Report No. 24305-MK FYR Macedonia Decentralization Status Report September 22, 2003 Poverty Reduction and Economic Management Unit Europe and Central Asia Unit Document of the World Bank CURRENCYAND EQUIVALENT UNITS (Exchange Rate Effective as of February 13,2003) CurrencyUnit =Denar US$l.OO =61.6 WEIGHTSAND MEASURES Metric System Fiscal Year January 1to December 31 ACRONYMS ANDABBREVIATIONS ECLSG European Charterof Local Self-Government EU European Union HIF Health InsuranceFund MES Ministry of Education and Science MOF Ministry of Finance MOH Ministry of Health MLSG Ministry of Local Self-Government PEL Public ExpenditureLimits PRO Public Revenue Office SAO StateAudit Office Vice President: Shigeo Katsu Country Director: Orsalia Kalantzopoulos Sector Director: Cheryl Gray Sector Manager: Helga Muller Task Team Leader: William Dillinger 11 CONTENTS Introduction ............................................................................................................................................. 1 TheExisting Structure ......................................................................................................................... 1 ExpenditureAssignment 3 RevenueAssignment ............................................................................................................................ ...................................................................................................................... 5 The Decentralization Agenda 8 The Framework Agreement ................................................................................................................. ................................................................................................................. 9 TheNew Local Self Government Law ............................................................................................... 10 TheAction Plan 14 Next Steps .............................................................................................................................................. .................................................................................................................................. 15 TerritorialReform 15 Finance ............................................................................................................................................... .............................................................................................................................. 17 Decentralization of Functions 20 Sequencing ......................................................................................................................................... ........................................................................................................... 21 William Dillinger prepared this report on the basis o f prior studies by Juliana Pigey. the IMF. and the Urban Institute. The report also draws o n a variety of published and unpublishedGovernment documents. and reflects comments from Bank staff o n earlier drafts. ... 111 Introduction 1. Reform o f the local government system has beenpart o f the public policy discussion in FYR Macedonia for several years. A draft law to amend the basic local government legislation was submitted to Parliament in 2001. With the outbreak o f ethnic conflict in that year, the legislation was withdrawn. On August 13, 2001, military operations ceased with the signing o f a Framework Agreement. A key element in the peace settlement was a commitment to greater local autonomy, through the decentralization o f specific functions to local governments and an increase inlocal revenues. 2. To institutionalize the decentralization elements o f the peace settlement, the Framework Agreement calls for specific changes inthe Constitution and three specific items o f legislation: a new law on local governments specifying the functions they are to assume, a local finance law specifying how these functions are to be financed, and a law revising the boundaries o f local governments on the basis o f a new census. While the Constitutional amendments have been approved, progress on the rest of the legislative agenda has proceeded slowly. The census on which the territorial reform was to be based has only recently been completed. The local government law has been approved but requires extensive subsidiary legislation before it can be implemented. The new finance law i s only now inthe drafting process. The next local elections are scheduled for 2004. A considerable amount o f work will be requiredto ensure that the impact o f decentralization will be perceptible to the electorate by that time. 3. This paper is directed at two audiences. The first is the Government, which is now inthe process o f drafting detailed legislation on territorial reform, local finance, and the decentralization o f specific sectors. For this audience, the report lays out some o f the issues that will need to be addressed in the course o f implementing the decentralization provisions o f the Framework Agreement. The second i s the World Bank, the EU special representative, the U.S. Ambassador and other members o f the donor community. For this audience, the report i s intended to describe the present status o f the decentralization process and suggest a strategy for assisting the Government. The Existing Structure 4. The legal basis for local self-government was established in the 1991 Constitution. This defined municipalities as the basic unit o f local government, and established the general principles for the organization, functions, and financing o f local governments, with details to be elaborated in subsequent legislation. This was largely provided inthe Local Government Law o f 1995. The Local Government Law establishes a strong-mayor form o f government, with a directly elected mayor who i s responsible for administrative operations, and an elected council. 1 5. Interritorial terms, FYR Macedonia is now dividedinto 123 municipalities, with an additional metropolitan government for the capital region. Municipalities range in size from 456 (Staravina) to 118,000 (Kisela Voda, a part o f greater Skopje). The metropolitan municipality o f Skopje itself has a population o f 444,000. As shown in Table 1, nearly 40 percent o f municipalities have populations under 5,000, but these account for only six percent of total population. The vast majority o f Macedonians (83 percent) live injurisdictions with over 10,000 inhabitants. 6. While the advocates o f decentralization emphasize that it will benefit all Macedonians, ethnicity remains a major consideration inthe decentralizationprocess. Greater degrees o f decentralization imply greater degrees o f control for ethnic minorities in areas where they comprise a large proportion o f the population. At present, there i s a fairly high degree of segregation among the major ethnic groups. Based on the 1994 census, 68 of the municipalities are over 80 percent ethnic Macedonian. Seventeen are over 80 percent Albanian. One is over 80 percent Turkish. Only 37 might be considered mixed, in the sense that no single ethnic group accounts for more than 80 percent o f the population. This i s reflected in the maps below (based on the 1994 Census) which show the high concentrationo f ethnic Albanians inthe northwest and the concentration of ethnic Macedonians in the rest o f the country. (Skopje itself is ethnically mixed.) Figure1:Concentration ofEthnicMacedonians population by ethnic affilation, 1994 324964 80000 60000 40000 20000 10000 5000 2 Figure2: Concentrationof EthnicAlbanians ExpenditureAssignment 7. The former Yugoslav government had established a complex set o f institutions responsible for representing the interests o f citizens at the local level, including worker self- management in state-owned enterprises, local governments (communes), and self-managed communities o f interest, termed SIZes. The last o f these performed a wide array o f services, including health, education and housing.' This system was rapidly dismantled after independence and the first multi-party elections. Through a series o f executive orders, the administration at the level of the Republic was strengthened at the expense o f the local governments, which lost functions, finances and staff.z 8. Education.Prior to the breakup of the Yugoslav Federation, responsibility for education inFYR Macedonia was assigned to the 34 extant municipalities. Management of educationwas then centralized in 1991, when authority over education shifted to a newly created national Ministry o f Education (later Ministry o f Education and Science, or MES). Current sectoral legislation mandates that the MES directly manage the country's schools via its own staff and subordinate bodies such as the Pedagogical Institute (presently known as the Bureau for Development o f Education, or BDE) and the School Inspectorate. MES sets the pay scales for teaching staff and determines the number o f authorized positions in each school. It appoints school directors (on the basis o f recommendations o f local school boards). School directors in tum appoint individual teachers from a list o f qualified candidates. MES is also responsible for education standards, and regulating the pedagogical processes, curricula, teacher qualifications, and school management. * Ibid. ' UrbanInstitute,1999,Macedonia: Local Government in Transition. 