(1) the job market;
(2) the market of goods and services, and
(3) the financial market (capital market, and money market)
Subjects of economic system: consumers, producers and the state, reach daily decisions through their supplies or their buying and selling. Through these subjects a dynamic interaction takes place which enables the function of the economy, however, one should distinguish the fact that main force in the market is represented by the interaction between enterprises as basic economic units and families as basic consumer units.
Families in Kosova are characterized as communities with a big number of members, including in average 7 members, which on a consumer's sense represent amiable consuming units or they represent a demographic market dimension.
Likewise, there is a great offer of the labour force, with increasing trends, as in the structure of the overall population there is a dominance of the young population, so that contingents of the work force are favorable.
The labour market, the offer or this kind of the production factor, generally in Kosova will be accessible in the future as well, with the exclusion of certain domains which will not be qualitatively meeting the demands of the modern technology.
In the labour market there will be great competition on the sellers side, which the trade unions and the state will have to support with their measures in its function, encouraging individual and collective enterprising initiative by investments in all possible activities, and especially in the intensive and propulsive ones for the economic development, so that the great offer will have as a lower impact as possible on the demands for the labour force, especially on its cost - salary.
As regards the market of goods and services, if one considers the participation of Kosova inside regions or former Yugoslavia, one will see that it has continuously moved towards an orientation in supplies and concentrated shipments as an expansion in all the regions. Therefore, this problem should be observed on two levels, the one inside former Yugoslavia and within the world economy or through market exchanges with the world.
In the eighties, Kosova's sales within Yugoslav market were concentrated in Serbia 41%, Macedonia 15%, Vojvodina 5,12%, Bosnia 11,4%, Slovenia and Croatia 10%. Supplies from former Yugoslavia had an approximately similar structure. The role of the world market was also significant. In the conditions of open market economy, the supplies and demand relation will be determined mostly by the pressure of world market.
In the market economy, and especially in the countries in transition the financial market is a key institution in building up a market economy, as the scale of complementarity with other markets is very great. Therefore, chances for the development of a country in transition stand on a large scale of dependency from building a financial market of the country and the way of connecting with world financial markets, as the lack of capital for these countries has become one of the limitation factors for development, or has brought them great developing dependency.
The market regulation may be done through direct and indirect measures and a combination of the two kinds of measures. An indirect regulation of market is reached through a crediting-monetary policy, fiscal policy, and customs policy: this must be the main aim for building an economic system.
However, at a transitory phase especially in those activities and branches functioned by the monopoly direct regulation must be infrequently used, and whenever used must do so selectively and combined with indirect measures, especially with those effecting production volume.
5.2.2. THE MONETARY SYSTEM
The monetary system should adopt to the process of transformation and building of the economic system. The main components of the monetary system should be taken, monetary institutions and instruments which may function as money. These two components depend from each other as monetary institutions are those that in the form of obligations (in their passive) possess instruments which are considered to be functioning as money.
As regards the institutional organization first of all the banking system has to be created according to legal dispositions headed by the Central Bank of Kosova as a pillar of the monetary system. The banking system will be comprised by the following:
1. The Central Bank of Kosova
2. The business bank system consisted of:
The Central Bank must be established as an independent institution of the monetary system in the sphere of money emission which should take care directly for the monetary policy, currency stability and financial discipline. The Central Bank should be organized in the way as to perform duties from its competency such as follows:
Organizing structure of the Central Bank should adopt to its functions and the needs for efficiency.
With the intention of regulating the quantity of money the Central Bank of Kosova should implement the following:
The bank attains responsibility for inside courses of the monetary situation and foreign liquidity.
The Central Bank of Kosova at the transition phase will have great influence in leading the monetary-loan policy aimed at influencing business conditions.
Organization, a dispersing banking network, and their business policy represent institutional preconditions of importance which have an influence on the monetary and credit policy on the development policy of Kosova's economy. The crediting policy should support the financial consolidation of the economy, property transformation, realization of new investment projects and avoiding damages caused by the destruction of Kosova's economy. Naturally, based on principle of banking business by using its own capital from the foreign world banks (international loans), financial market, etc.
The monetary-credit system in Kosova will be faced with many problems, as first institutions of the market economy should be built and applied. They are underdeveloped, and on the other side, we are dealing with great problems of economic development and inherited development conflicts in Kosova.
5.2.3. THE BANKING SYSTEM AND FINANCIAL MARKET
The banking system in Kosova was totally ruined following 1990. Kosova's People's Bank has been ruined as it used to function as a special unit of the system of People's Bank (Central) consisting of 9 People's Banks: the People's Bank of former Yugoslavia, 8 People's Banks of the republics and provinces. Thus, as a unit of the former Yugoslav federation, Kosova had its own central bank.
