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                     Office of the Press Secretary
                     (Sarajevo, Bosnia-Herzegovina)
For Immediate Release                                      July 30, 1999
                           PRESS BRIEFING BY

                          Aboard Air Force One
                En Route From Aviano to Sarajevo, Bosnia

8:03 A.M. (L)

MR. BERGER: Let me give you a review of the day, what we're likely to see unfold. First of all, as I said the other day, the purpose of this conference is to launch the Balkan Stability Pact, which is an arrangement between the nations of Southeastern Europe and the nations of Europe and North America, Russia, to help these nations lift themselves up economically and politically, work together more cooperatively as a region, as a vehicle to joining the mainstream of Europe.

The meeting actually started yesterday, when the regional countries arrived in Sarajevo. They met yesterday, and they're going to open up the summit with presentations, three presentations of the three different baskets of this stability pact -- one relating to security, one relating to democracy, and one relating to economic development.

This is not a pledging conference, not a conference in which countries will commit to financial sums for the region. There is now a needs survey that is being done of the region, which will be done over the summer. And sometime this fall, there will be a donors' conference to deal with the financial needs of the region, just as on Wednesday there was a donors' conference to deal with Bosnia, Bosnia's emergency needs, that raised --

Q Kosovo.

MR. BERGER: -- Kosovo, that raised $2 billion.

The President initially will meet with the joint Bosnian presidency, the tripartite presidency -- Izetbegovic, who is the Bosniac, as you know; Radisic, who is Serb; and Jelavic, the Croat. He last met with them in 1997 when we were in Sarajevo. He will talk about both the progress that has been made in Bosnia -- the country is at peace; people have been able to return to a normal life; there are free press; there have been free elections; there's freedom of movement; there continue to be refugee returns -- the last six months, a larger number than at any comparable period -- as well as some of the remaining problems, in terms of privatization, in terms of problems involving corruption in some areas of the government, in terms of continuing to accelerate the refugee returns.

He then will meet with the two entity Prime Ministers -- Prime Minister Dodik from Srpska, who is a moderate Serb, who hung on during the war against really an assault by Milosevic's people to throw him out, and continues to be a supporter of Dayton; and Bicakcic, B-i-c-a-k-c-i-c, who is the head of the Federation. During the meeting, which will take place in Zetra Stadium, the old Olympic stadium for the Sarajevo Olympics, which has been rebuilt, the first part of the session will be open to the press. There will be opening remarks from the Bosnians, from President Ahtisaari of Finland, who is the president of the EU, and from Bobo Hombach, who until recently was Chief of Staff for Schroeder; he's now the head of the Bosnian Stability Pact, the person who's going to be actually running this.

The regional countries then will present their ideas for each of these three baskets. For example, on the security side, we know that the Bosnians are going to indicate that they're cutting their defense budget by 15 percent, and offer that as a model to other nations in the region so that defense expenditures will decrease. In the democracy area -- when they're done with their presentation, obviously the others will comment.

Gene will talk in a second about the economic proposals that we will make. Let me say a few things on the democracy side. The end of this, the declaration will be issued, Sarajevo declaration, which will describe the agenda, the road map for this Bosnian Stability Pact. The democracy piece of it will essentially make very clear that we would welcome Serbia as part of the Stability Pact, but not while it has its present government, not until it embraces the principles of the enterprise -- that is, tolerance, freedom, democracy.

And so there's going to be a stark choice here for the Serbian people, either to participate in the rebuilding of this region or to be outside of this region with the current leadership.

Q -- (inaudible)

MR. BERGER: I believe that Russia will believe to language which indicates that we would welcome Serbia into the Stability Pact when it embraces the principles of the pact. I suspect that the EU and the United States will make stronger individual statements.

Let me let Gene talk about the economics of it.

MR. SPERLING: The summit as a whole will focus on two overall areas, two overall economic areas, and then I'll go into what our specific initiatives are.

