5.4. MODEL AND METHOD OF PRIVATIZATION

Models and methods of privatization are essential issues of implementation of every transition project.

The policy of privatization in Kosova should be in the function of the following:

• A macro-economic consolidation, initiation of a developing and technological process and efficiency increase,
• Stimulating economic activities on the basis of market resources and demands,
• Building and completing market economy institutions
• Eliminating consequences of a forceful application of administration by the installed authority,
• Building up a property structure compatible with the market economy countries,
• Encouraging private investments on SME, especially of direct foreign investments,
• Mobilizing savings and potentials of the diaspora, investments and increasing budget revenues.

In Central and Southeastern Europe the following models and methods have been taken into consideration for practical use:

a) Privatization lacking compensation

• Free distribution of property to the employed where a part of the package of shares goes to the workers or population,
• Property distribution according to a voucher system, in which each citizen is given a voucher-certificate so that thus the buying power of the population is compensated and citizens are enabled to choose shares they are to buy and to what price. Shares of efficient firms are bought, a wide distribution of shares is done, and in time there will be a concentration of property as a result of selling small shares.)
• Distribution of share portfolios of the same value to all the admitted persons as private potential owners.

(b) Privatization according to a selling system, which is realized through the following forms:

• Selling through investment funds,
• Transformation of state-owned enterprises in stock companies (societies) by the state,
• Selling shares to workers on the basis of savings and credits granted from investment funds,
• Selling state-owned enterprises to foreign legal and physical subjects.

All the models of privatization should be evaluated from the aspect of three criteria: economic efficiency, dynamics and the right to participation in property distribution. From what has already been represented one may emphasize that a free distribution of property is realized through vouchers, coupons and certificates, while the property sale is done through shares.

5.4.1. ELEMENTS OF PRIVATIZA-TION MODEL

Choosing a privatization model in Kosova's economy will be determined depending from advanced knowledge in contemporary practice, specific development problems, and the experiences created in the developed countries and in those countries which happen to be in serious transition phases. Within the framework of development specifics determining a privatization model the following should be specified:

• Development strategy,
• Economy structure,
• International experience,
• Finance sources,
• Technological and development degeneration, recession and disinvestment,
• Overcharging of economy with loans,
• Population poverty,

(A) The concept and model of privatization Based on the experiences and conditions in Kosova the mixed model is recommended: The mixed model: free of charge granting, sales, institutional intermediation, functioning of licensed funds and stock exchange capital market.

(B) Normative regulation of privatization: Law on privatization of state-owned enterprises, which will regulate the function of the Kosova Fund on Privatization and the procedure of capital evaluation and privatization.

(C) Infrastructure for model implementation

• Ministry of economy,
• Ministry of finance,
• Privatization fund,
• Chamber of economy,
• Associations of enterprises and businesses,
• International agencies for obtaining technical assistance,

(D) The schedule of privatization process in Kosova economy is determined by many factors:

• Economic recession,
• Technical assistance,
• Social consensus.

THE STRUCTURE OF THE PRIVATI-ZATION MODEL

Based on other experiences and development specifics of Kosova, the most suitable model should contain the following elements:

Naturally, granted percentages may be taken only as an orientation considering certain specifics in Kosova. Further analyses will prove the possibility of elaboration of more optimal relations. One should especially treat the justifiability of share distribution to the population, knowing the problems regarding the public sector employment in Kosova.

The proposed model aims at respecting social, economic-development, and institutional criteria. This proposed model may be implemented in conditions of Kosova since it fulfills the following:

• Transparency in privatization (65% of assets realized through privatization are channelled through the Kosova Fund of Privatization and sold on public auctions),
• Activation of financial potentials to new development priorities,

Explanations:

M.M. = Mixed Model

S.P. = State-owned property

S.I. = Strategic Investors

C. = Concessions

D.S. = Direct sale

• Respecting interests of the employed by granting them a free disposition or through benefits of up to 30% of the basic capital,
• Budget consolidation, especially of social security funds,
• Activation of new investment funds,
• Activation and instigation of securities and capital market,
• Property dispersion between the employed, institutional investors and foreign investors,
• Inclusion of the diaspora in the privatization process.