The same happened to the Bank of Kosova which was one of the strongest banks of former Yugoslavia and a respected name which cooperated with all important banks of the world. This bank cooperated also with the World Bank with which important programs were realized in industry, agriculture and infrastructure. Thus, the Bank of Kosova was a pillar of the economic-social development of Kosova, therefore it was not by accident that following the suspension of the Kosova autonomy and its organs, it was the first to be targeted.
Today's situation is not at all enviable, as currently in Kosova there is only one domicile (Kosovarian) bank in function: the Economic Bank, founded in Gjakova, after it succeeded in attaining a basic capital of 2.5 million DM. The number of depositories of the bank has been continuously on the increase reaching about 5000, 320 of them being share-holders.
This bank works mainly with private enterprises. Around 70% of the basic capital of the Economic Bank belongs to former social, now share-holding, enterprises.
The Economic Bank has only low
authorization, therefore it can perform only currency exchange work, but not any of
payment with the foreign world, as for this it needs mid-authorization and ensuring a
census
(2 mill. $). Therefore works of payment circulation is done through another bank. By
ensuring this sum the bank would complete its banking activity.
Besides this bank, around 44 branches and representative offices of banks of Serbia work in Kosova, the seats of which are outside Kosova and the aim of which is to swallow the already impoverished financial potential of Kosova. These banking units deal mainly with buying hard currency for Serbia's enterprises, and perform other commercial transactions.
Therefore, the banking system in Kosova has to be created from the very beginning.
The business banks, which will be dealing with crediting population and economy, and will offer other services to its commintants, and specialized banks (investment banks, hypothetical banks, etc.) which will be oriented mainly on works on long-term loans for real-estate property.
Therefore, at this stage of development of the banking and financial system of Kosova the priority tasks will be to eliminate all the weaknesses of the previous period, such as follows:
An institutional regrouping and development of the entire financial system is a necessity if one aims at a developed market in which case the financial market will retain a key role.
In developed economy there are three directions of the development of financial structure:
(1) development of banks and non-banking financial organizations (USA)
(2) traditional banking business with an ever greater development of money and capital market (Great Britain), and
(3) building up and development of a universal banking business through a development of specialized financial institutions (Germany).
The financial structure of Kosova in the future will be able to develop by a combination of the two first models, as none of them can be rigidly and entirely implemented.
The capital of banks, generally, will be ensured from two main sources: share-emission and loaned financial sources. When speaking of share-holders they should have a competing norm of pay-back for their money, as on the contrary they would not be interested to invest in a bank. Likewise, those that loan their financial assets, or deposit them in a bank, should be stimulated by increasing the interest rate to be paid to depositories (passive rates).
Because of the great importance that banks have for the development and stabilization of the national economy, they must become institutions of a great trust and minimal risk. In order to achieve this, the banks must have an adequacy of their capital, which is to be viewed in two aspects:
1. the minimal capital sum required during the founding of a bank
2. adequacy coefficient.
The minimal sum of the needed capital for founding of new banks is determined by legal dispositions, while the minimal coefficient of capital adequacy should be 8%. This is a relation between the capital and active with a certain degree of risk (respectively of bank portfolios, pondered by the scale of risk on every position).
In the future radical changes have to be made in the policy of the interest rate, towards a realistic positive interest, which will be formed in the money market, and which under non-inflatory conditions and stable prices, may be very low. This should be stimulating for savings strengthening the motive for savings, as such a saving has almost vanished following a freeze of currency savings by citizens. An increase of savings should be continuous aim of banks and other financial institutions, because in such a way a mobilization of the capital will occur which can later be used for investments on important and productive projects. This represents one of the most important and difficult tasks as the lost trust on banks is very difficult to restore. One should increase security of issued loans. One should approuved loans only to those who will surely be able to pay back, otherwise disorders will occur in the banking system to be reflected on the entire economy of Kosova. The time of appoining loans under the umbrella of political bodies has long been past. The banking loans will be allowed only for productive investments which fulfill the criteria of efficiency.
The payment transaction should be done entirely through banks. One speaks here of internal payments, but also for the payment with the foreign world. In order to realize payments with the foreign countries it is necessary that representative offices of the Kosova banks be opened at important international financial centers, such as in London, New York, etc. Because of a great number of Albanians in the diaspora, this matter gains in its importance. It would be of a great benefit to them if they had the possibility that for each financial transaction they address the branch of a Kosova bank in the foreign countries.
The regulative barriers which hindered true competition between banks and other financial institutions should be eliminated. This would put on an equal footing banks positions and those of financial institutions.