3 9. The M E S has a staff o f about 200 in Skopje. It operates 15 regional centers, which act on behalf o f the Ministry. They have pedagogical, financial and administrative functions, but no decision-making powers. The regional centers are subordinated to the under-secretary o f primary education and also have responsibility for other 1evels o f educational institutions. Their w ork stresses compliance with directives and supervision o f mandated standards o f service. 10. Individual schools are overseen by school boards consisting o f 9 members, two representing the municipality, three representing the parents o f pupils, and four representing the teachers employed at the school. They are elected for 4 years and may serve one further term. Each is elected by its respective constituency (e.g., teachers elect the teacher representatives; municipal council members elect council representatives, etc.). In principle, the school boards have some influence over the selection o f school directors. They evaluate the dossiers o f candidates for the position when it becomes open. Their evaluation is then sent to the MES, which has the ultimate decision making power. Since the municipality appoints two members o f the board, it therefore has some voice inthe selection o f directors, althoughit is a minority voice and an indirect one. 11. Directors themselves do not have much management autonomy. Each year, each school director i s required to define an educational program, which includes a schedule o f the teachers employed, the number o f classes to be taught, the number o f instructional hours, and a list o f equipment and teaching aides. The program is approved by the school board, circulated to all parents and teachers and to the BDE, the MES andthe Inspectorate. 12. Intheory, the amount made available to each school is determined bythe application o f a funding formula. The formula incorporates twelve variables, including not only the number of students being taught, but also such variables as the floor area o f the school, the area o f the school grounds and the distance o f the school from an all weather road. But case-by-case decisions by the MES appear to be the primary determinant o f funding allocations. MES decisions to authorize a new teaching position (or eliminate an existing one) have a greater bearing on funding allocations than the 12-variable formula would suggest. Per pupil spending therefore varies widely among schools, and largely depends upon the negotiating skills o f the school director and the sympathies o f the MES. 13. Social protection. FYR Macedonia has an extensive system o f social welfare. Pension payments equal 8.2 percent o f GDP, a level o f expenditure similar to that o f Hungary and Croatia; countries whose GDP i s 3.5 times higher.3 Unemployment benefits are also generous. Short-term unemployment benefits last eighteen months. Long-term benefits (at a reduced replacement rate) can last until retirement. There are also several social assistance programs, providing cash benefits to more than 78,000 low income households, at a cost equal to 1.4 percent o f GDP. A means-tested social assistance program, the main poverty alleviation program inthe country, was instituted in 1992. The program provides a guaranteed minimumincome to all households that meet an income and asset threshold. Inrecent years, to contain pressures on the public budget and to improve targeting o f assistance, the Government has tightened eligibility. In 1996, the income ceiling was set at half o f the official poverty line, reducing eligibility to about 10 percent o f the population. While the means tested program i s fairly well IBRD,2002, FYR of Macedonia: Public Expenditure and InstitutionalReview. 4 targeted to the poorest households, the Government has only recently begun to tackle some o f the second generation problems confronting the program. Since 1998, the Government had adopted a revised social assistance decree to equalize the rural and urbansocial assistance level (based on a newly established single national poverty line); simplified scale rates to differ only by family size; introduced work incentives (by puttinga time limit on benefits) and increased penalties for fraudulent claims. But the difficulty o f monitoring claims in urban areas means that many urban households still receive benefits for which they are not eligible. While recent legislation would greatly expand municipal social welfare responsibilities, at present their role i s negligible. 14. Health care, similarly, is entirely a national function. FYRMacedonia has a single payer system o f national health insurance, primarily financed through the public sector Health Insurance Fund (HIF),which receives earmarked payroll contributions. The HIF inturn allocates resources to health care institutions (HIS),which are predominantly autonomous government - owned entities. The system is plagued by financial problems, mismanagement (in both the HIF and the HIS),and questionable spending priorities. A capitation based system for financing primary care has been put in place, but it covers only private providers. The extension o f this system to public sector primary care providers has stalled as the necessary legislation failed to pass in Parliament. Secondary health care i s financed through an input-based allocation system. Health care is provided through 17 health care institutions, 16 medical centers, and 300 village medical units, as well as a General City Hospital and various specialized hospitals. 15. Public Utilities. In the absence o f any significant role in the social sector, municipal responsibilities are largely limitedto urban housekeeping functions: water supply and sewerage, public lighting, drainage, solid waste management, construction and maintenance o f local streets and roads, and the regulation o f public tran~port.~The majority o f such services are organized as municipally owned enterprises. About 65 percent o f the Macedonians are served through municipally owned water companies, for e~ample.~Spending by municipal enterprises does not appear inmunicipal accounts. Inaddition, v arious expenditure programs are implemented v ia specially created extra-budgetary funds, including the national road fund, the Government's Agency for Undeveloped Regions, and urban development programs. 16. Overall, local governments now account for a n extremely small share o f public sector spending. While general government expenditures (including extra budgetary funds) amounted to 35.4 percent o f GDP in 2000, the on-budget expenditure on the local governments accounted for only 0.4 percent of GDP or about 1percent o f the total outlays. Iflocal extra budgetary funds are included, total subnational expenditure only amounts to 1.8 percent o f GDP or about 5 percent o ftotal public sector expenditure. RevenueAssignment 17. The municipal tax system, though small in volume, is complex in form. Municipalities are assigned three property related taxes. The most important is a recurrent tax on real and movable property. Its base includes non-agricultural land, residential buildings and apartments 2002 Local Government Law. The Law on Communal Activities establishes the legal framework for providing and financing a broad range o f public services. The law authorizes each unit of local government to establish a single enterprise to service its own jurisdiction (Article 15) or to create an inter-municipal enterprise. 