy, economic development and restructuring the Federation itself.

2. The transition to democracy

3. The process of change started in July 2000 with an amendment to the Federal Constitution designed to allow Milosevic to stand for another four-year term as President. He was beaten in the first round of the presidential elections by the candidate for the Democratic Opposition of Serbia (DOS), Mr Kostunica. Following the elections on 23 September 2000, a coalition government was formed at federal level between the SNP (Socialist People's Party of Montenegro) and the DOS. The DOS coalition is composed of 18 parties opposed to Milosevic. Its rival, the SNP, is a pro-Yugoslav party opposed to independence for Montenegro. Once the political change had been consolidated, two competing forces emerged within the DOS: one led by the Federal President, Mr Kostunica⁵, the other by the Serb Prime Minister, Mr Djindjic⁶, leader of the DOS coalition. The differences between these two figures came clearly to the fore in connection with the handover of Slobodan Milosevic for trial by the International Criminal Tribunal for the former Yugoslavia⁷ (ICTY) in The Hague.
4. The Federal Government had been under constant pressure to extradite Milosevic from the moment of his imprisonment on embezzlement and corruption charges. His extradition led to the release of US$ 50 million in aid from the United States, while removing the risk of a US veto on possible IMF funding for Yugoslavia. The United States, when granting that aid, had made it clear that its support at the International Donors' Conference of 29 June 2001 was contingent upon Milosevic's extradition for trial to the ICTY. Furthermore, the High Representative for the Common Foreign and Security Policy, Mr Solana, had confirmed in Brussels in February that the EU was committed to supporting economic reconstruction. The granting of a US$ 1.28 billion loan was, however, linked to the prior adoption of legislation which would allow the extradition of Milosevic to the ICTY⁸. If the United States did not participate in the International Donors' Conference, international financial institutions such as the World Bank and the IMF⁹ would certainly also withdraw.
5. The issue of Milosevic's extradition to the ICTY became a bone of contention between the reformists on the one hand, and the supporters of President Kostunica's conservative political line on the other. Neither the Federal President, nor the Prime Minister, Zoran Zizic, were opposed to cooperation between the FRY and the ICTY, but they took the view that Milosevic should first be tried under national law. The legal dispute was due to the fact that the Yugoslav authorities had accused Milosevic of embezzlement of public funds and the elimination of political opponents, for which the sentence could have been much less severe. Furthermore, if Milosevic was not extradited, there was a hope that his contacts could be traced and his accomplices pursued. It should be noted that popular protest against the arrest of Milosevic remained fairly limited¹⁰.
6. On 18 June 2001 the extradition issue had still not been resolved and the United States had not confirmed its participation in the International Donors' Conference. President Kostunica had asked the SNP¹¹, through his Democratic Party of Serbia (DSS), to vote, in the interests of the country, in favour of the law authorising Milosevic's extradition. Given the complexity of the situation, the DOS proposed voting a federal decree mentioning the FRY's cooperation with the ICTY and enabling Milosevic to be extradited and tried, using the argument that international law took primacy over national law.
7. Two complaints were filed with the Yugoslav Constitutional Court, which had to rule on whether or not the decree itself was constitutional. The impartiality of the Court was open to question, given that the appointment of its judges had been approved by Milosevic himself. The Court finally ruled that the decree was anti-constitutional, provoking a strong reaction from the Serb Prime Minister, Mr Djindjic, who publicly announced that an extraordinary meeting of the government of Serbia would be convened. 21 out of 23 cabinet members¹² signed the official document authorising the handover of Milosevic to the ICTY. They were able to get round a strict application of the national legislation by claiming that this decision was in the national interest. President Kostunica, on hearing of the transfer of the former head of state to The Hague, claimed not to have been given prior notice of the decision and withdrew his party (DSS) from the DOS parliamentary group, without, however, leaving the coalition. It would seem, nevertheless, that this extradition of a former head of state to an international court marked the beginning of a new chapter in international case-law. Once again, by judiciously putting economic pressure on a country - offering economic assistance as an incentive - it was possible to achieve progress on the political front.
8. On 29 June 2001 the political situation was destabilised by the resignation of Mr Zizic and several other members of the SNP. The DOS was obliged to seek a coalition with the SNP, which thus found itself a key player, since it had the difficult task of maintaining a balance between the DOS and the pro-Milosevic parties.
9. The International Donors' Conference, which was attended by 42 donor countries and 25 international organisations, was held in Brussels on 29 June 2001. The participants undertook to abide by their commitment to support economic reform¹³ and voted in favour of a US$ 1.28 billion loan, a sum which was higher than that initially envisaged.

3. The economic situation in Serbia and the restructuring of the Federation

10. Political instability, the absence of regulatory bodies, a largely discredited system of public administration and inefficient economic structures inherited from the socialist period, mean that the country has to rely on foreign aid for its economic growth. The funds provided by financial institutions are for the moment being used to reimburse government loans and honour other commitments, such as farmers' pay and electricity subsidies¹⁴. International aid is devoted exclusively to meeting the country's financial commitments, leaving no margin for investment programmes. The amount of aid will under no circumstances exceed that granted to other countries of the region in similar situations, which means that the institutional reforms will take longer to implement than initially envisaged. However, given that its main markets are in central and eastern Europe, which is not so affected by the latest downturn, the country is less hard hit by the current economic recession.
11. The real scourge afflicting the country is poverty. According to UN estimates, 12% of the Serb population is below the poverty line¹⁵. According to World Bank estimates, the unemployment rate is close to 45% and in some regions is as high as 60%. At the beginning of 2001 the Yugoslav national bank introduced floating exchange rates with a base rate of 30 dinars to 1 DM and a 5% margin of intervention¹⁶.
12. One of the government's top economic priorities is its relations with international financial institutions. The international aid voted following the June 2001 donors' conference was aimed at three main areas: management of taxation, development of the private sector and the creation of a sound social security system. The IMF has approved a US$ 249 million standby credit over ten months in support of the government's economic programme¹⁷. The macro-financial assistance proposed by the European Union totals 300 million euros. However, much of the funds are to be used for the repayment of arrears of the loans contracted during the 1980s with the European Investment Bank¹⁸, reducing the effectiveness of that aid.
13. Since spring 2001, the federal government has been negotiating a rescheduling of the country's external debt. Those negotiations, with the Paris Club and the London Club in particular, should lead to a considerable alleviation of the US$ 6.9 billion debt incurred by the country's failure to make interest payments. Experts evaluate GNP growth at 5-6% for the period 2001-2002, inflation should go down in 2002 and stabilise at 20%, compared with a current rate of 120%. The fall in investments has led to a slowdown in the building sector, but it is hoped that the ongoing programmes will boost investors' confidence over the coming period.
14. A second international donors' conference was held in Bucharest on 25-26 October 2001¹⁹ in connection with the Stability Pact for South-Eastern Europe. It was co-chaired by the European Union and the World Bank, and brought together all the countries of the region²⁰. Issues on the agenda were: multinational cooperation and mutual assistance, promoting reform, poverty and unemployment. The conference dealt with problems pertaining to the private sector and improving conditions for foreign investors, which should help speed up the process of Yugoslavia's accession to Euro-Atlantic structures.
15. Industry is lagging behind considerably due to the decline in domestic demand and the lack of investment and equipment renewal. GNP growth depends to a large extent on international aid and on developing the agricultural, services and communications sectors²¹. A privatisation law adopted in June 2001 makes provision for the sell-off of 4 000 public companies over a four-year period. A small part of that project will be supervised by the World Bank.
16. The country is involved in active customs tariff negotiations with its neighbours and is party to an agreement on the creation of a free trade area. It took a major step forward in June 2001 when it signed an agreement on the division of the assets of the former Yugoslavia among the successor states²². In return it was allowed to rejoin the United Nations. It is now a member of the OSCE, the IMF and the EBRD. In July 2001 an EU-FRY advisory task force was set up. This technical working group is co-chaired by the country holding the EU Council Presidency, the Commission and representatives of the FRY. It forms part of the community stabilisation and association process, the aim of which is to support economic and political reform in potential EU candidate countries. At its inaugural meeting it addressed the process of reform in the FRY, focussing in particular on the economic and political conditions laid down by the EU, before turning to detailed discussions of the priority areas for reform, namely, taxation, the banking sector, trade and statistics²³.
17. The economic sanctions imposed by the United States in order to isolate the Milosevic regime are now being relaxed²⁴. The UN Security Council is likely to lift the armaments embargo that has been in place since 1998. On 9 October 2000, the EU lifted the oil embargo, the ban on commercial flights and the sanctions on trade and investment. However, the ban on issuing visas to former members of Milosevic's government, and to his cronies and economic partners, is being upheld²⁵. Finally, it is extremely important for the EU member states and all other countries in the Danube Basin to concentrate their efforts on fully restoring the navigability of the Danube river at the earliest possible opportunity, given that this is vital for the economic, social and cultural reconstruction of the region.

4. Montenegro

18. The situation in Montenegro is somewhat complex. The Republic of Montenegro, which in practice has not participated for years in the federal government, is pursuing a policy of independence under the leadership of President Milo Djukanovic. While legally Montenegro is represented in the federal institutions, in practice, since Mr Djukanovic took office in 1997, Montenegro has refused to recognise the division of powers at federal level and the legitimacy of the federal government. Since 1998 the parties in power have refused to participate in the federal government. The pro-Yugoslav Montenegrin party, the SNP, therefore serves as a link at federal level, putting forward candidates for the post of prime minister or ministerial offices. However, the party's status as a go-between does not allow it to discharge its responsibilities on behalf of Montenegro as a constituent republic.
19. The 22 April 2001 general elections²⁶, the immediate result of which was to check the Montenegrin drive for independence, were disappointing for the coalition in power. Indeed, the "Montenegro Will Win" coalition composed of the Democratic Socialist Party (DSP) and the Social Democratic Party (SDP) won 42% of the vote. In order to strengthen its narrow margin it was obliged to call on Miodrag Zivkovic's Liberal Alliance (LSCG), a strongly pro-independence party with six seats in parliament. The LSCG had the tricky role of maintaining the balance of power between the coalition and the SNP. The LSCG, conscious of its importance, played the double game of allying itself with the coalition led by Mr Djukanovic, while ensuring that it had the support of the "Together for Yugoslavia" coalition²⁷ in the event of the formation of a pro-Yugoslav government with a pro-independence minority. The LSCG agreed to cooperate with "Montenegro Will Win", but only at a price which was unacceptable to the coalition²⁸. After a great deal of procrastination, the LSCG agreed to join the coalition on a single condition: that a referendum on independence be organised²⁹.
20. The gap between the two political formations is small, the pro-independence group having only eight more seats in parliament than the pro-Yugoslav parties, so that the outcome of a referendum is not at all certain. Moreover, the LSCG is too unstable a partner for the "Montenegro Will Win" coalition to rely on. The situation within the coalition is also in a state of flux. One of the most eminent DSP figures, Mr Marovic, in the past showed clearly pro-Serb tendencies and independence was not among his party's political aims. Now, however, the party leader has amalgamated the notion of independence with that of union between Serbia and Montenegro, a solution which would maintain the existence of two sovereign states, but within a federal system. He has explained this U-turn by the need to preserve the country's internal stability and to avoid a boycott of the referendum by the pro-Yugoslav parties.
21. President Djukanovic is inclined to temper the enthusiasm of his pro-independence supporters. He wants the move to independence to be handled "with caution". He refuses to give carte blanche for a programme aimed at organising a referendum on independence. His view on that point coincides with that of Western governments. The then UK Foreign Affairs Minister, Mr Cook, for example, told him during talks in London that he was concerned at the idea that the nationalist movements of other ethnic groups might take such a move as encouragement, which would have a truly destabilising effect in the Balkans.
22. That argument does seem to make some political sense. A consensus among all the political parties in Montenegro is essential for the holding of a referendum to be a realistic prospect. The pro-Yugoslav parties are threatening to boycott the referendum unless the February 2001 law is amended to allow Montenegrins living in Serbia to participate.
23. At federal level, the fragile balance of power is indicative of that delicate situation. The disagreement between the DOS and the SNP (which is assuming the task of representing Montenegro at federal level) on cooperation with the ICTY led to a split in coalition at federal government level. The Serb Prime Minister, Mr Djindjic, reproached President Kostunica for his inertia at the head of a federal state of which one of the constituents has refused to recognise the authority of the federal government for the past four years³⁰. President Kostunica's proposal for a looser federation also ended in failure. The Montenegrin authorities seem to have in mind something closer to the Scottish model of devolution - with cooperation at federal level in the field of taxation, foreign affairs and defence - than to independence. The international community is in favour of preserving this form of coexistence of two republics³¹, but the uncertainty over the form of separation is not conducive to maintaining a regular flow of international investment. The Montenegrin budget is in deficit, economic reform is being pursued in keeping with the recommendations of the international institutions, but the process of restructuring the state apparatus is making slow progress. The DOS seems to be in favour of organising early federal elections, but not before 2002, in order to allow time for a revision of the constitution with regard to Montenegro's place within the federation.
24. The programme for economic transition and recovery presented by the World Bank and the European Commission is valid for both Serbia and Montenegro, but excludes Kosovo. Montenegro does not conduct an independent economic policy since this is not possible in the current economic circumstances.