5.4.2. MODEL IMPLEMENTATION

Based on the existing circumstances in economy and the necessity for the initiation of privatization process, we are presenting some elements of privatization program. This program includes the following elements: number of enterprises and property structure in 1995, value of fixed funds and application of various models according to respective sectors. Value and structure of fixed assets should be taken by moderation, as the existing statistics have vacuums:

According to the elements of the proposed program of privatization, by applying various modalities of privatization at the initial phase we consider it possible that the strategic sectors of economy, especially of industry, should remain under state ownership or an international auction be organized for selling a part of these companies. From the presented program one may conclude that these sectors have a participation in the fixed assets of industry with about 60%. During this period (1989-1998) these sectors are found in an emphasized technological and development recession. Therefore, before including these sectors in the privatization process, they should undergo a program of restructuring.

Propulsive sectors of industry represent an important basis for the implementation of mixed models of privatization. In 1995 these sectors participated with about 40% fixed funds of industry. The privatization of these enterprises would be positively expressed in activating internal financial potentials towards encouraging new processes in the economy of Kosova. A privatization of these sectors would ensure vital interests of the employed, especially those forcefully dismissed from jobs. In these sectors the interests of the pensioners would also be respected.

The policy of privatization should supply an answer regarding strategic aspects of these sectors privatization: models, procedures, potential investors, technological modernization, and surpassing social barriers. The inclusion of these sectors in privatization has to do with ensuring a considerable capital at the international financial market. On the other hand, another important dilemma is posed: privatization-restructuring or vice versa.

According to the current situation ruling in these strategic objects (technological degeneration, risking of production substance, overloading with debts) it will be difficult to encourage foreign investors to be included in privatization programs of these objects. In an economic environment and existing social conditions, it will also be difficult to ensure assets and long-term loans for restructure financing.

In 1990, small enterprises shared a symbolic participation in the social-state sector of Kosova's industry: in basic active assets 4.2%, in the number of organizations 31.7%, in employment 4.7%, and in the creation of the GNP 3.9%. Meanwhile, large organizations engaged 65.9% of their fiz active assets, created 60.0% of the social product, and employed 58.2% of the employed. From these rapports of capital structure one may conclude that the implementation of a wider and more serious process of privatization in Kosova should be preceded by a process of restructuring and modernization, especially of large and medium enterprises of the strategic sectors. For a restructure of these sectors considerable assets should be engaged according to various modalities in the international financial market (joint ventures with foreign partners, World Bank and European Bank, budget assets of Kosova and technical assistance).

Small enterprises should be transformed through the distribution of a part of shares to the employees, and sales of other part once there is an interest to do so. The right to hold shares should be carried by all the employees of the enterprise from its very foundation. If a part of the shares for sale cannot be sold at once, they should be realized in the future at the capital market, or the securities and bourse respectively. A fast and true activation of the capital market should be one of the priorities of the property transformation process. Furthermore, selling shares of these enterprises is important in ensuring financial assets with which their revitalization would be carried out.

Medium enterprises should be transformed through a combined method following an evaluation of the capital of the enterprise and its transformation in shares of the same nominal value. According to such a principle these enterprises should function according to the model of share-holding societies of the developed countries, where in principle none of the owners (be it workers, foreign or internal investor, or the state itself) possesses more than 50% of propoerty. In such a form of property its carriers can be not only its employees but also foreign investors. In these enterprises, attracting foreign investors would be an important issue, who after buying a part of shares would see to it that the enterprise be included in international economic currents, transfer of modern technologies and managerial training.

Large enterprises should also be transformed through the combined method. However, their transformation represents a more complex and long-term process. During their transformation two important principles should be heeded:

- first, large corporations that represent a national resource, because besides capital investments which Kosova advanced in their creation, they are mainly oriented in extracting and refining natural resources of Kosova (such as Trepça, Ferronikel, Electroeconomy, etc.) therefore we are dealing here not only with the preservation of a great potential built up so far, but also with the preservation of strategic interests of Kosova's economy.

