Rapporteur: Mr Alain Chénard, Chief Executive of the Congress

Document transmitted by the Bureau of the Congress to the Ministers’ Delegates so that they can take into consideration the propositions for aid to the “the Former Yugoslav Republic of Macedonia” authorities with regard to the legislation on local democracy and the application period of this legislation

Composition of the Congress delegation

Mr Alain CHENARD (France), Past-President, member of the Institutional Committee of the Chamber of Local Authorities
Mr Rinaldo LOCATELLI, Chief Executive of the Congress
Mr Vladimir RISTOVSKI, Director of the Council of Europe Information Centre in Skopje
Mr Olivier TERRIEN, Secretary to the Bureau of the Congress
Ms Mirjana LOZANOSKA, Delegate of Ohrid Local Democracy Agency
Ms Natali SLEZENKOSKA, interpreter

Aims of the visit

- To make contact with the members of the Macedonian government, in particular the new Minister for Local Government, and assess the willingness of the Macedonian authorities to implement the Framework Agreement and co-operate in areas to be determined (through Ohrid LDA, for instance);

- To resume dialogue with the Association of Local Self-Government Units (ZELS) so as to ascertain its position with regard to the Framework Agreement (in particular, the planned powers and responsibilities and funding methods for municipalities), the most critical point in the immediate term being the Law on Local Finance.

Personalities met

- Representatives and members of the Association of Local Self-Government Units of “the former Yugoslav Republic of Macedonia” (ZELS)

Mr Goran ANGELOV, Chair of the Association of Local Self-Government Units and Chair of the Macedonian delegation to the Congress (VMRO-DPMNE)
Ms ALAROVA, Mayor of Skopje Central District (DA)
Mr Branko TRAJCEVSKI, Secretary General of the Association
Ms Dusica PERISHICH, Executive Director of the Association
Ms Natasa CVETKOVSKA, Secretary of the Macedonian delegation to the Congress

Mr Risto PENOV, Mayor of Skopje
Mr Slobodan KOVACHEVSKI, Mayor of Kumanovo (SDU)
Mr Murtezan ISMAILI, Mayor of Tetovo (DPA)

- Representatives of Macedonian government and parliamentary authorities

Mr Ilija FILIPOVSKI, Deputy Prime Minister with responsibility for managing the crisis
Mr Faik ASLANI, Minister for Local Self-Government (PDP)
Mr Xhet MEMETI, Minister for Justice (PDP)
Mr Dzevdet NASUFI, Deputy Prime Minister (DPA)
Mr Petar DULJANOV, Deputy Finance Minister, accompanied by Mr Dimitar TODVSKI, adviser, and Ms Kristina PAVLOVSKA, Head of Division
Mr Victor GABER, State Secretary, Ministry for Foreign Affairs
Mr Stojan ANDOV, Speaker of the Parliament of “the former Yugoslav Republic of Macedonia”

- OSCE

Mr Andreas RAAB, Member of the OSCE Mission
Ms Petra ANDERSON, Member of the OSCE Mission with responsibility for economic and environmental affairs

- European Union

Mr François LEOTARD, European Union Special Envoy in “the former Yugoslav Republic of Macedonia”
Mr BARTELEMY, Adviser to Mr Léotard

Mr Vassilis MARAGOS, Adviser, European Commission delegation in Skopje
Ms RIZZO, Adviser, member of the European Commission delegation in Skopje

- French Embassy

Mr Jean-François TERRAL, French Ambassador to “the former Yugoslav Republic of Macedonia”

Ms Christelle ENEAU, Scientific and Technical Co-operation Attaché, French Embassy

A. General atmosphere in the country

The situation is still critical and the atmosphere relatively tense. The longer the reform process is drawn out, the greater will be the threat to completion of the reforms provided for in the Ohrid agreements.