1. Introduction

25. Before the fall of the communist regime in 1992, Albania, which had broken with the Soviet Union in 1961, was one of the most isolated countries in the world. Its isolation, then a decade of difficulties, such as the collapse of the country's financial system and of the state authority in 1997, and the influx of hundreds of thousands of refugees fleeing the Kosovo crisis in 1999, have contributed to its remaining one of the poorest countries in Europe, for which EU accession is but a distant hope. Nevertheless, there has been some improvement in its situation over the past two years. However, before addressing that situation in more detail, it is useful to recall a few figures.
26. Albania has a surface area of some 29 000 km² and a population of 3 500 000. It shares borders with Yugoslavia (Serbia and Montenegro), the region of Kosovo, the Former Yugoslav Republic of Macedonia³² and Greece. The major ethnic Albanian minority groups are to be found in Kosovo (1 800 000 ethnic Albanians), Montenegro (38 000) and the Former Yugoslav Republic of Macedonia (around 500 000)³³. Furthermore, as a result of Albania's grave economic difficulties, a large number of Albanians have emigrated since the collapse of communism, particularly to Germany, Italy and Greece. Although the majority of Albanians are Muslims, some 13% of the population is Catholic and 20% Orthodox, some of the latter being members of the Greek minority in the south of the country. Albania is composed of two major parts: the coastal region in the west and the high mountain areas to the north, south and east. With only 25% of arable land, grazing plays a large part in the country's agriculture, which in turn accounts for 53% of GNP. Albania's main natural resources are chromium, copper and oil. Hydroelectric power plants (the two main rivers being the Drin in the north and the Vijosë in the south) supply 98% of the energy produced by Albania, making its economy highly dependent on those plants.

2. Economic situation

27. Although Albania has been unable to develop its hydraulic capacities over the past twenty years, and in spite of the pitiful state of its electricity networks, leading to power fluctuations and cuts, industrial production was up by 5% in 2000³⁴. That growth is part of a generally more favourable economic climate. GNP, which fell by 7% during the 1997 crisis, has registered strong growth over the past three years: 8% in 1998, 7.3% in 1999 and 7.8% in 2000. Projected growth for 2001 is 7%. In addition to the abovementioned increase in industrial production, that higher growth is due to expansion of the service sector (13%), while agricultural production has gone up by 4.5% to 6.8%, due to more widespread use of fertilizers and improved methods of cultivation. Inflation, which up to 1998 had been very high (20.6%), stabilised in 2000 (0.04%), while the Economist Intelligence Unit forecasts an inflation rate in 2001 of about 3.5%, corresponding to the expected rise in the prices of energy and food products. Further positive factors are the growth in direct foreign investment (about US$ 143 million in 2000) resulting from the relative political stability, some improvement in infrastructure and continued privatisation. Albania nevertheless has a large trade deficit. In 2000 its exports were estimated at US$ 268 million and imports at US$ 1.083 billion. Its main export destinations are Italy (66.9%), Greece (14.4%) and Germany (5.5%). Italy is also Albania's main source of imports (37.6%), followed by Greece (28.2%) and Germany (5.5%). Albania's progress on the economic front is also reflected in the unemployment rate which dropped in 2000 for the first time since 1995, and which in June 2001 stood at 14.3%. In 1999 Albania's foreign debt stood at US$ 1 billion, compared with GNP of US$ 3.41 billion. Although the IMF confirmed during a visit to Tirana that Albania had completely surmounted the 1997 crisis and that the overall picture was positive, it insisted that the process of reform be pursued³⁵.

3. Domestic situation

28. The economic upturn in Albania has gone hand in hand with political normalisation and a minimum level of law and order. In spite of some violence between the two main political parties (the Socialist Party of Albania, PSSH, and the Democratic Party of Albania PDSH), the parliamentary elections of June/July 2001 went relatively smoothly. According to OSCE observers, the elections were conducted properly and were conducive to Albania's democratic development³⁶. The Alliance for the State (PSSH/socialist left-wing coalition) won the election with 41.5% of the vote, while the Union for Victory (PDSH/right-wing coalition led by former President Berisha) secured 36.8%. Thus, on 20 August, Ilir Meta was reappointed head of government. Ilir Meta has also consolidated his position of strength within the Socialist Party. On the other hand, the behaviour of Sali Berisha is continuing to poison the political climate in Albania. Mr Berisha has as usual refused to accept his defeat as final and again engaged in disruptive and confrontational actions, such as forcing the Democratic Party to boycott legislative work in the Parliament. There are growing calls within and outside the party for Mr Berisha to step down, to allow the Democratic Party to elect a new leader and reform itself.
29. At the same time, it appears that the New Democratic Party (NDP), under the leadership of Genc Pollo and Tritan Shehu, former DP members, which won 5.1% of the vote, has successfully emerged as the third largest political force in the country, draining votes from the DP. It is playing a constructive role in parliament and may eventually be able to seal the fate of the Democratic Party and its leadership.
30. Apart from corruption within the administration and the persistence of Albanian blood feuds (the Kanun)³⁷, Albania is essentially faced with social problems. In its manifesto, the PSSH set out its priorities, which include: bringing down unemployment, increasing wages, embarking on a process of agricultural reform, tackling the problem of the homeless and continuing privatisation. Organised crime (trafficking in human beings, drugs, weapons and stolen cars) remains a major problem, although there would appear to have been some improvement since last year³⁸. Tighter control over the border with Macedonia, with help from NATO, and a meeting last February between the Albanian and Greek interior ministers have contributed to that improvement. With regard to internal security, the Multinational Police Advisory Mission (MAPE) launched in 1997 by WEU and taken over by the EU in 2001 has certainly had a positive impact, in that "the situation would have been far worse had MAPE never been there"³⁹.

4. Foreign policy

31. It is clear from its economic and internal situation that Albania is only just beginning to emerge from serious crisis. Hence it does not have much room for manoeuvre in the foreign policy field. Its main objective is membership of the European Union, although that, for the moment, appears to be a very distant prospect. Albania, apart from Croatia, Yugoslavia and the Former Yugoslav Republic of Macedonia, is the only former communist country in Europe which is not yet an official candidate for accession to the EU. Last June the European Union adopted a report confirming that Albania was now ready to start negotiations with a view to concluding a stabilisation and association agreement with the EU, although it is not yet ready to actually implement such an agreement. In spite of the shortcomings of its administrative and legal structures and the scale of organised crime, Albania's responsible behaviour during the crisis in the Former Yugoslav Republic of Macedonia was certainly a point in its favour. Since the rebellion of the Albanian minority in the Former Yugoslav Republic of Macedonia, Albania has adopted a cautious and loyal attitude to its eastern neighbour, and vis-à-vis the West. It was, for example, critical of the inadequacy of the rights granted to minorities in the Former Yugoslav Republic of Macedonia. The Albanian Foreign Affairs Minister, Paskal Milo, declared that his country had given up all aspiration of a greater Albania⁴⁰. Former prime minister and opposition leader Sali Berisha also condemned the illegal actions of the "Albanian guerrillas" and rejected the idea of a greater Albania. Moreover, he underlined that only one or two per cent of Albanians actually favoured that idea⁴¹. A second point in Albania's favour is its relations with the other Balkan countries. Last May the representatives of Albania, Bosnia, Bulgaria, Croatia, the Former Yugoslav Republic of Macedonia, Romania and Yugoslavia signed a memorandum of understanding on the creation of a free trade area in the Balkans encompassing a market of some 50 million people. Similarly, Albania's relations with Yugoslavia are improving as the new Yugoslav government consolidates its power.

5. Conclusions

32. Stability in Kosovo and Macedonia is essential for further economic improvement and consolidation of the rule of law in Albania. Since Albania remains a hub for various types of trafficking, Europe's involvement in the conflicts in Kosovo and the Former Yugoslav Republic of Macedonia is not just a moral obligation, but also an imperative for Europe's internal security. The restraint shown by Albania with respect to the conflict in the Former Yugoslav Republic of Macedonia, the fact that the latest elections were organised more or less democratically, and the apparent determination of the young prime minister, Ilir Meta, to put his country on the right track, are all factors in Albania's favour. Moreover, the fact the majority of Albanians are Muslims may make the idea of an exclusively Christian Europe outdated, and open new horizons for the process of enlargement.

1. Introduction

33. Bulgaria has gone through a rather complex transition to democracy over the last decade. Governments have alternated between former communists and new democrats. Bulgaria, like any country in transition burdened with a corrupt bureaucracy⁴², has been slow in bringing about reform. Nevertheless, few would contest the country's geostrategic importance for maintaining a balance and achieving progress in the Balkans. For many years, the conflict in former Yugoslavia and the continued existence of the Milosevic regime, combined with the economic sanctions against Yugoslavia, seriously hampered Bulgaria's economic development. The collapse of the Milosevic regime, together with the new political impetus in that country, will no doubt also have a positive impact on economic and political conditions in Bulgaria.
34. It was against this backdrop of frustrated expectations and a need for progress that Simeon II, son of the former Czar, arrived on the Bulgarian political scene as a candidate in the April 2001 parliamentary elections, following a decision by the central electoral commission to allow him to stand⁴³. On polling day, 17 June 2001, the National Movement Simeon II (NMSII) won 47.73% of the vote and 120 out of 240 seats, well ahead of the outgoing centre-right coalition, the United Democratic Forces⁴⁴ with 18.8% of the vote and 51 seats, and Coalition for Bulgaria⁴⁵ with 17.2% and 48 seats, and the Movement for Rights and Freedoms with 7.45% of the vote and 21 seats. The success of NMSII came as a surprise to the political elite, the more so as it was only one vote short of an absolute majority.
35. It would appear that the Bulgarian people wanted to voice its disapproval of its former leaders, whose policies since 1990 had not at all yielded the desired results, with the implementation of far-reaching structural reform still lagging behind, the privatisation process proceeding only laboriously and very few faces having changed on the political scene. People were beginning to become weary of the alternating political formations and the same old bureaucracy. The election result highlighted the fragility of the United Democratic Forces which was only able to stay in power for want of a credible political alternative⁴⁶.
36. Simeon II presents a rather unusual profile within the NMSII. Well educated and not affiliated to any particular political party, he also appears sufficiently well-off to be able to devote his time to affairs of state. Unusually broad-minded, he excludes no political formation from his government, stating that his only concern is that those appointed to key positions should do a good job.
37. Following the announcement of the election results, he approached the Movement for Rights and Freedoms (MRF) - mainly representative of the interests of the Turkish ethnic minority⁴⁷ - with a proposal for forming a coalition, and agreed to lead the government as prime minister. He has turned to the younger generation to form his government: financial experts in their thirties were called on to leave their prestigious jobs in the City of London to occupy the posts of finance and economic affairs ministers.
38. Bulgaria's foreign policy priority under the new government remains membership of the EU and NATO. An important psychological step forward was taken in December 2000, when the interior ministers of the Fifteen decided to do away with the tourist and short-stay visa requirement for Bulgarians in the Schengen area. The European Commission's annual report was also encouraging - while underlining the need for further progress in the fields of justice and public administration, the fight against corruption being the weak spot of Bulgarian policy. The country has opened 26 of the 31 chapters in the acquis communautaire and has provisionally closed 13. Bulgaria was the first country to benefit from an immediate launch of the SAPARD programme (rural development plan for European Community support for pre-accession measures)⁴⁸.
39. The presidential elections of 11 and 18 December last again produced a surprise outcome. The leader of the former Communist Party, Georgi Parvanov, carried the day against outgoing President Petur Stoyanov, who had stood as an independent. The official results of the second round gave Mr Parvanov 54.1% of the vote as against Mr Stoyanov's 45.9%. Election turnout was only 54% of the population. The day after polling the new President, who takes office on 22 January 2002, promised that there would be maximum "diplomatic continuity"⁴⁹ Announcing his intention of leaving the Socialist Party, he pledged to work for Bulgaria's accession to Euro-Atlantic structures and to combat crime and corruption. He also promised to work with Simeon II's liberal government. One of his political priorities is to reduce the social cost of military reform.