The financial market, as an organized market, where the offer and demand for financial assets would meet, should also be constituted. Within this market the following should exist:
(1) the money market,
(2) the currency market and
(3) the capital market.
At the money market free monetary assets and short-term securites of value would be offered and demanded in order to save liquidity and also for production and trade of goods.
The hard currency market is an indispensable part of the money market in which the offer and demand for currency would be harmonized, the buying and selling of foreign payment assets would be carried out and the rate of currency course based on market mechanisms would be set.
The capital market, as a segment of the financial market, represents a specialized market of long-term monetary assets and long-term securities, by which the free monetary assets will be directed (financial resources) on more rentable investing projects.
Therefore, institutions of such market should be created, the stock exchange, which needs staff training and foreign technical assistance.
5.2.4. THE FISCAL SYSTEM
By the '74 Constitution, the Kosova Assembly determined by its laws an independent taxation, fiscal and budget policy. A great competence in ensuring self revenues was also enjoyed by the communes as basic social and political communities.
Kosova's laws regulated ensuring fiscal revenues on the basis of taxes, while through decisions of communal assemblies fiscal revenues were ensured in order to fulfill the needs of communal budgets on the basis of communal taxes, and contributions by citizens.
The fiscal system of Kosova, despite its uncontested institutional independence, according to a political and constitutional hierarchy, underwent frameworks fixed by the Constitution of Yugoslavia and federal systematic laws. Therefore, the bases of the taxation fiscal system in Kosova, as in other socialist countries, were built according to a socialist concept of planned economy and socially-owned property.
The taxation structure in countries with an open market is mainly stable. In the OECD countries at the taxation structure the first two places belong to revenues from taxation of personal incomes of the citizens and social security contribution, while there is also a small participation of taxation in turnover, duties and customs.
In the OECD member countries, the participation of the public consumption in the GDP is considerably lower than on other countries, even those in transition.
The taxation structure in Yugoslavia and the OECD countries
(total public revenues = 100)
Taxation form Rump Yugoslavia OECD
Aver.1992 .
Taxes on income 20.0 29.7
Taxes on profits 0.8 6.8
Contributions and charges 41.3 25.0
Taxes on property 0.6 5.5
Taxes on goods and services 22.1 17.1
Customs and duties 9.8 11.5
Others (burdens) 5.4 4.4
Source: Revenue statistics of OECD Member Countries 1965-93
From the data of the above table, according to a statistical analysis of the structure of public revenues in OECD countries, a greater participation belonged to the revenues on the basis of taxation of citizens personal income (29,7%), than of contributions (25%), taxation on turnover (17,1%), taxation of corporations profits (6.8%), etc. Prognoses that Kosova will be of a different structure on public revenues compared to these countries, but also compared to other less developed countries, are based on the fact that during the transition period it will be starting with a degenerated structure of taxation and fiscal bases as a consequence of a system the exclusive aim of which was a fiscal function of the taxation. In the structure of public revenues of the fiscal system of Kosova, the greatest participation will belong to the revenues on the taxation basis on turnover (30%), then contributions (23.5%), and revenues on citizens personal income. However, harmonizing a gradual movement towards the proportions of the OECD countries will occur.
Participation of public revenues in GDP
Countries in transition % OECD countries %
(1993) (1990)
Bulgaria 37.4 Austria 35.2
Czechia 48.5 Great Britain 35.5
Slovakia 48.1 Italy 39.0
Rumania 30.8 USA 20.0
Hungary 54.1 Holland 47.5
Russia 35.9 Germany 28.7
Poland 45.5 Japan 13.9
Source: World Development Report 1992, World Bank, for OECD countries
The dynamics of the increase or decrease of public consumption in Kosova should be in proportion to respective course of the GNP. In this way it is persisted that the participation of public consumption in the GNP gradually approaches the structure of the developed Western countries.
A question is posed as whether the economy and citizens of Kosova will be able to face the great needs for public consumption. In this context, a realistic approach is needed to the taxation problem and its fiscal functioning. Because, it will not be possible to have a fiscal system in the beginning, conceptualized entirely on the basis of the course of basic economic parameters, but this concept should be an aim to be reached within a time limit (3-5 years). The main sources of fiscal revenues will be based on revenues on the following bases:
1. Income tax;
2. Tax on goods and services / VAT;
3. Tax on profits;
4. Contributions and charges
5. Customs and duties
6. Pre-fiscal and non-fiscal revenues.
Possible structure of fiscal revenues in Kosova in the first five years
Tax forms First Two Years 3rd Year 4th Year 5th Year
Income Tax 20 23 28 30
Tax on profits 3.5 3.5 5 8
Contributions and charges 23.5 20 15 15
Property Tax 8 10.5 12 12
Taxes on goods and services 30 29 25 20
Duties and Customs 10 9 9 9
Other Fiscal Revenues 5 5 6 6
Taxation on corporations income / tax on profits, for the beginning will have a symbolic share as through tax allowances investments of country's and especially foreign capital in production activity will be encouraged. This is done by considering the fact that production activities participate with only 12.8% in the structure of private enterprises activities (REINVEST Poll). It is anticipated that in a long run the relationship in the fiscal revenue structure will change in favor of revenues on the basis of taxes effecting population's standard.
