"From 2007 onwards, the financial instruments of the EU directed towards candidate and potential candidate members of the Union are brought together under the umbrella of the Instruments for Pre-Accession Assistance. In the framework of the assistance, countries of the Western-Balkans and Turkey receive funding to prepare them for meeting membership criteria in the political, economic and legal realm. A workshop was organized by The Center for EU Enlargement Studies of Central European University in Budapest with the help of the University Association for Contemporary European Studies (UACES) to examine the extent to which IPA can contribute to the convergence of the Western-Balkans by reviewing the experiences of beneficiary countries of pre-accession funds in the region and assessing the chances for its success. The event brought together fifteen experts that included both practitioners and researchers from nine different countries of the Western-Balkans and new EU member states. The event was made possible with the help of the University Association of Contemporary European Studies (UACES) and the Open Society Initiative, Brussels.

Peter Balázs, director of the Center for EU Enlargement Studies opened the workshop by recalling some of his experiences as EU Commission responsible for regional development. He pointed to some of the underlying terminological confusion behind development by the inconsistent use of terms such as cohesion, regions and structural funds, all of which imply something different. He advised: ‘If we support everything, we do not support anything.”"

The workshop was organised in different sessions:

Session 1
Growth Constraints and Convergence Perspectives of the WB Region
Alexander Boshkov (Center for Economic Development, Bulgaria )
Péter Bilek (ICEG, Hungary )
Tamás Szemlér (Institute for World Economics of the Hungarian Academy of Sciences)
Chair: Péter Balázs (Center for EU Enlargement Studies, CEU Hungary)

The first session of the day outlined the framework of the topic by focusing on the main economic indicators of the region and set the scene by providing an outlook for economic development in the region. Alexander Boshkov of the Bulgarian Center for Economic Development highlighted the fact that based on GDP/capita the countries of the Western-Balkans could already be members of the EU. However, other factors, such as the current account deficit need to be taken into consideration – as recent accessions suggest, where this factor was not taken into account. Important conclusions can be drawn from the economic reform processes of the newly joined member states. Bulgaria , as well as some other newly acceded countries left education, health and public sectors the last to reform, because their reform was not a criteria for accession. This, however, later proved to be a big mistake. As countries become members of the Union, and their citizens have already endured several hardships, leverage of governments to carry out comprehensive reforms becomes considerably lower. This as a result leaves strategic sectors in need of much reform that is becoming hard and harder to carry out. Boshkov, therefore recommended doing as many reforms as possible before accession, especially in the field of public administration.
Péter Bilek of the International Center for Economic Growth, Budapest also pointed to the considerable current account deficit in Western-Balkan countries which may prove to be dangerous. For the time being, aid and remittances counterbalance trade deficits in the current account balance, however this will later cause problems. He also called attention to the rigid nature of the labor market, which coupled with high unemployment rates is also bad news for the region.
Tamás Szemlér (Institute of World Economics, Hungary) presented an overview of financial assistance provided to the region since 1991 and concluded that a move towards a more structural approach can be observed, which is certainly a positive development. On the other hand, however, when compared to the Central Eastern European (CEE) regions benefiting from pre-accession funds earlier, the picture is less bright. The overall amount is less and development tasks are more challenging. The ‘regatta approach' in the case of CEE meant that all candidate countries are treated the same way and have access to the same financial assistance. In the case of the Western-Balkans, this is not the case, with the unfortunate differentiation between candidate and potential candidate countries. This differentiation has implications in terms of access to funds and also their management. Those countries with candidate status have access to all five components of IPA (transition assistance and institution building, regional and cross-border cooperation, regional development, human resources development and rural development) and are required to take responsibility for the financial and administrative management of those funds (under the decentralized system, DIS). Potential candidates however, only benefit from transition assistance/institution building and regional cross-border cooperation funds, with the European Commission responsible for their implementation. Previous financial aid addressed all areas of development, therefore the differentiation and the limited access raised several doubts that more participants shared during the day.
Szemlér argued that the regatta approach should have been applied to Western-Balkan countries as well, otherwise there is no credible membership perspective that could account for triggering reforms in case of potential candidates.
Tamás Szemlér: EU Financial Support for the Western Balkans: Well-suited to Real Needs?