2. Foreign policy

40. An important element of the government's foreign policy is the resolution of the current tensions in the Former Yugoslav Republic of Macedonia. Notwithstanding the adoption by the Macedonian Parliament of constitutional amendments, the impression is that inter-ethnic relations in that country have not yet settled down completely. Clearly, another crisis in the region could have repercussions on tourism and direct foreign investment and might jeopardise the country's chances of achieving stability and economic and political transformation. The Bulgarian authorities have said they are in favour of preserving the Former Yugoslav Republic of Macedonia's territorial integrity, giving firm support to initiatives being taken by the international community, and at the same time providing logistical support to the Former Yugoslav Republic of Macedonia authorities. Sofia has made NATO an offer of the use of Bulgarian territory in the event of peacekeeping operations being mounted⁵⁰. Bulgaria would certainly provide moral support and material assistance by virtue of the historical ties binding the two peoples, but would be unlikely to deploy its forces on Former Yugoslav Republic of Macedonia territory.
41. Bulgaria is part of the Stability Pact for South-Eastern Europe, whose coordinator, Bodo Hombach, met with the Bulgarian Prime Minister, Simeon II, in July 2001. His aim was to confirm Bulgaria's desire to participate in the various projects and to make progress towards EU and NATO membership. Bulgaria is currently involved in three Stability Pact working tables⁵¹ and in some one hundred projects, the most important being the construction of the Danube bridge at Vidin-Calafat and the reconstruction and enlargement of Sofia airport⁵². In the Working Table on security issues, Bulgaria is leader of the project on standardisation and harmonisation in connection with the prediction and prevention of natural disasters. It is also actively involved in creating a police forum, with the aim of drawing up procedures for the short-, medium- and long-term coordination of police forces at regional level. Furthermore, as part of a working group on immigration and asylum requests in the Former Yugoslav Republic of Macedonia, Bulgaria is working in partnership with the lead country Sweden. There are to be reductions of military personnel and closures of military bases in connection with the Bulgarian armed forces reform programme that is currently under way under close NATO supervision. In this context, the new Bulgarian government has confirmed the decision to dismantle the SS-23 and C-300 tactical missile systems. At the international donors' conference held in Budapest on 25-26 October 2001, donors voted the sum of US$ 2.2 billion for the implementation of reforms in the Balkans.
42. On 13 November 2001, the European Commission submitted its regular report on Bulgaria's progress towards accession. The report stresses compliance with the Copenhagen (political) criteria and, in particular consolidation and stability of democratic institutions. It welcomes progress made since the previous year saying that the country has partially fulfilled the large majority of short-term Accession Partnership priorities relating to the acquis⁵³. As far as the economy goes the Commission states that "Bulgaria is close to being a functioning market economy. It should be able to cope with competitive pressure and market forces within the Union in the medium term, provided it continues implementing [economic] reform". "Bulgaria has already started to address some of the medium-term Accession Partnership priorities".
43. However such encouragement is to be taken with a pinch of salt, since the Commission's 2001 report on enlargement appears to rule out accession by Bulgaria and Romania in 2004⁵⁴. This has created a division among western politicians. At the Council of Foreign Ministers held in Brussels on 19 November, Mr Védrine, the French Foreign Minister, said he was convinced that such a policy could create a destabilising backlash for those countries and might lead them to give up rather than redouble their efforts. He asked his European counterparts to start discussions on ways of enabling both countries to catch up with and rejoin the group of 10.

3. Economic situation

44. On the day he took up office, the new Bulgarian prime minister made the ambitious promise to reform the economy in 800 days. His programme involves a number of immediate projects: speeding up of privatisation, reduction of taxation generally, making the lowest wages tax-exempt, revaluation of pension funds, 30% increase in wages and a 10% rise in the price of electricity, which has been frozen for three years⁵⁵. Bulgaria's national electricity company (NEK) currently benefits from a 212.5 million euro loan from Euratom for the upgrading of two nuclear reactors and the closure of older, technically less sophisticated installations. The total cost of the project is 490 million euros.
45. GNP growth this year stands at 4.5% due to the economic slowdown, while inflation is 7.3%. A customs reform is currently under way. However, the reforms are likely to further slow economic growth and to increase the budget deficit from the expected 1.5% to 1.8% of GDP⁵⁶. The high unemployment rate (17%) continues to jeopardise the chances of consumption taking off again, placing an added burden on the social cost of reform.
46. The Bulgarian economy has shown remarkable recovery since the creation of an IMF-endorsed currency board arrangement (CBA) in 1997. This enables a stable exchange rate to be guaranteed at national level between the DM and the lev, which is pegged to the DM. The depreciation of the euro has had repercussions for debt servicing, budgetary reserves and foreign trade. The initial CBA was prolonged by means of an extended facility fund (EFF) until September 2001 and Bulgaria was granted a credit of 865 058 billion SDR⁵⁷ for the whole period. The CBA was successful in its aim of achieving macro-economic stability for Bulgaria. As part of its three-year Bulgaria Country Assistance Strategy, the World Bank has signed a three-part programme involving structural adjustments, stimulating rural development and the creation of a social fund. The funds available are estimated at US$ 750 million.

1. Introduction

47. Developments in Bosnia and Herzegovina (BiH) have been discussed in many earlier reports of the Political Committee and most recently in a report on the implementation of the Stability Pact for South-Eastern Europe⁵⁸. Since then, public attention has been diverted to other spots in the world where conflicts have erupted, such as the Former Yugoslav Republic of Macedonia or Afghanistan. Nevertheless, the international community and, in particular, the EU and the United States, are still committed to the lengthy, painful and costly process of state-building in Bosnia and Herzegovina. Picking up the thread of the last report, your Rapporteur will try to provide a succinct evaluation of recent developments.
48. Bosnia and Herzegovina as we know it today was created under the Dayton Peace Agreement in December 1995 after the long war between the country's Serbs, Muslims and Croats. Although Central Asia now commands the centre of the world's attention, it should not be forgotten that Bosnia and Herzegovina still remains, potentially, unstable. As well as suffering from a degree of instability and a complex political make-up, Bosnia's economy still has not taken off. It is clear therefore that integration into the European Union is still a dim and distant prospect and should be preceded by greater centralisation within Bosnia itself, substantial economic progress and sound regional integration. In order to better understand the difficulties facing the country, a brief analysis of the political and economic situation there would perhaps not be amiss. It should furthermore be noted that the need for the international community to continue to take an interest in Bosnia and Herzegovina is underlined by the events of 11 September.

2. The political system

49. Bosnia has a highly complex political system resulting from the Dayton Peace Agreement, which sought to respect ethnic differences within the country. The country was divided into two Entities: a Bosnian-Croat Federation⁵⁹ - further divided into ten cantons - and a Bosnian-Serb Republic, Republika Srpska (RS). The complexity of the system is due to a desire to ensure equal political participation by all three ethnic groups (Serbs, Croats and Bosnians) in the central government. Moreover, both the Entities and the cantons have more financial and political power than the State.
50. The central executive power is held by a collective presidency and a Council of Ministers. The collective presidency, elected for four years, is composed of three members - one Bosnian, one Serb and one Croat, each directly elected by their own community - who hold the presidency for rotating periods of eight months. The presidency appoints the Chairman of the Council of Ministers (the Prime Minister). Bosnia and Herzegovina has a bicameral parliament, with a House of Representatives composed of 42 members (28 from the Federation and 14 from the Serb Republic) and a House of Peoples composed of fifteen members (five from each ethnic group). Moreover the two Entities have different constitutions. The Federation has two chambers (House of Representatives and House of Peoples), while Republika Srpska has a single chamber, the National Assembly. The President of the Federation is appointed by the Chamber of Representatives, while the President of Republika Srpska is directly elected⁶⁰.

3. Domestic policy

51. Unfortunately, it is not only the political system which is an obstacle to the political integration of the two Entities and their economic consolidation, but also the widespread, entrenched nationalist thinking on the part of that section of the population that supports the more radical parties.
52. The results of the 11 November 2000 elections gave some hope that Bosnia and Herzegovina would one day at last find a way out of this nationalist impasse. For the first time in ten years a coalition of non-nationalist parties (The Alliance for Change⁶¹) won the elections both at central government level and in the Federation. Nevertheless, extremists still find widespread support among the population, particularly in Republika Srpska, but also in rural areas of the Federation. Delays in appointing the Chairman of the Council, the radical stance adopted by the Croats in March 2001, in demanding the creation of their own institutions, and the riots that took place in the Republika Srpska capital of Banja Luka, following the building of a mosque, all show how far Bosnia's three ethnic groups have to go before they can live peacefully together.
53. The situation in Republika Srpska is particularly worrying. With 38% of the vote, the Serb Democratic Party, formerly led by Radovan Karadzic, captured the directly-elected Presidency and Vice-Presidency of the Entity as well as 31 of the 83 seats in the RS National Assembly, and became the third largest party in the BiH State House of Representatives. The frantic efforts of representatives of the international community to prevent any SDS participation in the new government and to foster the establishment of a multiparty coalition government failed, because the designated coalition leader, Mladen Ivanic, made it clear that he needed the SDS votes and could not form a government without them. Finally, a compromise was worked out, as a result of which Mr Ivanic was able to establish a cabinet of "independent experts" who would suspend their party affiliations during their terms of office. This, evidently, did not change those experts' political opinions and actions. Experts formerly affiliated with, or members of, the SDS are now in charge of the ministries for refugees, energy and mining, industry and technology, trade and tourism, education and finance.
54. When the new government came into office, SDS members took control of many major public companies, services and government agencies in the Republika Srpska, providing their party with funds and instruments for political patronage. The SDS President of the National Assembly even publicly demanded that the transfer of control of public enterprises to the SDS⁶² be speeded up.
55. RS Serb representatives in the BiH Parliament and RS Serb members of the BiH State Council of Ministers agree that attempts to transfer more powers from the Entities to the State are unconstitutional. Their voting behaviour in the state institutions focuses mainly on maintaining, as far as possible, the relative sovereignty of the RS.
56. Even the representatives of the parties of the current Republika Srpska, Prime Minister Ivanic (Progressive Democratic Party - PDP) and his predecessor Dodik (Party of Independent Social Democrats - SNSD) - both official members of the Alliance for Change coalition at BiH state level - usually vote together with the extremist Serb Democratic Party (SDS) and Croat Democratic Union (HDZ) against all laws that might extend the powers of the State.
57. It should be recalled here that the State Border Service Law, creating a single regime along BiH's external borders and deemed vital in the state-building process, had to be imposed by the High Representative in early 2000 after endless stubborn obstruction by Republika Srpska representatives in the BiH state institutions.
58. In July 2001, the SDS also signed a protocol of cooperation with President Kostunica's Democratic Party of Serbia (DSS). On that occasion, President Kostunica not only noted that stability and European integration "required consistent respect and acceptance of (UN Security Council) Resolution 1244 and the Dayton-Paris peace accords", but also emphasised his support for the SDS's interpretation of the Dayton Peace Agreement, according to which anything beyond Dayton is a violation thereof.
59. However, the appointment of SDP Chairman Zlatko Lagumdzija to the post of Prime Minister of the central government is no doubt a sign that the moderate forces have gained ground, particularly since the international community's High Representative for Bosnia, Wolfgang Petritsch, removed Ante Jelavic, a Croat nationalist, from the collective presidency in March 2001.