- second, when speaking of the analysis of property-motive-efficiency relationship one has in mind precisely large, but also medium, enterprises. After all, a sharp limitation between the large and medium enterprises does never exist, but experience tells us that the leading role or managerism is greater depending from the size of the enterprise.

Therefore, property transformation of large enterprises in Kosova should be developed on a long run by giving priority to the function of privatization, and not to that of property. In this context, these enterprises too should perform an evaluation of the overall capital, changed into shares, a part of which would be granted freely to the employees, and another part be sold according to the principle already mentioned with medium enterprises. However, the overall value of emitted shares should enable the protection of the strategic interests of the state.

It is important to point out that during the sales of some part of the enterprise, be it a large, medium or small enterprise, advantage should be given to its employees, if they wish to increase their participation in their enterprise property through some eventual savings, and often in this sense respective beneficiaries can be granted, as such a thing, among others, effects an increase of its efficiency, especially in not so large enterprises.

From the aspect of restructuring, it will be necessary in the beginning to achieve a transformation of managing structures towards the formation of a corporative organization, or separation in smaller parts of organizations. A corporative organization has proven to be successful in developed countries, especially in the performance of public enterprises where managers were given a free-hand on an operative management of enterprises, but all of that realized under the conditions of financial limitations. The process of restructuring too is tied to numerous social problems, as a consequence of workers lay-outs and deterioration of the economic position of the family. In Kosova too these reforming processes will be causing social reactions and conflicts. This will be relativized through the implementation of social programs as a result of finding an equilibrium between social peace and economic efficiency. The Government of Kosova and its professional organisms, besides privatization programs, should also formulate programs of economic restructuring (of large and public enterprises). The implementation of the latter programs is connected to great expenses which may not be only a burden of the employed in these enterprises. It is precisely of this, that it will be necessary that the Government ensures supplement funds avoiding that restructure expenses fall solely upon enterprises. Through subventions and adequate compensations the implementation of such programs becomes more possible.

The overwhelming part of activities dealing with transition should be devoted to reaching a political consensus. Therefore, the need to planning, coordination and control, or management of such activities respectively, is undisputable. A carrier of this management should be a network of governmental and non-governmental institutions and organizations.

The aim of establishing and training of such institutions and organizations is especially the following:

• Planning and coordination,
• Ensuring efficiency,
• Control and transparency.

Planning and coordination of activities is necessary because transition includes all the sub-systems of the social system. As a result, many subjects are involved in these activities, starting from the parliament, executive power, legislative power, local administration, non-governmental organizations, scientific and professional institutions. The activity of these subjects should be supported by technical assistance, which also should be well planned and coordinated aiming greater efficiency. That should ensure a harmonic development of these activities, avoiding conflicts regarding the aims, competencies, and development stages of the activities.

Efficiency of transition requires that activities be completed within the planned time, reach their effectiveness - be in concordance with determined objectives and their efficiency - with permissible and acceptable social costs.

Control and transperancy should ensure a social supervision in the process of the use, transformation, and management of the social-owned property, which would be a preventive towards mismanagement and abuse as it appeared in many transition economies manifesting itself as one of the dangers of slow-down compromises of processes as a consequence of which it resulted in conflicts and high social tensions (Albania, Serbia, Croatia, etc.) Control and transparency should be done through a regular activity of the Parliament and respective state bodies, audit institutions as their every-day and specific work on special issues. Control and transparency should include also the influence of the public opinion through an information system and the media, as an essential part dealing with the creation of a state of law.