Session 2
Experiences of Beneficiary Countries, a Prognosis of IPA's Success
Ditmir Bushati (Agenda Institute, Albania )
Haris Abaspahic ( ACIPS Center for Policy Research, BiH)
Iskra Belceva & Darko Blazevski ( Central Finance and Contracting Department, Ministry of Finance, Macedonia )
Carlos Filipe (EU Commission, Head of Unit, Financial instruments coordination, DG Enlargement)
Chair: Dragan Djuric (Head of Capacity Development Unit, Capacity Development Programme, Montenegro )

The second and third sessions of the workshop were both devoted to examining the state-of-play in beneficiary countries through experiences from the practicioners side as well as from the non-governmental sphere. Ditmir Bushati from the Albanian Agenda Institute also subscribed to the argument that because of the differentiation in financial resources available for candidate and potential candidates, Albania will not benefit from key instruments for while. He also agreed that without an improvement in conditionality and strict sanctions resulting from a lack of reforms, stability will not come about easily in the region. However, he pointed out, it is not only the EU that is not living up to the expectations that would follow from the Thessaloniki commitments, but rather beneficiary countries attitude is also very passive. While reforms are made in the name of Europeanization, the link between the reform process and Albanians enthusiasm is very weak. While Western-Europeans are said to be suffering from ‘enlargement fatigue,' Albanians – and others in the Western-Balkans – are suffering from ‘reform fatigue,' with little or no public support for comprehensive reforms. The next greatest challenge for Albania, he identified in establishing the Central Financing and Contracting Unit within the Ministry of Finance.
Haris Abaspahic, of the Bosnian ACIPS Center for Policy Research pointed out that Bosnia-Herczegovina (BiH) is a unique case, because it is the highest foreign aid recipient in the region, yet it is in lack of experience when it comes to managing aid due to the limited government involvement in previous aid distributions. At the same time, because BiH is still in the phase of stabilization, all attempts at establishing a decentralized system of assistance management are blocked. The capacities of the government are rather poor therefore the implementation system is still centralized. At the same time, the competencies of government agencies are not cleared, which again makes DIS difficult to come into being. Development in human resources and organization frameworks are the key priorities for BiH in the years to come to prepare for candidate status.
Iskra Belvera of the Macedonian Ministry of Finance emphasized the immensity of the challenges that preparations for managing IPA put on Macedonia. The task is further complicated because during the time of the operation of the European Agency for Reconstruction, Macedonia got used to relying entirely on the Agency for managing aid, and therefore establishment of DIS and the ‘ownership principle' now put heavy loads on the government. Capacity building and public awareness campaigns were identified as the greatest challenges in the months to come. Both of these tasks, as well as co-financing of projects put great financial burdens on the government. All of this makes preparations for IPA a struggle for Macedonia . However, she underlined that the fact that Macedonia has a membership perspective, is able to benefit from all five component of IPA and is expected to prepare for complying the rules of the game dictates by the EU make the struggle worth a while. And the amount available for the next seven years, being larger than any type of assistance so far also encourages the hard reforms to be pushed through deliberately.
Carlos Felipe of the Enlargement DG of the Commission highlighted the difference between CARDS and IPA. He stated that IPA prepares in view of membership, with the main purpose being not the future management skills of structural funds, but rather the preparation for future accession. He also emphasized that IPA marks a move away from reconstruction to capacity building. Felipe underlined the importance of political will from the beneficiaries side, because although the EC might have 'carrots and sticks,' there is not much it can do if receiving countries are unwilling to reform. As for the differentiation between candidate and potential candidate countries, he underlined that in case of potential candidate countries, component 1 (institution building) can finance objectives that would fall under component 3-4-5 for candidate countries.
Iskra Belceva and Darko Blazevski: The Preparations for IPA in the Republic of Macedonia
Ditmir Bushati: What is the IPA Envelope for Albania 2007 – 2009?