4. Economic situation

60. Bosnia and Herzegovina's economy remains in dire straits. In addition to its extremely high rate of unemployment, its GNP growth rates (5% in 2000 and an estimated 2.7% in 2001) are not sufficient. Growth of 15% for at least ten years would be needed to bring about real development. The rate of inflation for the year 2000 was 4.3% in the Federation and 12.2% in Republika Srpska. Although inflation remains relatively low, the marka's alignment with the DM means that Bosnian products are relatively expensive. Bosnia's trade deficit is estimated at 64% of GDP, with, in 2000, a trade deficit in the Federation of KM 3.4 billion and in Republika Srpska of KM 900 million. In addition there are structural problems, such as delayed privatisation, and internal trade is still not sufficiently developed. Although there has been some growth since the beginning of the year, the two Entities do not have the same trading partners. Indeed, the Republika Srpska's main trading partner is still Yugoslavia, (which accounts for 38% of exports and 23% of imports), followed by Italy (32% of exports) and Slovenia (14% of imports), while most of the Federation's exports are destined for Italy (17%) and Switzerland (17%). For a stabilisation and association agreement to be possible with the EU, there would need to be greater economic cooperation and integration between Bosnia and its Balkan neighbours. From that point of view the customs agreement signed on 27 June 2001 with Albania, Bulgaria, Croatia, the Former Yugoslav Republic of Macedonia, Romania and Yugoslavia is a step in the right direction⁶³.
61. Much-needed foreign investment has not yet got off the ground, for a great number of reasons. Many potential investors are afraid of Bosnia and Herzegovina's reputation as regards political interference, corruption, the absence of the rule of law, an inconsistent and politically motivated judicial system, largely inadequate and outdated commercial law, and an opaque customs and taxation system. Cumbersome and lengthy bureaucratic procedures providing opportunities for corruption at every single level are also a powerful deterrent for anyone wishing to start a business. According to the European Investment Bank, from 1994 to the end of 2000 Bosnia and Herzegovina received DM 940 million in foreign investment, but this figure is contradicted by others⁶⁴.
62. Bosnia and Herzegovina is still dependent on donor support. The revenue shortfall of the two Entities together amounted to some 800 million KM (Konvertibilna Marka)⁶⁵ in 2000, all of which had to be covered by multilateral and bilateral donors. Those deficits are due in part to the ubiquity of irresponsible, non-transparent public spending, which in turn is facilitated by the lack of an adequate public procurement law.
63. Customs fraud and tax evasion regularly cost both Entities at least 30% of their budgeted income. Revenue losses from tax evasion and customs fraud in Republika Srpska were recently estimated at some 500 million KM per year, nearly as much as its annual budget, while in 2000 the Federation lost an estimated 200 million KM in excise duties alone⁶⁶.
64. After its 30 October 2001 meeting, the PIC Steering Board, having taken note of the "less than satisfying economic transition process in Bosnia and Herzegovina", urged the BiH authorities to increase the tempo of economic reform, which it considered to be imperative not only for higher investment and employment levels, but also for access to the EU's stabilisation and association process.
65. In his recent address to the UN Security Council, the High Representative emphasised that BiH's overall economic growth continued to be disappointing. He noted that, according to the World Bank, it would take another six to eight years of annual growth at 6% for BiH to achieve a level of credit-worthiness sufficient to finance future development.
66. In March 2001, the Council of Ministers of Bosnia and Herzegovina finally published an economic plan for BiH which officially recognised the problems, identified some of the solutions and emphasised the need to deregulate and strengthen the private sector. However, the plan is not fit for implementation. In February 2001, the government of Republika Srpska issued its own economic plan which, while acknowledging the current economic problems, also lacked a comprehensive implementation strategy.
67. The Alliance for Change coalition governments which came to power at Federation and central government level after the November 2000 elections have now made it clear that they wish to implement economic reform. On the other hand, the SDS-dominated government of Republika Srpska has taken few positive steps in the economic sphere, and indeed the SDS has placed its own members in key positions of power in public companies and government agencies, maintaining control over these sources of wealth. The same goes for HDZ-controlled areas in the Federation, where that party aims at keeping control over the state-owned public companies which have long been its source of patronage and funding.

68. Although a number of international agencies have been assisting the Entities' tax and customs authorities with combating evasion, progress has been slow. Bosnia and Herzegovina now has regulatory legislation covering its customs administration which meets European standards, and numerous training and technical assistance programmes have been provided, but to implement such reforms in a context of political obstruction and rampant corruption is reported to be a practically impossible task⁶⁷.
69. Another problem is that, according to the Constitution, the State has the power to decide on customs policy, while enforcement is delegated to the Entities. The Entities are in charge of all other aspects of taxation and have often used this power as a means of ensuring that the policy of the governing party is followed and that the effective monopolies of party-friendly companies in specific markets are maintained. It has been estimated that taxes are being paid on only 59% of domestically produced goods.
70. Tax collection and enforcement have not been very successful in either of the Entities. Factors contributing to this unsatisfactory situation are the irregular payment of the salaries of tax administration and Finance Police staff, the favourable treatment given to well-connected companies and the harassment of those considered to be "politically incorrect".
71. Under pressure from the IMF and the World Bank, the Entity governments have introduced some tax reductions and reforms and accepted some degree of harmonisation of their tax laws. In April 2001, the two Entity governments concluded an agreement on harmonisation of sales taxes, and by January 2002 a harmonised income tax law should be in place throughout Bosnia and Herzegovina. On the other hand, however, the Entities continue to have distinct tax codes, tax administrations and rates of taxation, thus leaving large legal loopholes for tax evaders. Moreover, despite the slight reductions and adjustments that have been made, the problem remains that there are too many separate taxes, at excessively high rates, being paid by too few people and by a disproportionate number of businesses.

72. The privatisation process, which began in 1997, has not yet been completed and, in general, only small and medium-sized companies have undergone privatisation. The voucher-based privatisation process is being implemented by twelve agencies, one for each of the two Entities and for each of the ten cantons. There is still reluctance at all administrative levels to privatise profitable public companies, because politicians and officials can use them as sources of cash to their own advantage or that of their political parties, or as instruments for political patronage.
73. There has also been reluctance to start restructuring loss-making public companies, because that would result in many job losses and cause political damage in the 2002 legislative elections. In both the Federation and Republika Srpska, the privatisation process was also used to reward war veterans, confirm the results of earlier ethnic cleansing, strip companies of their valuable assets, or to acquire valuable companies at little cost through manipulation.
74. The establishment in 2000 of tender commissions, in which international experts work closely with local officials, has led only to partial improvement of the privatisation process. Foreign tender experts have now been mandated to help privatise strategic companies - 52 in Republika Srpska and 87 in the Federation - a process which may still take two to four years. The reform of the banking sector has made considerable progress. Currently, only 30% of banks in the Federation are state-owned and the number of banks has been reduced, from 55 up until 1996 to 35 at present. In Republika Srpska, 90% of the banks are still state-owned and effective reform of the financial sector has until now almost exclusively been limited to the Federation. The present deadline for privatisation or liquidation of the remaining state-owned banks is 31 December 2001. Deterred by the innumerable problems in BiH, only a few foreign investors have taken an interest in the privatisation process.

5. The fight against corruption

75. Concerned that the endemic corruption of BiH's public finance system and in private business is undermining public confidence in State and Entity institutions while also deterring much-needed foreign investment, the High Representative has stepped up efforts to fight corruption.
76. In August 2000, a fully-fledged Anti-Fraud Department (AFD) was established in the Office of the High Representative (OHR), which has also opened offices in Mostar and Banja Luka. The AFD is helping BiH authorities to investigate and prosecute strategic economic crimes, while also coordinating and facilitating the anti-corruption activities of international and domestic agencies.
77. An AFD Audit Transparency section was established in January 2001. Audits of the RS and Federation budgets have documented glaring structural weaknesses in the Entity accounting systems which have resulted in the negligent or wilful loss of funds. Auditors' reports confirm that the system of public finances is conducive to corruption and fraud and that the appropriate control mechanisms are lacking or unable to function as intended⁶⁸. Estimated losses from irregularities, waste and fraud run into hundreds of millions of KM. Audits of financial systems operated by political parties have revealed the methods used by some politicians to divert public funds for personal or political gain. Specific cases have been referred to local authorities for further action and a number of former politicians have been prosecuted. The Federation Finance Police has been more successful in its fight against corruption than the Republika Srpska Finance Police, but there are claims that the latter has enjoyed less support from the international community.
78. The OHR is now developing a strategy to reform the administrative accounting procedures and strengthen the supreme audit, treasury and parliamentary control mechanisms. In the meantime, the AFD has initiated reform of the Finance Police and has helped with the drafting of Entity and State legislation on anti-corruption, prevention of money laundering and criminal procedure⁶⁹.

6. Legislation

79. The BiH House of Representatives finally adopted the Election Act on 23 August 2001, after years of legislative deadlock. This act will furnish BiH with the means to supervise its own elections. It is one of the key laws listed on the EU "road map" and its adoption was also one of the prerequisites for accession to the Council of Europe. The next legislative elections are due in October 2002.
80. Efforts have been made to improve the judicial system, through the introduction of the June 2000 Judicial Service Act. In March 2001, the HR established an Independent Judicial Commission (IJC) with a comprehensive mandate embracing matters pertaining to the promotion of the rule of law and judicial reform, but it will still be some time before the shortcomings of the judicial system are overcome.

7. European integration

81. One of the EU's long-term objectives is its enlargement through accession on the part of the countries of south-eastern Europe. In order to help Bosnia and Herzegovina find its way on the road towards European integration, the European Commission, presented the country in March 2000 with a list of conditions to be met, the so-called EU "road map". This document contains eighteen political, economic and institutional benchmarks which will have to be met before the Commission initiates a feasibility study to determine whether or not Bosnia and Herzegovina is ready to negotiate a Stabilisation and Association Agreement (SAA) with the European Union.
82. At the Zagreb summit in November 2000, the BiH authorities had firmly committed themselves to fulfilling the conditions outlined in the road map by 30 June 2001. However, at a meeting in Brussels on 28 June 2001 attended by European Commission representatives and the High Representative, Wolfgang Petritsch, it was noted with regret that a number of important conditions had still not been fulfilled by BiH and that the lack of any significant progress was giving serious cause for concern. Indeed, the Civil Service Act, aimed at creating a professional and merit-based civil service based on best European practice, appeared to have run into problems, while important legislation related to economic reform, for example on competition and consumer protection, was still pending before the Parliamentary Assembly.

