(18/05/06) Call to Invest Kosovo Funds at Home (Balkan Insight)

• 2006-05-23
• Europa in de wereld

Critics question wisdom of investing all of Kosovo pension funds abroad.

By Arbana Xharra in Pristina (Balkan Insight, 18 May 06)

Critics, including government ministers, have hit out against the managers of Kosovo's biggest pension fund for refusing to invest any of the money in the entity on the grounds that it is still not safe to do so.

They voice concern that none of the 161 million euro collected from the national pension fund - or the 210 million euro derived from the sale of socially owned enterprises - is being invested in Kosovo, where it might help the underdeveloped local economy.

Apart from starving the economy of needed investment, they say placing the money abroad sends a poor signal to potential foreign investors, reinforcing the image that the country is unsafe.

The 161 million euro at the centre of the debate has been collected from a ten per cent tax levied on the salaries of the some 200,000 employees who contribute to the pension scheme.

The Kosovo Pension Savings Trust, KPST, which the UN mission in Kosovo, UNMIK, set up in 2001 to manage the pension fund, is investing the money in two asset-management companies, ABN AMRO, headquartered in Amsterdam, and Vanguard Investments, based in Brussels.

They have placed much of the assets in low-risk investment funds that guarantee a minimum safe return.

On the other hand, the Banking and Payment Authority of Kosovo, BPK, is keeping the other 210 million euro collected from the sale of socially-owned enterprises as a part of the privatisation process, in a frozen fund account.

The KPST says it is right to invest the pension money abroad, as Kosovo's banks are not yet safe enough to manage such funds.

Arjeta Kushtova, head of KPST, insists that keeping the savings abroad remains the best option.

"Capital markets have yet to develop in Kosovo," she said. "As an institution we have to manage the participants' assets according to the legal requirements to undertake prudent investments.

"For the KPST to invest its assets, the fund needs to be

transparent, highly liquid and tradable, and provide a considerable return.

"Currently the KPST Governing Board has not been able to identify funds in Kosovo that could fill these criteria."

The KPST says 50 per cent of the pension funds are being placed with ABN AMRO, a conservative, low-risk, investment pool.

The funds managed by Vanguard, on the other hand, are being invested globally in a pooled fund that tracks a Morgan Stanley Capital International index.

Kushtova says the KPST fund performed well in 2005, delivering a return of more than eight per cent.

However, Haki Shatri, Kosovo minister for economy and finance, says the funds would be better used if they were invested locally.

"The risk of keeping the money in local banks, which could then give the kind of long-term loans to local businesses that are now missing, is not as great as the KPST makes out," said Shatri.

"If the funds were kept in savings accounts in Kosovo's commercial banks, which currently offer interest rates of ten per cent, the interest would also be higher than it is when it is kept in foreign banks."

Mimoza Kusari-Lila, director of the American Chamber of Commerce in Kosovo, agrees, saying while the KPST may have been right to deposit its funds outside Kosovo in the troubled, immediate post-war years, that did not hold good today.

"I am not convinced the KPST has good enough reasons to keep all of these funds abroad now, when at least part of this money could be safely invested in economic projects in Kosovo,"said Kusari-Lila.

Kusari-Lila urged the KPST to show "a little bit of creativity", by drawing on the examples of other developing countries, where pension funds have been at least "partly invested in unemployment-decreasing development programmes".

However, most economists concede that governments need to provide minimal guarantees for the security of such pension funds, if they are to be invested at home in programmes of that kind.

With only a 650 million euro annual budget - one of the smallest in Europe - and with its political status unresolved, Kosovo's government is not seen as being in any position to offer similar security pledges.

However, Kusari-Lila is convinced that the pension fund needs to be invested at least partially at home in order to generate confidence in Kosovo among investors internationally.

"A general insecurity is being promoted by Kosovo institutions such as KPST, which is damaging the economy in general," he said.

"It makes foreign investors think 'if Kosovo institutions do not invest in their own banks and economy, it is probably not safe for us to do so'," Kusari-Lila went on.

Muhamet Sadiku, economic advisor for the Kosovo government in charge of economic development strategy, said it was absurd that not even a small fraction of the savings generated in Kosovo would be spent in the country.

"It is irrational to declare that Kosovo is a dangerous market," he said. "We have the lowest rate of bad loans in the region."

Sadiku referred to the recent review of local banks by the Board of Banking and Payments Authority of Kosovo, BPK, which deemed only one Kosovo bank unsafe.

As a result of the report, the BPK ordered the Credit Bank of Pristina to close on March 13 this year and 95 per cent of its clients' savings to be refunded.

While some argue that the closure of Credit Bank was just another reason not to trust Kosovo banks with large savings, others saw the closure as a healthy indicator that Kosovo's banks are operating in a controlled environment, and that measures can and will be taken against banks that are not safe.

So far, however, the KPST show no signs of budging. While Koshutova agrees that Kosovo now offers investment opportunities that may provide high returns in future, she maintains that these investment opportunities still did not fit the exact investment criteria required for the pension fund.

"The best international practices show pension funds are best invested in highly regulated instruments, with returns that are commensurate to risk, managed to a very high level," said Koshutova.

"Until such conditions as a developed capital market and secure government bonds are created, the [KPST] board is obliged to continue applying its present policy."

In other words, for the time being, Kosovo's pension savings will be kept abroad.

Arbana Xharra is a regular Balkan Insight contributor and an economic journalist with Koha Ditore. Balkan Insight is BIRN's online publication.