Session 3
Experiences of Beneficiary Countries, a Prognosis of IPA's Success
Arolda Elbasani (PhD student European University Institute, Florence)
Dalibor Dvorny (Central Office for Development Strategy and Coordination of EU Funds, Croatia)
Mate Gjorgjievski (Secretariat for European Affairs, Government of the Republic of Macedonia)
Dragan Djuric (Head of Capacity Development Unit, Capacity Development Programme , Montenegro )
Chair: József Uszta (former deputy director of the Hungarian PHARE office)

Erolda Elbasani, researcher of the European University Institute asked the question whether the aid policy of the EU lives up to its ambitious agenda in the region. She argued that the EU's approach to democracy promotion can be considered one of the most successful models, due to the notion of attractive membership attached to conditionality. She agreed with Szemlér, in that membership perspective in the case of the Western-Balkans is much looser in the Stabilization and Association Agreements as compared to the CEE region's Europe Agreements. Elbasani also argued that the objectives of stabilization and integration may imply an overloaded and confusing agenda for aid. As a result, Albania has been receiving assistance that may concern more the EU's strategic agenda of democracy promotion, than the real needs of the country, such as for instance public administration reform.
Croatia was represented by Dalibor Dvorny of the Croatian Ministry of Foreign Affairs and European Integration. Dvorny in his intervention tried to answer the question whether preparations for managing IPA will bring about new approaches in policy-making. He argued that the real impact of IPA is not to be measured by absorption figures, but rather by the rate of success from public administration to apply the new policy practices (program implementation, funds management principles) to other areas in domestic policy-making. This requires that state-level public administrators approach EU project management as a learning exercise so as to enable policy spill-over to other areas. Implementation of the newly learned techniques however in many cases results in unwelcomed changes in domestic practices. According to Dvorny, Croatian experiences so far show only moderate results in policy spill-over which calls for further improvement. The experiences of CEE countries have also shown that adoption to Structural Funds is a steep learning curve, and that only by adopting a structural approach from the part of national authorities can it truly contribute to policy improvement.
Mate Gjorgjievski from the Macedonian Ministry of Foreign Affairs confirmed the arguments presented by Ms Belceva, that public administration capacities need considerable improvement in the FYROM, that especially local government structure are suffering from lack of sufficiently trained personnel. A change in attitude, and perception is needed to create a more pro-active administration. The limited capacity to absorb allocated funds, however, may lead to the discrepancy between actual aid delivered and those allocated. According to Gjorgjievski, the experiences of former candidate countries show that discrepancies could be attributed to the lack of administrative capacity from the side of beneficiary governments, a lack of accountability in civil service and the underdeveloped nature of business environement as well as of civil society. These lessons need to be taken into consideration as Macedonia prepares for managing similar assistance.
The challenges facing Montenegro with regards managing IPA funds is similar to those experienced by other potential candidate countries according to Dragan Djuric, Head of Capacity Development Unit in Montenegro. The insufficient level of expertise in public administration to develop and manage the projects coupled with a lack of foreign language knowledge constitutes a great challenge. On top of this, Montenegro does not for the time being have a delegation of the European Commission. The country faces the same problem as Macedonia , that the European Agency for Reconstruction took over management of foreign aid for a long time, therefore leaving national authorities free of such responsibilities and corresponding know-how. The mandate of the EAR lasts until 2008.
Arolda Elbsani: The Role of EU Assistance in the Balkan Countries - The Case of Public Administration Reforms
Iva Frkic and Dalibor Dvorny: Case of IPA in Croatia: Invitation to strategic thinking or «business as usual»?
Mate Gjorgjievski: EU Instrument for Pre-accession assistance: The path to a successful start

Session 4
The lessons learnt by New Member States and the possibilities for know-how transfer
Dragos Pislaru (GEA Strategy & Consulting SA, Romania )
József Uszta (former deputy director of the Hungarian PHARE office)
Robert Sierhej (senior economist in the IMF Regional Office, Warsaw )
Pavlina Nikolova (PhD, University of the West of England at Bristol )
Erich Unterwurzacher (European Commission, Head of Unit, ISPA/SAPARD, Interventions in Bulgaria, Poland, Portugal, Romania, Slovenia)
Chair: Péter Balázs (Center for EU Enlargement Studies, CEU Hungary)