8. Return of refugees and displaced persons

83. One crucial problem that remains is the return of refugees, whose numbers are estimated at 600 000 in Bosnia and Herzegovina and 800 000 abroad. In spite of the efforts made by the European Union in particular, it looks increasingly as though a return of all refugees and displaced persons will not be possible and that efforts should be made to support greater integration of those refugees who prefer to stay in their host communities. Very often, potential returnees are deterred by the high unemployment rates which give them no hope of building a future in their areas of origin. Nevertheless, European host states which are still providing shelter for refugees from recent conflicts in south-eastern Europe should provide them with an incentive to return to their countries of origin so that they can contribute to much needed reconstruction.
84. The OHR is planning to transfer the primary responsibility for promoting the return of refugees to domestic institutions before the end of 2003, in the hope that a further 150 000-180 000 refugees and displaced persons may return between October 2001 and the end of 2003.
85. According to Human Rights Watch, a breakthrough in the return process was achieved in 2000 and this positive trend continued during the first half of 2001. In the first six months of 2001, there were 35 341 minority returns⁷⁰, an 85% increase as compared with the same period of the previous year. UNHCR figures for minority returns are 41 007 for 1999, 67 445 for 2000 and 56 683 for the first nine months of 2001.
86. Nevertheless, the OHR has complained that the continuing failure of local authorities to take full ownership of the return process has been an obstacle to a countrywide breakthrough⁷¹. A Ministry for Human Rights and Refugees has been created at central government level, but there is still a lack of coordination between the Entities on return-related issues. The Federation budget currently includes a substantial budget to support returns. In Republika Srpska, the budget of the Ministry for Refugees and Displaced Persons is almost non-existent and the limited funds that are available are spent entirely on accommodation for displaced Serbs. The OHR has urged Republika Srpska to increase the Ministry's budget and to redirect it towards supporting the return of Bosnians and Croats to Republika Srpska and the return of Serbs to the Federation, rather than focusing exclusively on the support of Serb displaced persons wishing to stay in Republika Srpska.
87. The implementation of the property law is clearly vital to enable refugees and displaced persons to return to their pre-war homes. Since 1998, property repossession laws have been more or less harmonised between the Entities. It should be noted that property law implementation rates in certain (usually Croat-controlled) areas of the Federation are such that the authorities have been able to settle 38% of the claims made to their housing offices. In Republika Srpska, however, the implementation rate was a mere 19% at the end of June and 21% in September 2001, and there were more than 90 000 outstanding claims for property in Republika Srpska⁷². In September, the OSCE Head of Mission, Robert M. Beecroft, conveyed to both Prime Minister Ivanic and Refugee Minister Micic his deep concern about Republika Srpska's failure to implement property laws.
88. In both Entities, the authorities are expropriating public land, often illegally, for the large-scale construction of new housing, enabling them permanently to alter the ethnographic profile of many areas. This method was used by the Croat authorities in Herzegovina, but came to a halt when Croatia ceased to provide funds for new building projects. In Republika Srpska, thousands of plots of public land have been distributed to Serb displaced persons and construction companies for housing purposes. Land has also been reallocated in Bosnian parts of the Federation, but on a smaller scale.
89. The authorities of Republika Srpska in particular have been accused of using bureaucratic and other measures to oppose the process of minority returns, while seeking to create powerful incentives for Serbs to stay put or resettle in certain areas so as to change or consolidate their demographic profiles. The current non-Serb population of Republika Srpska is estimated at 5%⁷³.
90. The High Representative has also noted that refugee returns continue to suffer the negative effects of the situation in both Croatia and the FRY, where overall progress in the legislative sphere is not sufficient to allow a smooth and uninterrupted return process. In the absence of a transparent legal framework for the repossession of property, some 25 000 Croatian Serbs in the western part of Republika Srpska are still waiting for their status to be settled, creating a major obstacle to Croat and Bosnian returns to Republika Srpska.
91. Ethnic violence has not yet come to an end in either Entity and there are still threats to, or attacks on, the minority population, including demonstrations, assaults, arson, bombings and shootings, as well as intimidation, harassment and criminal mischief. It should be noted that although Bosnian returns to Republika Srpska were almost five times more numerous than Serb returns to the Federation, the number of incidents (208) in the RS was not much higher than that in the Federation (177). However, the crimes committed in Republika Srpska were more serious and seldom resulted in criminal prosecution⁷⁴.
92. One important incident should be mentioned as an example, because it shows how the Entity authorities are treading a fine line between turning a blind eye to ethnic violence, on the one hand, and endeavouring to react appropriately on the other, following warnings or the threat of sanctions from the international community.
93. On 7 May 2001, serious riots took place in Banja Luka, where a violent crowd of several thousand protesters prevented the laying of the foundation stone for the rebuilding of the Ferhadija Mosque, destroyed by Serbs in 1993. At least 34 people were injured and one Bosnian died as a result of a severe beating. In response to those incidents the HR expressed shock at the fact that Republika Srpska "still appears to be a place with no rule of law, no civilised behaviour and no religious freedom"⁷⁵. A few days later, he met with RS leaders and "demanded that the RS leadership publicly condemn the violence and identify and arrest the perpetrators". The RS leadership obediently complied with the first demand within two days but, at the time of writing (November 2001), the investigation remains at the stage of judicial investigation, with no official indictments as yet having been issued.
94. The foundation stone-laying ceremony for the Ferhadija Mosque was rescheduled for 18 June 2001 and this time was attended by most of the RS leadership, who, conscious of the risk of being removed from office by the HR, had apparently taken all possible precautions to prevent a recurrence of the 7 May events.

9. Republika Srpska's cooperation with the International Criminal Tribunal
for the former Yugoslavia (ICTY)

95. All states party to the Dayton Peace Agreement have a standing obligation to cooperate with the International Criminal Tribunal for the former Yugoslavia (ICTY). Six years after the entry into force of the Dayton Agreement, however, the RS government decided that it could not cooperate with the ICTY until the RS Parliament had adopted legislation formalising and facilitating such cooperation. The HR, while aware that such legislation was technically unnecessary, tolerated that procedure in the belief that its adoption would be tantamount to an acknowledgement by Republika Srpska that it could not continue to be "the only holdout in the region against the process of international justice"⁷⁶.
96. The cooperation bill was finally adopted by the RS Parliament on 2 October 2001 by a majority of only one vote. The law contains so many conditions concerning the detention and transfer of indictees, that it almost looks like obstruction. It also includes a procedure allowing RS authorities to refuse cooperation if they consider that it would be detrimental to RS interests. According to the ICTY, some 20 to 30 indicted war criminals are currently living in Republika Srpska. RS army units are reportedly continuing to protect the indicted wartime commander, Ratko Mladic, while RS companies linked to the SDS and involved in the illegal import trade are allegedly providing funding for the protection of the indicted war criminal Radovan Karadzic⁷⁷.
97. Despite the adoption of the cooperation law, there is little chance that Republika Srpska will cooperate constructively with the ICTY as long as the SDS remains the most powerful political party and as long as individuals involved in wartime atrocities continue to play influential roles in the political life, army and police forces of Republika Srpska, as well as in its business and criminal organisations.

10. Armed forces

98. On 12 July 2001, the Defence Ministers of Republika Srpska (RS) and the Federal Republic of Yugoslavia (FRY) signed a military cooperation agreement which was intended to be an annex to the earlier Special Relations Agreement between Republika Srpska and FRY. Under those agreements, the FRY provides funding for the RS armed forces, intelligence service and police, and Yugoslav army officers and non-commissioned officers serve in the RS army. After having been informed by the HR that the annex had no legal effect since parties had failed to notify the OHR, RS and FRY delegations met with the OHR in September and agreed on a procedure for the drafting of a future defence annex.
99. As at 13 January 2001, the Entity armed forces had 33 000 active duty soldiers, as compared with 150 000 in mid-1996. The Federation army had 23 000 active duty soldiers, while the RS army totalled 10 000. Defence and armed forces expenditure was the largest item in the budgets of both Entities, about 6% of GDP, against an average of 1.5% in Europe. In 2001, official defence budget expenditure, excluding off-budget costs and other financial support, amounted to 85 million KM in RS and to just over 150 million KM in the Federation. The OSCE estimates that real defence spending, not reflected in the official budget, may be between 8 and 10% of GDP.
100. In connection with its efforts to help implement the 1996 Vienna Agreement on Confidence and Security-Building Measures, the OSCE is now trying to improve transparency of the Entities' armed forces expenditure and budgets, including foreign military assistance. The OSCE has also launched an initiative to raise public awareness of the excessively high level of military expenditure in Bosnia and Herzegovina. It takes the view that the country can barely afford an army half its current size and that a reduction of defence budgets could free up funds for pensions, healthcare, education and the creation of new businesses.
101. In July 2001, the BiH Presidency formally applied for membership of NATO's Partnership for Peace programme. This is a welcome development, given the fact that membership of the PfP programme requires a joint military structure which closely coordinates the operations of the Federation and RS armed forces.

11. Conclusions

102. Since the November 2000 elections, Bosnia and Herzegovina seems at last to have made a start on overcoming its nationalist problems. However, the process will take time and must receive close support from the international community. The population is still far from having forgotten the atrocities perpetrated during the war, which makes the situation fragile. Proselytising by Arab countries in Bosnia and Herzegovina, the possible use of the country as a terrorist base and the fact that some of the Islamic fighters who fought side by side with their Muslim brothers during the years of armed conflict have remained in Bosnia⁷⁸ are all reasons for the international community to remain vigilant there, particularly in the framework of SFOR. It should not be forgotten that the current process of state-building still has a long way to go and that the country is not yet able to live in relative peace without the presence of the OHR, other international organisations and SFOR, or to exist without foreign financial support.

1. Introduction

103. The Former Yugoslav Republic of Macedonia, which was created following the dismantling of communist Yugoslavia in 1991, for a whole decade escaped both civil war of the kind that erupted in Croatia and Bosnia and the crises which brought the FRY to the brink of dismemberment. Nevertheless, as discussed in many earlier reports of the Political Committee, it was prey to inter-ethnic tension and in March 2001 an open conflict broke out between its Slav majority and ethnic Albanian minority⁷⁹. The situation in the Former Yugoslav Republic of Macedonia was examined in full in a recent report of the Defence Committee⁸⁰. In the present report therefore, your Rapporteur will provide only a brief synopsis of earlier events and the latest developments.

2. The conflict between ethnic Albanians and the Slavs

104. The Former Yugoslav Republic of Macedonia then, although far from being ethnically homogenous, was for a long time spared the conflict that affected other Balkan countries such as Croatia, Bosnia and, more recently, Kosovo. Indeed, it was following the tragic events in Kosovo that some former KLA members tried to exploit the disputes between the Slav majority in the Former Yugoslav Republic of Macedonia and its ethnic Albanian minority, which had for a long time been calling for various measures, such as the recognition of Albanian as an official language, the opening of an Albanian-speaking university in Tetovo and wide-scale regional autonomy. Following a series of minor incidents, conflict broke out on 4 March 2001 when three Macedonian soldiers were killed at Tanusevci close to the border with Kosovo. Several skirmishes then took place between the Macedonian army and the KLA in Tetovo. In an effort to preserve the country's unity, the European Union signed a stabilisation and association agreement with the Former Yugoslav Republic of Macedonia on 9 April in Luxembourg, with a view to the eventual creation of a free trade area. Furthermore the EU decided on 8 May to grant 2.5 million euros to the Former Yugoslav Republic of Macedonia for the rebuilding of housing damaged during the fighting in Tetovo and around the Tcherna Gora region.
105. In exchange, the parties to the Macedonian conflict were called to Brussels to pursue a peaceful dialogue on the internal reforms demanded by the ethnic Albanians. However, despite the formation of a government of national unity bringing together the seven main political parties in the Former Yugoslav Republic of Macedonia, including the two Albanian parties⁸¹, a UN resolution condemning Albanian guerrilla warfare in the Former Yugoslav Republic of Macedonia and the efforts of the European Union - and of the High Representative for the CFSP, Javier Solana, in particular - the KLA continued its rebel activities. On 25 June there were violent protests from the Slav majority, which suspected the European Union of sympathising with the KLA, culminating in protesters forcing their way into the building of the National Assembly and ransacking some offices.