The two overall areas is an investment compact in which the southeastern European states agree to take the type of concrete steps needed in making the transition to market economies, to bring in the kind of confidence in a stable, transparent, predictable business environment; and that, in return, the U.S., the EU, the other developed countries make special efforts to bring both multi-lateral and bilateral private sector investment opportunities into the region. So that's one part, the overall notion of investment compact.

And then, secondly, the overall notion of trade integration into the global economy and the notion that for southeastern Europe, for the region to fully make the transition they need to become more integrated, particularly into the EU, but into the global trading system, not only because of what it does in terms of exports, but also because of the technology, the private sector, modern business practices it brings.

The President will be coming with five specific initiatives that he will be talking about and putting forward in an effort to buy United States leadership challenge the EU and others to also take the appropriate actions. First, there will be a southeastern Europe trade initiative. And what this will make up is an expanded list of duty free products, an expanded list of duty free products under our GSP, our generalized system of preferences into the United States.

So, one, there will be an expanded list of products, including footwear, which will be very important. Footwear is their second leading exports.

Q What was that?

MR. SPERLING: Footwear. As example, which has as much as 10 percent tariffs would now be duty free under this initiative.

But the second part of the initiative is that the GSP would be extended for a five-year period. And the reason to do that is to give the kind of predictable certainty that encourages commercial business development that comes from knowing that the GSP would not be arbitrarily revoked year by year. This is modeled after the Andean trade initiative that was done in 1990 and '91 -- same thing there, when we were trying to encourage those states to diversify out of drug related products, we gave them an expanded list of duty free products and we gave a longer, multi-year extension.

In doing this, in having the United States step forward on this, we are doing so to particularly challenge and urge the EU to do the same. Forty-seven percent of the exports in the region go to Europe, to the EU; yet, there are still significant barriers -- Romania and Bulgaria, for example, have very high barriers on agriculture products. So the United States set an example, but for them to have the kind of trade integration it's not good enough for them just to have free trade among themselves, these are relatively poor countries. Obviously, Slovenia is far better off. But the overall GDP of the area is only about $47 billion -- I'm sorry -- $82 billion, which would be a small fraction of the GDP of one of the United States largest cities. So while coordination and trade among themselves is important, it's really opening the EU's market would be most important. That's on the trade side.

On the investment side, the President will be announcing that there will be $150 million OPIC investment fund for Southeast Europe, $150 million OPIC investment fund, as well as a $200 million credit line that OPIC would be made available. The OPIC chairman, George Munoz, has shown a lot of leadership in coming forward with this initiative. This is a private sector initiative. This is OPIC does competitive bidding for a private sector manager and then OPIC provides some debt financing guarantees, which is designed to leverage equity financing, equity capital. It's supposed to be $150 million.

Then the third initiative which is also in the investment area is that we would also be announcing an international financial institution regional equity fund. This would share many of the same components of the OPIC fund, except it would be being sponsored and done through the IFIs and while OPIC was just for use by U.S. businesses, this would be for use by businesses for multilateral different countries, but also involves private sector management and equity investment into the region.

The fourth initiative, which is, I thin, particularly productive is a $130 million fund through the EBRD, the European Bank of Reconstruction Development. And what the United States would be doing is putting -- I'm sorry, it's the EBRD fund for small and medium enterprise business development, so it is focused on small and medium enterprise development. What the United States would be doing is putting forward $34 million that would leverage an additional $80 million from the European Bank of Reconstruction. So there would be $114 million in overall investment, of which the United States would provide $34 million and the European Bank of Reconstruction would provide $80 million.

We are also hoping and urging other European countries to also come forward with bilateral contributions for this fund. In addition, there is $16 million for the kind of multi-disciplinary team that comes into banks doing the lending and helps the. So let me give you an example. This is modeled after the Russia Small Business Fund, despite the very disappointing results of small business development in Russia, one shining light has been the russian small business development.

