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From Black Hole to Bright Hope
Yugoslavia today has a star team of economic reformers. But their challenge is enormous. At a conference of 500 businessmen, the 2nd Yugoslav Summit, I tried to give a picture of the political and economic problems and possibilities of the country and region.

Remarks by Mr Carl Bildt at the 2nd Yugoslavia Summit
Belgrade, February 25, 2002

It is with great pleasure that I have to speak here today to a gathering of primarily businessmen, and to discuss the future of this country and this region primarily from an economic point of view.

For years, it was primarily soldiers and politicians of very different sorts and international diplomats and mediators that dealt with the issues of this region.

I was, in different capacities over the years, one of them.

We had to deal with fundamental political issues as we, first, tried to prevent war, then tried to end the wars and pave the way for peace and, later on, see how some sort of self-sustaining structure of stability could be built in this part of Europe.

These tasks are not entirely behind us.

There are core political issues of the region that are still open. Many political structures are still fragile. The need for an international presence in key areas is still there.

But the fact that we are beginning to shift attention to more normal issues of economic development in important part of the region is an extremely important development in itself. This 2nd Yugoslavia Summit focuses on the economy and the future.

The past decade of disintegration and of wars has been profoundly devastating for the economies of this region.

If we go back little more than a decade in time, the then Socialist Federal Republic of Yugoslavia was a country in deep crisis, but still with better possibilities for the future than all the other countries of the socialist-ruled part of Europe. It was a less repressive regime, and a marginally more open economy. It was a country that was interacting with the outside world more than most others.

Then, everything changed.

The then Yugoslavia was certainly ahead of a country like Poland in every single respect as the transitions started. Since then, Poland has increased its economy by app 50%, while what today is Yugoslavia has lost app 50% of its economic strength, all measured on a per capita basis. Poland of today is more than twice as rich as Yugoslavia, member of the North Atlantic Alliance, receiving large amounts of foreign direct investment and likely to sign its treaty of membership in the European Union before the end of this year.

Historians are certain to debate whether the devastating wars of this region could have been prevented. We saw ruthless politicians turning aggressive nationalism into a weapon to preserve decaying structures and to cave out now states and structures for themselves. And we saw an international community that did not always have the historical perspective necessary to deal with the issues that suddenly once more burst upon it.

Present Yugoslavia Serbia and Montenegro was spared the direct effects of war, at least until the spring of 1999. But this was no relief, since it had to suffer a particularly devastating combination of policies of socialism and policies of sanctions.

There were no reform policies worthy of the name, making Belgrade the very last bastion of old socialist doctrines in Europe. And there were heavy economic sanctions imposed by the international community, destroying old trading patterns and paving the way for the emergence of truly perverse economic structures.

Towards the end of the Milosevic regime, I used to say that the country had acquired a unique combination of a nomenklatura and mafioso economy. The middle class had been thrown into poverty, while criminal and profiteering groups were trying to make themselves rich. The country had sunk down to the level of perhaps the poorest in Europe.

It was worse than a tragedy it was a crime.

Today, we are looking at a situation that is very different.

There are lets be clear on that - remaining difficult political issues that need to be settled.

The present Federal Republic of Yugoslavia is unsustainable, and will be replaced by something else within the next few years. Present talks between Belgrade and Podgorica, facilitated by the European Union, aims to forge a new relationship which not only has broad European and national support, but which will also further regional stability and improve economic prospects.

The European Union has sent a strong signal that it wants more of integration, and less of disintegration, in the region, and that also the relationship between Serbia and Montenegro should be seen in that light.

These talks are not easy. There is always an inherent difficulty in a relationship between a very large and a very small partner. But examples from other parts of Europe England versus Scotland, to take just one example show that it is possible.

But difficult as the talks are, I believe it is worth noting, that some points have a very broad support. They agree on the necessity of continuing strong economic reform policies, on the need to preserve and develop Serbia and Montenegro as a unified economic space and on the need to further the process of their integration with the rest of Europe.

From an economic point of view, their areas of agreement are thus more important than their areas of disagreement.

To this should when we are talking about the future be added the issue of Kosovo.