A.A. The population

Apart from the efforts made by some elected representatives, in particular the mayor of Kumanovo, the population has not been objectively informed about the agreements. It is estimated that only 10% of the population have read them. The remainder are influenced by media outlets, which are often dominated by nationalist views… According to the OSCE, the younger generations are disaffected with the peace process under way and politics in general. In addition to the political instability, the economic crisis and poor living conditions mean there is a risk of a social crisis. More than 125,000 people are displaced of which 50,000 are abroad and 75,000 are in the country. At the same time, almost a third of the country is not under government control at present. The reconstruction of 4 000 dwellings and the power and water supply systems has not yet been properly completed. For this, the authorities are waiting for EU aid.

A.B. The political parties

Officially, the main parties, who are all members of the government’s coalition, have signed up to the agreement, but not all of them are playing ball. Apparently, certain parties are adopting a stance that some regard as demagogic in connection with the parliamentary elections scheduled for 27 January 2002. There can be no doubt that the closeness of the elections is not conducive to calm and collected debate of the agreements in Parliament.

In this already pre-election atmosphere the parties seem to be preoccupied to keep or take the majority rather than advancing in the Ohrid process. In any case, the holding of the elections will depend on Parliament’s willingness to dissolve itself, as only it has the right to do so...

A.C. The role of parliament

The parliament hesitates in respecting the calendar of Agreements and certain people seem to be blocking the discussion. The two most controversial points of the Ohrid Agreements are:

- the removal from the preamble to the Constitution of the reference to the “Macedonian” majority of the population;

- the requirement for a double majority for issues fundamental to the country, ie 2/3 of Parliament plus a majority of the members of Albanian origin.

Some people do believe that a compromise on the question of the preamble to the Constitution is possible: it is a psychological issue for the “Macedonians”, but nevertheless one that is very important. The problem is that the adoption of the amendments to the Constitution must come before the approval of the other legislation, even though legislative reforms such as the institutional Law on Local Self-Government and the Law on Local Finance are actually of much greater practical significance for the country’s structures.

For that reason, we can fear a blockage in the chain of reforms by the menace of a referendum on the constitutional changes.

A.D. Risk of referendum

In any case, the holding of the elections will depend on Parliament’s willingness to dissolve itself, as only it has the right to do so... In this already pre-election atmosphere, there is the threat of a referendum advocated by VMRO and smaller allied parties. Some people regard this solely as a negotiating strategy, aimed at achieving a compromise on the two most controversial aspects of the Ohrid agreements:

Others believe that the referendum will actually go ahead and will put an end to the reform process, given the state of disinformation affecting the majority of the population.

It is clear that a referendum would irritate the nationalist spirits on both sides, in the least will slow down the reform and reconciliation process or even at the worst could even put a lid of this reform. The right of a ethnic minority to defend itself would be in danger during a referendum; if the ethnic majority of the voters carry it.

B. Grounds for optimism

According to certain Macedonian and Albanian mayors the delegation met, a compromise may be possible on the preamble to the Constitution.

There are plenty of grounds for optimism, especially with regard to the Law on Local Self-Government, which is the real backbone of the reform.

There is a fairly broad consensus on the need for a high degree of decentralisation that transcends ethnic divides. In this connection, all parties recognise the soundness of the proposals made here by the Congress in May 2000, which the negotiators in Ohrid drew on to a large extent. This was confirmed by Mr Léotard, the EU special representative.

Luckily, the country has a single association of municipalities (ZELS), which represents 99% of municipalities, regardless of ethnic or political make- up, and the association wholeheartedly supports the Ohrid agreements and was able to play an active part in drawing up the draft Law on Local Self-Government. This part of the Ohrid agreement seemed to enjoy the support of all of the government members the delegation met, even including the Ministry of Finance, despite clear difficulties understanding the new concepts of fiscal decentralisation and financial equalisation that it involves.

The only slight reservations the delegation noted were on the part of the mayor of Skopje, but these were related more to the future status of the capital.

C. Grounds for pessimism

This report would be neither comprehensive nor objective if it failed also to mention certain real grounds for pessimism. Above all, these concern the debate in Parliament, which has already been delayed, and the reservations expressed - of the Speaker, whose role is nevertheless important to the timetable of the reforms. It should be remembered that the speed of the reforms will have an impact on the pace of reconstruction and thereby on the return of the displaced persons. Every month that passes will have a negative effect on reconciliation between citizens from different ethnic backgrounds.

