South-East Europe Compact for Reform, Investment, Integrity and Growth

PREAMBLE

Participants in the meetings of the Stability Pact ("Participants"), building on commitments at the Sarajevo Summit:

• Affirm that revitalisation of South-East Europe must rely primarily on private sector development and private investment, including by small and medium-sized enterprises.

• Recognise that improvement of the investment climate and acceleration of economic reform through sound market-oriented policies will promote a vibrant private sector and economic growth.

• Recognise that a market economy must be built on sound governance, which is fair, effective and accountable, to ensure the rule of law.

• Recognise further that such actions are also a necessary condition for attracting foreign investors who provide capital, technology, managerial and marketing expertise, as well as access to markets abroad.

• Understand that meaningful steps to address corruption are vital to investor confidence and growth, and should include appropriate regulatory reform measures, the development of fair and transparent processes affecting trade and investment, and anti-corruption laws and enforcement mechanisms.

• Note that foreign investors foster competition in host economies and promote the integration of these economies into the broader regional and global economy.

• Are convinced that the creation of a suitable climate for private sector development and restoring investor confidence in the region require not only ambitious reforms throughout the economy but also an active partnership with private investors and co-operation among Governments.

• Recognise that external assistance on a bilateral and multilateral basis can encourage and strengthen these efforts through mobilising private finance and mitigating risk as reforms go forward in the region and conditions for investment improve.

• Are convinced that the revitalisation of South-East Europe must take place consistent with commitments to sustainable development, protection of the environment and the observance of internationally recognised core labour standards.

• Acknowledge that individual economies in the region are at different stages in the Reform Process.

• Recognise that some economies in the region and beyond can play a particularly important role by sharing lessons from their own Reform Process.

COMMITMENTS

Therefore, participants will pursue the following commitments and will create an Investment Project Team to monitor their fulfilment:

Governments in the region will undertake the following reforms within their own economies:

• Promote a stable macroeconomic environment essential for sustainable economic growth and for restoring investor confidence in the region. Sound monetary and fiscal policies and a well-regulated and supervised financial and banking sector are the sine qua non of economic revitalisation.

• Create an enabling environment for private sector development by:

• Strengthening the independence of the judicial system and ensuring the enforcement of the rule of law.

• Enhancing stability, transparency and predictability of the legal and regulatory framework, including mechanisms for business licensing and formation.

• Improving administrative efficiency matched by efforts to remove bureaucratic obstacles to the creation of new businesses, including both small and foreign-owned ones.

• Creating a simplified and balanced tax structure which fosters business development, including that of small and medium sized firms.

• Improve the climate for foreign investment through:

-Developing open, transparent, predictable, stable and non-discriminatory policies and a comprehensive legal framework towards foreign investors, which are interpreted in a coherent fashion.

-Affording fair and equitable treatment of domestic and foreign investments with full protection of their property rights, including intellectual property.

-Establishing predictable customs regimes harmonised with international practice.

-Pursuing vigorously the privatisation of public enterprises, in a transparent, competitive and equitable manner, with a view to fostering a dynamic private sector, specifying clearly the scope for foreign participation in each case.

• Taking effective measures to combat bribery and corruption of public officials, inter alia through enactment and effective enforcement of law on accepting and soliciting bribes as well as regional anti-corruption initiatives. Taking into account the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions, done at Paris on 17 December 1997, the Council of Europe Criminal Law Convention on Corruption, done at Strasbourg on 27 January 1999 and continuing work in the OECD.

• Taking effective action to combat money laundering through implementation of the 40 recommendations originally drawn up in 1990 and revised in 1996 by the Financial Action Task Force on Money Laundering (FATF).

-Providing for an open and transparent public procurement process, consistent with internationally agreed norms.

-Developing and applying modern and internationally accepted accounting standards.

-Establishing rules on ethics, conflicts of interest and the disclosure of assets of Government officials and their families.

-Promoting private, including foreign, participation in rebuilding and expanding infrastructure such as in transport, energy and telecommunications.

-Adopting the OECD Principles of Corporate Governance which promote inter alia information disclosure and transparency in stock transactions.

-Developing appropriate mechanisms to overcome administrative roadblocks to investment and to ensure an efficient process for decisions on investment.

• Take further measures to:

1. assure that investment takes place within a regulatory framework adequate to protect health, safety and environment ;
2. assure respect for internationally recognised core labour standards consistent with the 1998 ILO Declaration on Fundamental Principles and Rights at Work ;
3. embrace the OECD Guidelines on Multinational Enterprises;
4. develop a business dialogue that allows for periodic consultations between the private investors, foreign and domestic and the Government;
5. develop a dialogue with other elements of civil society, including trade unions and Non-Government Organisations, on the role of investment in sustainable development;

Governments in the region, while acknowledging that national measures as outlined above are paramount in improving the investment climate in each economy, will work to strengthen regional and international co-operation.

To this end, Governments in the region will:

• Present a common strategy for investment promotion which delivers a clear and coherent message to investors and which avoids potentially costly competition in the provision of incentives for such investment.

• Further regional integration through free trade agreements in order to expand the local market size and harmonise standards and regulations with EU standards and regulations.

• Adopt international norms for business taxation; consider where appropriate entering into treaties for the avoidance of double taxation; and participate in outreach and training programmes available for economies in transition, including programmes that focus on international norms for the taxation of foreign investors.

• Strengthen the guaranties for foreign investors through the negotiation of bilateral investment treaties. Accession to international conventions on arbitration and the enforcement of arbitral awards.

In support of the national and regional efforts for reform and integration, Governments outside the region, international financial institutions and other donors will continue to provide, on a co-ordinated basis, technical assistance with the objective of enhancing the capacity of Governments in the region to effectively implement the above-made commitments. Such assistance will include the identification of investment impediments and a constructive dialogue on regulatory reform and on improving the investment climate.

The Working Table on Reconstruction, Development and Co-operation will establish an Investment Project Team to oversee the day to day process of implementation of the Compact, which includes a consultative process for obtaining the advice of the business community and other elements of civil society. Participating Governments envisage that the Project Team will serve as a forum in which implementation of the commitments set forth herein will be discussed, monitored and promoted on an ongoing basis.

Governments within the region welcome such assistance and dialogue, and together with Governments outside the region, will pursue these objectives through the Action Plan annexed hereto.

Governments from outside the region working with international institutions such as the EBRD, IFC, EIB, FIAS and MIGA, will consider how best to mobilise private financing and mitigate risk as reforms in the region go forward and conditions for investment improve. Consideration will be given to mechanisms for the effective provision of political risk insurance and other forms of support for private investment, such as the provision of guarantees, the granting of loans or equity participation.

Participants will pursue these objectives and commitments in a manner consistent with their commitments to sustainable development, protection of the environment and the observance of internationally recognised core labour standards.