The share of income tax may be of a high scale if through adequate mechanisms one stimulates the development of independent production and service activities. The income share on this basis would approach the scale of OECD countries.
Alongside economic development and the increase of the number of the unemployed the share of taxation from citizens income will eventually grow on the basis of personal income and contributions. This happens also in the countries with a high economic development.
Taxation on goods and services /VAT for the beginning will represent the main source of fiscal revenues with a 30% share considering the personal consumption in Kosova. Considering the limited purchasing power of the population, and the fact that the structure expenses of family budget are dominated by basic articles of existence such as food and clothing, the tax tariffs in taxation in circulation of these produces would be as lower as two times in comparison to those considered luxury products. Taxation of services will have e solid share in the tax revenue. As the participation of the service activities in the private sector participate with 72,3% (Poll).
Tax on the value added (VAT) in the open market economies has proven to be a more successful form compared to the classical taxation on turnover, among others, in decreasing the possibilities of a fiscal evasion, price stability and its fiscal effects. Therefore, one should not hesitate to apply it in the taxation system.
An orientation towards goods import would seemingly create conditions for considerable fiscal revenues on the basis of customs and duties. However, we consider that a mid-term and long-term orientation towards the open market economy towards the world will apply norms of duties and customs identical to those of the market economies.
Leaning on pre-fiscal revenues would make it possible to analyze possibilities of participation, especially in health care and superior education, and the accentuated public needs where an institution of self-contribution could be applied with a destination for developing public infrastructure, especially in the rural regions, such as building roads, water pipes, cultural and sports objects. In this aspect it would be necessary to undergo a study of the possibilities for an engagement of an evident financial potential of diaspora, especially at an initial stage in the function of an independent fiscal system of Kosova.
With the intention of conceiving a more efficient fiscal system it is necessary that the following activities be undertaken at its initiation:
5.2.5. THE BUDGET SYSTEM
By the approval of the Constitution in 1974 the independence of the budget system of Kosova was definitively determined.
The last budget, on the basis of its independent budget system, Kosova approved for the year 1990. The budget was also approved by communes on the basis of their competencies. Aside from the Kosova budget the public consumption was also realized through social funds (self-managing communities of interest) through which in their greatest part education, culture, science, health, pensions, social protection were financed. These funds were formed by contributions from enterprise revenues and personal income of the employed.
In the formation of the budget and public consumption funds, besides self sources there was also a participation by supplementary assets or federation budget with around 24,71%.
The new budget system should be a consistent entirety based on basic principles of the budget, such as: volume, content, authorizations and procedures ensuring a rational functioning of the budget in all its stages, such as: elaboration, approval, execution and its control. During the determination of this system, by all means, the main principles of the budget should be respected, such as the following:
(1) Principle of budget unity which demands that all revenues belonging to a certain social-political community be a unique entirety for covering all its expenses. This principle eliminates the possibility of a connection of revenues appointed for a particular consumption.
(2) Principle of budget universality requiring that all the income and outcome enter the budget and be represented in brutto sums.
(3) Principle of budget balance.
(4) Principle of public presentation of the budget.
(5) Principle of budget classification.
(6) Principle of budget reality.
(7) Principle of annual budget, and
(8) Principle of prior allowance.
Principle of a more rational organization of state organs and their efficiency is irreplaceable in the future period.
Compared to the consumption structure that existed before, Kosova's budget structure must be estimated, that new items and consumers will appear. However, many other rationalizations in consumption may be done compared to the volume of the public consumption as it was in 1990. First of all, here one speaks also of changes in education, health, sports, culture and other spheres which cannot remain exclusively within the competencies of the state and public consumption funds, respectively for various forms of population participation and the private initiative in this field.
By determining and efficiently implementing the fiscal and budget system, with a high fiscal discipline and especially with an economic development, Kosova despite difficulties to be gradually overcome, can fulfill the obligations for its budget and public consumption determined through laws.