5 and business premises, as well as motor vehicles (cars, trucks, tractors and boats). Agricultural land and commercial buildings on agricultural land are exempt. The tax i s imposed on the basis o f market values, at a uniform rate o f 0.1 percent. The second i s a property transfer tax, imposed at the time o f sale and based on the value o f the transaction (at a rate o f 3 percent). The third i s an inheritance tax on real estate, which i s imposed at varying rates depending on the relationship of the inheritor to the deceased. (Receipts from the inheritance tax accrue to the jurisdiction where the inheritor lives rather than where the property is located). In all three cases, national legislation sets the basis o f taxation, the definition of the taxpayer, and tax rate and exemption policies. The taxes are assessedand collected by the Public Revenue Office.6 18. Municipalities also derive a significant proportion o f revenues from fees. Communal fees are regulated by the Law on Communal Fees, which defines specific fees on business signs, advertisements and billboards, on the use o f sidewalks in front o f stores and cafes, on musical entertainment or amusement games in cafes, on parking lots and parking spaces, on the use o f squares and other open spaces for exhibitions or commercial events, etc. Rates for each o f these fees is defined in the Law on Communal Fees. Such fees accounted for about 15 percent o f revenue in2000. 19. The three taxes, along with the majority o f communal fees, are subject to a tax sharing I I system, in which Chart 1: Correlation of Tax Revenuesand Transfers I the revenues o f each municipality 4,500 are capped, and the 4,000 )t I excess transferred 3,500 to a pool where it i s r 8 0 available to other 3,000 ._ municipalities on 20ge J 2,500 --eTaxRevenue the basis o f 'need'. 2,000 +Transfers The process for E 1,500 determining the cl caps and assessing 1,000 'need' begins with 500 the setting o f a so- 0 called public expenditure limit Municipality (in order of per capita tax revenue) (PEL) for each municipality. These In the past, local govemments were permittedto determine the rate of one significant source of revenues, a fee known as the grudsku rentu, and which was authorizedby the Law on Urban Land. This was a form o f rent paid by owners or occupants of buildings constructed on socially-owned land (a land ownership regime still in place at least through 1999). Although few municipalities appearedto levy this fee, it provideda significant source of revenues for Skopje Municipality. However, in recent amendments to the Law on Urban Land, the grudsku rentu was removed, and no longer constitutes a revenue source of municipalities. 6 initial calculation for the original 34 jurisdictions. This is then allocated among the new municipalities on the basis o f a formula. In 1997, the PEL o f each new municipality was distributed solely on the basis o fpopulation. In 1998, the MOF added two other variables to the formula, such that at present 80 percent o f the PEL i s allocated on the basis o f population, ten percent o f basis o f land area, and ten percent according to the number o f settlements in each municipality.' In 2001, this formula for distributing the PEL among the new municipalities in each o f the original 34 jurisdictions was made official, as it was included in Article 23 o f the amended Law on Budgets. 20. Duringbudget execution, municipalities are allowed to keep the revenue generated from the taxes and fees up to their respective PELS.Once a municipality reaches the ceiling, all additional revenues are put into a surplus fund, which is then available to other municipalities. This process is far from automatic. To obtain funds, municipalities must apply to the Ministry o f Finance. Their applications are then reviewed on a case-by-case basis. The fact that a municipality has a shortfall-ie., that actual tax collections fall below its PEL-does not necessarily entitle it to funds from the pool. By the same token, a municipality that reaches its ceiling may still receive funds from the pool. 21. There are a number o f problems with this system. First, the revenue redistribution mechanism--the system o f PEL caps and transfers from the surplus pool--is arbitrary and unpredictable. It imposes an arbitrary `tax' on the wealthier municipalities-essentially metropolitan Skopje, the municipalities inthe Skopje region, and Ohrid--and then distributes the resulting revenues on a highly discretionary basis over the course o f the budget year. This results ina highly arbitrary redistribution of resources among municipalities. As shown in Chart 1, the distribution o f transfers varies widely. (The standard deviation inper capita terms i s 50% larger than the mean). And transfers are positively correlated with per capita tax revenues. Municipalities with more tax revenues receive more transfers, rather than less. after redistribution it was 737 Table 2: ImDact of Revenue Redistribution on Per CaDita Revenues Denars. In 2001, the standard deviation before distribution was 531 Denars. Redistribution increased it to 1012. The system does nevertheless succeed in lifting the revenues o f what would otherwise be the poorest jurisdictions. As shown in Table 3, the minimum value before distribution (in 2001) was 134 Denars; after redistribution it was 187. This is also reflected in the proportion o f municipalities whose per capita revenues fell below 50 percent o f the median. The effect o f redistribution was 'The metropolitan government of Skopje receives 38.5 percent o f the PEL for the region, and its constituent municipalities, the remainder. 7 to reduce the number o f municipalities inthis category by about half. It should be noted that for all its complexity, the amount o f revenue at stake in this system is extremely small. The total amount o f revenue subject to redistribution in 2000 was equivalent to only about US$6.00 per capita. 23. The second problem with the finance system as a whole is that it provides no mechanism for the citizens o f individual municipalities to express their willingness to pay for increased (or decreased) local services. Because tax rates and communal fees are subject to nationally uniform rates, taxpayers have no control over the level o f local revenues. 24. The overall fiscal performance o f municipalities has nevertheless been fairly good in recent years. As shown inChart 2, the municipalities (inaggregate) ran a current account surplus ineach of the last four years (1997-2000).8 They ran an overall surplus inthree of those years. This largely reflects their tendency to cut expenditures in line with changes in revenues. A 14 percent nominal decline in revenues in 1998 was accompanied by a corresponding 14 percent reduction in expenditures. Municipalities were not so quick to respond to a continued downtum inrevenues in 1999. A four percent drop inrevenues was accompanied by a six percent increase inexpenditures. (Current spending, infact, increasedbytenpercent. The more modest growth in total expenditures was only achieved through drastic cuts in capital spending). Revenues shot up in2000, due to privatizations and relatedpaymentsofpropertytransfer taxes. Although this was matched by a whopping (45 percent) increase in capital spending, the rate o f increase in total spendingwas considerably less than the revenue increase, resulting in a positive overall balance for the year. Chart 2: Trends in FiscalPerformance I The DecentralizationAgenda f 10% Y) - \ - -25. 0 5 w currentsurplus Pressure for decentralization made r 5 % - x P +overall balance itself evident in the late 1990s. A first step p~ s0 0% - -5% - 1997 1998 was the creation o f the Ministry o f Local .IO% _ __ "- -- -- -- ---- Self-Government (MLSG) in early 1999. In ~ November o f that year, the new Ministry * Notethat aggregationmay disguise substantialsurplusesor deficits in individualjurisdictions. Ministry of Local Self-Government.November 1999. Strategy of the Reform of the System of Local Self-Government in the Republic of Macedonia. 