And what has happened is the EBRD comes in and they give money to a bank to loan for small business development. But when they come in, they not only help the bank do the assessment, they help them do portfolio analysis, risk analysis, they train their bank lending officers on how to do the kind of risk and loan rules. So what it does for the bank is not only do they get the EBRD style, but they get a significant amount of training. We would be adding to that, bringing it into the local government so that in this kind of case somebody could say General Electric or someone is willing to invest in this area, except for a problem with a certain licensing law and bring the government sector in. Really often this happens in the United States, when it's made clear to state or local government that a change in an obstacle could bring in millions of dollars in new jobs. So that is the fourth.

And then, finally, we'll be asking, the President will be asking Secretary Daley and Ex-Im Chair Jim Harmon and OPIC Chair George Munoz, the three of them, to coordinate a coordinated commercial development mission later in the fall to the region. And the goal there will be not just to look for investment and business opportunities, but also to set up a dialogue which has proved beneficial during the financial crisis where U.S. private businesses can say directly -- or, I should say, the government officials in the region can hear directly from U.S. private businesses, here is the type of steps that you need to take to make this an attractive business environment for us. So we hope it will be both a productive dialogue.

So it is these five areas. I should say that the southeastern trade initiative would take new legislation and would have cost over five years of between $70 and $80 million, which we will offset, which we will put forward a specific offset for.

Q Million or billion?

MR. SPERLING: Seventy, $80 million.

Q Over how many years?

MR. SPERLING: Over five years. The other thing that would take legislation or take funds would be the Small Business Development Bank, our contribution to the European Bank of Reconstruction would over four years be $34 million for the investment side and $16 million for the technical assistance side on market areas, market incentives.

I should say that the reason this is so important is these are all countries facing significant burdens who are trying to -- who need to make a transition to the disciplines of a market economy. And there are obviously examples of countries who have not done so, there's also examples of countries like Poland who have quickly taken the steps, not only in their fiscal policy, but in integrating with the developed countries. Many of these countries have been shielded -- excuse me -- still have significant government involvement, they need to do significant privatization. They have not had access to the modern technologies, production lines. So this is creating an opportunity. This can only work if the states themselves in the region, they take the steps.

But by putting forward this, we're doing two things. We are challenging Europe, EU, to come through and do the same. They must bear the lion's share of all of the burden. It is integration with EU that will mean the most for their economic development. But, secondly, they still have to show that there can be profitable private sector investment. You can bring these initiatives, you can provide subsidies, but still there has to be ultimately profitable investments there for it to succeed.

Q Two questions on democratization. One, is the Srpska Republic a full partner in the Balkan Stability Pact?

MR. BERGER: No, Bosnia-Herzegovina is. The country of Bosnia-Herzegovina, which has two entities -- Srpska and the Federation. So the country of Bosnia is. Let me just end the day here.

After the summit, the President will go to a school that's being rebuilt. This was actually almost on the line of conflict during the war. The children in this multi-ethnic area of Sarajevo had a letter writing campaign to the Canton to rebuild their school. So you'll see --

Q A letter writing campaign to whom?

MR. BERGER: The Canton, to the government, to rebuild the school. And you'll see that this is a beginning -- they're in the process of rebuilding. The school will open this fall and the President will speak and that will be your opportunity to actually have his words --

Q What will be his --

MR. BERGER: I think he'll talk about the conference. Since his comments in -- the conference will close to the press after these opening remarks. You won't have any transparencies. So he'll basically come out and talk about what happened at --

Q What other pull-asides is he going to try and do today?

MR. BERGER: With the Bulgarian President Stoyanov, with the Romanian President, at least, a couple of the others. President Djukanovic will be here from Montenegro, I think we'll probably try to see him.

Q What's the reason for those particular leaders, to get them aside?

MR. BERGER: Well, both Romania and Bulgaria have played extremely important parts in the support of NATO during the war. They're front line states, they border on Serbia, they not only allowed NATO to operate, but they also absorbed a lot of the economic cost of the war, since much of their trade goes through Serbia.

So the President wanted to thank them for what they've done. Romania, in particular, has taken a lead in putting together the regional states. The concept here very much is, as in the Marshall Plan, where western European countries came together and helped define the kind of program for themselves. The effort here is to get the nations of the region to undertake to define their own future, describe the steps that they'll take on reforming their economies and making their governments more democratic, on lowering the defense budgets, et cetera. And then, in exchange for which, in a sense, the rest of Europe, North America will provide the kind of assistance and integration over the long term to make them a part of mainstream Europe.

