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Kosovo Faces Prospect of Running Out of Money Amid Expectations of Zero Economic Growth in 2005


Economic activity is slowing down significantly in Kosovo, as the mainly Albanian-populated southern Serbian territory copes with reduced levels of assistance from Western donor nations.

After growing by more than 3.5 percent last year, Kosovo's economy could actually register a decline in 2005. In its latest projection, the International Monetary Fund says Kosovo's economy will be flat this year and could even decline by .5 percent.

Analysts say this slowdown comes at an awkward time, as the international community is trying to move Kosovo towards a resolution of its unclear international status. Technically, Kosovo is still part of Serbia, even though the local population is demanding full independence. Because its status is still undetermined six years after the United Nations took control, Kosovo's local government is not able to raise money on international money markets or borrow from the IMF. The Monetary Fund's local representative, Marc Auboin, says the IMF is doing all it can to make sure Kosovo does not run out of money.

"So what we're trying to do is, with the remaining money in the bank, help them go through 2005 and 2006, so that at least the macro-economic situation does not stand in the way of the status determination," he said.

The United Nations is expected to begin final status negotiations, later this year. Budget surpluses from the earlier in the decade created an accumulated 300 million euro surplus in Kosovo. But the government budget is now in deficit and half of the surplus is gone. Kosovo uses the euro as its domestic currency. The IMF is urging the government to cut back spending so that the government deficit will be eliminated.

Kosovo was always the poorest part of the former Yugoslavia. There was rapid economic growth when donor assistance was pouring into Kosovo, earlier in this decade. But those donations have fallen by half. Mr. Auboin says the cutback in assistance has boosted unemployment.

"[It is] About 30 percent and slightly increasing at the moment because of the flatness in the economy. And, because we have the youngest population in Europe here, massive arrivals in the labor force every year. So this year the economy will not be able to absorb all of the incoming people," said Mr. Auboin.

Some private sector economists say the unemployment rate is closer to 50 percent.

Some experts say the looming cash crisis in Kosovo is likely to be avoided by western donors stepping forward with emergency assistance.

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