8 MOLSG and with the assistanceo f the donor community, prepared and discussed amendments to the existing (1995) L a w on Local Government to address these problems. This draft law was submitted to the Government in March 2001 but was withdrawn after the outbreak o f the civil conflict inmid-2001. The FrameworkAgreement 26. Decentralization re-emergedas an issue during negotiations to end the civil conflict. The Framework Agreement resultingfrom those negotiations established a cease fire and required the parties to `reject the use o f violence inpursuit o f political aims'. Inaddition, it sets out specific reforms and protections aimed at ensuring rights and protecting interests o f minority communities. It provides for the representation o f minority communities on key government institutions (the National Security Council, the Republican Judicial Council, and the Constitutional Court, as well as a newly created Committee for Inter-Community Relations). It institutes a "minority veto"lo over certain categories o f legislation, including laws that directly affect culture, use o f language, education, local government and personal documentation. It also provides for affirmative action in public employment. Article 4.2 o f the agreement states that "laws regulating employment in public administration will include measures to assure equitable representation o f communities in all central and local public bodies and at all levels o f employment within such bodies, while respecting the rules governing competence and integrity that govern public administration". I t further directs the Government to t ake action to correct present imbalances inthe composition o f the public administration, `inparticular through the recruitment o f members o f under represented communities' and provides that `particular attention will be given to ensuringthat the police services generally reflect the composition and distribution o f the population o fFYRMacedonia.' 27. But much o f the agreement is devoted to the decentralization o f central government powers to local governments. The Agreement calls for a substantial expansion o f local government responsibilities. Under Article 3, the Legislature i s required to adopt a law on local self government that `reinforces the powers o f elected local officials and enlarges substantially their competencies in conformity with the Constitution as amended under the Framework Agreement.' The relevant amendment to the Constitution i s very broad. It merely specifies that `in units of local government, citizens (will) participate in decision making on issues of local relevance, particularly in the fields o f public services, urban and rural planning, environmental protection, local economic development, culture, education, social welfare and health care'. But Annex B, the legislative annex, i s quite explicit. It specifies that `the revised law (on local self government) shall in no respect be less favorable to the units o f local self-government and their autonomy than the draft Law proposed by the Government o f the Republic o f Macedonia in March 2001'. This implies a very significant functional decentralization. The draft law to which this clause refers calls for assigning local governments responsibility for establishing and financing primary schools, providing social care for the disabled, homeless, substance abusers, orphans and other categories o f at-risk-children, along with primary health care and health protection for persons without health insurance. Annex B also specifies that the new local government law `shall include competencies relating to the subject matters set forth in Section loSuch laws must be approved by `a majority o f legislators claiming to represent minority communities' as well as by amajority ofthe legislatureas awhole. 9 3.1 o f the Framework Agreement (which, as noted earlier, are public services, urban and rural planning, environmental protection, local economic development, culture, local finances, education, social welfare). Article 3.3 also gives municipal governments greater voice in policing. It provides that local heads o f police will be selected by municipal councils from a list o f candidates proposed by the Ministry o f the Interior (although the Ministry o f Interior will retain the authority to remove local heads o fpolice). 28. Article 3 also requires the Government to provide sufficient financing to support this expansion in responsibilities. It calls specifically for a law on local government finance to "ensure an adequate system o f financing to enable local governments to fulfill all of their responsibilities". The law must `enable local governments to raise a substantial amount o f their own tax revenue' while at the same time providing for the sharing o f central government revenues. This is further elaborated in the legislative annex: `The Assembly shall adopt by the end o f the term o f the present Assembly a law on local self-government finance to ensure that the units o f local self-government have sufficient resources to carry out their tasks underthe revised Law on Local Self-Government. In particular, the law shall: (i)enable units o f local self- government to raise a substantial amount o f tax revenue; (ii) provide for the transfer to the units of local self-government a part o f centrally raised taxes that corresponds to the functions o f the units o flocal self-government andthat takes account o fthe collection o ftaxes intheir territories; and (iii) ensure the budgetary autonomy and responsibility o f the units o f local self-government withintheir areas o fcompetence. 29. Finally, Article 3 calls for revision o f boundaries, to occur within one year o f the completion o f the new census, which was to be conducted under international supervision. Initially, it w as anticipated that the c ensus w ould t ake place by the end o f 2 001. I t w as 1ater postponed and was only completed at the end o f 2002. 30. The required amendments to the Constitution were adopted by Parliament on 16 November 2001 (or almost two months later than anticipated by the Framework Agreement, which had set an initial timeframe o f 45 days from signature). After considerable debate, the new Law on Local Self-Government (LLSG) was adopted by the Assembly on January 24,2002. The transitional provisions o f the law anticipate an implementation period o f two years, specifying that existing sector-specific laws should be harmonized with the LLSG by the end o f 2003. The New LocalSelf GovernmentLaw 31. The new local self government defines, in very broad terms, the competencies o f local government, as well as their organization, administrative procedures, and mechanism for cooperationwith other municipalities and with the Government. 10 32. Education. Article 22 o f the LLSG now assigns local government authority to "establish, finance and administer primary and secondary schools, in cooperation with the central PREVIOUS LSG LAW FINAL PROVISIONS January2002 Article 22(1)s ~ Article 17 Give opinions on the establishment of primary schools - Article Establishing and financing, and administering of primary 17(21) and secondary schools, in cooperation with the central govemmentand inaccordancewith the law. Finance facilities for primary schools above the level provided Organizingof transportationof students by the Republic, - Article17(22) Organizingstudent accommodation indormitories Participate, through their representatives, in the work and primary education - Article 17(23) decision-making in the management boards of schools in Establish secondary schools, in accordance with the law - Article 17(20) government, in accordance with (national) law." In principle, this represents a substantial expansion in legal authority over the former law. As summarized in Table 3, the former municipal role in primary education was to "give opinions on the establishment o f primary schools, provide supplementary financing (above the level provided by the Government, and participate in administration only to the extent o f appointing members o f the school boards). The wording o f the new law is extremely ambiguous, however. Instipulating that municipalities shall exercise their role in education "in cooperation with the central government, in accordance with law" it i s subject to a variety o f interpretations, leaving the more difficult questions-who appoints school directors, who determines the number o f authorized teaching positions in each school, who sets salaries-for subsequent legislation. Table 4: SocialWelfareand ChildProtection - roposedChangesinMunicipalCompetencies PREVIOUS LSG LAW FINALPROVISIONS 1995 January 2002 Articles 17and 18 Article 22(1)7 Raise initiatives, give opinions and proposals for the Kindergartens and homes for the elderly - ownership, development of networks of institutions in the area of...social financing, investments andmaintenance and child welfare, pre-schooleducation - Article 17(23) Provision of social care for disabled persons, orphans, Participate, through their representatives in the work and children with educational or social problems, street decision-making...in institutions established in the areas of...socialand child welfare, pre-school education - Article children, persons exposed to social risk or addicted to drugs or alcohol, in accordancewith the nationalprogram 17(24) for developmentof social care. Establish and provide funds for construction, equipment and maintenance of institutions in the areas of pre-school by the Republic, (as a sharedjurisdiction) - Article 18(3) education, social and child welfare, above the level provided ;. Social welfare. The new law implies an ncrease in responsibility for social assistance. While the system o f old age pensions, unemployment insurance, and social assistance would remain the responsibility o f the national Government, municipalities would assume responsibility for kindergartens and homes for the elderly (including "ownership, financing, investment, and maintenance"), social care for disabled persons, orphans, persons exposed to 11 social risk or addicted to drugs or alcohol, orphans, street children, children with educational and social problems and children from single parent families." 34. Health Care. Municipal responsibilities inhealth care would not expand much. Article 3 of the Agreement explicitly includes health care in the list o f services in which the powers o f elected local officials are to be reinforced and their competencies enlarged substantially. It is also included inthe annex o f Constitutional amendments and i s obliquely referredto inthe legislative annex. The initial draft o f the LLSG proposed an ambitious decentralization o f health care functions, raising considerable concem among sector experts. Decentralization, it was feared, would complicate ongoing efforts at reform within the sector. Shifting facilities to municipal governments would make privatization more difficult. Decentralization could also lead to a highly inefficient use o f facilities, as manymunicipalities were seen to be too small to permit all but the most rudimentary forms o f primary care to be provided on an efficient scale. (Municipalities could, o f course, address this problem by sharing facilities through a referral system, but this might be difficult to organize under present political conditions.) 35. Prior to the final vote by Parliament on the LLSG, the provisions regarding the role o f municipalities in the health care sector were considerably amended. Under the version that passed, the municipal role in the management o f health care facilities would be limited to representation on local boards o f public health-care organizations. (At present, there are 80 such boards.) Under the final version o f the law, municipalities would nevertheless take on responsibility for public health education, infectious disease control, and occupational health. The law also decentralizes responsibility for assistance to populations with special needs-the mentally ill,victims o f child abuse, etc. This provision has little immediate significance. With the exception o f a few pilot programs financed by the World Health Organization and NGOs, there are few Government programs for people with special needs, which could be decentralized. Table 5: HealthCare- Proposed hangesinMunicipalCompetencies - PREVIOUS LSG LAW FINAL PROVISIONS 1995 January2002 Articles 17 and 18 Article 22(1)9 Raise initiatives, give opinions and proposals for the Govemance of the network of public health organizationsand development of networks of institutions in the area primary care buildings to include representation of local of., .basic healthcare Article 17(23) - govemment in all the boards of all the publicly owned healthcare organizations Participate, through their representatives in the work and Public healtheducation decision-making...in institutions established in the areas Preventiveactivities of.. .health care Article 17(24) - Oversightover contagious diseases Protectionofhealthof workers andprotectionat work; Establish and provide funds for construction, equipment Healthoversight over the environment and maintenance of institutions in the areas of.. .basic Assistance to patientswith special needs (mental health, child health care, above the level provided by the Republic, in abuse, etc.) accordance with law (as a shared jurisdiction) - Article Other areas to be determined by law 18(3) 36. Other provisions. In addition to expanding municipal responsibilities in social services, the new law reiterates the municipal responsibility in urban housekeeping functions--road A s in the c ase of education, these responsibilities are to be c onducted 'inc ooperationwith the c entralgovemment and in accordancewith the law.' 12 construction and maintenance, water s upply and s ewerage, s olid w aste management-and are somewhat more explicit indefiningthe scope o f municipal activities inthese areas. The previous law had defined most municipal competencies in these areas as "regulation and organization'. The text o f the new law makes local governments responsible for `carrying out' or `performing' these responsibilities, explicitly including construction. Municipalities will have the `right to perform activities o f local importance' intheir territory unless they are explicitly excluded from their competency. 37. Overall, the new local government law i s largely consistent with the terms o f the Framework Agreement. Compared to the law it replaces, the new LLSG implies a major expansion o f functions, particularly in the areas o f education, and to a smaller extent in social welfare and health care. These are areas o f considerable interest to the Albanian minority. Particularly in the case o f education and health, they were the subjects o f intense debate before adoption o f the LLSG. The law that passed remains extremely vague, however, and still requires more detailed legislation and regulation before anything specific can be considered to be authorized inlaw. Table 6: OtherProDosedChangesinMunicbal ComDetencies Sector Previous Law on LSG (5211995) NEW Law on LSG (24-Jan-2002) Communal activities Regulate and organize the construction and ...construction, maintenance, reconstruction and maintenance o f local roads, streets and other protection o f local roads, streets, and other infrastructure infrastructure facilities o f local importance in facilities; accordance with the law (Article 17.6). regulation o f traffic regime; Regulate the maintenance o f street and traffic construction and maintenance o f street traffic Road, signalization in accordance with the law (Article signalization; maintenance, 17.13). construction and maintenance o f public parking spaces; traffic Regulate the maintenance and manner o f use o f removal o f improperly parked vehicles; removal o f management, public parking areas (Article 17.18). damaged vehicles from public spaces. public parking (Article 22(1)4) Local economic development planning; determining o f development and structural priorities; Running o f local economic policy; support o f the development o f small and medium size enterprises and entrepreneurship at local level and in that context, participation in the establishment and development o f Local Encourage and create conditions for promotion and local network o f institutions and agencies; economic operation o f crafts, tourism and catering business. Promotion o f partnership. development (Article 17.25) (Article 22(1)3) Raise initiatives, give opinions and proposals for Development o f general sport and recreational activities the development o f networks o f institutions in the o f the citizens; organization o f sport events; maintenance area o f . . .sports, (Article 17.23). and construction o f sport facilities o f public interest for Participate through their representatives in the work the municipality; Sport and and decision-making.. .in institutions established in Support sport associations. recreation the areas of.. .sports.. .(Article 17.24) (Article 22(1)6) Raise initiatives, give opinions and proposals for the development o f networks o f institutions in the area o f culture,. ..