Q Sandy, having left Serbia out of the pact, what's being offered that can help Serbia democratize?

MR. BERGER: I'm sorry, I didn't hear the last part.

Q Having excluded Serbia from the benefits of the pact, what is being offered to help Serbia in its own democratization?

MR. BERGER: One of the initiatives that the President will announce is that we're setting aside $10 million, U.S., seed money to assist in the democratization of Serbia. That money will go to help independent media, help organize access to information, work with the opposition groups.

So we will be -- two answers to your question. Number one, we're going to be actively working with those who want a Democratic Serbia, as are other countries, as are the Europeans. And, second, of all, the people of Serbia are going to see a very stark choice here today. They're going to see all the countries of Europe, and particularly of their region, coming together to talk about how to move this region into the mainstream of Europe, except for one, except for Serbia. And there's only one obstacle to their being part of this, and that is their current leader.

And all the evidence that I have seen recently, including some data, on public attitudes, suggest there's enormous disaffection with Milosevic. People hold him responsible for what they're going through and they want to see a new government.

Q How long do you think there are going to be troops in this country, in Bosnia-Herzegovina, foreign troops?

MR. BERGER: In Bosnia?

Q Yes. How many longer? Are we still talking years?

MR. BERGER: Let's go back to where we were. We started out with 60,000, we're down now to 20,000 or so. We started out with 20,000 U.S., we're down to 6,200. NATO in June is scheduled to announce a further reduction. So we're on a fairly steep decline. And i don't want to quit. I don't want -- we tried once to put an artificial date on it and it wasn't a very successful enterprise. I don't want to put a deadline on it. But I think that we now have a Bosnian police that's functioning, local institutions. And although there are plenty of problems in this country that have to be dealt with, I don't want to glass over the distance to travel, I think peace is quite secure here. And I can see over time the SFOR levels continue to come down.

Q What's your reaction to the response you got from the KLA yesterday to the Secretary's message to them? And how important is it to get Rugova back?

MR. BERGER: Well, you might ask her. My impression is that Rugova told her that he was going back. She saw him in Rome. She said she had an enormously warm and quite extravagant response when she was in Pristina. But you ought to speak to her directly about it.

Q How about as far as the KLA and their cooperation with the UN? Are you getting more --

MR. BERGER: We have been -- I think that the cooperation with the KLA generally has been good. On the demilitarization side, General Jackson has said that he is generally satisfied with their compliance at this stage in the process. We want to work with the KLA and other leaders of Kosovo in the establishment of public administration. Ultimately, there will be elections and the people will get to pick their own leaders in a democratic way. But in the meantime, we want to work with Kosovars, including the KLA in establishing an interim administration. U.N. personnel here in Kosovo is increasing rather steadily. There are about 700 people on the ground. There are now about -- the first 300 police out of what will be a 3,100 international police force -- and they are now recruiting people to be trained -- local people to be trained as part of a Kosovar police and a police academy that is being set up.

So, it's going to be difficult in the beginning. But I would say this, I think things are moving more quickly in Kosovo on the civilian side than they did in Bosnia in the beginning.

Q You talked about a mini-Marshall Plan, you've alluded to the Berlin Wall and so forth this week -- in a historical context, you've spoken of the Marshall Plan this week, I'm wondering what sort of a day historically this is going to be for the region and for the Allies?

MR. BERGER: I think it's a very important day. And I guess -- I think there are two comparable periods in the last 50 years. At the end of World War II, the International community decided it was going to rebuilt Europe through the Marshall Plan, through NATO, and as a result of that, Western Europe not only recovered economically, it recovered -- politically, it's been the cornerstone of our security.

