In Kosovo, daunting economic challenges confront Europe’s newest country

.VUCITRN, Kosovo (AP) – It’s noon on a weekday, and Kosovar fashion designer Krenare Rugova’s sewing machines are strangely silent.

Rugova, young and U.S.-educated, is trying to build an upscale clothing business in her homeland. But she can’t work because the power has gone out for the second time this morning.

“These blackouts are killing me,” she said, fussing over fabrics at her studio in Vucitrn, a drab and dusty town of three-story brick houses tucked behind high walls 25 miles north of the capital, Pristina.

“They just shut me down. I’m thinking, ‘OK, I’ll get all these wedding dresses finished in an hour,’ and then ‘zap.’ It’s very frustrating.”

Her predicament illustrates just one of the daunting economic challenges confronting Europe’s newest country – an impoverished, underdeveloped corner of the continent that experts warn could be a handout-dependent hardship case for years to come.

As Kosovo seeks international recognition of its declaration of independence, the round-the-clock rumble of thousands of portable power generators threatens to drown out the celebratory fireworks. And its problems go far beyond an electricity grid so unreliable that just keeping the lights on can be a daily struggle.

Roads are badly rutted or unpaved. Unemployment runs close to 50 percent, and much of the work force is uneducated. The average monthly salary is a paltry $220.

By virtually every measure, Kosovo joins the family of nations with the dubious distinction of being one of Europe’s poorest.

It doesn’t even have its own international telephone country code: Kosovo shares Monaco’s, a holdover from the days when French Foreign Minister Bernard Kouchner was the top U.N. administrator here and French-owned Alcatel was chosen to develop the phone network.

“Everyone knows it’s going to be hard,” said Alex Anderson, Kosovo project director for the Brussels, Belgium-based International Crisis Group, which keeps tabs on trouble spots in the Balkans. “No one has the idea that it’s going to be the land of milk and honey overnight.”

Kosovo’s late leader Ibrahim Rugova used to present visitors with crystals and other gems as proof of its untapped mineral wealth. Many snickered, but Rugova – a distant relative of the fashion designer – may have been on to something, said Shpend Ahmeti, executive director of the Policy Analysis Group, a think tank in Pristina.

Geologists conducting a thorough survey of Kosovo’s resources say the Serbian province has vast amounts of high-quality lignite coal. They say it also has deposits of nickel, lead, zinc, bauxite and even small seams of gold that could be tapped. “Kosovo is richer than we thought,” Ahmeti said.

But officials caution that Kosovo first desperately needs to improve its shoddy infrastructure – battered by its 1998-99 war between Yugoslav forces and ethnic Albanian rebels – if it is to have a decent shot at an economic future for its 2 million people.

The government has been reviewing bids for $4 billion contract to build a lignite coal-fired power plant that officials say would end the electricity outages. But the plant won’t be fully operational until 2012 at the earliest.

Eight in 10 business owners, Ahmeti said, point to the lack of reliable energy as their biggest obstacle – bigger than high taxes or rampant corruption.

For the foreseeable future, an independent Kosovo will remain heavily dependent on handouts from the U.N. and the European Union, which plans to convene an international donors’ conference in June.

In 2007, the U.N. budget for Kosovo was $220 million. Kosovo’s economy was propped up with an additional $540 million in remittances from Kosovars living abroad, according to estimates from the International Monetary Fund. It is cash the young country probably won’t be able to do without for years to come.