(Article 17.23). Preserving o f cultural heritage; celebration o f events and Participate through their representatives in the work persons o f importance for the culture and history o f the and decision-making.. .in institutions established in municipality. Culture the area o f culture...(Article 17.24) (Article 22(1)5) 13 The ActionPlan 38. At the time the Law itselfwas still under debate, the Ministryo f Local Government was at work on a comprehensive action plan. This was originally aimed at implementing the decentralization component o f the 1999 Administrative Reform Program, but became applicable to the Framework Agreement once it went into effect. The action plan was approved by the Government onNovember 2 7,2 001, three months after the Framework A greement. The first action to be taken was the establishment o f a Coordinating Body to plan and monitor the reform o f the local self-government system. In January 2002, the MLSG did indeed establish the Coordinating Body, with fourteen full members from the various Ministries, and four "external members" (representatives o f state institutions, such as the State Audit Office, and one representative o f the local government association). The Ministry and the Coordinating Body are receiving support from an EU Phare program, which was given a 4-year mandate to implement the actionplan. One o f the key roles o f the Coordinating Body was to prepare the implementing legislation for municipal hnctions and competencies. Part o f this role was to include the harmonization o f the legislation in all areas that will be affected by the Law on Local Self-Government including laws on finance and territorial division; laws pertaining to specific sectors (primary education, solid waste management, public health, etc.); laws on citizen participation (elections, referenda, etc.); laws pertaining to the legal and financial control o f local governments, laws on civil service, and a variety o f others. The Coordinating Body requested each Ministry to identify the full list o f laws to be modified as well as the number o f employees to be transferred; buildings and other property to be transferred; identification o f key administrative procedures to be modified; and, training needs. The rate o f progress Table 7: Summary of Decentralization Timetable under the previous administration was modest, however. The New Administration 39. The new Government's current Operational Program for Decentralization o f Power 2003-2004 set out an ambitious timetable for passage o f this legislation and for the implementation o f decentralization itself. As shown in Table 7, the Government intended to have initial proposals for the new local territorial reform law completed by the end o f M a y 2003. These would be debated until September 2003, with a draft law submitted to Parliament in November. The new boundaries would be implemented shortly after the municipal elections inthe autumn o f 2004. (Candidates for office would run on the basis o f the new boundaries.) The new finance law would be proposed inMay, debated over the summer, 14 and submitted to Parliament in November. Specific legislation on property taxation and fees would be submittedto Parliament one month later. 40. With respect to the decentralization o f functions, the Government's timetable is equally ambitious. At the outset, it would focus on functions where devolution can be realized in the quickest and simplest possible manner. Proposals for the decentralization o f urban and spatial planning were to be completed in April/May 2003 with a draft law submittedto Parliament in October/November. Responsibility would be transferred to the municipalities by the beginning o f 2004. The Government also intends a rapid decentralization o f child protection and social assistance, with draft laws to be submittedto Parliament by November 2003 and implementation to occur in January, 2004. Other functions would proceed more slowly. While draft legislation on primary health would be submitted to Parliament inJune 2003 (and for primary education, in September/October), the Operational Program sets no fixed date for their implementation. 41. To meet this timetable, the Government has created a three-tier system o f working committees. The first tier consists o f managerial civil servants and representatives o f all the ministries, and i s presided over by the Secretary General o f the Ministry o f Local Self Government. The second tier consists o f the secretaries general all the ministries, plus the heads o f the Secretariat o f Legislation, the Department for European Integration, and the association o f local units o f self government. It i s presidedover by the Minister o f Local Self Government. The third-a committee o f one--consists o f the Vice President responsible for decentralization. Next Steps 42. The Government's strategy is broadly consistent with the approach recommended by the recent IMF Report.l2The new municipal boundaries would be finalized early inthe process, after which functions would be gradually decentralized, beginningwith those that make fewest fiscal or administrative demands. More functions, along with greater control over resources, would be decentralized over time. Certain issues, however, must be addressed at each step. Territorial Reform 43. The Framework Agreement specifies that new municipal boundaries will be defined on the basis o f a new census. Parliament has the authority to perform this function. Although any boundary adjustments must be approved by a majority o f parliamentarians representing ethnic minorities, no public referendum i s required. The new Local Self Government Law gives Parliament broad latitude inthis respect, stating only that `a municipality shall be established for the territory o f one or more populatedplaces where the citizens are connected by common needs and interests, where there are conditions for material and social development and for participation o f the citizens in the decision-making process o f their local needs and interests,' and that "the territory on which a municipality i s established should represent a naturally, geographically and economically linked entity, with communication among populated places and gravitation towards the common center, and it should have infrastructure facilities as well as '*IMF, 2002 FYR Macedonia: Local Govemment Financing and the Reform of IntergovernmentalRelations (Confidential). 15 facilities o f social standard build therein." "In principle, the opportunity to redraw boundaries raises a number o f risks. Unconstrained, it could set o f f demands for ethnically homogenous municipalities, resulting in a proliferation o f local governments and institutionalizing ethnic separation. The risk o f this would be particularly acute in areas where minorities are close to 20 percent of the population, as this percentage triggers automatic minority-protection clauses inthe Constitution. 44. The Government aims to forestall this possibility, by moving quickly to establish the new boundaries and setting tight limits on the scope o f territorial reform. All boundary adjustments are to consist o f consolidations o f existing municipalities. Thus ethnic enclaves cannot be created by moving existing boundaries. In addition, the number o f municipalities is to be substantially reduced, with most o f the reductions achieved by consolidating the smallest jurisdictions. This increases the likelihood that existing enclaves will be merged into more heterogeneous jurisdictions. The Government has reportedly already chosen a target for the ultimate number o f municipalities. It i s said to be between 60 and 80 municipalities. This represent a roughly 50 percent reduction inthe existing number. 45. Whether the 60-80 municipality target is the right one can, o f course, be disputed. The literature on the optimal size o f local government has failed to demonstrate any correlation between population size and the efficiency o f service pro~ision.'~Instead it demonstrates that very small jurisdictions can capture scale economies through the shared use o f facilities and contracting out-to private firms, neighboring jurisdictions, or higher levels o f government. In Latvia, for example, children in jurisdictions that are too small to support a 12-grade school attend schools inneighboring jurisdictions, which are compensated by the municipality inwhich the child resides. As the size o f municipalities shrinks, however, the need for inter-municipal cooperation grows, and with it the potential for intermunicipal conflict. This may be a constraint in FYR Macedonia, where intermunicipal cooperation may be hampered by ethnic distrust, or simplyby language barriers. 