28 April 1999 

TEXT: THE ROLE OF THE WORLD BANK IN THE KOSOVO CRISIS

(World Bank press backgrounder on regional support plans) (1820)

Washington -- Following is the text of an April 25 World Bank press
backgrounder on steps under consideration in the Bank to assist
countries in Southeastern Europe directly affected by the Kosovo
crisis:

(begin text)

The Role of the World Bank in the Kosovo Crisis

The Kosovo (1) crisis is a humanitarian tragedy that necessitates a
coordinated economic and financial response from the international
community on two fronts: providing immediate aid to relieve the
suffering of a large number of refugees; and ensuring that the
countries neighboring the FR Yugoslavia have access to adequate
external financing to help them deal with the adverse macroeconomic
consequences of the crisis. Of the neighboring countries, the ones
most affected are Albania and FYR Macedonia. However, Bosnia and
Herzegovina, Bulgaria, Croatia, and Romania are also experiencing the
effects of the crisis. Even if the crisis were resolved quickly, some
of these countries would face sizable extra-budgetary and balance of
payments gaps at least through end-1999.


The Kosovo crisis is affecting the economies of all neighboring
countries-albeit in different ways and to different extents. Some of
the most important findings are:


-- The large number of refugees puts a huge strain on the social and
economic infrastructure, in particular in Albania and the FYR
Macedonia. These countries have already incurred significant costs by
providing immediate assistance to refugees.


-- Disruptions in trade and transport hurt in particular the economies
of Bosnia and Herzegovina and FYR Macedonia for whom Federal Republic
of Yugoslavia (FRY) is a major export market. Bulgaria and Romania are
forced to find alternative-and more costly-transit routes around FRY.


-- The crisis may also adversely affect the confidence of foreign
investors-particularly in areas bordering Kosovo. In addition, some
countries may experience a reduced flow of tourists and may also have
to pay higher country risk premium on capital markets borrowings.


-- Finally, the crisis could result in the postponement of structural
reforms which will affect longer term development goals of these
countries.


As a result of lost export earnings, trade diversions, and potentially
higher debt service costs, balance of payments gaps in most countries
are likely to widen. Budgetary gaps will also arise from lost fiscal
revenues as a result of lower incomes, and in some cases, from
disruption of customs collection and expenditures related to refugees.
Fiscal strains may lead to cuts in key social sector expenditures.


World Bank Response

In light of its mandate and comparative advantage, the World Bank will
continue together with the IMF to assess the macro economic impact of
the crisis on the neighboring countries. The Bank is not a
humanitarian or relief agency and will not provide humanitarian
assistance, but is working closely with humanitarian aid organizations
to assure complementarity of its support. The Bank will provide
adjustment assistance and other economic development support. Together
with the IMF and the European Commission will lead the coordination
effort among all bilateral and multilateral aid agencies involved in
mitigating economic consequences of the Kosovo crisis.


Albania, Bosnia and Herzegovina, Bulgaria, Croatia, FYR Macedonia, and
Romania are members of the Bretton Woods Institutions and the Bank has
active lending programs in the six countries.


The Bank, together with other donors, is closely monitoring the
situation in its client countries. In the case of the three most
affected countries, the donor community is considering early donor
consultation meetings scheduled over the next months and providing
incremental assistance over and above their regular aid programs.


In parallel with its joint work with the IMF in determining the
balance of payments and the fiscal implications of the crisis, the
Bank has launched efforts on an emergency basis to prepare quick
assistance packages for countries most affected by the crisis:


Albania: Albania has come under dire stress with the influx of around
362,000 (2) refugees from Kosovo since March 24 and further influxes
of refugees expected. The government has requested urgent balance of
payments and budget support from the World Bank. To accommodate the
crisis needs of the country and to safeguard the functioning of the
state and macroeconomic stabilization, the Bank has taken several
initiatives:


-- Post Conflict Fund: Two grants under the Post-Conflict Fund,
totaling US$2 million, have been approved by the World Bank for
Albania. The first grant (US$1million) is presently being implemented
through an Italian NGO -- Communita di Sant'Egidio -- expand schools,
supply health centers, improve water supply and sanitation, finance
transport, provide food for children, and collect waste in Durres,
Lexha, Kukes, and Shkodra. The second grant of US$1 million, approved
on April 6, will undertake more intensive refugee support activities
and assist the development of NGO restructures, which can administer
this and other inflows of aid funds. Other NGO partners will also be
identified;


-- Public Sector Support Program: A fast disbursement operation of
US$30 million will be proposed for approval by the Board of Directors
to finance extraordinary budgetary needs and to compensate for revenue
shortfalls caused by the crisis. The program is expected to assure
sufficient budgetary allocations for Albania, to perform essential
public sector functions, especially in social services, civil
administration, public infrastructure, and domestic security. The
program will assure that fiscal discipline continues to be maintained,
fiscal monitoring processes be implemented, and special transparency
measures related to relief expenditures be established. This soft
credit (which will be repaid in 40 years including a 10 year grace
period with a 0.75 percent per annum) is expected to be approved and
disbursed in early May;