It is today under the administration of the United Nations, although local and Kosovo-wide elections have paved the way for the setting up of institutions of self-government and substantial autonomy. Clearly, developing practical cooperation between the authorities in Belgrade and in Prishtina on the numerous issues that are of obvious common interest, not least in the economic sphere, should be high up on the agenda.

Over time, there is also the need for a political compromise over the future of Kosovo that will lead to a true peace agreement.

This will not come tomorrow, but neither can it be delayed forever. We should recognize, that open issues are open wounds, and that open wounds sometimes dont heal, but rather has a tendency to spread infections around. I believe we have already seen this demonstrated.

Within the not too distant future, I believe we will see a political settlement of all the remaining open political issues of this region to the north of Greece and to the south of Slovenia. Such a settlement is a precondition for any serious move towards a serious integration of the region into the European Union. On present trends, such an overall settlement also of the remaining outstanding issues need not be delayed for too long.

The parallel process of resolving the overall political issues in the region and of political reforms in the different countries are of course of key importance for the economic revival that is so necessary.

The year 2000 was the watershed year for Yugoslavia as well as the region. Backward looking regimes disappeared in first Zagreb and then Belgrade. New political forces, firmly committed to both political and economic reforms, took over responsibility.

New opportunities for European cooperation and aid were opened up.

Most profound was, of course, the change here in Belgrade. It is fair to say that Serbia was transformed from the black hole to the bright hope of the region.

And I stress the region, because by both size and geographic location, Serbia remains a most important part of the region, with its economic development of key importance for the region as a whole.

After the awful 1990s, Yugoslavia entered the new century with much better prospects.

I remember the swiftness with which we negotiated the arrangements for the return of Yugoslavia to the United Nations I was part of those. And equally swift we could negotiate the critically important deal on the different succession issues after old Yugoslavia, paving the way for the full integration of the country into the international financial institutions, with the IMF and the World Bank in the lead.

Last November, Yugoslavia negotiated the most favourable deal on the restructuring of foreign debt ever done by anyone with the so-called Paris club.

This has, together with direct financial support not the least by the European Union, facilitated the tackling of the monumental issues of domestic economic reforms. Virtually everything at the end of 2000 was unsustainable. It was a state and an economy held together by little more than dirty tricks.

The extremely rapid reintegration into the international community was facilitated not only be the determination of the international community to make a new start, but even more by the commitment of the reform leadership here in Belgrade.

Yugoslavia suffered tremendously during the 1990s in being left out of the reform processes in the rest of Central and Eastern Europe. But for all disadvantage of not having been part of the wave of the great liberal economic reforms of Central and Eastern Europe during the 1990s, it now has the advantage of drawing upon all the lessons learnt the successes as well as the failures of these important years.

It can devise its program of reforms based on solid experience, strong international support and a firm road map for the future.

This is also what we have been seeing happening. And I dont think Im exaggerating when Im saying that the reform team here in Belgrade has a star quality that stands comparison with any of the countries it can be compared with.

The reform team here is among the most dedicated, and certainly the most experienced, that we have seen in any of the countries making the transition from the command economies and authoritarian regimes of the past to the open economies and democracies of the future.

And reform has been truly been impressive. The macroeconomic situation has developed better than in most other reform economies at a similar stage of development. The stern eyes of the IMF have noted, looking at last year, that the fiscal, credit, wage and external targets of the program were achieved with a comfortable margin. Inflation is down, foreign reserves are up, and confidence in the dinar is being steadily restored.

But the road back is a long one. A decade has been lost, and it will take at the least a decade to recover.

Financial sector reform is important. Privatisation must proceed. Governance issues across the board must be tackled. The public sector must be both possible to finance and be able to deliver the services necessary. Poverty must be reduced the country has the largest refugee population of any country in Europe. The health and social sectors must be fundamentally reformed. Remaining problems of corruption and structures from the times of smuggling and sanctions busting must be tackled head-on.

The experience gained by the other transition economies of Europe shows that there are no short cuts to success. Only a radical approach to reforms has the potential to deliver results before there is a risk that disillusionment starts to set in, and the political impetus behind reforms start to wane.