3. Towards peace

106. On 6 July a second ceasefire was signed by the government and the rebel Albanian forces. This not only paved the way for the Ohrid peace agreement, signed on 13 August, but also for the NATO decision to send 3 500 soldiers to the Former Yugoslav Republic of Macedonia to collect weapons. The Essential Harvest arms collection operation, which lasted 30 days, ended on 26 September with the successful collection of over 3 800 weapons.
107. On 5 September 2001, the national parliament voted in favour of launching the process of constitutional reform which was part of the Ohrid Agreement. It took another two months of political procrastination before, on 16 November, Parliament finally adopted each of the 15 amendments and voted overwhelmingly in favour of formally amending the Constitution as a whole. The amendments give the Albanian minority a greater role in the administration and police forces, expand the official use of Albanian as the country's second language and adapt the educational system. The preamble to the Constitution was changed to define the Republic as being comprised of "all citizens" of "the Macedonian people, as well as citizens living within its borders who are part of the Albanian people", among others. President Boris Trajkovski then declared that all former ethnic Albanian guerrillas, including some 120 detainees and convicts, would be granted amnesty, except those indictable by the International War Crimes Tribunal.
108. On 26 September, NATO decided to prolong its mission to the Former Yugoslav Republic of Macedonia (Operation Amber Fox), where 1 000 soldiers were involved with the task of protecting OSCE and EU civilian observers. Although the Security Council had agreed to this new operation, it was some time before the government of the Former Yugoslav Republic of Macedonia did likewise. Although the situation is calm for the moment, the process of constitutional reform is not yet complete. On 25 October the Macedonian President, Boris Trajkovski, called on President Bush to urge the Albanian minority to drop several of its demands.
109. According to the former EU special representative in the Former Yugoslav Republic of Macedonia, François Léotard, the international community must remain engaged in the Former Yugoslav Republic of Macedonia to prevent any backtracking on commitments. He pointed out that it was difficult to check whether the KLA fighters had really returned to civilian life⁸².
110. In the week before the final vote in parliament, three officers from Interior Minister Ljube Boskovski's "Lions" (special police units), were killed near Tetovo in an ambush staged by armed Albanians using anti-tank rockets and other infantry weapons. Former leaders of the disbanded National Liberation Army (NLA) denied any involvement in those killings, for which the responsibility was later claimed by a previously unknown terrorist group, the Albanian National Army. There have been many accusations by political parties and the Macedonian media, as well as by foreign mediators, that Minister Boskovski himself provoked the incident in order to cause an escalation of the situation in the run-up to the vote in parliament. The creation of the special police units earlier this year by Mr Boskovski was never approved by Parliament.
111. It should be added that EU engagement in the Former Yugoslav Republic of Macedonia, which was a model for success prior to the events in March, is of crucial importance, not only to offset the possible repercussions that a break-up of the country might have in terms of its domestic security, but also because the Former Yugoslav Republic of Macedonia may provide an opportunity to demonstrate Europe's ability to take action with practically no help from the United States, which increasingly seems prepared to accept the EU playing a key role in the region, while the United States is engaged in Central Asia. Europe must not waste that opportunity to develop and test out its Common European Security and Defence Policy and assume its responsibilities.

112. General and presidential elections held in Romania in November-December 2000, as required by the rule of law, returned a democratic government to power for the second time, thus providing confirmation of the country's constitutional soundness.
113. The government formed in the wake of the elections is a minority government - accounting for only 47% of total parliamentary membership - but supported nonetheless by other political formations, including the Hungarian Democratic Alliance of Romania. The intervening period since the last elections has been marked by continued progress towards a market economy and integration in the European Union and NATO, supported by over 85% of the population.
114. The Prime Minister, Adrian Nastase, is an ambitious politician of the new generation. The President-Prime Minister tandem functions extremely well, with the government tackling the implementation of reforms while the President deals with calming national sensibilities and allaying social concerns⁸³.
115. The government has the parliamentary⁸⁴ support of the Democratic Union of Hungarians in Romania (UDMR)⁸⁵, the party which successfully de-dramatised the Hungarian question in Romania. The Nastase government signed a cooperation agreement with the UDMR the day following the elections, in which it undertook to respect minority rights, and in February 2001 it submitted legislation to parliament on the use of minority languages.
116. An association agreement was signed in February 1993 between the EU and Romania, and came into force two years later. Romania formally applied for EU membership in June 1995 and the Helsinki European Council decided in December 1999 to start accession negotiations. It was only in December 2000 that Romania began negotiations with the EU on 10 chapters of the acquis communautaire. In September 2001, Romania had closed 10 of the 31 chapters and opened negotiations on 12 others⁸⁶.
117. The European Commission was highly critical of Romania in its first report on the applicant countries, issued in November 2000. The report notes that Romania does not satisfy the economic criteria defined in Copenhagen and stresses the instability of its legal and institutional structures and the fragility of its macro-economic environment. The new Romanian Government, which took power after the November 2000 elections, has set itself the target date of 2004 for EU membership. During the pan-European conference⁸⁷ held on 20 October 2001, it was confirmed that no list and no classification of candidates would be submitted to Laeken⁸⁸.
118. In connection with its EU accession efforts, Romania is negotiating trade agreements with those countries which have reached the pre-accession stage. It is also preparing free trade agreements with its neighbours. It is a party to the Central European Free Trade Agreement (CEFTA) together with Bulgaria, the Czech Republic, Hungary, Poland, Slovenia and Slovakia. It is also a founding member of the World Trade Organisation.
119. Romania is currently preparing to benefit from the SAPARD⁸⁹ programme, under which the European Commission is to provide aid worth 150 million euros, to which the Romanian government is to add a 25% contribution. One of the conditions for access to funding under the SAPARD programme is the drawing up of a national plan for agriculture and rural development defining development targets. The Romanian plan was approved by the European Council in December 2000 and a funding agreement covering several years was signed in February 2001. The final step will be the creation of a SAPARD agency by the Romanian authorities and its accreditation by the European Commission services⁹⁰.
120. At the Regional Conference on South-Eastern Europe on 25 and 26 October in Bucharest, the international community announced its approval of 3 billion euros' worth of new projects under the auspices of the Stability Pact⁹¹. The participants stressed the need for regional cooperation and continued reforms, with a view to the long-term prospect of EU accession. Chris Patten, External Relations Commissioner, underlined the priority attached to south-eastern Europe: "Either we export stability to the Balkans and South East Europe", he said, "or it exports instability to the rest of Europe, and perhaps the world"⁹². Romania, it should be noted, is already a provider of stability to Europe and the Balkans by supplying peacekeeping troops to Bosnia and Herzegovina and has no major problems with its own ethnic minorities. It should receive 534 million euros, once the projects have been validated. One of the priorities remains the reconstruction of the bridge over the Danube between Romania and Bulgaria.
121. According to a Eurostat report published on 13 August 2001, after a period of stagnation from 1999-2000, Romania's growth rate was 1.6%, the lowest of all the candidate countries. Per capita GDP is 27% of the EU average, which also puts Romania among the least performing countries, ahead only of Lithuania and Latvia. In February 2001 the government signed a Social Pact with the main trade union and employers' organisations, in which it pledged to keep the unemployment rate below 9.9% for one year, increase wages by 4 to 4.5% and increase the minimum wage by 10%. The budget adopted in April 2001 predicts GDP growth of 4% and validates a number of economic austerity measures.
122. The new government has launched an ambitious economic programme. In February, Prime Minister Adrian Nastase announced the continuation of the privatisation process, in particular the privatisations planned under the World Bank's PSAL programmes⁹³. Some 63 state-owned companies are to be sold, and the Social Democratic Party has even pledged to supervise the implementation of this programme to ensure that it does not upset the social balance⁹⁴.
123. An economic stabilisation programme launched with IMF support in February 1997 ended in February 2001. The aim of that programme was to deregulate prices and trade and was based on very stringent monetary policy and drastic cuts in budgetary subsidies. Although its application exacerbated already existent social and political tensions, Romania's foreign trade balance improved, thanks to a resumption of export growth and a 1.4% drop in imports. In November 2001 the IMF and World Bank approved a US$ 383 million standby loan agreement. A first instalment of US$ 66 million will be available immediately. Under that agreement, Romania must pursue its policy of austerity on the wages and taxation front, sped up the privatisation process and make its energy sector competitive.
124. The World Bank, through its Vice-President, has agreed to allocate up to US$ 1 billion in loans. Those funds are destined for social and rural development.
125. A law on the restitution of nationalised property was promulgated in February 2001. A previous law adopted in 1995 was abrogated, since with a restitution rate of only 1% out of some 300 000 properties, its effectiveness had been limited.
126. During the first half of 2001, GDP growth was maintained at 5% and inflation was kept below 40%. Under an agreement with the IMF, inflation is to be brought down below 22% by the end of 2002.

1. Introduction

127. It should be recalled that since the end of NATO's military operation in June 1999, Kosovo has been under UN administration. UN Security Council Resolution 1244 laid the basis for creating UNMIK (United Nations Interim Administration Mission in Kosovo), currently led by the Special Representative of the UN Secretary General (SRSG), Hans Haekkerup, who took over from Bernard Kouchner as UNMIK's Head of Mission in spring 2001.
128. UNMIK was given the overall responsibility for reshaping and rebuilding Kosovo, a task it is carrying out in cooperation with other international organisations, while KFOR (Kosovo Force) is concerned essentially with security in the province. UNMIK is responsible for civilian administration, the United Nations High Commissioner for Refugees (UNHCR) coordinates the whole range of humanitarian and emergency housing, and the European Union is in charge of reconstruction. Finally, the Organisation for Security and Cooperation in Europe (OSCE) is responsible for democratisation and strengthening institutions.

2. Provisional self-government

129. A Joint Interim Administrative Structure (JIAS) was set up by UNMIK in October 1999 with a view to enabling the Kosovars to gradually take responsibility for the administration of Kosovo in preparation for the establishment and development of meaningful self-government, pending a final settlement. By February 2000, this body had replaced all previous parallel security and administrative structures. Local counterparts to the UNMIK administrators were appointed - and, as of October 2000, elected at municipal level - to represent a cross-section of Kosovar society in the administration of the province. The JIAS was headed by the Special Representative of the UN Secretary-General (SRSG). Its highest-level consultative body was the 36-member Kosovo Transitional Council (KTC), which met once a week. The Interim Advisory Council (IAC) served as an advisory cabinet to the SRSG and as an executive board to the JIAS.
130. In view of the elections and the establishment of new democratic institutions based on the Constitutional Framework for Provisional Self-Government, the Kosovo Transitional Council, together with the Interim Administrative Council, held its last meeting on 2 October 2001. On 3 October 2001, the JIAS was amalgamated into nine ministries with responsibilities in the legislative, executive and judicial fields, thereby becoming part of the provisional institutions for self-government in the Constitutional Framework. It should be noted that the exercise of these responsibilities will not in any way affect or diminish the ultimate authority of the SRSG in implementing UN Security Council Resolution 1244. The SRSG will keep full responsibility for security and defence, foreign affairs, justice and domestic affairs.
131. After certification of elections, the newly-formed Assembly will hold its inaugural session and elect the Assembly's Presidency and the President of Kosovo. The President will then appoint the Prime Minister who, in turn, will present a list of ministers to the Assembly for ratification. There will be a total of ten ministers, including one from the Kosovo Serb Community and another from the other non-Albanian communities.