The holding of a referendum could undermine the entire process and exacerbate the situation. Some parties seem not to really support the reforms.

The Speaker of Parliament does not seem to be overanxious to have a quick vote on the Law on Local Self-Government and tends towards linking adoption of the law to the two other laws, ie the Law on Local Finance, which is not yet ready, and the new Law on Municipal Boundaries, which is far from being ready.

The attitude of Parliament reflecting the behaviour of certain parties and the disinformation affecting the population therefore constitute the most serious grounds for pessimism. Nevertheless, the majority of people the delegation met still hope that the reform process will make progress, despite certain delays.

D. The importance of local-government reform to the future of the country

All local elected representatives agree that local self-government has not functioned properly to date and that the Ohrid agreements should be able to bring about real and significant changes in the exercise of power in the country. This confirms that the section of the Ohrid agreements concerning local self-government includes the least controversial and yet most strategically important aspect of the reform. It remains to be seen whether the difficulties surrounding the adoption of other parts of the agreements will slow down or undermine local-government reform.

E. The institutional Law on Local Self-Government

E.A. Finalisation of the text and adoption in Parliament

During the Congress delegation’s visit, discussion of the various sections of the law had already reached a very advanced stage. The Congress delegation had been given full details of the opinion expressed by the Council of Europe experts (DG I) and agreed with its tone. The delegation therefore studiously avoided becoming involved in detailed discussions in this respect. Its role was to lobby politically for the law’s adoption in Parliament and to assess the difficulties surrounding implementation and the kind of support the Council of Europe would need to provide during the most difficult phase of implementing the law on the ground.

In fact, the section of the Ohrid agreement on this subject takes full account of the Congress’ proposals. The draft law does likewise, apart from the last points raised by the Council of Europe experts, which the Congress therefore took pains to support.

The ZELS also supports the draft law, and we were able to check the experts’ most recent proposals. The Minister for Local Self-Government assured the delegation that the final version of the law would take account of them. It should be ready by the end of September for tabling in Parliament on 1 October. The Council of Europe should receive a copy very shortly¹.

The Minister for the Interior indicated that the working party that prepared the law included representatives of all political parties in order to speed up its passage through Parliament. He said that the vote on its adoption would be held under emergency procedure. In contrast, the Speaker did not give the impression of affording the law the same degree of urgency, seeming to wish to link its fate to the two other laws on local finance and municipal boundaries (see point C above).

E.B. Implementation of the law

The relevant Minister said that he believed that the law would take 45 days to implement. That said, many people, above all the ZELS, believe it would take longer, as they fear that the various ministries concerned would be reluctant to decentralise their staff and resources to ensure for the new powers and responsibilities of local authorities. The Minister for the Interior also has some concerns in this regard. On the other hand, the Finance Ministry representatives seem optimistic. All concerned seem to be expecting assistance from the European Union and Europe as a whole, whereas progress will depend, above all, on there being genuine determination to decentralise government and its bureaucracy and on the adoption of a suitable Finance Bill. Training for elected representatives and managers at local and regional government level will also be a precondition for the success of the reforms, and this is an area where action by the European Union and the Council of Europe will be crucial.

F. The Law on Local Finance

This is undoubtedly one of the keys to the reforms, as decentralisation of powers without the allocation of the necessary resources would be doomed to failure. It would appear that differences in approach and the weakness of technical and statistical arrangements are great and are therefore the most difficult to overcome here.

In this connection, there were differences in the information gathered by the delegation. Under the Ohrid agreements, the law was to be ready by November. This was confirmed by the European Union representatives in particular. The OSCE provided the delegation with a plan involving the preparation of an initial draft in September (with American experts), discussions in the Finance Ministry with foreign experts in October, checking of the results by international experts in the first half of November, forwarding of the text to Parliament and consultation of local elected representatives at the end of November, followed by the vote in Parliament in the first half of December.

