VZCZCXRO3859
RR RUEHAG RUEHAST RUEHDA RUEHDF RUEHFL RUEHIK RUEHKW RUEHLA RUEHLN
RUEHLZ RUEHPOD RUEHROV RUEHSR RUEHVK RUEHYG
DE RUEHSQ #0226/01 0851327
ZNR UUUUU ZZH
R 251327Z MAR 08
FM AMEMBASSY SKOPJE
TO RUEHC/SECSTATE WASHDC 7205
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE 0261
RUEHNO/USMISSION USNATO 3755
RUEAIIA/CIA WASHINGTON DC
RUESEN/SKOPJE BETA

UNCLAS SECTION 01 OF 02 SKOPJE 000226 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
DEPT FOR EUR/SCE 
 
E.O. 12958: N/A 
TAGS: KDEM PGOV ECON USAID MK
SUBJECT:  MACEDONIA: DECENTRALIZATION MOVING FORWARD 
 
REF: 07 SKOPJE 259 
 
Summary 
------- 
¶1.  (SBU) The GOM has successfully decentralized responsibility for 
a number of government activities to municipal governments, 
including such key functions as education and social policy. 
Decentralization of those government activities was a key 
requirement of the 2001 Ohrid Framework Agreement.  The first phase 
of decentralization began in July 2005, with the second phase 
beginning in July 2007.  With significant support from USAID and 
other donors, the GOM and the majority of municipalities are meeting 
the administrative and political challenges of implementing 
decentralization.  End Summary. 
 
Local Governments Assume More Responsibilities 
--------------------------------------------- - 
¶2. (U) Under the 2001 Ohrid Framework Agreement, the GOM committed 
itself to decentralize a number of responsibilities to local 
municipalities (reftel).  Under the first phase of decentralization, 
which began in July 2005, municipal authorities gained some 
responsibilities for education, culture, social protection, and 
child protection services.  In addition, they assumed responsibility 
for public utilities such as water and street lights, as well as 
publicly owned companies in their territory.  To finance these added 
responsibilities, the GOM has transferred funds to the 
municipalities, and the municipal governments have gained new 
authority to levy property taxes and collect administrative fees. 
 
¶3. (U) The planned second phase of decentralization began in July 
¶2007.  Under phase two, the municipalities gained additional 
administrative authority over education, culture, and social 
protection.  Initially, 42 municipalities started phase two in July 
¶2007.  Additional municipalities have been added as they have met 
the criteria.  At the beginning of March, the city of Skopje and six 
other municipalities were added to the list, bringing the total 
number of municipalities in phase two to 57 out of a total of 84. 
 
Process Non-Partisan, Criteria Based 
------------------------------------ 
¶4. (SBU) The GOM used objective criteria to select those 
municipalities ready to assume the additional administrative 
responsibilities under phase two.  The criteria included, for 
example, a prerequisite that a municipality employ sufficient staff 
to handle financial administration tasks.  In addition, the GOM 
commission that assesses municipalities' readiness to move to phase 
two includes the president and vice president of the Association of 
Municipalities (ZELS).  While the GOM's selection criteria were not 
particularly sophisticated, they apparently were applied fairly 
across the board to all municipalities.  Andrej Petrov, the 
president of ZELS and a mayor from an opposition party, told us 
there was no apparent connection between those municipalities that 
qualified for phase two and the political affiliation of their 
mayors or municipal council members. 
 
¶5. (SBU) The State Secretary of the Ministry of Local Self 
Government, Irfan Odai, told us recently that the remaining 
municipalities that are not yet included in phase two either have 
serious financial challenges, including large unpaid arrears or 
blocked financial accounts due to disputes with debtors, or are too 
small to hire the requisite number of staff.  Odai said that the GOM 
is working with the remaining municipalities to find ways for them 
to enter phase two.  For example, if the smallest municipalities 
sign an agreement to cooperate on decentralization tasks with a 
larger neighboring municipality, they would not be required to hire 
more staff.  The GOM is also considering ways that those 
municipalities with outstanding debts could still enter phase two as 
long as they demonstrate they are resolving their financial 
problems. 
 
Mayors' Concern: Raising Revenue, Attracting Investors 
--------------------------------------------- --------- 
¶6. (U) The main concern of the mayors we have talked to,  regardless 
of whether they are members of the GOM coalition parties or 
opposition parties, is generating sufficient revenue to meet the new 
needs of their municipalities.  The mayors claim that the funds 
transferred from the national budget to the municipalities are 
insufficient, and that they are not able to raise enough additional 
funding through local taxes and fees. 
 
¶7. (U) In addition, all the mayors we have talked to complain that 
the GOM's bureaucratic barriers make it difficult for them to offer 
government-owned land to potential private investors.  The central 
government maintains control of government owned land, and the 
mayors tell us the process for sale or lease of the land is 
excessively slow and bureaucratic.  Mayors, and members of the USAID 
decentralization project, see this bureaucratic hurdle as a major 
 
SKOPJE 00000226  002 OF 002 
 
 
impediment to economic growth at the local level. 
 
¶8.  (U) A few mayors from the more successful municipalities are 
exploring the possibility of private financing for longer-term 
investment projects, either by taking out loans or issuing bonds. 
However, these mayors say that the process for receiving approval 
from the Ministry of Finance for such financing is too restrictive. 
USAID is taking the lead on facilitating responsible borrowing by 
those municipalities that have sufficient financial and 
administrative capacity to do so. 
 
Comment: Decentralization Is Working 
------------------------------------ 
¶9. (SBU)  Since July 2005, the central government has moved forward 
on decentralization and continues to assign increased responsibility 
to the municipalities.  In turn, most of the municipalities have 
performed surprisingly well, with the strong support of USAID and 
other donors.  It remains unclear when the municipalities that have 
not yet entered the second phase of decentralization will be 
included, but there appears to be the political will to help the 
remaining municipalities meet the criteria.  The longer-term issues 
of increasing municipalities' financial resources and their ability 
to generate greater economic activity and growth still need to be 
resolved. 
 
Milovanovic