DEVELOPMENT-BOSNIA: Five Billion Dollars Buys Less Than Expected

By IPS Correspondents Reprint | | Print |

Kevin Sullivan

SARAJEVO, Nov 18 1998 (IPS) - The four-year international recovery programme for Bosnia will have pumped more than five billion dollars into the war-torn country by the end of next year.

The aim of this largesse, distributed under the supervision of the World Bank and the European Union, is the creation of a market economy capable of enhancing ethnic reconciliation and sustaining parliamentary democracy.

Three years into the project, however, the wholesale privatisation on which growth projections are based is barely off the ground. Bosnia is on an international economic life-support machine, and it cannot or will not be removed.

In Washington on Nov. 9 one senior US official was quoted as saying that foreign donors might begin withholding disbursements if the governments of Bosnia’s Muslim-Croat Federation and the Bosnian Serb republic, do not start making progress towards privatisation.

The international community’s High Representative in Bosnia, Carlos Westendorp, took a more circumspect stance at a Nov. 5 press conference.

“In some cases it (privatisation) is going very slowly, in some other cases it is going too quickly,” he said. “We are worried because without a properly carried out privatisation process it is going to be difficult for businesses to start becoming efficient.”

Until 1991 the Bosnian economy, like that of the rest of former Yugoslavia, was a hybrid of inefficient state control and limited private ownership.

Under the last prime minister of former Yugoslavia, Ante Markovic, the role of private capital was extended through a series of reforms which only began to have an impact when the Bosnian war started in 1992.

The value of state assets earmarked for sale in the Muslim-Croat Federation is put at between 15 and 26 billion German marks (nine and 15.6 billion dollars), while the figure for the Bosnian Serb republic is believed to be considerably lower.

In theory, state assets are valued at their pre-war value minus the cost of war damage. Huge discrepancies, however, are created by damage to the surrounding infrastructure and its impact on companies’ trade.

In the Muslim-Croat Federation a voucher system, allocating each citizen a certain number of ownership points, has been delayed because of a disagreement over the number of points to be given to war veterans.

The Ministry of Defence proposed a figure of seven billion German marks (4.2 billion dollars) to the Office of the High Representative (OHR) on Oct. 6. This was accepted, but a dispute continues between the Bosnian army and the HVO, the Croatian militia which forms part of Bosnia’s armed forces, over how the claim should be subdivided.

“We have set a deadline of 45 days from Oct. 6 to resolve this,” said Alexandra Stiglmayer, spokeswoman for the OHR. “If it is not resolved the OHR will push for the issuance of vouchers. We’ll continue with privatisation and soldiers will be excluded until they agree.”

The absence of reliable post-war census information is another major obstacle, according to Stiglmayer.

Each citizen is to receive vouchers by post. More than a million Bosnians, however, remain displaced by the war, turning postal delivery into a logistical nightmare.

A successful privatisation programme will depend on restructuring Bosnia’s banking sector. Bank privatisation proposals have aroused controversy, however, because of their lack of transparency and the Finance Ministry’s apparent inability to ensure due process.

Until the banking system is rationalised the remains of the old communist system of commercial control, based on the central registration of commercial transactions, cannot be dismantled.

In theory, a small-shopkeeper buying goods from a wholesaler has to register the transaction with a central government agency before he can take delivery of the goods.

Either traders ignore the regulation and enter the black market, or they live with the commercial disincentive of excessive paperwork. “It’s financial dictatorship,” said Stiglmayer.

“They are still seeing things in communist terms. The idea of losing control of monetary transactions is very serious to the authorities. We can only do it when banks take over the job, but the banking sector is a mess.”

Other obstacles to free trade include the commercial code introduced during the war. This requires all traders to use a cash register, so that transactions can be properly taxed.

Tax inspectors have raided outdoor markets in Sarajevo and confiscated merchandise because sales are not being recorded. Their actions have cut off a source of income for hundreds of stall holders and a source of cheap products for thousands of citizens.

For the most part, problems of reconstruction and free-market reform do not stem from adherence to old socialist schemes but from the chaotic state of the Bosnian economy since the war began. By 1995 industrial production had fallen to around five percent of its pre-war level.

Unemployment is believed to have dropped from 70 percent in 1995 to 40 percent (possibly higher) today. Real gross domestic product has shot up since the inauguration of the international aid programme in 1996 but remains only half its pre-war level.

GDP growth has tailed off from 45 percent in 1996 to 38 percent last year and an estimated 15 percent this year. Inflation is expected to hover at 10 percent.

Around 40 percent of commercial entities in Sarajevo are believed to be private, many of them operate illicitly. A thriving black economy has continued from the war, when state services collapsed and individuals were obliged to fend for themselves.

This is one reason Bosnians resent being seen as eager aid recipients: where capital is available and controls are lifted, successful private business has taken hold.

And while foreign aid has helped restore essential services, it has yet to translate into a general rise in the standard of living.

The average clerical worker’s salary in the Federation is around 120 dollars a month, twice the rate in the Bosnain Serb republic.

“Employers don’t pay health or social insurance. Workers average 90 hours-plus per week, with no days off. They have to accept whatever the rules may be,” says Mersiha Besirovic, deputy head of the Sarajevo Office of the International Federation of Commercial, Clerical, Professional and Technical Employees.

Firms that withhold tax payments from the state can end up denying social and health benefits to their employees. let alone cover when the axe falls on privatised offices and factory floors.

“The state has to provide for those who lose their jobs. Privatisation proposals don’t take this into account,” said Besirovic. “Vocational training will be a key. Those who are fired have to be able to compete in the labour market.”