3. The legislative elections of 17 November 2001

132. After organising the municipal elections in October 2000, the OSCE began preparations for the 17 November 2001 elections to the Kosovo Legislative Assembly, in keeping with the development of provisional democratic self-governing institutions as defined in the Constitutional Framework for Provisional Self-Government in Kosovo (UNMIK Regulation 2001/9).
133. When the UN Special Representative for Kosovo announced elections in May 2001, the OSCE's election department had only six months to make the necessary arrangements. The OSCE's declared main tasks were to inform the population about the election process, keep fraud to a minimum, ensure that voters' lists were accurate and up-to-date, secure full participation of all ethnic communities and recruit and train the staff needed to administer the elections. On the last point, nearly 18 000 national and international staff worked on election day, including some 2 000 international supervisors at each of the 1 668 polling stations and 497 polling centres. The elections had to be held in a secure, non-violent environment, a requirement calling for close cooperation between the OSCE, KFOR and UNMIK. The OSCE had the major task of convincing the Serb minority to turn out for the elections, notwithstanding the ongoing violence between the Albanian majority and Serb minority. Kosovo Serbs had not taken part in the October 2000 municipal elections, for fear of paving the way for an independent Kosovo. UNMIK Chief Hans Haekkerup was, however, able to convince the Yugoslav Government to support the elections by recommending to the Kosovo Serbs that they participate, and on 6 November 2001, he signed an agreement with the Government of the Federal Republic of Yugoslavia on the provision of security and other guarantees for the Serb minority in Kosovo.
134. Approximately 1 250 000 people (including 180 000 Kosovo Serbs) were eligible to vote in the legislative elections. The vast majority took part in balloting at polling stations in Kosovo. However, 136 000 people living in Serbia, Montenegro or elsewhere were also able to cast their votes. Altogether, 26 political parties, coalitions, citizens' initiatives, and independent candidates took part. The main contending parties in the elections were the LDK, led by Ibrahim Rugova, the PDK and AAK (led by former KLA commanders Hashim Thaci and Ramush Haradinaj respectively), as well as the only Serb party, Povratak ("Return")⁹⁵.
135. Discussions during the election campaign focussed on Kosovo's independence and the relative merits of the different party leaders. Issues of vital importance to economic and social life in Kosovo, such as economic development, health care, education and the fight against crime and corruption, were barely mentioned.
136. As was widely expected, Ibrahim Rugova and his LDK won the elections, with 46.3% of the vote. Hashim Thaci's radical PDK came second (25.5%), while the AAK's score was 7.8%. The Serb party Povratak obtained 10.9% of the vote, entitling it to 20 seats in the Assembly. Overall participation was 63.2%. The 20% or so turnout of Kosovo Serbs was considered to be a success. Although there were minor incidents, the elections took place in a relatively calm and peaceful atmosphere. Ibrahim Rugova, who sees himself as the future president of an independent Kosovo, immediately called for formal recognition of Kosovo's independence. The European Union rejected that appeal with an implicit reference to Resolution 1244, which concedes only broad autonomy for Kosovo.

4. Relations with the Federal Republic of Yugoslavia (FRY)

137. After the establishment of the new FRY government, UNMIK began a dialogue with FRY that it has gradually intensified. The SRSG has already held a number of meetings with Nebojsa Covic, Deputy Prime Minister of Serbia, addressing a wide range of subjects, including the situation in Mitrovica, northern Kosovo and the Serb enclaves in Kosovo, as well as security structures and confidence-building measures, education, missing persons, Albanian prisoners in Serbia and Serb prisoners in Kosovo.
138. The Serbian Government in Belgrade claims that about 250 000 Serbs were expelled from Kosovo during and after NATO's military campaign in 1999. The majority of the some 100 000 Serbs in Kosovo live in KFOR-guarded enclaves, where they complain of the lack of security and freedom of movement, poor living conditions and difficult access to education. Despite continuous KFOR protection, there are still regular attacks on Serbs by Albanian extremists. Eager to secure Serb participation in the 17 November elections, the international community has offered more protection and primary and secondary school buildings to Serb pupils, while part of the Pristina university campus has been set aside for Serb students.
139. SRSG Hans Haekkerup and other international representatives have clearly stated that Kosovo will remain part of the FRY under the terms of UN Security Council Resolution 1244. The SRSG added that "any attempt by the new parliament to introduce any resolution on the independence of Kosovo will be in contradiction of UN Resolution 1244"⁹⁶.

5. Policing

140. When the UNMIK police force - involving police officers from some 50 countries - was established, it had a double mandate: to provide operational and executive policing for the territory of Kosovo and, at the same time, to create and develop an effective, credible and impartial local police service.
141. The UNMIK police force has recently taken further steps to tackle the problem of organised and serious crime in Kosovo. It has improved and refined its intelligence analysis capability and is setting up a squad of detectives to make the best use of that intelligence and to bring the perpetrators of serious crimes to justice. The local Kosovo Police Service is now some 4 200-strong. Its officers received their initial training at the Vucitrn police school and successfully completed a subsequent field training course. The first promotions to supervising officers have been granted.
142. UNMIK is also developing the Kosovo Organised Crime Bureau, staffed with officers experienced in the fight against organised crime. The current legislation, including that on the use of information and intelligence in the courts, is slightly outdated and in the process of being adapted. Also under preparation is legislation concerning the physical protection of witnesses and the mitigation of sentences of repentant criminals who assist with the prosecution of fellow criminals.

6. Conclusions

143. The elections to the Assembly must be regarded as a success in terms of normalising the situation in Kosovo, as well as another step towards an autonomous government in Kosovo. However, many problems persist.
144. It will be a long time before Serbs and Albanians can live peacefully together, and security must be guaranteed by KFOR, without whose presence Serbs would run a high risk of persecution from Albanians. While the resolution of the question of Kosovo's future status appears to be crucial for the stabilisation of Kosovo, there are many other problems which are probably even more intricate and decisive for normalising the situation there: Mafia-like structures and corruption persist and Kosovar Albanians are involved in various criminal activities such as trafficking in arms, drugs and women. It is evident that the international community, above all the EU, must continue its engagement in Kosovo, not only to bring peace and security to this region, but also to avoid the export of certain problems to the European Union. Moreover, the fight against international terrorism and the shift of the United States' focus to central Asia may oblige the European Union to assume greater responsibilities in south-eastern Europe and further develop the Common Foreign and Security Policy.

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DRAFT RECOMMENDATION

The Assembly,

(i) Considering that recent developments in other parts of the world, including the dramatic and unprecedented terrorist attacks of 11 September 2001 and the ensuing fight against international terrorism, should not affect the European Union's strategic priority of establishing and supporting peace, stability and prosperity in south-eastern Europe;

(ii) Welcoming EU efforts to support and cooperate with the countries of that region, with a view, ultimately, to their integration into the political and economic mainstream of Europe;

(iii) Welcoming the fact that both Bulgaria and Romania have made progress in their efforts to meet the economic accession criteria and already meet the relevant political criteria for accession to the European Union;

(iv) Supporting the Stability Pact for South-Eastern Europe in encouraging and strengthening cooperation between the countries of south-eastern Europe and in streamlining ongoing efforts to support their integration in the political, economic and security structures of Europe;

(v) Noting with satisfaction the admission of the Federal Republic of Yugoslavia to the Stability Pact, in October 2000, as an important step towards its integration in European structures;

(vi) Welcoming the results of the second Regional Conference for South-East Europe, held in October 2001 in Bucharest, where donors pledged the sum of 2.4 billion euros for key infrastructure projects;

(vii) Supporting the EU's policy of offering Stability and Association Agreements to south-eastern European countries and hoping that, following the footsteps of Macedonia and Croatia which signed such agreements in April and October 2001 respectively, the remaining countries - Albania, Bosnia and Herzegovina, and the Federal Republic of Yugoslavia - will make all possible efforts to qualify for this type of agreement in the near future;

(viii) Concerned that the continuing uncertainty over future relations between Montenegro and Serbia, which in practice function as separate states in most fields, is preventing efficient economic reform, acting as a deterrent to foreign investment and standing in the way of accession to key European and Atlantic structures;

(ix) Considering that Serbia must do everything in its power to implement the May 2001 Presevo peace accord, envisaging inter alia an amnesty for all Albanian rebel fighters, greater investment in the local economy and proportional representation for Albanians in the local government and police services in order to prevent further insurgency in the region;

(x) Calling upon Serbia to cooperate fully with the International Criminal Tribunal for the former Yugoslavia (ICTY) and make sure that all its state institutions comply with the implementation of this cooperative policy;

(xi) Considering that at both government and political party level Serbia's political authorities should cease to support the armed forces and those politicians in Republika Srpska seeking to hinder the state of Bosnia and Herzegovina in the exercise and expansion of its authority over its Entities;

(xii) Aware that in Serbia internal rivalries within the ruling Democratic Opposition of Serbia (DOS) coalition are currently impeding the economic, social and judicial reforms required by foreign and international donors and which Serbia itself needs;

(xiii) Worried that more than six years after the entry into force of the Dayton Peace Agreement, extremist nationalists still attract widespread popular support in Bosnia and Herzegovina, enabling them to a large extent to frustrate efforts towards state building, notwithstanding the victory in the November 2000 elections of the non-nationalist Alliance for Change at both central government and Federation level;

(xiv) Concerned in particular that the extremist nationalist Serb Democratic Party (SDS), which became a de facto coalition partner in the Republika Srpska Government after its victory in the November 2000 legislative elections, is preventing the adoption of essential laws to reform the economy, obstructing the privatisation of profitable government-controlled companies currently being run improperly and resisting effective cooperation between Republika Srpska and the ICTY, while at state level too, together with its allies, it has consistently sought to block legislation considered of vital importance to the country's functioning;

(xv) Considering it somewhat anomalous that the new government of Serbia was forced to extradite ex-President Milosevic to the ICTY in The Hague a few months after his fall from power, under pain of not being able to obtain funds for the reconstruction of Serbia from essential donors, while Radovan Karadzic and Ratko Mladic, indicted war criminals, who are still at large and under protection within Republika Srpska, more than six years after their forced withdrawal from power, and the same foreign donors continue to bail out this virtually bankrupt Entity where nationalist forces are still apparently in control;

(xvi) Noting that the other nationalist parties in Bosnia and Herzegovina, the Croat Democratic Union (HDZ) and the Bosnian Party of Democratic Action have elected or re-elected hardliners to positions of leadership, who are now using their power to pursue policies of ethnic hatred and exploitation of the Entities resources, for their own political purposes;

(xvii) Aware that progress has been made in the return of refugees and displaced persons to their former homes in Bosnia and Herzegovina, but that many related problems still remain to be solved such as the appropriate application of property law and prevention of the continuing, all too frequent ethnic violence against returnees;

(xviii) Considering that under the abovementioned circumstances there can be no doubt that the maintenance of a SFOR presence remains crucial to the continuance of a safe and secure environment conducive to the further implementation of the Dayton Peace Agreement;

(xix) Welcoming the positive trend towards greater political stability in Albania, as confirmed by the June/July 2001 general elections, but regretting that Sali Berisha and his Democratic Party are persisting in their strategy of boycotting the legislative process;

(xx) Calling upon Albania's Democratic Party to accept its defeat in the 2001 legislative elections and participate fully in the democratic process, as this is essential for Albania's integration in the Euro-Atlantic structures;

(xxi) Welcoming the adoption by the national parliament of the Former Yugoslav Republic of Macedonia⁹⁷, of the constitutional amendments as set out in the Ohrid Agreement, while being aware that every effort must now to be concentrated on implementing the amended Constitution;

(xxii) Wondering whether the continued existence and activities of Macedonian Interior Minister Ljube Boskovski's special police units can make a positive contribution to the policy of improved inter-ethnic relations officially being pursued;

(xxiii) Recognising that the 17 November Assembly elections in Kosovo were a significant step towards building a democratic society based on human rights and the rule of law;

(xxiv) Concerned, however, that efforts within the new structures for provisional self-government may be directed towards establishing an independent Kosovo, while neglecting other issues which are far more important to the citizens of Kosovo, such as the development of a viable economy, the fight against crime and corruption, the return of refugees and displaced persons, good relations with neighbouring countries and the improvement of the healthcare and educational systems,

Invite the governments of the WEU countries, in particular those which are members of the EU or NATO:

1. To make their aid and assistance to Bosnia and Herzegovina and its Entities, in particular Republika Srpska, strictly contingent upon on the adoption and implementation of:

2. To ensure that SFOR discharges its responsibilities in Republika Srpska, in the same way as it has done in the Federation, by apprehending Radovan Karadzic and Ratko Mladic and handing them over for trial before the ICTY in The Hague;
3. To continue their support for the missions of SFOR in Bosnia and Herzegovina, KFOR in Kosovo and Amber Fox in the Former Yugoslav Republic of Macedonia, which will all remain essential in the foreseeable future for the maintenance of peace and security in that area;
4. To start preparations for the organisation of a "Balkan Conference" on the future of the nations and states of south-eastern Europe, for which every relevant issue will be placed on the agenda.

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AMENDMENTS 1-3⁹⁸

tabled by Mr Valk

1. In recital (xxi) of the draft recommendation, replace the words "while being aware that every effort must now be concentrated on implementing the amended Constitution;" by the following:

2. Replace recital (xxii) of the draft recommendation by the following:

3. Replace recital (xxii) of the draft recommendation, by the following recitals:

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¹ Adopted unanimously by the Assembly on 6 December (12^th sitting) on the basis of the amended draft recommendation.

