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Thomas Pickering, Under Secretary of State for Political Affairs Address, Business Council for International Understanding Washington, DC, August 7, 2000 |
The Bell Has Rung Thank you Mike and all for inviting me to be with you today. Your organization plays a very important role in linking this country's foreign policy apparatus with the business community. We often say that in the era of globalization, foreign policy is domestic policy, and vice versa. I think that's true. This development requires from all of us a great effort to understand the concerns of each player and the skills each can offer. Today I would like to talk to you about the role you can play in the Balkans. Perhaps my geographic choice surprises you. You might have expected I would raise China or Nigeria, or some other country where commercial relations were known to be a major part of the bilateral relationship. I chose the Balkans because the story there is much more variegated and positive than is generally known, and I want American business leaders to begin to think about and explore the region. On Wall Street, traders often say that no bell goes off when the market has hit bottom. Of course the bottom is the time to buy, when the market is despairing and demand is weak. But usually it is only months or years afterwards, when we look back from a prolonged rally, that we curse our luck -- by "luck" we really mean our own shortsightedness -- for having missed a golden opportunity. In Southeast Europe, it seems to me that many economies hit bottom some time last summer. Again, no bell went off, but looking back some 12 months later, we can see a rapid trend upwards. Opportunities are there and investors -- more particularly, U.S. firms such as those present here today -- should shake off any incipient shortsightedness and look closely at the region. So my theme for you all is that in the Balkans, a bell at the bottom of the market has rung. I would like to use my time with you this afternoon to share my views on why the recent changes in Southeast Europe are profound, widespread, and durable. Our vision for the region is clear and straightforward; the United States wants to see in Southeast Europe democratic states with market-based economies integrated into the new European structures built around uniting the continent. We are approaching this project with many partners and from many angles, from security and political reform to police training and economic development. In the past year, the region has made significant progress. Most people are more aware of the black holes in the Balkans than of the glimmers of hope. To be sure, Serbia, Montenegro, and Kosovo remain deeply troubled and their travails often dominate headlines. It would be irresponsible to make light of the dangers there. Overall, however, the Balkans picture is not monochrome. Rather, the reality of Southeast Europe is much more complicated and more encouraging. Croatia has a new government committed to reform, whose policies represent a fundamental turnaround for the country. But nothing is assured. As everywhere else in the region, the new leaders face the difficult task of clearing the corruption of the past. We are seeking to support the Croatian government in their efforts to build a new Croatia. It just so happens, to illustrate my point, that President Mesic and Prime Minister Racan will meet President Clinton this week on August 9, 2000. Bulgaria quietly is moving in the right direction, with accession to the European Union and achieving NATO membership serving as the guiding principles for reform. Albania and Macedonia are doing better than anyone dared expect. Macedonia has 6% economic growth, has welcomed Greek investment, and recently passed a law allowing higher education in Albanian, thus meeting a concern of its largest ethnic minority. I visited Albania in February. It has a long way to go, but it has people who want to build security and stability, and our European partners join us in helping them. In Romania, reform has lagged and it now seems likely the ex-communists will return to power in November. There too, however, there is hope. In the current electoral debate, all major political parties have expressed support for EU accession and NATO membership. Further, if what the opposition is telling us is true, the new government will maintain Romania's commitment to economic reform. From this political overview, I would like to turn to the business climate. We need to be honest and clear-eyed here. Throughout the region, progress is genuine, but remains very fragile. What I'm describing is a promising beginning. To start, we need to consider Southeast Europe 12 months ago. Last summer, the Balkan economies were in shock from the Kosovo conflict. Throughout the region, balance of payments had moved sharply negative, shaking domestic confidence in the economy; many towns and provinces found themselves overwhelmed with refugees; and strident predictions of new conflict made difficult any discussion of investment and growth. What a difference a year makes. Gloom has given way to a carefully guarded optimism and, almost everywhere, "investor confidence" has become, or is becoming, the standard by which regional governments calibrate their policies and actions. In some cases, the pace of change has been breathtaking. In Croatia, the American Chamber of Commerce has gone from nothing to 130 members in 18 months -- a pace that far outstrips the 3 years it took the American Chamber in Budapest to reach its first 100 American companies. Albania provides another good example of change. In 1997, a good part of the country was a smoking ruin after riots following the collapse of pyramid schemes. Two years later, Albania bore much of the brunt of Kosovo. To the surprise of many, the reform government that arose from the ashes of the pyramid crisis has survived, economic growth has returned, and reform is progressing. The impetus for change in the region contains many strands, but I would like to highlight three: First, Balkan voters increasingly are recognizing the contradiction between ethnic politics and integration with modern Europe; Second, donor assistance to the Balkans is ample and effectively focused on building market capitalism; and Lastly, the international community has provided tangible evidence of its commitment to security in Southeast Europe. A Vote for Integration Balkans voters see more clearly now than they did 1 or even 5 years ago, that they must choose between ethnic nationalism and integration with modern Europe. They cannot have both. Bulgarians in 1997 threw out the nationalist government that had ruined the economy. Under a reform government, Bulgaria has established macroeconomic stability based on strict fiscal discipline. The new government clamped down piracy of music CDs and, by the end of this year, will have entirely privatized the commercial banking sector. In January of this year, Croatians voted out the party of ultra-nationalist leader Tudjman, who had led Croatia twice into war. The current government, in power barely for 6 months now, has opened the battle for economic reform on many fronts. It is working on new laws in fiscal policy, commerce, asset management and privatization, capital markets, and foreign direct investment. By the end of 2000, Croatia should have in place an IMF agreement that will provide the funds and technical assistance needed for continued reform. U.S.