At the end of the Cold War when the Berlin Wall collapsed, the international community did a really remarkable job helping the countries of Central Europe -- Poland, Hungary, Czech Republic, others -- in making the extraordinary economic and political transformation. We now are focused -- the opportunity after the war in Kosovo to do the same thing for Southern Europe and the Balkans and to bring this long-troubled region, as I said, into the mainstream of Europe economically, politically and otherwise. And I think if we can succeed in doing that, and I think that begins today, I think if we can succeed in doing that, we will have gone a long way in accomplishing a vision the president has had from the beginning, which is to create a free, democratic, united, peaceful Europe for the first time in history.

Q What's your feeling about Ahtisaari's comments yesterday that the stronger economies in this region shouldn't be allowed or shouldn't be thinking about joining the EU until they do more to help the weaker economies in the region? Do you agree with Ahtisaari on it?

MR. SPERLING: I did not see the comment. Do you mean the weaker states --

Q He's basically saying, Slovenia and Croatia -- the better off of the countries should be worried more -- before they start thinking about the EU, they better start helping out their neighbors here a little bit more before they start joining the EU.

MR. SPERLING: I don't think we think those are mutually exclusive goals. We think there are benefits from having greater cooperation, unified vision, freer trade among the countries themselves. But as Sandy said, the ultimate goal is to move to further integration into Europe. But I did not see the specific comment.

I did want to make one point, which is that in doing the legislation -- on the trade legislation -- one of the benefits of doing this legislatively is we're able to include in the Southeast Europe Trade Initiative Kosovo and Montenegro, which allows us both to help Kosovo and Montenegro, but also to further isolate Serbia as long as Milosevic is there. That's something we could not do if we were just functioning -- if we were just seeking to expand product by product administratively year by year.

Q You talked about challenging the European Union, do you have any sense that they are going to come and offer some trade benefits as well?

MR. SPERLING: Well, I'll just say that we very much expect that they will be -- if not this weekend, in the near future -- coming forward with significant investment funds and efforts to catalyze further economic integration. And on the trade side, it's just essential that EU -- as I said, this region -- 47 percent of their exports in 1998 were with the EU. They still face significant barriers. As they get more well-off, there's usually an effort to do a country by country arrangement. We think the much better preference is to deal with the region as a whole giving unilateral preferences in a way that would further strengthen economic, commercial development and bring in the type of discipline that comes from having more private sector investment searching for opportunities in the area.

Q Can Kosovo take advantage of any of these five initiatives? Their infrastructure is blasted. How can they benefit at all from this?

MR. SPERLING: Well, a couple of things. Certainly, as I just said on the trade side, we seek to include them. On the OPIC, the OPIC funds are 10-year funds, and so it's true -- I said this in the briefing the other day -- for the countries that were formerly members of Yugoslavia, many of them do face a triple burden. They face the loss of the economic integration they'd experienced under an integrated Yugoslavia, first of all. Secondly, the second burden is that several of them are war-torn -- have infrastructures that are battered and war-torn. And third, many had developed serious trade reliance with Serbia whose own economy has now been badly decimated in places.

So this is not -- no one is saying this is an easy task. But, again, what I think the United States and particularly the EU can do is by bringing the capital funds, the trade, unilateral trade preferences, they are increasing the sense of reward for those countries that step up to the plate and do the type of difficult privatizations, fiscal policies and financial infrastructures that have proven so important.

What we've seen in the financial crisis so much is that it's not just the fiscal and monetary policy, it's the degree that there are licensing procedures that are most simple, as opposed to arcane and overly bureaucratic and expensive -- to the degree that they have transparency in their procurement, to the degree that they have things like bankruptcy laws, intellectual property laws, all of these things that give investors the confidence that this is a stable, transparent business climate.

Q One question about the generalized system of preferences, how does that work? Why can't it get changed on an annual basis? Is that legislative or is that executive?

MR. SPERLING: We could go, I believe -- we could seek to expand by product, by country, administratively. That's obviously a slower process. It would not allow us to include Kosovo and Montenegro. And furthermore, we are trying to challenge Europe to look at the region as a whole, offer unilateral trade preferences as a whole. And so we seek to step up and by U.S. leadership set an example of offering expanded access to our markets -- both for the good it will do, but also to the degree that it challenges and encourages Europe to do the same. That is where the real economic benefit will come for them.