46. In the absence ofextensive reliance on inter-municipal cooperation, the Government's target figure appears to be the right one. The average primary school (grades 1-8) in FYR Macedonia now has 738 pupils. This suggests an average population catchment area for a primary school o f about 5,500.15 Fifty o f the existing 123 municipalities would have to be consolidated in order to meet this threshold, leaving a total o f 73. The average enrollment o f a high school is 990 pupils, suggesting an average catchment area population o f 12,000. This would require the consolidation o f 79 municipalities, leaving 44. Other options could be considered. The Government could retain the original 34 municipalities as a second tier o f subnational government. High schools and old age homes, inparticular, could be assigned to the `old" 34 municipalities, all o f which have populations over 10,000. But as a whole, there i s no l3Itdoes, however, leave the door open for more restrictive legislation, specifying that "the territorial division o f the Republic o f Macedonia, determining o f the territory, names, seats and borders o f the municipalities, the procedure for establishing o f municipalities (joining, division and change o f borders) and other issues regarding the territorial division shall be regulated by law. The establishment of new municipalities, as well as the change o f the seat o f the municipalities shall be regulated by law." l4 See for example, Travers, T., Jones, G. and Bumham, J. (1993) The impact ofpopulation size on local authority costs and efectiveness, York: Joseph Row tree Foundation. Also Freckle, M. (1980) Optimizing what? Some considerations onfederalism, comparative research, and optimal size offederal units, Richen: Forschungsinstitut ftir Foderalismus und Regionalstrukturen. IsThis calculation is based on the ratio o f primary-school-age children to total population as shown inthe 1994 census. 16 compelling evidence to question the Government's target figure, or to delay the decentralization process for further debate on this issue. Finance 47. The Government i s now at work on the new local government finance law. The IMF's recent report provides some useful ideas in this respect. It starts by proposing several reforms that could be implemented even before the decentralization o f major functional responsibilities begins. As defined in the IMF report's "Phase Zero", the current fraternal revenue sharing system would be scrapped. In its place, municipalities would be allowed to keep 100 percent o f the proceeds o f the most stable o f the three taxes--the recurrent property tax-and would be permitted to increase the rate o f the tax and participate inits administration.I6The remaining two taxes would be wholly assigned to a fratemal revenue sharing system which (unlike the current system) would be allocated according to fixed, transparent andreadily monitored criteria. 48. This w ould c onfer t w o major b enefits. First, i t would provide 1oca1 govemments with some discretion over revenues (as required by the Framework Agreement). And it would eliminate the system o f arbitrary caps and discretionary reallocations that undermine confidence inthe`faimess ofthe current system. The amount ofmoney involvedwouldnotbelarge. In2000, the revenues subject to sharing totaled about $6.00 per capita. It would nevertheless represent a symbolic move toward increased transparency in the relationship between the central and local governments.17 49. Under the IMF report's strategy, municipalities would later assume responsibility for some assets and related maintenance costs (e.g., school buildings, heating costs, auxiliary staff, etc.) during the subsequent phase o f decentralization (termed Phase 1). While the IMF report argues that these functions could largely be financed out o f higher municipal own-source revenue collections, the report also suggests the introduction o f a small revenue-sharing scheme funded from central government taxes. In subsequent phases, municipalities would assume increased financial responsibilities for decentralized functions. Government funding through transfers would increase proportionately. 50. The April version o f the Government's draft law on municipal finance is somewhat at odds with this approach. Under the April draft, the property tax, inheritance tax, and property transfer tax would remain as local taxes. All three, however, would be subject to some degree of redistribution. This would be accomplished through an annual calculation o f the expenditure needs and revenue potential o f eachjurisdiction. This would be accomplishedinthree steps: 0 First, Parliament would determine an average per capita expenditure need (primary consumptionper citizen, inMacedonian parlance) for the country as a whole. 0 Second, the expenditure needs o f each jurisdiction would be determined by multiplying the per capita average by the population o f each municipality. (Further adjustments inthe As the Government has not yet implemented a system for identifying the origin of tax collections in each of the 123 municipalities, common rates would have to be set within each of the old 34 tax centers, with revenues apportionedon the basis of amutually acceptableformula "ConsiderablymoredetailonthesemeasuresisprovidedintheannextotheIMFreport. 17 per capita figure would be made for municipalities with unusually high proportions o f young people, old people, territory, and road mileage. Population would nevertheless account for 70% o f the distribution.) 0 Third, the revenue potential o f each municipality would be calculated as the sum o f projected revenue from local taxes, local fees and charges, income from property owned by the municipality, project-specific benefit taxation (self taxation in Macedonian parlance), fines, loans18and donations. This projection would be made by the Ministry of Finance `in cooperation with the respective municipality and the public revenue office.' 0 Municipalities whose expenditure needs exceed their projected revenues would then be entitled to a `general grant', equal to 100% of the difference. (The draft law does not address the fate o fmunicipalities whose revenues exceed their expenditure needs). 5 1. The draft law does not explicitly grant local governments control over the rates of any o f the three local taxes. But it does allow for the possibility. In the article defining terminology (Article 2) local taxes are defined as "those for which the municipality determines the rate and based within the limits determined by law." Article 3 then explicitly defines the property tax, the inheritance tax, and the property transfer tax as local taxes. Whether local governments would, in fact, control the rates o f these three taxes therefore depends upon whether `the limits determined bylaw' wouldpermit them some discretioninthis regard. 52. The law also provides Title of Grant Amount and allocation Earmarked for financing of-- specific determined by- arrangements for Financial . Parliament`formula Not earmarked the calculation o f Equalization the general subsidy Block Line ministry, on Social services ifmunicipalities do, previous approval o f MOF infact, control local Categorical Not specified Specific program or capital tax rates. Other investment things being equal, Delegated State administrative Activity designated by state municipalities Competency body administrative body mighty are expected to respond to the new formula by reducing their local tax rates to zero. As the formula provides Government funding for 100% o f the gap between projected expenditure needs and projected own source revenue, this would maximize their income from transfers while minimizing their local tax burden. To offset this incentive, the law provides that, in the case o f taxes subject to local rate setting, the amount o f revenues attributed to the tax are to be based on the average rate in the country (Article 12), rather than the actual 1oca1rate. Thus, inprinciple, municipalities c ould increase their general subsidy byreducing the rates o f their local taxes. 