-EU Assistance to Balkans Supports Private Enterprise Turning to donor assistance, the Stability Pact provides the organizing framework for U.S. and European aid to the Balkans. President Clinton and German Chancellor Schroeder announced the Stability Pact just over 1 year ago, at the July 30, 1999 Sarajevo Summit. The Pact is a straightforward and simple bargain in which the international community will work to integrate Southeast Europe into the broader European and transatlantic mainstream, and -- for their part -- the countries of the region will implement the reforms that are necessary for such integration to take place. A guiding principle of the Pact is to establish credible market-based institutions in Southeast Europe. Recognizing the importance and complexity of the task, donors, including the U.S., have amply funded Pact activities. The March 2000 pledging conference resulted inpromises of $2.3 billion [$2,3000 million] of "quick start" assistanceand medium-term commitments totaling $6 billion [$6,000 million]. Private investment is the key to growth. For this reason, the U.S. Government has designed programs that substantially lower the cost and risks for companies entering the Southeastern Europe market. The U.S. Trade and Development Agency (TDA) provides funds for feasibility studies of potentially marketable projects, typically covering half the cost. The Overseas Private Investment Corporation (OPIC) has provided a $200 million investment facility for ventures in the region with significant U.S. participation. Further, as part of the Stability Pact's 1-year anniversary, OPIC signed with Soros Fund Management a deal to provide $150 million fornew business development, expansion and restructuring in the region. Speaking at the White House, Mr. Soros noted that while he may be known in Eastern Europe for his philanthropy, his intention with this fund was to make money. If I may be permitted an aside. It gives me pause for thought: what does it mean when George Soros, the world's most famous short seller, is going long on Southeast Europe? Perhaps he has heard a bell ringing that the rest of us can't yet hear. Admittedly, not all regional markets offer equally great possibilities for U.S. companies. Official donors have a special role in such cases. Bosnia-Herzegovina, while still possessing a difficult business climate, provides a good example of how official donors are working to build local institutions and improve governance. After the shooting stopped in 1995, much of the initial government and donor response had to go to replacing destroyed bridges, restoring electricity and gas, and returning people to their homes. Relatively little has been accomplished in economic reform. But in recent months, discussions have begun on integrating power grids within the region and breaking up local telephone monopolies. Progress has occurred largely owing to an energized internationaldonor community, which has divided among itself reform responsibilities. In Bosnia, the IMF is providing assistance for fiscal reform, the European Bank for Reconstruction and Development (EBRD) is providingassistance in telecoms, the World Bank in the energy sector, and the U.S. Agency for International Development (USAID) is working on privatization. This serious, specialized approach provides Bosnia with high quality technical support for reform. Our clear message to the Bosnian Government remains, however, that the true dividends are not in donor projects, but in private investor interest. Finally, the Stability Pact has served as a focal point for regional meetings of officials and business. Recognizing that trade and investment are essential to long-term economic growth, the countries of Southeast Europe have formed an Investment Compact to identify changes to their legal and regulatory environments that will attract investment. The Stability Pact's Business Advisory Council, which includes leading local and foreign firms, offers advice on issues relating to business decisions. U.S. firms Enron, Cisco Systems, and Citibank actively participate in the Business Advisory Council. For their part, the 130 firms in the Croatian-American Chamber of Commerce have taken an active part in indicating what types of reform businesses would like to see. Security The NATO intervention in Kosovo is a dramatic example of the U.S. and Europe working together to ensure security and stability in Southeastern Europe. The situation in Kosovo, while difficult, is muchbetter than 1 year ago. The UN, NATO, the EU, and the Organization for Security and Cooperation in Europe(OSCE) have all gotten started. Staffing is up, changeis taking place, and the tough problems are being addressed. Without security, there can be no investment and economic growth. In that context, NATO enlargement is playing a vital role. Countries such as Bulgaria and Romania are in active pursuit of NATO membership ,while others, including Croatia, are engaged in initial, exploratory discussions with NATO. Let me speak plainly here. A democratic transition in Serbia remains the most important missing element to security in the Balkans. Accordingly, achieving a democratic transition in Serbia is one of the highest foreign policy goals of the U.S. and our European allies. But we are not waiting for Mr. Milosevic to leave power. In the here and now, we desire the rapid development of Southeastern Europe -- not least so that the Serbian people can see at their doorstep the benefits of democracy and free markets. No bell actually rang last year, but I am convinced that Southeas Europe has rebounded strongly since Kosovo. Now is the time for companies to go and see for themselves. U.S. Embassies in the region would welcome you. We would appreciate your views as to how the business climate can be improved, and hope that you raise these issues with your contacts in the region. We see you as key partners in working to achieve a democratic, free-market Southeast Europe. Thank you very much for your time today and for all that you do. I would be happy to take your questions. [end of document]
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