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Funding requirements & Follow-up
of the Declaration of the Peace Implementation Council
Madrid, 15-16 December 1998
Information Meeting
Brussels, 2 February 1999
AN UPDATE
FIFTH DONORS' PLEDGING CONFERENCE
FOR BOSNIA AND HERZEGOVINA,
Brussels, 20, 21 May 1999
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Economic Reforms
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34,864,700 EUR |
Overall Objective
The Madrid PIC recognized the crucial importance of completing the transition of Bosnia and Herzegovina to a private market based economy and of establishing modern standards of governance in supporting the Dayton objective of sustained peace. The reforms outlined in the Madrid document will require donor support for technical assistance in the design and implementation of reforms, the establishment or strengthening of institutions, and raising public awareness of structural reforms.
The activities that are being proposed for donor funding reflect the highest priority items from the Madrid list. It is recognized that structural reforms will require more than one year for implementation to be completed. The tasks outlined below constitute the agenda for the first year.
Privatization: BiH has made considerable progress in designing the privatization program, passing the appropriate legislation and establishing key institutions. The major remaining task centers on strengthening capability for executing privatization and developing share trading and information systems. Unless this task is completed, privatization cannot begin.
Macro-economic Framework and Self-sustaining Economy: Some progress has been registered in fiscal and banking sector reforms and other steps towards the formation of a market economy. The urgent outstanding tasks are: financing for reform of the payments bureaus -- these are anachronistic bodies that represent a major impediment to the emergence of an efficient market economy; assistance for establishing a deposit insurance agency, without which confidence in the banking system cannot be re-established.
Public utilities: The most urgent task is the necessary reforms towards the establishment of a new regulatory framework and the development of institutional cooperation between the two Entities.
Anti-corruption: Standards of public governance, accountability and oversight, public procurement, fall far short of modern standards. The fundamental reforms relate to budget systems and processes, setting up of accounting and audit institutions that function to international standards, strengthened tax and customs administrations, and reform of parliamentary and judicial systems. Some of these items are being financed already by donors; others are covered in the chapter on the judiciary and police. The items listed focus on building up the public constituency for support and for detection of fraud.
Initiatives to Implement Madrid Commitments
- Privatization
Public Education and Media Materials: Develop and disseminate broadcast and print materials for public education programs for privatization and post-privatization activities in both entities.
Securities Commissions Assistance: Develop and equip the securities regulatory agency of each Entity.
Share Registry, Clearing and Settlement, and Depository Development: Develop and equip a share registry institution in each Entity. To facilitate share trading, develop a clearing and settlement mechanism and a depository.
Share Trading for Market Development and Broker-Dealer Training: Develop an equitable trading system for shares of private companies.
Cantonal and Regional Privatization Implementation Assistance: Provide local expert services to implementing agencies in each Entity for rapid and transparent implementation of privatization at the regional level.
Investment Funds Operations Assistance: Provide operational support to privatization investment funds and investment funds so that they can be the driving force for company restructuring in post-privatization era.
- Macro Economic Framework and Self-sustaining Economy
Reform of Payments Bureaus: Payments Bureaus inherited from the Yugoslav era are dominated by political power structures, inhibit business development and are not publicly accountable. For a flourishing market economy, businesses require a sound payment system that is transparent, independent and efficient. Transferring reporting requirements to Securities Commissions, developing inter-bank mechanisms and abolishing the monopolistic grip of the Payments Bureaus on businesses will foster a sound environment for a self-sustaining economy.
Deposit Insurance Agency: Develop a banking sector that can support private enterprise growth with sound lending practices at market rates of return.
Republika Srpska Banking Agency: Provide operational support for the Republika Srpska Banking Agency for three years.
Social Protection and Safety Net: By preventing a progressive transition to a market economy, the war also hampered the development of a regulatory mechanism to support social changes. It now remains crucial to develop a cohesive strategy that protects the vulnerable groups and promotes a progressive labor relations environment, including mobility.
- Public Utilities and Public Corporations
Public Corporations - Implementation of Annex 9 of the GFAP: Activate the Transportation Corporation, particularly in the fields of ports and roads, and create new Public Corporations, e.g. in the fields of power transmission and media.
Railways: Re-partitioning of the rolling stock between the railway companies of the two Entities and settlement of the debt of the railways of Bosnia and Herzegovina towards other railways in Europe and Eurofima.
Reform of the Electricity Sector: Enactment of necessary legislation to establish a legal framework in conformity with the GFAP in a competitive environment.
Telecommunications Agency: The establishment of the Agency is key to reform. It will allow for the normalization of international and inter-Entity telephone traffic through the issuing of licenses, coordination of the frequencies and harmonization of technical standards.
Restructuring of the Postal Sector: Assessment studies, Master Plan development, determination of priorities and budgets as well as extensive training.
- Anti-corruption
Anti-corruption public awareness campaign: There currently is no public education program and public awareness is low. A crucial component is to educate civil society of the nature and costs of corruption.
Anti-corruption Task Forces: The objective is to put in place strong, proven, independent mechanisms within appropriate legal framework to help combat fraud and corruption in government operations.
Anti-fraud and anti-corruption training and education: Provide specialized seminars to prosecutors and police in key areas: money laundering, organized crime, bank fraud, tax fraud and customs fraud. Regional seminars in both Entities are planned for the proper introduction and implementation of the new anti-fraud and anti-corruption legislation.
Present situation - progress to date:
In general, several steps have been achieved including enactment of privatization laws, establishment of the Privatization Monitoring Commission; substantial progress towards the liquidation of the Narodna Banka; partial consolidation of customs and tax administration; and implementation of the Joint Power Co-ordination Center.
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