The peace dividend

Businesses are waiting to cash in on the rebuilding of Kosovo.


Mark Boal
June 21, 1999 12:50PM (UTC)

The world became a little more peaceful over the weekend. The Kosovo Liberation Army agreed to
disarm, the last Serbian troops withdrew from Kosovo and the European Union
promised $500 million to aid the Kosovar refugees. No doubt the embattled
Kosovars will welcome the relief, but they are not alone. Many corporations see
the aid package as a bonanza, and Kosovo as little more than an enticing new
business opportunity.

For the past few weeks, companies across Europe have been circling the region like sharks,
preparing to bid on the EU reconstruction contracts. There's plenty of work
repairing bombed out infrastructure at market prices. The competition is so
fierce that even while mines lay active, British executives last week were
planing a checkbook tour of Kosovo. They enlisted a minister of trade in
the rubble search, and he is plotting an alliance with Japan. The two countries
need to team up in order to be on par with bids from France, Austria and Germany.

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But the American media has ignored this slightly ghoulish gold rush. Instead, coverage plays up Boris Yeltsin bickering with the G-7 in Cologne, or President Clinton
bickering through the headlines with a French minister. Such tiffs are practically made for
television. What's more telling is the silent consensus that by spending in the
region now, the West can pull out profits in the future.

Take the rebuilding infrastructure business. It's nice work if you can get it,
but even more enticing for entrepreneurs is the prospect of owning
the industries in Kosovo outright. Factories are in miserable shape, of course,
but disrepair only brings the price down. The fact that these industries are
still technically owned by the Yugoslav government seems to mean little to the
leaders of NATO countries. "What we will do in Kosovo, as soon as we get a legal
structure in place, is start privatizing," says a high-ranking official in the
State Department. "To do that you build financial institutions of some sort, and
perhaps a stock market."

Privatization candidates include Kosovo's electric plants, which power 25 percent of
Serbia, and mines worth the equivalent of a quarter of the area's total economy.
As of three months ago, these operations were under Belgrade's control. Now
ownership is an open question that will be answered by an interim multinational
government, probably headed by a Swede with a background in banking and a steady
hand. He'll certainly have to cut the pie delicately. "European companies hungry for
these equity enterprises will be lining up," says Michael Djordjevic, president
of the Bank of Southeast Europe. "The returns could be fabulous, going anywhere
from 20 to 100 percent in a very short time."

The outlook gets even rosier considering that the initial $500 million EU package
will be followed by $1 billion more over the next two years. Even that $1.5
billion is small change compared to what's needed. Balkan economists say that a
full revival of the region requires a later-day Marshall Plan, with cost
estimates ranging between $100 billion and $500 billion over the next decade. The idea sounds
fanciful, but momentum for it is growing as Europe realizes the higher cost of
discord in the Balkans. At the very least, many more billions will be pumped from
both public and private wells.

Once its annual budget issues are resolved, the United States will likely issue
loans or grants to the Balkans, which will be sucked up by U.S. firms waiting to
do business. Meanwhile, Europe gets to ride the gravy train. "These are our
partners and they need this injection, so let them have it," says Djordjevic.
"They need the employment, and the reconstruction will lead to a boost in their
economy in the same way that the Marshall Plan did for the U.S." Since Germany
dominates the region (the deutsch mark is the unofficial currency of Serbia), it
stands to gain the most. "German unemployment is now 12 percent," says
Djordjevic, "but after reconstruction it may fall to 6 percent, that spells a
big impact on the GDP. Even a 3 percent drop is a very big deal."

Think of the war as precursor to a dynamite jobs program. Coincidentally enough,
it took this conflict to loosen Slobodan Milosevic's hold on the last state-run economy in
the region. "You could blame this whole war on economics," says the State
Department source. "If Milosevic had liberalized the economy, instead of making
last stands, none of this would have happened." But he ignored economic reform in
favor of military action, and pursued that failed strategy until it not only
crippled Serbia's GDP but brought down the rest of the region's growth. Did a desire
to combat Milosevic's economic crimes factor into U.S. involvement? After all, we
forgive China's brutal violations of human rights, so long as corporations are
free to invest.

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In the eyes of the capital elite, Milosevic's sin is less ethnic cleansing than
his practice of cleaning out entire corporations. In February, his henchmen
commandeered a factory worth $173 million from ICN, an NYSE-traded
pharmaceuticals company owned by Milan Panic, the former prime minister of
Yugoslavia. There are many accounts of similar atrocities. Now, even the Russians
are scared to open offices in Belgrade. At one time, Serbia contributed to the
region as conduit for trade. With Milosevic running rampant, many countries
diverted their traffic to new routes. But Greece and several other nations need
a healthy Serbia for their own sake. At some point it will have to be included in
the region's redevelopment, but that looks to be unlikely as long as Milosevic is
in power. Clinton Monday said he would give Yugoslavia "not one penny"
while Milosevic was still in control.

The best hope for prosperity is to bundle the poor Balkans into a bloc, trading
under a single currency. That, at any rate, is the banker's wisdom, as voiced
recently by philanthropist George Soros et al. But the currency Soros has in mind is the Euro,
not some Slavic dinar. And a switchover, even if it were economically feasible,
could only occur at the expense of die-hard Serbian nationalism. As it is, the
coming cavalcade of foreign firms raises the specter of Kosovo becoming an
economic ward to the EU as thousands of NATO troops prepare for a long stay in
the region.

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In the minds of some Serbs, economic colonialism fits in only too nicely with the
area's long history of conquest. "Under one negative scenario," says Obrad Kesic,
a senior aide to former Prime Minister Panic, "the Europeans position
themselves to exploit the resources, and then all the money leaves the region."
It wouldn't be the first time.


Mark Boal

Mark Boal is a reporter in New York.

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