Briefing Paper

Development cooperation and stability in South-Eastern Europe: a Herculean or a Sisyphean task?

Wittkowsky, Andreas
Briefing Paper (5/1999)

Bonn: German Development Institute / Deutsches Institut für Entwicklungspolitik (DIE)

Development cooperation will play an important role in the stabilization of South-Eastern Europe. Under the "Stability Pact for South-Eastern Europe" German development cooperation faces the major challenge of contributing to the EU's emerging common foreign and security policy (CFSP) - both bilaterally and through political representation in multilateral institutions.

• In view of the large number of participants in the Stability Pact efficient donor coordination is needed. To this end, new institutions have quickly been created, although their powers are not yet entirely clear. Coordination will work only if the interest of all participants in the Stability Pact's success outweighs particularist interests. For the coordination of German development cooperation it will be crucially important (i) to reconcile the differing interests of German actors and (ii) to ensure integration into a coherent reconstruction strategy coordinated by the EU and the World Bank.
• The short-term objectives of development cooperation are emergency assistance, the restoration of basic infrastructure, the provision of balance-of-payments support, and budgetary aid. Given the recipients', and especially Kosovo's, limited borrowing capacity, such aid should take the form of non-refundable grants. For procurement preference should be given to local supplies and services in order to strengthen self-help capacities and stimulate the development of local economic potential.
• The medium-term objective of development cooperation is sustainable, self-perpetuating development in the region. The foundations for this have to be laid through democratization, the development of the administration and legal system, and the strengthening of the education system. Kosovo's development prospects are limited. This makes it all the more important for reconstruction to stimulate the regional economy. German industry's commercial interests should be subordinated to this objective. Concentration on a few, internationally agreed areas would increase the efficiency of German development cooperation.
• The gravest problem for aid to South-Eastern Europe will be the poor absorptive capacity, i.e. an inadequate environment for the appropriate use of funds. It is essential that aid commitments are geared not to calculated needs but to the actual spending opportunities created by reforms. Politically motivated pressure to disburse funds should be avoided because it would encourage corruption and mismanagement and reflect badly on the Stability Pact. An innovation would be country funds into which the donors each year paid resources that would not necessarily have to be spent in the financial year concerned, but could be saved for a future use (accumulating country funds). This would give the recipient countries an incentive to create an environment in which these resources can be put to good use.
• In the long term the countries of South-Eastern Europe should have the prospect of acceding to the EU. Early accession, however, is not a realistic option for stabilization. It would hamper the development of competitive enterprises in the region and harm the EU's currently high standing in South-Eastern Europe. The aim should be rather to make gradual integration possible by means of tailored stabilization and association agreements and to formulate the conditions for EU membership in more practical terms and so give South-Eastern Europe clear and reliable signs of what is needed.