Applicants warn Kosovo crisis may slow reform efforts

Date: 08/04/1999

By Simon Taylor

CONCERN that the damage inflicted on Serbia by the NATO bombing will make it harder for countries in the region to join the EU has prompted Bulgaria to call for a special Union fund to help it deal with the economic impact of the conflict.

The Bulgarian government has already warned that the country could lose up to 15% of its trade following the attack on a bridge in the Yugoslavian town of Novi Sad which has closed the crucial Danube waterway to river traffic.

The war in Yugoslavia is likely to have a greater impact on Bulgaria than on most of the other countries applying for EU membership because it has a long border with Yugoslavia, and Deputy Foreign Minister Vladimir Kissiov argues that the Union should provide special economic aid to help it cope with the knock-on effects of the crisis.

"We are told we have to ensure economic growth and attract investors, but it is not easy with a war near the border. This has to be taken into account," he stressed, referring to the Union's insistence on economic reforms as a condition of eventual EU membership.

Kissiov's pessimistic view is echoed by the International Monetary Fund (IMF), which warned this week that Bulgaria would struggle to meet its growth target of 3.7% this year because of the effects of the Kosovo crisis. IMF experts said Sofia would require extra aid to help it meet its objectives.

Financial analysts are also concerned that Hungary's economy, normally regarded as one of the best performing among the ten eastern bloc candidates for EU membership, could suffer because of the country's proximity to the fighting.

Fears of a loss of confidence among foreign investors in Hungary's financial markets recently led the National Bank of Hungary to delay plans to borrow nearly €700 million from international investors. Foreign lenders would have demanded a higher rate of return to offset the greater perceived risk, increasing the bank's costs.

Analysts also believe that Hungary's transport sector could suffer from the disruption to air, road and river traffic, and tourist revenues could be hit as west Europeans shun destinations close to the war zone.

While poor economic performance in the applicant countries would not necessarily be a bar to EU membership, a tough financial climate would make it much harder for governments to implement the reforms needed to restructure inefficient industries and banks.

But the Commission insisted this week that it was too early to assess whether these countries would require special help to maintain their progress towards EU membership.

Officials stress that dealing with the refugee problem is the first priority, and point out that the Union did not offer compensation to neighbouring countries during the war in Bosnia in the early 1990s.

While most concede that the situation in Kosovo is likely to have an impact on economic progress in the region, they doubt that the fallout would delay the applicant countries' entry into the EU.

" Let us wait and see what is in the Commission second report later this year and which conclusions are drawn from that," said one, referring to the report due out in the autumn which will assess whether Bulgaria and four other applicant countries in the 'second wave' should be allowed to start membership negotiations next year.