53. In addition to the general subsidy, the April version o f the draft law also provides for additional transfers t o finance s ocial s ervices (social protection, child protection, primary and IsInasubsequentversionofthe law, loanswere no longerdefined as arevenuesource. 18 secondary education and primary health) and specific programs or works undertaken on behalfo f line ministries. As summarized in Table 8, line ministries, in conjunction with the Ministry of Finance, would control the level, allocation, and use o f these funds. 54. Insome respects, the April draft of the law achieves some of the objectives o f the IMF Phase Zero reforms. Funds subject to redistribution would be allocated on a mechanical, transparent basis, according to straightforward and logical criteria. And while the law does not explicitly provide local governments with a locally controlled tax instrument, it allows for this possibility. But there are some significant differences between the two proposals. The IMF proposal, for example, would vigorously enforce the revenue-neutrality o f any reform during Phase Zero, by maintaining the existing segregation o f local and Government taxes. Local governments would continue to rely exclusively on the three local taxes (along with local fees and charges). Central government taxes would finance only central government functions. The draft law, incontrast, allows for some commingling o f the two, as it obligates the Government to finance any gap between projected expenditure needs and projected revenue yields. The level o f Government fundingwould depend on the level o f the annually determinedper capita municipal consumption figure. 55. The IMF approach i s also considerably less redistributive than that o f the draft law. Under the IMF proposal, municipalities would be permitted to retain 100% o f the property tax revenues collected in their jurisdictions. While an equalization fund would be established to assist poorer municipalities, the amount o f funds available to do so would be limited to the yields o f the inheritance tax and the property transfer tax. The draft law, in contrast, would achieve near-universal equalization in per capita terms (with minor adjustments for variations in population characteristics, land area, and street mileage.) The only source variation would result from variations inthe tax rates imposed by eachjurisdiction. 56. There are benefits and drawbacks to both approaches. As the draft law i s currently under revision (and the IMF is shortly expected to field a mission to assist in this regard) this report will not attempt to evaluate the current proposal. It would appear, nevertheless, that the municipal finance law would have to be supplemented as decentralization proceeds. While the current proposal would allow for increased Government funding as municipal responsibilities increase, additional legislation would be required to define the specific mechanism for financing specific functions. As noted above, the present draft merely specifies that the allocation o f such fbnding will be determined by the corresponding sectoral ministry. It does not define how the sectoral ministry will determine the amount or allocation o f such funds. 19 Decentralizationof Functions 57. Other, sector-specific issues will also need to be addressed before individual functions can be decentralized. These will be particularly complicated where the national Government has a clear interest in the functions to be decentralized. Primary and secondary education, along with kindergartens, homes for the elderly, social care for the disabled and oversight o f contagious diseases are all on the list o f functions to be transferred. But the Government will presumably want to retain some role in the management and financing of these services. That role will have to be defined. 58. Consider the case o f education. The Local Government Law gives local governments the power to "establish, finance, and administer primary and secondary schools, incooperation with the central government and in accordance with the law." This is clearly subject to a variety o f interpretations. Tables 9 illustrates some o f the major parameters o f education management and financing. These include the authority to: (a) appoint school directors; (b) determine the number o f authorized teaching positions in each school; (c) recruit and promote teachers; (d) decide teacher salary scales; and (e) decide where to open new schools and close ones that have lost their enrollment. Table 10 illustrates some o f the financing variables. The row headings illustrate some o f the criteria that can be used to distribute Government support. These include: (a) the number o f authorized teaching positions and corresponding salaries; (b) enrollment; or (c) more general municipal characteristics, such as population. The column headings illustrate the variety o f restrictions that may Earmarking o n Funds be put on government Criteria for distributing For teachers' IFor education INo support, including: (a) finds salaries earmarking specific earmarking for Authorized teaching Current practice positions and salaries and IMFphase 2 teachers salaries; (b) Enrollment Education earmarking for Policy education; and (c) no proposal earmarking at all. Municipal characteristics (population, etc.) 59. There are many I * On advice o f school board. workable combinations of these variables. (There are also some unworkable ones-particularly arrangements that give local governments the power to determine the number o f teaching positions and salaries levels, while leaving the central government to foot the bill.) Some specific options are now under discussion. The IMF's recent report sees a large role for the MES at least inthe short and medium run.Under the IMF's 20 Phase 2 scenario, the MES would continue to determine the number o f authorized teaching positions and the level o f teachers' salaries, while leaving local governments to make individual hiring decisions. The Government would continue to pay teachers' salaries, with funds earmarked for this purpose. 60. The Bank's recent education sees the Government retreating to policy setting and a financing role over the long term. The Government would retain responsibility for developing an overall strategy, establishing an enabling legal and regulatory framework, and apprising stakeholders about system performance, and would `provide financing to ensure equitable financing level regardless o f local tax base'. This would leave local governments with the authority to appoint the school directors, decide the number o f teaching positions and salary levels and to manage recruitment and promotion. Financing would be provided on a per pupil basis, leaving local governments to determine how best to allocate funding across categories o f educational expenditure. Many other combinations are possible. But untilthe Government settles on one option or another, the decentralization o f education called for in the Framework Agreement may remain a dead letter. Sequencing 61. Nearly two years have passed since the Framework Agreement was signed. Much progress has been made in enacting Constitutional protections for minority rights inthe areas of culture, language, education, and personal documentation. The new census has been completed without incident. The new law on local government has been passed. But a considerable portion of the decentralization agenda remains unfinished. 62. The Government's intended sequencing makes considerable sense. The first step, clearly, i s to complete the process o f temtorial reform along the lines the Government currently proposes. The second step will be to implement a finance law that will suffice for the period preceding the devolution o f major financial responsibilities to the local level. The Government will then need to undertake an analysis o f the specific sectoral management issues that will arise in the decentralization of major functional expenditures. As those management responsibilities are devolved, the finance law will have to be amended or supplemented accordingly. 63. The donor community-particularly the E.U. -special representative and the U.S. Ambassador--has played an important role in encouraging the implementation o f the Framework Agreement. Those efforts should now be focused on providing financial and technical support to this sequence o freforms. l9World Bank, 2002, FYR Macedonia:Toward an EducationStrategy for the Twenty-First Century (Report No. 24381-MK) 21