The last session of the day was devoted to assessing experiences of former candidate countries and looking at some tangible policy recommendations for the use of current beneficiary countries. Dragos Pislaru, of the Romanian GAE Consulting focused on ways of increasing absorption capacities of pre-accession beneficiaries. He insisted that the rhetoric that has become so widespread in CEE countries needs to be reversed: that the most possible amounts are aimed for in absorption terms, without regard for the quality of that absorption; that the national government is thought to be the co-financer of projects, when in fact it is the EU that co-finances national projects; or that projects are invented for the money available, not the other way around as it should be. Western-Balkan countries should be careful to avoid spreading of these myths. In terms of concrete results Pislaru stated that the public administration is the greatest beneficiary of EU funds. Public administration reforms therefore need to be carefully planned ahead as well as the setting up of decentralized structures. He also suggested that Western-Balkan countries take the partnership principle seriously, not to simply ‘tick off' requirements for public consultation, because debate does seem to help when defining priorities. He also drew attention to major infrastructure projects which are a good way of increasing absorption figures and in a meaningful way, but their implementation needs to be very well prepared, so that eligibility for funding can be clear.
Pavlina Nikovola of the University of West of England at Bristol in her intervention and corresponding paper examined the experiences of Bulgaria with Phare, Ispa and Sapard and articulated some recommendations for Western-Balkan beneficiaries. She concluded that the pre-accession funds in Bulgaria played an indispensable role in encouraging the establishment of managing structures by the state administration and led to significant improvement in public administration. However, she pointed out, that the process was a steep learning curve and that the several shifts in functions between offices, as well as high staff turnover resulted in the instability of the management structures. This resulted in an obstacle in capacity building for public administration and also caused some delay in project implementation. Based on the lessons learnt, she stated that the ownership of the whole project cycle by national authorities is vital in guaranteeing the achievement of necessary reforms. Pavlina recommended that sub-national authorities be involved in the early stage already in the management of projects so that they can gather the same expertise. She also called attention to the importance of consultation with civil society representatives to ensure good implementation.
Robert Sierhej of the IMF Warsaw office pointed out that while IPA is lower than pre-accession funds were in the new member states on an annual average per country, its economic significance for the whole region is broadly comparable. He outlined the structures that emerged in different pre-accession countries for the management of funds, which can be grouped into two: the ‘Baltic model' and the ‘CEE5 model.' In the former one body (Ministry of Finance - MoF) is acting as both managing and paying authority, while in the latter the MoF is detached from the management role. However, it is hard to measure which model works better based on absorption in individual countries. The case of Polish management structures shows that initial complex structures could over time be turned into a more streamlined approach, which could guarantee more efficient coordination. Therefore, one important lesson is that institutional and regulatory frameworks need to be established with a high degree of flexibility so that they can be rearranged over time. The data with regard to fiscal impact of EU funds in new member states suggests that a possible initial negative impact may be expected and therefore needs to be counterbalanced by re-prioritizing expenditures.
Former deputy director of the Hungarian PHARE office, Jószef Uszta, highlighted the importance of establishment of regulations in a way that they will be suitable later on too. He claimed that all regulations (such as procurement law) that will later become preconditions for funds management should be implemented with this in mind. Uszta also emphasized the importance of the cross-border cooperation component of IPA, as it served basically as a regional development tool.
Erich Unterwurzacher of the Regional Development DG of the European Commission sited the lessons learned from ISPA programming phase. He underlined that the easiness of the ISPA system is not applicable anymore. He acknowledged that the system is quite complicated and demanding from beneficiaries, however, he stated that if a country can manage IPA, then it is ready for managing Structural Funds, as component 3 of IPA is practically a ‘mini-structural fund.' He emphasized that not the fully functional decentralized system is required from recipients, but rather the accreditation of the planned system. Talking about large infrastructure projects, he highlighted the importance of word by word implementation of environmental impact assessments (for transport projects eg.), and in these cases also land-acquisition problems need to be solved before the project is sent to the Commission for approval. He called attention to the n+3 requirement of components 3 and 4 of IPA, of our which the first year has almost expired!
Pavlina Nikolova: The implementation of Phare, Ispa and Sapard in Bulgaria

Contact for the workshop: Anna Reich
Source: Centre for EU Enlargement Studies