Will the situation on the ground follow these plans? This will all depend on the ability of the financial system, above all the Finance Minister, to assimilate and accept concepts new to the country such as “local taxation”, “shared taxes”, “financial equalisation” and so on. In the past, municipal budgets were drawn up by the central Finance Directorate and included only very limited own resources, annual government grants and additional transfers negotiated in the course of the financial year in accordance with requirements submitted by municipalities on a case-by-case basis without any objective or transparent criteria. This shows how difficult it will be to move to a system that meets the challenge of the reforms and satisfies the criteria of Article 9 of the European Charter of Local Self-Government, which seemed to be unknown to the Finance Ministry representatives. The delegation gained the same impression during its discussions in Parliament.

The Finance Ministry representatives expressed a desire to begin by finding out about the various experiences with local taxation and financial equalisation in other countries, including certain transition countries. The assistance to be provided by the Council of Europe experts should therefore begin with education and, if possible, the presence of experts from different countries capable of passing on details of experiences at national level².

With regard to local taxation, three difficulties should be noted:

- the need not to go too far beyond the current share of public spending in GNP, ie 35%, which is relatively low compared with the majority of west European countries;

- the weakness of the available tax base; for instance, there seems to be a total lack of knowledge of property or housing taxes, which are important aspects of local taxation;

- the existence of an underground economy and hence of high levels of tax evasion.

The last point is, in fact, the subject of controversy. Macedonian discussion partners point out that the largest Albanian-speaking city, Tetovo, which accounts for 7% of GNP, makes a contribution of only 3% to public revenue (1.8% according to some people). They attribute this to the preponderance of the underground economy and tax evasion among the Albanian population, fearing that this will oblige the government to make high financial equalisation payments to towns with Albanian majorities. The mayor of Tetovo attributes the lower tax revenues to the poverty of his town’s inhabitants and to a lack of civic responsibility among people reluctant to contribute to funding a state they do not identify with. In the case of local taxes, he therefore believes that their sense of civic responsibility should increase, as they should be able to identify with their municipalities.

This is clearly a major challenge for local tax reform, and this situation will have to be borne in mind in connection with the technical assistance provided for macedonian authorities.

In conclusion, local tax reform is linked to a change in culture in the apparatus of the state and among the public themselves, who should take a more direct interest at local level in how their taxes are used. This also requires the development of an effective financial equalisation system, which is completely lacking in the country. In the light of these considerations, it is unclear whether the Ohrid agreement’s mid-December deadline for adoption of the law or the March 2002 deadline quoted by Finance Ministry officials are realistic. A very high level of technical and political assistance will have to be provided by the Council of Europe experts and Congress members.

To be noted is the real interest of the speakers from the Ministry of Finance to facilitate the implementation of the political decisions that will be taken and to learn from the experiences of others is evident and is worth encouraging.

G. The Law on Municipal Boundaries

The Ohrid agreements provided for a new Law on Municipal Boundaries following completion of the census. However, the latter has been postponed from the end of 2001 to April 2002 with the agreement of the representatives of the Albanian parties and the international community. The postponement was decided upon for objective reasons, namely the return of the refugees. That said, it could hold up part of the reforms.

Within the former Yugoslavia, the Republic of Macedonia had 34 municipalities. This has been increased to 123, plus the city of Skopje, which itself is divided into seven districts.

According to the information obtained, the government’s aim is to reduce the number of municipalities to around 90 so as to create financially viable entities capable of taking on significant powers and responsibilities. There are also proposals to reduce the figure to 70. For instance, the Speaker of Parliament said that there already was a corresponding bill dating from March 2001, ie before the conflict. It is more than likely that when this section of the Ohrid agreement was signed, the signatories did not all share the same views of the new boundaries. The Macedonians, in particular, wanted to create larger municipalities, whereas the Albanians wanted smaller ones that took account of the existence of the Albanian population. The mayor of Tetovo, who is a moderate, believes that the Albanians would agree to the merger of certain municipalities: “it doesn’t matter to us whether we have 23 Albanian mayors or 10, so long as they are treated equally and have the same powers as the others.” It is to be hoped that reasonable arguments win the day. Nevertheless, there is a high risk of boundary changes reinforcing ethnic divides would diminish the influence of the minority. Any changes should only be made on the basis of objective criteria agreed in advance.

Lastly, several people, especially the Finance Minister, expressed interest in European experiences of inter-municipal co-operation, as an alternative to the merging of municipalities. Indeed, a seminar on the matter was even requested.

