EU warns illict trade destroying Kosovo's economic recovery

EU warns illict trade destroying Kosovo's economic recovery
Associated Press Worldstream - September 7, 2007 Friday 2:59 PM GMT

PRISTINA Serbia - Money from drug dealing, smuggling, prostitution and tax evasion lead Kosovo into "a vicious circle," curbing its chances of attracting foreign capital, the European Union said in a report Thursday.

Crime and fraud in Kosovo account for close to a billion euros yearly (US$1.3 billion), a touch more than the province's annual budget, the report said.

The informal economy tax evasion and profits from criminal activities harms the government and leads to an inefficient market "because it leads to declining tax incomes and weakens the ability to produce public services," the report said.

Kosovo is formally part of Serbia, but came under United Nations and NATO control in 1999 following the alliance's air war, which stopped Serb forces from cracking down on separatist ethnic Albanians.

Since then, the province of about two million inhabitants has struggled to recover its economy. Unemployment is estimated at 50 percent. A U.N.-led privatization process is under way, but it is complex, in part because it is unclear whether the province will become independent or remain linked to Serbia.

Serbian authorities in Belgrade are fiercely opposed to privatization.

Talks to determine whether the province will become independent or remain with Serbia are ongoing.

The report suggests that the local authorities revise laws and set up a permanent government body to combat the informal economy. It suggests specialized prosecutors be named to investigate financial crimes, and a police database be created to record intelligence, crime reports and emergency response calls on a national basis.

"Appropriate databases for the police are a necessity from the viewpoint of national security," the report said.

Crime is rampant in Kosovo and the province is believed to be a transit route for drug smuggling and other illicit trade.

NATO has over 16,000 troops stationed in the province in charge of security, while the local 7,000-strong police force fights criminal activities.