Network of institutions should be designed in such a way as to fulfill the above-mentioned objectives and avoid the risk of hypertrophy of unnecessary organs, bureaucracy and excessive administration. In principle one should go towards the following:

- not to create double organs if the job can be done by a regular activity of the state body or institution with the aim of rationalization and avoiding conflicts regarding competencies,

- on specific problems lasting for an appointed period of time, such as, for example, privatization, organs and institutions with well-defined duties in both content and timing, may be created,

- leaving free initiative to non-governmental organizations and private initiative which can mobilize creative energies, social resources for an increase of democratic culture, encouraging entrepreneurship, creating a civic and open society.

The regional distribution of this network of institutions depends from a respective problem, but as far as state bodies are concerned, having in mind the territory of Kosova, one should move towards a formal decentralization in order that unnecessary organs are not created. Thus, an optimum between the state, regional, and local levels should be found. Under the conditions when computerization of many activities is possible, performing administrative jobs may be rationalized on a high degree.

In transition times a specific structure of state bodies, ministries and their internal organization is also preferable, so that excessive duplicity of institutions and administration is avoided.

Regarding these specific activities, within the framework of institutions of an open market economy for activities requiring specific organization and respective network of institutions one should specify the following:

• Privatization,
• Financial market,
• Development and restructuring,
• Media

Network of privatization institutions deals with the creation of a rational, institutional and state infrastructure in performing one of the activities representing the essence of the transition process. In implementing the transition process many state bodies are involved, such as the following:

- Parliament which determines the policy, strategy, program, and passes legal framework which regulates the privatization process and exercises a wide supervision regarding their implementation in the regular work and according to the needs, by forming special bodies or its permanent organs (councils, commissions, etc.)

- The Government subordinates, follows and manages monitoring of the privatization process through state organs, ministries, committees, or other forms of organization. In this respect, experiences vary. A special ministry of privatization may be appointed in order to manage over the entire privatization. Privatization may also be managed from the aspect of various ministries, covering various sectors (industry, traffic, agriculture, etc.) and the work be coordinated in a committee or common governmental council. Many countries have passed from one form of organization into another (Albania, Khasakstan, Rumania, Ukraine, Croatia, etc.) surely by experimenting in order to find a most suitable organization.

Besides ministries for privatization, the following have also appeared as forms of organization: National privatization agencies, privatization boards, state committees of privatization, national property funds, etc. Selecting one better form depends on each country's specifics. Considering all this one could perhaps suggests a privatization fund of a state level, in the board of which would be members of parliament, government, professional institutions. Privatization would be encouraged also by ministries or from the inside of the government respectively, coordinated by some coordinating body. In such a way, a professional approach would be ensured, as ministries know best the specific problems in respective sectors while in fund's functioning professionalism, transparency, and social influence could be ensured. Law on privatization would closely regulate the competencies of respective bodies.

In regard to supervision-monitoring over financial and book-keeping aspects the authorized bodies of control and state supervision should do the job as their routine work (revision bodies, courts, audit institutions) by being trained to cover specific problems. Monitoring and transparency during privatization requires an effective system of book-keeping through which financial and financial transactions could be justly evaluated. Therefore, an evaluation of property, verification of this value in the market, transaction book-keeping and a transparent managing of operations should be done in a professional way by respective institutions. The regional distribution of privatization institutions should be restrictive, except that the local government bodies may be organized for a privatization of their own property according to legal procedure.

INSTITUTIONS OF THE FINANCIAL MARKET - stock exchange and securities are of a vital importance for the development of transition in general, and privatization in particular. They should be created parallelly with the initiation of the privatization process as a massive privatization, but also the real property transformation in general cannot be done without financial market institutions. In regard to this, the role of Investment funds (Czechia, Poland) is noted, functioning according to the principle of share-holding societies, by brokering in coupon, bond and certificate (instruments of massive privatization) investments in particular transactions and corporations. These were important catalyzers especially in the mentioned countries in the development of securities market. These are licensed private institutions supervised by the state. This may be considered as an important operation with the proviso that these instruments of massive privatization do not remain paper without value compromising the entire process of privatization. It is important to develop a critical network of such funds so that vouchers, bonds and other instruments emitted as securities within the framework of massive privatization may be absorbed. These funds have their own bodies (election committee, managers, etc.) Competition of these funds for the vouchers of other papers may increase the value of emitted papers and may offer assistance to inexperienced owners of securities. Thus, the funds become pioneers of an industry of securities investors.