The problem will be accentuated especially during a transitory stage to the beginning of the consolidation process of the economy and creation of an efficiency of the fiscal system. During this period there should be a graduality in creating public revenues and volume of public expenses. Furthermore, a greater foreign financial assistance should be ensured, a balanced one or with an acceptable deficit to be faced by normal instruments and realistic sources. According to our estimates, based on 1990 budget and 1997 situation, budget and public consumption funds will reach about 65% of GDP, budget deficit will be 38%. According to our projections, the budget and public consumption funds in GDP during transition phase (3 years) will be reduced to 40% of GDP, while the budget deficit will decrease under 10%.
5.2.6. PUBLIC ECONOMY
Public coprorations perform an economic activity of a general social interest. The inclusion and organization of these corporations differ from country to country depending on legislative regulation. In literature and current practice of countries with an economy based on principles of a market economy, besides classical public activities this same character is attained by social security, health care issues, elementary education, and part of middle education and University studies.
Indisputable public enterprises of a pure economic character are the following:
(1) Post - telephone - telegraph (PTT e Kosoves)
(2) Railways (NTH e Kosoves)
(3) Electricity power (EEK - Elektroekonomia e Kosoves)
Besides these enterprises, there are some other fields which may be organized on municipality or Kosova level as public enterprises, such as the following:
(4) urban and suburban traffic, especially in some particular parts,
(5) irrigation system "Iber-Lepenc" and "Radoniqi",
(6) forestry enterprises,
(7) enterprise of road construction and repairing,
(8) municipal economy.
(1) The works of postal, telegraph and telephone communication may be divided in two particular parts and two special enterprises can be formed within the enterprise of postal communication which would have a character of public enterprises with mainly state-owned shares under the patronage of the state. This enterprise would be called simply the Public Enterprise of Posts of Kosova. While, the Telegraph and Telephone Communication Enterprise would be founded as a share-holding association of telecommunications in full private ownership. This enterprise would be called: Share-holders Society for Telecommunications of Kosova, or the Telecommunication Corporation of Kosova. This organization is in full harmony with the practice of developed countries with market economies where postal communication is developed through a public enterprise being mainly under state ownership, while telegraph and telephone communication is organized and performed through big companies of telecommunications through share-holding societies.
(2) Almost in all the countries of Europe railway enterprises enjoy a double-status: as transport enterprises and state-owned directories for railways. The state in most countries is also the owner of over 50% of assets, and the development is usually covered by the state. Such solutions are based on the economic importance of the railways, on their strategic, social and ecological importance. For these reasons they too are defined as public enterprises of general interest. Besides the capital part (shares) owned by the state, it supports the railways in other forms: compensation, subventions, contributions. This has to do with compensation of transport of both people and goods.
Because of the many specifics that NHT of Kosova has, it should be organized as a Public Railway Enterprise by a mainly state-owned capital with compensations in its regular activity. Considering the fact that the railways are connected with a dependent network of railways by neighboring countries in the Balkans and Europe, the NHT of Kosova should deal with the following aims:
A development of railway infrastructure should be done under a public care by the state, while the commercial part (transportation of people, goods, offer of other logistical services in transport, etc.) should be trained for a business management like any other subject under the market condition for a profitable job. Furthermore, a future legal regulation of railway transport in Kosova is necessary in full harmony with the respective legislation of the European Union (EU) and UIC - International Railway Union.
(3) In the electro-economy complex the organizing form of coal and electric energy production, transportation and distribution is imposed by the very nature of production chain to final consumption which should be a unique technological system.
However, property problem of EEK is very complicated because of intermingling the problem of coal as a natural resource, which ought to be "a universal national-state good", electric energy as a product of general (public) interest, and the invested capital (shares).
Organization and property variants of EEK capital may be various, but it surely should be a public enterprise with a general social-state interest, keeping up to the main principles of market economy and the way of maximum privatization within concrete conditions of Kosova's economy.
In the future period of development of market economy in Kosova, it is necessary to elaborate other domains as well which should be organized as public enterprises (organizations), carrying clear main principles of organization and functioning of enterprises of public character. It is thus essential that there will be an interest (such as communal or higher state bodies) to invest or buy their shares.
The property basis should be the private capital (private property in most cases of 50+1% minimum), foreign or domestic, without limitation for legal or physical subjects. The other part of the capital, usually of 49%, may be state-owned, but denominated in shares or securities sharing the same fate as the private capital. It is sometimes misunderstood and misconceived that it is the state that should manage public enterprises, or state bodies and ministries, respectively. The state should take part in a proportional management of these enterprises according to its capital participating in them, which should be less than 50%, except in specific cases and activities, such as the railways and part of post excluding telecommunications.