Wealthy nations bicker over cash for rebuilding Kosovo

BIG DIVISIONS over the scale of the Balkan reconstruction effort split the world's richest governments yesterday, amid fears that the total package of aid to Kosovo could be restricted to less than $1bn (pounds 600m).

Tensions surfaced at a meeting in Brussels of ministers and officials co-ordinating Balkan rebuilding, after the European Union played down the level of destruction by Serb forces and Nato bombing in Kosovo.

Later, Yves-Thibault de Silguy, an acting European commissioner, said: "The standard of living in Kosovo is higher than reflected in the available statistics and it seems the war damage is less than feared."

But this analysis clashed sharply with the findings of a report from the World Bank that said the economic problems of Kosovo were worse than many in the West supposed. It pointed to the fact that even before the conflict Kosovo was producing less wealth per capita than that of Albania, Europe's poorest country.

One official close to the negotiations said: "One party is talking about repairing what was damaged, and one is talking about reconstruction and regeneration of the wider, south-eastern Europe region." He added that some of the European nations, who are expected to bear the lion's share of the costs of the rebuilding, estimate the cash needed for Kosovo could be as little as $700m to $800m.

Although the World Bank concedes that the physical destruction in Kosovo is less widespread than feared, its spokesman, Philip Hay, called for a more ambitious set of objectives, which would turn "a troubled and turbulent corner of south-eastern Europe into a bustling, mainstream European economy".

Yesterday's meeting, which included finance ministers from the G7 club of wealthy nations, the World Bank, the International Monetary Fund and the co-ordinator of the EU's stability pact for south-eastern Europe, agreed no reconstruction aid will be offered to Yugo- slavia while President Slobodan Milosevic remained in office.

But the difference of emphasis over the scale of the task marks an opening shot in the battle over burden-sharing of the costs of Balkan reconstruction.

James Wolfensohn, president of the World Bank, argued that the West needed to help "reconstruction of the morale and spirit of a people that has been brutalised". No cash figure will be available until an assessment is completed in time for a meeting of up to 82 leading institutions and donor countries on July 28, he said.

Until then a wide range of estimates is circulating. The European Investment Bank put the regional reconstruction costs at $25bn over five years, a figure in line with early estimates made by Romano Prodi, the incoming European Commission president, who put the price tag for reviving the entire Balkans region at $25bn to $30bn.

More recent EU figures have been much more conservative, with the Brussels group preparing to make available 140m euros this year, followed by 500m euros for each of the next three years.

The European Commission assumes that this will cover about half the cost of reconstruction, excluding humanitarian aid. But it accepts that these numbers may rise after a fuller assessment.

Several of Europe's finance ministers have made clear that they oppose any increase in the EU's spending plans, raising the prospect that other aid projects will have to be raided to pay for reconstruction in Kosovo. Mr Wolfensohn warned against that yesterday, while conceding that such an outcome was likely.