Kosovo is a province of Serbia in the Federal Republic of Yugoslavia. Following the end of the Kosovo war of March-June 1999, United Nations Security Council Resolution 1244 (UNSCR 1244) of June 10, 1999 placed Kosovo under temporary UN administration. While reaffirming the sovereignty of the Federal Republic of Yugoslavia over the territory of Kosovo, UNSCR 1244 authorized the UN Secretary-General to establish an interim administration that would provide “substantial autonomy and self-government” to the people of Kosovo.

Since Kosovo was placed under temporary UN administration, it has developed the instruments and institutions necessary to formulate and implement an independent economic policy. Kosovo’s economy remains linked to the rest of the Federal Republic of Yugoslavia through trade, but the United Nations Interim Administration Mission in Kosovo (UNMIK) has severed virtually all links with the Federal Republic of Yugoslavia in the area of economic policy. Although a final political settlement for the province is still pending, its economic policy today is effectively independent. In the two-and-a-half years since the end of the conflict, Kosovo has been a laboratory of economic institution building from the ground up.

At the request of UNMIK, and together with the rest of the international community, the IMF has been assisting institution building and economic policy implementation in Kosovo. ¹ The IMF Fiscal Affairs Department has focused on setting up the tax system, budgetary institutions, and the treasury. The IMF Monetary and Exchange Affairs Department has helped establish the Banking and Payments Authority of Kosovo, which has central banking and financial supervision functions; has appointed its first managing directors; and is working toward introducing a modern payments system. The IMF Statistics Department has provided assistance on a new statistical framework. Last but not least, IMF staff have provided macroeconomic policy advice to UNMIK on an ongoing basis. The IMF’s work has been closely coordinated with the World Bank and other bilateral and multilateral donors, notably through participation in the High-Level Steering Group of the Group of Eight.

This paper gives an overview of institutional and economic developments in Kosovo to date and discusses the main economic policy challenges currently facing the province. Tackling these challenges will be a task not only for UNMIK but, increasingly, for the Kosovars themselves. Kosovo’s recently promulgated constitutional framework created new institutions, including a Kosovar Assembly and a government, which are currently being formed following the first province-wide general elections in November 2001. These new institutions of self-government would take over from UNMIK a large share of its civil administration responsibilities, including in the area of economic and financial policy.