² Turkey recognises the Federal Republic of Macedonia by its constitutional name.

³ Assembly Document 1691, submitted on behalf of the Political Committee by Messrs Blaauw and Valk, Rapporteurs, on 10 May 2000, paragraph 43.

⁴ In order to preserve a balance of power in the country, it is stipulated in the Constitution that if the President is Yugoslav, the Prime Minister must be Montenegrin.

⁵ This specialist of constitutional law is a stickler for form and an unreserved advocate of the rule of law.

⁶ Mr Djindjic is an unabashed pragmatist who favours radical change.

⁷ The ICTY was created by a resolution of the UN Security Council for the purpose of bringing to justice those responsible for crimes against humanity, genocide and human rights violations.

⁸ Mr Milosevic's first indictment by the ICTY for crimes against humanity in Kosovo dates back to May 1999.

⁹ Article by Daniela Heimerl, "Serbie-Montenegro 2000-2001. Solder le passé et inventer l'avenir", in Courrier des Pays de l'Est, No. 1016, June-July 2001, page 184 ff.

¹⁰ The discovery of a truck containing the refrigerated bodies of presumed ethnic Albanian rebels prompted a public outcry. Some 3 000 people took part in the demonstration.

¹¹ Pro-Yugoslav party.

¹² A DSS representative attended this meeting. President Kostunica subsequently tried to contest the decision, claiming that he not been informed. This claim having been disproved on the basis of a conversation with Mr Djindjic, he admitted having been given prior notice of the extradition authorisation.

¹³ The programme was drawn up after consultation between the federal government, the European Commission and the World Bank.

¹⁴ A system overload caused major power cuts. A loan was recently negotiated to fund electricity imports from Bulgaria.

¹⁵ This market survey which goes back to June 2000 takes refugees into account, but excludes Kosovo. It analyses the situation on the basis of two criteria: 1) the minimum subsistence level: the unofficial poverty threshold is calculated on the basis of the purchasing power required for 26 staple foods, multiplied by 50% to allow for the purchase of other important products and 2) the international poverty threshold, evaluated by the World Bank at US$ 4 per day. The minimum wage in Yugoslavia being US$ 60 per month, one million Yugoslavs are living below that threshold.

¹⁶ Since 1999 Montenegro has used the DM as a means of payment. The Bulgarian currency, the lev, is also tied to the DM, showing that the Balkans are preparing for their future cooperation with the countries of the euro zone, since the DM will disappear as of 1 January 2002.

¹⁷ An IMF evaluation team visited the country in July 2000 and authorised the payment of a second instalment of the loan for the month of September, in accordance with the agreement.

¹⁸ Some 220 million euros.

¹⁹ The Stability Conference involves three "Working Tables": Democratisation and human rights; Economic reconstruction, development and cooperation; Security issues.

²⁰ Yugoslavia was admitted to the Stability Pact on 26 October 2000.

²¹ Economist Intelligence Unit (EIU) country report on Yugoslavia (Serbia and Montenegro), September 2001, page 6.

²² The FRY withdrew the Milosevic government's claim to be the sole successor of the former Yugoslav federation.

²³ European Commission press communiqué IP/01/1062 of 24 July 2001.

²⁴ On 19 January 2001 US President Clinton cancelled the "outer wall" of sanctions which blocked the way for the FRY to the IMF, World Bank and EBRD.

²⁵ Some 800 people are affected by this measure.

²⁶ There are 77 seats in the parliament (Skupstina).

²⁷ This coalition includes the SNP, led by Predrag Bulatovic, the People's Party (NS) and the Serb People's Party (SNS) which won 40.6% of the vote and 33 seats in parliament following the April 2001 elections.

²⁸ The LSCG asked for five seats out of the coalition's quota to make up for alleged electoral fraud by the SNP.

²⁹ The agreement is valid for one year.

³⁰ " Montenegro, resolving the independence deadlock", International Crisis Group Balkans Report No. 114, 1 August 2001, page 10.

³¹ Ibid, page 15.

³² Turkey recognises the Federal Republic of Macedonia by its constitutional name.

³³ Estimates on the number of Albanians vary. According to the 1994 census, the official percentage of Albanians in the Former Yugoslav Republic of Macedonia is 22% of the total population but some sources suggest that it may be as high as 25 or even 30% of the population.

³⁴ Le Courrier des pays de l'Est, No. 1016, page 5.

³⁵ EIU country report on Albania, July 2001.

³⁶ Le Courrier des pays de l'Est, No. 1016, page 10.

³⁷ See the report by Mr Hancock and Lord Ponsonby on "International policing in south-eastern Europe", Assembly Document A/1721, 7 December 2000, paragraphs 24-25. "The Kanun is deeply ingrained in the country's social history (...) and will be impossible to eradicate unless the government organises an educational programme".

³⁸ Ibid, paragraphs 26-27.

³⁹ Ibid, paragraph 32.

⁴⁰ EIU country report on Albania, July 2001, page 18.

⁴¹ Ibid.

⁴² Former prime minister Ivan Kostov dismissed some ten ministers from his government in 2000 following media accusations of government corruption, doubtless in the hope of restoring to the government the popular support it needed to hold on until the April 2001 elections. None of these ministers has been convicted of corruption, to date.

⁴³ The court in Sofia had refused to register his party, the Simeon II National Movement. The ex-King therefore asked two small formations (Toso Pejkov's Movement for National Revival and the Bulgarian Women's Party) to form a coalition of the same name directly registered with the central electoral commission. Simeon II was authorised only to represent the new coalition in public.

⁴⁴ The United Democratic Forces consists of the Union of Democratic Forces and the People's Union (itself made up of the Bulgarian Agrarian People's Union and the Democratic Party).

⁴⁵ This coalition includes the Bulgarian Socialist Party (BSP), the United Labour Bloc, the Bulgarian Agrarian Union and other micro-parties

⁴⁶ L'année stratégique 2001, page 158.

⁴⁷ According to the results of the last census taken on 1 March 2001, the Turkish minority accounts for 9.5% of the population. The results can be found at http://www.nsi.bg which is the official website of the National Statistical Institute.

⁴⁸ Bulgaria should be receiving 54 million euros per year until 2006 under this programme.

⁴⁹ Libération, 20 November 2001, page 15.

⁵⁰ A memorandum was signed in Brussels in March 2001. L'état du monde 2002, Edition la Découverte et Syros, Paris 2001, pages 519 and 520.

⁵¹ Security and political stability, economic and social development and the promotion of democratic institutions. The Pact favours a regional approach and aims to develop a realistic policy, the ultimate objective being the enlargement of the EU to include the south-eastern European countries. The "quick-start package" for implementation within a period of 12 months seem to have given the reform process momentum.

⁵² Those projects are mentioned in Assembly Document 1691 on the implementation of the Stability Pact for South-Eastern Europe, 10 May 2000, paragraphs 297 and 299.

⁵³ Report available in full on the European Commission site: http://www.europa.eu.int/.

⁵⁴ Brussels argued for a "big bang" - a mass accession of 10 out of 12 applicant states, thus breaking with the rhetoric that every candidate is considered on its merits, without a firm accession date.

⁵⁵ The rise in consumer prices has slowed down considerably since the creation of the CBA.

⁵⁶ The EIU country report on Bulgaria, September 2001, page 5.

⁵⁷ Special drawing rights.

⁵⁸ Assembly Document 1691, submitted by Mr Blaauw and Mr Valk, Rapporteurs, adopted on 10 May 2000.

⁵⁹ Since 1993 the term "Bosnian" has been used to replace the term "Muslim" used by Tito to designate both a nationality and a religion.

⁶⁰ EIU country report on Bosnia and Herzegovina, August 2001 and Courrier des Pays de l'Est No. 1016, June-July 2001, pages 30-32.

⁶¹ The main parties of the Alliance are: the SDP (Social Democratic Party), the SzBiH (Party for Bosnia and Herzegovina) and eight other reformist movements.

⁶² International Crisis Group Balkans Report, No. 118, 8 October 2001.

⁶³ All the figures come from the EIU country report on Bosnia and Herzegovina, August 2001.

⁶⁴ International Crisis Group, Balkans Report, No. 115, 7 August 2001.

⁶⁵ KM : Konvertibilna Marka, the Bosnian currency unit is equal in value to the German Mark (DM).

⁶⁶ International Crisis Group Report, No. 115, August 2001.

⁶⁷ In a March 2001 study, the Foreign Investment Advisory Service (sponsored by both the World Bank and the International Finance Corporation) has reported that the business community perceives the customs administrations of both Entities as extremely corrupt.

⁶⁸ HR report to the UN Secretary-General, 18 July 2001.

⁶⁹ OHR press release, 31 October 2001.

⁷⁰ Minority returns : people who return to their pre-war homes in areas controlled by another ethnic group.

⁷¹ Report of the High Representative to the UN Secretary-General, 18 July 2001 (http://www.ohr.int )

⁷² OSCE press release, 11 September 2001.

⁷³ International Crisis Group Balkans Report, No. 118, 8 October 2001.

⁷⁴ International Crisis Group Balkans Report, No. 118, 8 October 2001.

⁷⁵ OHR press release, 7 May 2001.

⁷⁶ HR's address to the UN Security Council, 21 September 2001.

⁷⁷ International Crisis Group Balkans Report, No. 118, 8 October 2001.

⁷⁸ Le Monde, 23 October 2001.

⁷⁹ According to the latest census, the Albanians represent 23% of the population, the Slav Macedonians 66.6%.

⁸⁰ The situation in the Former Yugoslav Republic of Macedonia, submitted by Mr Goris, Rapporteur, and adopted by the Defence Committee on 18 October 2001, Document A/1753.

⁸¹ VRMO-DPMNE (Slav nationalists), PDSH (Albanian Democratic Party), LDP (Liberal Democratic Party), VRMO-VRMO (reformists), SDSM (social democrats) and the PPD (Albanian: Party for democratic prosperity).

⁸² Frankfurter Allgemeine Zeitung, "Kämpfe können wieder ausbrechen" ("Fighting may break out again"), 25 October 2001.

⁸³ Edith Lhormel in an article entitled "Roumanie 1999-2000, un pays à contretemps".

⁸⁴ Romania has a bicameral system composed of a Chamber of Deputies (341 seats) and a Senate (141 seats).

⁸⁵ Romania's Hungarian population is estimated at 2 million.

⁸⁶ Bulletin Quotidien Europe, 27 October 2001, page 8.

⁸⁷ The EU states, the candidate countries, the EFTA countries, the Balkan states, Russia, Ukraine and Moldova were represented.

⁸⁸ Remarks by the Belgian Foreign Affairs Minister Louis Michel reported in the Bulletin Quotidien Europe, 22-23 October, page 8. He added that the European Commission report on the candidate countries would be issued on 13 November 2001 and that it would be up to the heads of state and government, on the basis of that report, to perform a detailed analysis of the progress achieved and the next steps to be taken.

⁸⁹ This community programme is designed to support agriculture and rural development in 10 central and eastern European countries.

⁹⁰ The SAPARD programme will cover the period 2001-2006. French Embassy Economic Development Department, http://www.dree.org/roumanie

⁹¹ Bulletin Quotidien Europe, 27 October, page 9.

⁹² Ibid.

⁹³ Programme Structural Adjustment Loan - PSAL I and PSAL II concern the privatisation of large companies. Negotiations were conducted in October with Mr Andrew Vorkink, World Bank Director for Romania, in connection with PSAL II.

⁹⁴ Keesings, No. 44020, volume 47, No. 2.

⁹⁵ LDK: Democratic League; PDK: Democratic Party; AAK: Alliance for the future of Kosovo.

⁹⁶ Institute for War and Peace Reporting, Balkan Crisis Report, No. 296.

⁹⁷ Turkey recognises the Federal Republic of Macedonia by its constitutional name.

⁹⁸ See 12^th sitting, 6 December 2001 (amendments 1 and 3 adopted, amendment 2 withdrawn).