Economic growth is the key to political stability over the longer term. And economic growth is dependent on their being a high level of investment in the future. Export- and private investment-lead growth is, over time, the key to the future.

We all know what is required to achieve this. And Yugoslavia has made impressive progress in achieving both the political stability and the macroeconomic framework necessary. The rule of the law is the law of the land. But we also know that more is needed in terms of economic reforms and economic integration throughout the region.

When I speak about the region, I speak about it primarily in geographic and political terms. In economic terms, disintegration is a fact. The level of economic integration so far is very small. All the countries are developing their economic links more with the European Union and, to a certain extent, the United States and other countries than they are doing with their neighbours in the region.

This will, I believe, change as the political issues of the region are gradually settled. There is no doubt that foreign direct investment in the region all of it would be greatly facilitated if there was a higher degree of economic integration between its different parts. The agreement concluded under the auspices of the Stability Pact to conclude regional free trade agreements is from this point of view extremely important.

Having been primarily a politician in the past, I am now at least to some extent a businessman as well. I would not invest in this region for short-term profit. But I would seriously contemplate doing so for the long-term possibilities it does offer.

The five countries south of Slovenia and north of Greece do not represent a large proportion of the population of Europe. With app 25 million inhabitants, it is no more than app 7 percent of the population of the European Union of today. And in economic terms, the situation is of course dramatic. Even taken together, these countries today represent less than one percent of the economy of the European Union.

But in these figures lies also the potential for the future.

With overall political stability, with sound reform policies in place and with a gradual integration with the rest of Europe, there is no sound reason why growth here should not be stronger here in the years to come than in most other parts of Europe.

The Stabilisation and Association Agreements of the European Union gives a pathway for the future. These represent a very considerable step forward in the policies of the EU towards the region. I belong to those convinced that, in the years ahead, it will have to develop further, and that we will see a step-by-step evolution towards free trade agreements with the EU, a customs union covering the area, its de facto inclusion in the internal market of the European Union and, over time, a true pre-accession policy.

This would aim at full membership in a European Union that by that time encompasses all of Europe to the West of Russia and the Ukraine in a federation of nation states that preserves the peace and promotes the prosperity of all of its constituent units.

Im not among those saying that this will be either easy, quick or without its problems. On the contrary. It took a long time even for my own country Sweden to make this journey. And here the wounds of war, the lateness of reform and the legacies of both socialism and sanctions remain heavy burdens. But I do not know of any serious observer who doubts that this is the direction in which things will be develop. There will be difficulties and disputes over the modalities and the pace but there is none over the basic direction of the years and the decades to come.

And that is of profound importance when looking at the economic future of Serbia and Yugoslavia. Its clearly heading towards Europe. And after the devastating decade of the 1990s it has done a very good start in a very short time.

When stepping back and looking at this region, you could argue that its problems and its potential derive from the same historical facts. Situation where Christian Europe was once divided into an East and a West, where Christianity meets Islam, and where we are looking beyond the borders of Europe itself, it did over time develop into a mosaic of cultures, traditions and religions that couldnt really be fitted into the pattern of pure national states that become the pattern in Europe during the past one or two centuries.

This was, ultimately, why we got all the conflicts and the wars. But this is, ultimately, what gives the region and its countries its perhaps greatest potential for the future.

Its easy to talk about the importance of the infrastructure links that are necessary to connect different parts of Europe, and about the road and the rail links connecting Europe to Turkey and further beyond. But beyond this lies the greater importance of the region as a bridge between Europe and important parts of its outside world.

And here the mosaic that often in the past turned into a problem - sometimes exploited, sometimes just mishandled has all the possibilities of turning into an important potential.

Nothing of this will happen tomorrow. Those of us who have been dealing with the conflicts of the region know the problems.

But with the right policies in place, and within a clear structure of European integration, this region could be transformed from the region of problems in the past to a region of possibilities in the future.

Bildt Blog Comments

In addition to this webpage, and the email letters ongoing since 1994, I have now started a blog as well.

You find it at

At you will continue to find articles, speeches and different documents.

At the blog there will be the shorter and perhaps somewhat faster comments.

And the e-letter continues to give at the least an attempt at analys.

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