VZCZCXRO2808
RR RUEHAG RUEHAST RUEHDA RUEHDBU RUEHDF RUEHFL RUEHIK RUEHKW RUEHLA
RUEHLN RUEHLZ RUEHPOD RUEHROV RUEHSR RUEHVK RUEHYG
DE RUEHBW #1473/01 3031300
ZNR UUUUU ZZH
R 301300Z OCT 07
FM AMEMBASSY BELGRADE
TO RUEHC/SECSTATE WASHDC 1684
INFO RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/USDOC WASHDC 0016
RUEHZL/EUROPEAN POLITICAL COLLECTIVE

UNCLAS SECTION 01 OF 02 BELGRADE 001473 
 
SIPDIS 
 
SIPDIS 
DOC FOR 4232/ITA/MAC/EUR/OEERIS/SSAVICH 
 
E.O. 12958: N/A 
TAGS: EFIN ECON EINV SR
SUBJECT: SERBIA: THE COST OF KOSOVO 
 
Summary 
------- 
 
¶1.  Serbian government spending in Kosovo in support of Kosovo-Serbs 
is substantial, but not unsustainable.  There are several avenues 
through which money is flowing from Serbia to Kosovo.  Serbia 
services foreign debt attributable to Kosovo, NIP expenditures, and 
direct and indirect budget expenditures regarding Kosovo.  Added 
together, Serbia's annual spending on Kosovo for 2007 will reach 
nearly $400 million or 3.5% of Serbia's $11 billion budget 
expenditures. Regardless of the status of Kosovo, the Serbian 
government's spending on Kosovo is likely to continue at similar 
levels.  End Summary. 
 
Kosovo Related Debt Approximately $36 Million Annually 
--------------------------------------------- --------- 
 
¶2.  According to the National Bank of Serbia, the total foreign debt 
related to Kosovo on August 31, 2007 was $1.2 billion.  The cost of 
servicing this debt is $36 million annually.  The bulk of this debt 
- 85% - is owed to the World Bank and to Paris Club creditors, 
originating from loans for infrastructure projects in the 1970's and 
1980's.  Kosovo-related debt decreased from $1.7 billion in 2001 
with Paris Club and London Club write-offs and regular servicing by 
Serbia.  Deputy Prime Minister Djelic asked the World Bank during 
the October 20-21 Bank meetings in Washington to credit Serbia for 
the debt service it had paid on Kosovo related loans, but Minister 
for Kosovo Samardzic said later that any Kosovo debt issues would 
have to be resolved as part of an overall Kosovo status agreement. 
 
 
Direct Budget Expenditures for Kosovo $113.2 Million 
--------------------------------------------- ------- 
 
¶3.  Kosovo expenditures in the 2007 Serbian budget include: 
 
--  Ministry for Kosovo expenditures of $65 million - including 
wages, social allowances, transportation costs, subsidies to NGOs, 
transfers to municipalities, maintenance, etc. 
 
-- Fund for Kosovo expenditures of $3.8 million. 
 
-- Direct transfers to five districts in Kosovo with a total value 
of $20.4 million. 
 
-- Coordination Center for Kosovo expenditures valued at $24 
million. 
 
Added together, the direct budget cost of Kosovo in 2007 is $113.2 
million. 
 
2007 NIP Kosovo Expenditures $11.7 Million 
------------------------------------------ 
 
¶4.  The Serbian Government also allocated an additional $11.7 
million from the National Investment Plan (NIP) for infrastructure 
investments in Kosovo, such as construction of small medical 
centers, apartment buildings, reconstruction of schools, improvement 
of roads, etc. 
 
Indirect Budget Expenditures over $225 Million 
--------------------------------------------- - 
 
¶5.  Indirect budget expenditures linked to Kosovo are hidden in the 
budget of various ministries - e.g. the Education Ministry wage bill 
includes salaries of teachers in Kosovo, the Health Ministry wage 
bill includes salaries of health workers in Kosovo.  Dusan 
Prorokovic, State Secretary in the Ministry for Kosovo told UNMIK's 
head of office in Belgrade that an estimated 45,000 people from 
Kosovo received salaries from Serbia's budget.  He also used this 
figure in public comments made to Radio Free Europe on October 24. 
According to Prorokovic, this number includes two categories of 
citizens: those employed in companies and institutions funded by 
Belgrade in Kosovo, and unemployed persons in Kosovo receiving 
social allowances or IDPs outside Kosovo who do not have additional 
income.  Approximately 10,000 people live and work in Kosovo in 
Belgrade-funded companies and institutions.  These workers receive 
double the average Serbian public sector wage, thus earning on 
average $1,100 monthly.  According to refugee affairs office 
sources, there are 12,000 persons in Kosovo receiving monthly social 
allowances of $150 and an additional 12,000 persons living outside 
Kosovo receiving monthly allowances of $85.  According to various 
sources, including Nenad Popovic from the Coordination Center, there 
are also 10,000 persons who used to work in large public companies 
in Kosovo who continue to receive full salaries (on average $550) 
through their companies.  Added together, the total wage bill for 
Kosovo-Serbs is approximately $228 million annually. 
 
¶6.  Although wages are by far the largest expenditure, there are 
also other expenses paid from the Serbian budget such as: tuition 
 
BELGRADE 00001473  002 OF 002 
 
 
fees, room and board for university students, medicines, hospital 
supplies, scientific research projects, transportation costs, office 
supplies for state administration, etc.  In addition, there are 
almost 30,000 Kosovo-Serb pensioners with an annual pension cost of 
approximately $72 million.  It is impossible to determine an exact 
figure since data are not publicly available and cannot be 
confirmed, according to Dusan Janjic Coordinator of the Forum for 
Ethnic Relations. 
 
Comment 
------- 
 
¶7.  Kosovo's total annual cost to Serbia's budget of nearly $400 
million, or more than one million dollars per day, is a substantial 
sum.  A Kosovo status settlement, even one where Belgrade and 
Pristina reach an agreement, is unlikely to alter Belgrade's 
spending significantly.  An agreement which distributes 
Kosovo-related debt service to Pristina, or which targets 
international assistance to cover this debt, would reduce Serbian 
government Kosovo costs by just 10%.  Spending on salaries for 
Kosovo-Serbs and direct support to Kosovo-Serb municipalities for 
operation and infrastructure is likely to continue, whether inside 
the framework of a status agreement or, as today, outside of a 
formal structure.  The salaries, pensions, and social payments are 
likely to continue, but would decrease over time, as the number of 
pensioners decreases.  Lack of political will may also prevent this 
cost to decrease significantly, since few politicians would advocate 
reducing payments to Kosovo-Serbs.  Such a move would be politically 
unpopular since it would also undercut Serbia's arguments that 
Kosovo is an "integral part" of Serbia, as outlined in the 2006 
Constitution.  While $400 million is a significant cost to Serbia's 
budget, it is not so large that it is likely to become a political 
or economic issue in the near future.  Given the above, the argument 
that Serbia would be "better off economically" without Kosovo, is 
unconvincing here.  End Comment. 
 
BRUSH