There can be no doubt that the Council of Europe experts who will assist the Macedonian authorities with the boundary changes will have to be very sensitive to the dangers inherent in an exercise of this kind.

H. The law on the status of Skopje

The city of Skopje currently has a population of 600 000 or a third of the Macedonian population. At present, the city is divided into seven districts, with real power being in the hands of the central mayor. The current mayor of Skopje has concerns about the reforms, which she believes could concentrate power in the districts, two of which have Albanian majorities. It is clear that Skopje, like all the other municipalities, will receive many new powers and new resources, and it seems only natural for these to be divided between the central municipal authority, which should retain sufficient powers, and the districts.

The Congress could provide assistance in this area on the basis of the work undertaken by the Chamber of Local Authorities on the status of capital cities. Skopje should be included in this activity.

The Ministry for Foreign Affairs has proposed that a seminar on the status of capital cities should be held in Skopje.

I. The conditions for implementation of the Ohrid agreement on local self-government

Apart from the four laws mentioned above, the ZELS believes that implementation of the Ohrid agreement requires the amendment of around 50 other laws, including, in particular, the law on local elections³, and the Council of Europe’s support will also be needed for this second phase in legislative reforms. This view is shared by the Ministry for Local Self-Government.

In addition to this second phase in adaptation of the legislative system to the Ohrid reforms, there are other essential preconditions for implementation of the reforms that require substantial assistance from Europe.

I.A. New status for municipal staff within a public-service system

First and foremost, the reforms require the decentralisation of the central government staff who perform the duties that will be assigned to municipalities. To make this possible, it will be necessary to offer local authority staff public-service employment terms, encouraging mobility among officials.

I.B. Training of municipal staff

Whether we are dealing with existing municipal officials who are not used to their new tasks, “decentralised” central government staff who will have to learn to work in close contact with local elected representatives and the public, or newly recruited staff, it is clear that a major effort in terms of training is vital to the success of the reforms.

Substantial assistance from the European institutions is absolutely essential in this area. The European Union has begun to study the question. The French authorities are also looking into it. The Council of Europe and, in particular, the Congress with its ENTO network are capable of providing useful assistance. However, sufficient funding needs to be guaranteed, as any training activity requires high levels of resources over a relatively lengthy period (two to three years). The delegation discussed the possibility of co-operation between the Council of Europe, the European Union and perhaps the French authorities with Mr Léotard and his deputy.

I.C. Training of local elected representatives

A great deal of training will also be needed for the elected representatives who will have to take on new responsibilities with which they are not familiar. This is a task that will mainly fall to the association of municipalities (ZELS), with the aid of the Congress and the network of local government associations currently being set up by the Congress with the support of the Swiss and Belgian governments.

J. Council of Europe assistance required

J.A. Legislative assistance

1. the Law on Local Finance, with the input of various countries’ experience of local taxation and financial equalisation;
2. the Law on Municipal Boundaries and, alternatively, measures on inter-municipal co-operation, again with input from various countries;
3. the status of the capital city of Skopje, with the experience of other capital cities;
4. the law on local elections, taking account of the problems encountered during the last elections (new proposal);
5. the law on the status of municipal staff as public-service officials (new proposal).

J.B. Assistance with implementation of the reforms

Assistance with the training of:

6. municipal staff in several areas, including the preparation of budget estimates, budget management and general management (an agreement should be concluded with the European Union here) (new proposal);

7. local elected representatives, in the form of assistance for the association of municipalities (ZELS) through the network of local government associations of south-eastern Europe (new proposal).

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Final remarks

The new proposals have been pointed out. The first three proposals are already included in the programme already approved by the Ministers’ Delegates. The four other proposals should be integrated into an additional programme for 2001. The Bureau of the Congress would like that the Ministers’ Delegates carry out a preliminary examination and, of course, the proposals will be prepared in more detail and with figures for 2002. ¹ In fact, on 20 October the draft law was still at government discussion level.

² A first seminar is to be held during the week of 22-26 October but will only be attended by a very limited number of experts.

³ Due to be held in 2004.