NETWORK OF INSTITUTIONS FOR DEVELOPMENT AND RESTRUCTURING within state institutions is managed and coordinated by respective ministries (Finance, Economy, etc.) However, one should stimulate the creation of respective professional and private scientific institutions, as well as development institutions and regional and local initiatives, especially supporting development initiatives of small and middle enterprises (SME). Consulting institutions, encouragement and investment guarantees in SME should be directly supported by the state, as they may represent investment generators in creating and developing SMEs, and thus in restructuring the economy of Kosova and its development mobilization. The role of these professional institutions may also be great in supplying state institutions with proposals, information, and lobbying of useful interests and ideas (Think Tank).

NON-GOVERNMENTAL ORGANIZATIONS are an important segment of transition as a factor for establishing a civic and open society at the basis of which stands the system of the open market economy. The role of non-governmental institutions is particularly important for the cultivation of a democratic culture, creation of a positive opinion and energy for changes, pressure for monitoring and transparency, offering professional assistance for the cultivation of a business ethics. As non-governmental organizations of a particular role in this sphere in Kosova are the following:

• The Association of Kosova's Businessmen,
• The Alliance of Kosova's Economists,
• The Association of the Independent Jurists of Kosova,
• Various associations of engineers and agronomers.

A further development of transition processes will be encouraging new initiatives for development of non-governmental organizations in various spheres in which in principle there should be no limitation except in cases in which hate, segregation and apartheid is incited.

THE ROLE OF THE MEDIA is a particular segment of transition. An independent role of the media is necessary for ensuring transparency and for the creation of a positive climate in the public for deep social changes, and for the education of a new society. Stimulating a professional press on these issues (management, marketing, finances, informatics, entrepreneur-ship) is a necessary need of transition and a very important part of business education.

TECHNICAL ASSISTANCE in creating and training of this network of institutions is necessary as the existing personnel structure in Kosova's administration does not possess enough specialized knowledge in order to perform these duties. Therefore, a need is felt for training a critical number of staff who would become carriers of urgent duties and would enable training of new personnel. This may be realized through the realization of a Program of Technical Assistance, to be realized in cooperation with the governments of Western Europe, the USA, countries in transition and various foundations.

The aims of this Program of staff training are as follows:

• getting acquainted with the structure and functioning of institutions of market economy systems,
• training for an individual and team performance on a strategic, tactical, and operative plain in regard to the application of functioning mechanisms of these systems,
• studying the way of implementation of the transition and privatization process,
• studying the experience, organization and management, tasks, and issuing of concrete proposals for the possibility of applying such experiences in Kosova,
• studying legal regulative and mechanisms of its implementation.

Priorities in the technical assistance are in the fields of the following:

(1) Realization of the transition process, privatization, building up a new structure of the economic system.

(2) Creation, organization and functioning of institutions of monetary authority and financial institutions (central bank, business bank, financial market and bourse, monetary policy, legal regulative).

(3) Taxation policy, taxation system, instruments and mechanisms, organizing services for the implementation of a taxation policy, legal regulative, budget.

(4) Customs policy, protection mechanisms, instruments of implementing a policy of duties, organizing customs services and operations, legal regulative.

(5) Economic relations with the foreign world (foreign trade regime, instigation, crediting and promotion of export, joint ventures, new forms of cooperation, specialization, legal regulative.

(6) International financial organizations, the international financial market, the International Monetary Fund, World Bank, European Bank, International foundations of technical-financial assistance and development, economic integrations: EU, EFTA, OECD, PHARE PROGRAM, USAID, etc.

(7) State administration and public services (state, regional and local level), structure of state organs; Public corporations - public sectors: electro-power, communication, telecommunications, water economy, protection of environment, municipal services, education, health, culture, science, sports.

(8) An institutional mechanism of privatization, privatization agencies, brokers.