-- The Bank will continue with the preparation and implementation of
several new operations including developmental assistance which is
also urgently needed at this time. For example, funds for microcredit
programs, irrigation/flood prevention, and the Structural Adjustment
Credit (SAC) are expected to be approved within the next 3-4 months.
Assistance under these projects exceeds US$40 million. Substantial
disbursements are expected to take place immediately after project
approval, particularly under the SAC which will provide budgetary
support for reforms in the judiciary and civil service, privatization
of public banks and strategic public enterprises, and other key
actions to modernize the economy;


-- Several ongoing projects will be restructured to assist the
refugees. For example, funds will be reallocated for the
rehabilitation of public buildings to serve as shelters, purchase of
surgical and medical equipment, and improvements to water systems.


Macedonia: FYR Macedonia is facing an extraordinary situation with
more than 133,000 Kosovar refugees arriving in the country since March
24. Estimates are that thousands more are either waiting to enter the
country or are already on their way to the Macedonian border. The
government has requested emergency support from the World Bank to help
ease the unexpected budgetary costs associated with this huge influx
of refugees and the impact on the country of the loss of its major
trade and export routes. The Bank is adopting a three-pronged approach
to help ease the devastating effect of the Kosovo crisis on the
Macedonian economy as follows:


-- Emergency Critical Imports Loan - an investment operation under
preparation (proposed amount US$40 million IDA credit) to be processed
on an accelerated basis. The program will help finance critical
imports to the country and is expected to be quickly disbursed.


-- Emergency Consultative Group meeting - The World Bank has also been
asked to take the lead in organizing an emergency donor conference for
Macedonia which will take place on May 5 in Paris. The purpose of this
emergency donor Consultative Group meeting is to organize additional
balance of payments and budgetary support from bilateral countries and
international institutions to assist the Macedonian Government in
handling the economic impact of the Kosovo crisis.


-- Post-Conflict Fund - An application for US$1 million Post-Conflict
Fund, financed by re-flows from the World Bank net income is presently
being prepared and is expected to be submitted for consideration to
the Post Conflict Board by end-May. These funds will be used to
undertake more intensive refugee support activities and to assist
local NGOs with requisite institutional capacity to administer and
direct other inflows of aid funds.


Bosnia and Herzegovina: In the wake of the recent crisis, Bosnia and
Herzegovina has received some 32,3000 refugees from both Kosovo and
the Sandjak region of Serbia, in addition to hundreds of thousands of
people who were internally displaced as a result of the conflict in
Bosnia during the 1992-1995 period. The country is also experiencing
significantly reduced trade flows, since FRY was a major trading
partner. The government has requested emergency support from the World
Bank. The World Bank is providing direct support in response to the
crisis in two key areas:


-- Budgetary support- The Bank is considering an increase in the
amount of the planned Second Public Finance Structural Adjustment
Credit, to respond, in part, to additional budgetary requirements
brought on by the crisis.


-- Donor Conference- The Bank is also leading, in partnership with the
European Union, efforts to mobilize additional funding for the $5.1
billion reconstruction and recovery program for Bosnia. A donors'
pledging conference is being planned for the latter part of May.


Coordinating the International Response



The Bank and the Fund can play a coordinating role in the financial
response of the international community to the Kosovo crisis. The two
institutions are collaborating closely with other international
financial institutions, the donor community, and the affected
countries to refine the estimates of regional and country-specific
financing needs and to assess the availability of external financing.
A number of initiatives have taken place and are scheduled to
coordinate assistance. On April 2, the Bank sponsored an emergency
Informal Donor's Meeting on the Kosovo Crisis where IFIs and bilateral
participants, including representatives from the affected countries
and on ongoing and planned donor support programs. A coordination
meeting for the relevant IFIs was held in London on April 18. In
addition, the Bank and Fund are scheduled to host a meeting on the
crisis on April 27 in Washington.


The World Bank is aware that the implications of this crisis for the
social sectors and physical infrastructure could be significant,
especially if the crisis persists for an extended period. In addition
to the plight of refugees, the decline in economic growth could
potentially slow or reverse progress on poverty reduction. Damage to
infrastructure and increased demand on alternative transport
infrastructure will also increase the need for investment in transport
in some affected countries. Bank staff will examine the implications
of the Kosovo crisis for the design and implementation of existing and
proposed lending operations.


(1) Kosovo is a region within the Federal Republic of Yugoslavia (FR
Yugoslavia) which comprises the republics of Serbia and Montenegro. FR
Yugoslavia is not a member of the IMF or the World Bank.


(2) Refugee numbers source: UNHCR, 4/23/99


(end text)