Q My question there went to the issue of -- you said that you would also undertake to freeze for five years the GSP.

MR. SPERLING: If you're trying to encourage business development, if you create a more certain environment by doing five years, so you're coming into this region and you know that you're going to exporting strawberries, if you know that the United States or Europe has gone duty-free for several years in a row, that gives you a certainty to maybe start not just exporting now, but developing more production for further exports.

That was the idea in the Andean trade initiative. And so that requires legislative. So you could go slow, product by product, through the administrative process. We think that this is a wiser course and one that would have -- well, very marginal impacts on any U.S. industry.

I do want to mention that we do exclude textiles. We do not include textiles in the GSP expansion.

Q How many products will you include?

MR. SPERLING: Many. I believe that footwear is the most significant. We tried to go through --

Q How far in front of the EU are you on this, though? I mean, you talk about challenging them -- how far in front are you? When do you expect it to come up? And is there an example of them doing what you want them to do in another part of the region, either Central or Eastern Europe?

MR. SPERLING: Let me ask Sonal Shah. This is Sonal Shah who is our expert on the region and actually lives here, was the Treasury person in Sarajevo for a year and a half under David Lipton when they were doing reconstruction.

MS. SHAH: Europe did the Andean Trade Preference. They did the same thing we did with the Andean countries. They have separate, individual agreements that they do, and the only time that we know of that they've done it is the Andean countries. And we would like for them to do the same thing for Southeast Europe.

Q Do you have any indication that they will?

MS. SHAH: They've shown support for it, but they need to go do their process there with their individual countries.

MR. SPERLING: But the focus has been a little bit too much on what the potential benefits of the Southeast European countries creating a free trade zone among themselves. While clearly Slovenia, Croatia have fairly strong economies, for several of the economies in the region, they have GDP of $1,000 or less per person and, as we've just went through, battered infrastructures. So we do want to push the focus to not just what kind of cooperation or free trade zones they can have within themselves, but between themselves and the EU.

Q (inaudible)

MR. SPERLING: Well, we wrote down some. As I said, I think footwear is their second biggest export. That is as much as a 10 percent tariff now. So that would go from 10 percent to zero. In Bosnia, frozen strawberries are an export at 11 percent. Certain flowers at 6.7 percent. In Romania, drinking glasses are 26 percent tariffs; glassware for kitchen 7.2 percent; ball-bearings 9 percent. All of these would become duty-free over a five-year period with the initiative.

Q Is textiles the largest export?

MR. SPERLING: Yes, textile is the largest.

Q And why has that been excluded? Because you don't think you could get that through Congress?

MR. SPERLING: First of all, we have -- agriculture is a significant export of which we have largely duty-free access to our market currently. We wanted to in significant areas like footwear, be able to do something immediate. And I think as a practical matter, as a purely practical matter, inclusion of textiles would have prevented us from providing any form of immediate relief -- particularly with CVI and Africa Trade Initiative on the calendar right now. So that's a straight answer.

Q -- private equity fund -- how much is the U.S. committing to that?

MR. SPERLING: That would be a $200 million fund in which the IFC and the European Bank -- would put up $100 million, and then the private sector manager who would win the bid would raise another $100 million. So we don't have any -- contributions other than whatever our membership share is of those two institutions.

Q Do you have a total dollar value on everything he is announcing today?

MR. SPERLING: The budgetary cost is minimal, no more than -- the budgetary cost over four or five years -- over five years would be $120 million total budgetary cost. These are small. But the OPIC, OPIC does not have a budgetary cost because of the way they structure it. What OPIC does is they go out and they say we will guarantee $2 of long-term financing for every dollar of equity that you raise. So $150 million fund, they give $100 million of guaranteed debt financing for the $50 million that are raised. Because OPIC is paid back first, the government -- OPIC only loses money in a situation where the equity investors lose everything. The tends to encourage prudent investment.


END 8:47 A.M. (L)