Serbs, Albanians argue over money in Kosovo talks

VIENNA, May 31 (Reuters) - Serbs and ethnic Albanians clashed over money on Wednesday at direct talks on the fate of the breakaway province of Kosovo, swapping demands for war reparations and the repayment of loans.

Discussion focused on how to divide state property and debt, the latest in a series of "technical" issues the United Nations wants addressed before tackling the Albanian majority's demand for independence, possibly in July.

Officials from the World Bank, International Monetary Fund, and the U.S. Treasury sat in as delegations locked horns over Kosovo's share of Serbia's external debt and a U.N.-run privatisation drive Belgrade says amounts to state plunder.

"The talks were very hard, and not very well prepared by UNOSEK," Serb negotiator Aleksander Simic said, adding to growing Serb criticism of the U.N. mediating team led by chief envoy Martti Ahtisaari.

Ahtisaari opened direct talks between Serbia and the Kosovo Albanians in February, seven years after the U.N. took control of the southern Serbian province with the end of the 1998-99 war in which 10,000 Albanians died.

Serbia says it is repaying 1.2 billion euros ($1.55 billion) of loans for state firms and projects in Kosovo while the firms that benefited are being privatised by the United Nations and Serbia sees none of the proceeds.

Belgrade says this is costing 100,000 euros a day.

Kosovo's 90-percent ethnic Albanian majority has indicated it is ready to take on its share of the debt to the World Bank and Paris and London Clubs, but only in cases where they know how the money was spent.

They do not like the idea of paying for a decade of discrimination culminating in a brutal counter-insurgency war in which whole villages were razed and 800,000 Albanians forced from their homes.

"We need precise data from creditors to define the external debt Kosovo has to take on," Kosovo Albanian negotiator Skender Hyseni told reporters.

The Kosovo Albanians also demanded war reparations from Serbia, ignoring U.N. warnings against raising the issue for fear of bogging down the talks.

"We know if they raise this there will be other intractable issues that Belgrade could then raise," a U.N. official engaged in the talks told Reuters.

Serb negotiators said they had demanded that Ahtisaari's deputy Albert Rohan halt the "illegal" U.N.-led privatisation of hundreds of state firms in Kosovo, a drive U.N. officials say is crucial to reviving the moribund economy and creating jobs.

"He said it wasn't in his mandate," Simic told reporters.

U.N. officials say the series of one-day meetings serve as an opportunity for the two sides to present their platforms before Ahtisaari's team drafts a compromise deal.