Newsletter Economic Reform and Reconstruction in Bosnia and Herzegovina (BiH) Sarajevo, March 1998, Vol. 1, Issue 1 Economic Task Force Secretariat OHR in co-operation with IMG International Management Group Economic Indicators BiH GDP Federation GDP '97 4,189 million DM Growth rate '97 +37% % change '97/'90 -52% (Source: Federation Statistical Institute) RS GDP '97: not yet available Growth rate '97: not yet available Trade* Imports BiH '97 2,000 million DM Exports BiH '97 250 million DM (Source: IMF, Note: 1st&2nd quarter only) Imports Federation '97 4,480 million DM (Source: EC-CAFAO) *:Reliable figures on Fed. Export and RS trade not available. Employment & Wages Fed. RS Employed 580,000 300,000 Unemployment rate 33% 27%* *Pale Region: 35%, Banja Luka Region: 23% (Source: World Bank survey, spring '97) Fed. RS Average wage Dec '97 308 DM 210 DM % change Dec/Sept '97 +14% +39% - production wage +16% +50% - service wage +5% +11% (Source: Federation & RS Statistical Institutes) Prices Average living costs; Retail; Fed.: % change Jan '98/Nov '97: 3% 2% RS: % change Feb '98/Sep '97: 20% 13% Fed.: % change '97/'96 8.6% 10.8% RS: % change '97/'96 9.0% 1.4% (Source: Federation & RS Statistical Institutes) (More information on this subject can be obtained by the World Bank Resident Mission BiH, Mr. G. Hunter or Mr. N. Bukvic, Tel.: 440293) Economic Policy and Reform Customs Tariff Law passed The BiH Parliamentary Assembly adopted the Law on Customs Tariff on 3 February 1998. This Law, which regulates the tariff policy also includes the tariff schedule which lists around 8000 items harmonized with the European nomenclature. The Law has entered into force on 13 March. Whereas customs tariffs so far where different in the two Entities and spread over more than 20 different rates, the law establishes unified customs tariffs within BiH. All items are now grouped into only four ad valorem rates of 0, 5, 10 and 15%. This Law constitutes a major step forward in the integration of a Bosnian economic space. It will facilitate foreign trade and discourage evasion of customs duties. The implementation of the Law will be monitored by the Customs and Fiscal Assistance Office of the European Commission (EC-CAFAO). The second part of the new customs legal regime is the Customs Code, which is still in preparation. The new Code will introduce modern customs procedures. Foreign Investment Law put into force by the High Representative The BiH Parliamentary Assembly failed to adopt the Law on the Policy of Foreign Direct Investment in its sessions on 5 and 6 March. Using his powers under Annex 10 of the Dayton Peace Agreement, the High Representative decided to put the Law into force on an interim basis on 6 March. The law enters into force 8 days after publication in the BiH Official Gazette. The most important feature of the Law is non-discrimination between foreign and domestic investors. The Law establishes transparent rules for entry and exit and for dispute settlement. It abstains from offering special incentives. The purpose of the Law is to create a policy and legal framework that ensures a favorable investment climate in order to attract foreign investors. The arrival of foreign investment is necessary for a sustained economic recovery of BiH. With the implementation of this state level policy law, the Entities will need to align their respective foreign investment laws. Short term budgetary support to the new RS government On request of the High Representative, the European Union (EU), the Netherlands, Sweden Canada and the United Kingdom (UK) decided to provide extraordinary budgetary support to the Government of the Republika Srpska. Funds will be used to help the authorities clear the arrears of salaries in all public sectors except police and army. The support is being implemented by the OHR. Contributions received to date amount to about 18 million DM, including ECU 6.0 million (DM 11.9) from the EU, Hfl 1.5 million (DM 1.3) from the Netherlands, SEK 1.5 million (DM 0.3) from Sweden, CAN$ 1.0 million (DM 1.3) from Canada, and £1million (DM 3.0) from the UK. The first tranche of the EU funds was disbursed on 26 February, and the second on 7 March. A third tranche will be disbursed before the end of March. It is expected that under the new administration, the flow of revenues will recover sufficiently to enable the authorities to stay current on its expenditure obligations. Organization of Public Services Railway traffic resumed On 7 February 1998 a Memorandum of Understanding (MoU) was signed on the organization of the railway sector in BiH. According to this MoU, railways will be organized as follows: A state commission will regulate the inter- entity railway traffic, The two Entities will establish a Joint Railway Corporation in charge of several tasks related to the management of infrastructures, Railway companies will operate commercial services. The state commission for regulation was established on 6 March, the corresponding decision will be published in the BiH Official Gazette this month. In parallel with negotiations on the organization of railways, and in accordance with the MoU, traffic between the Entities resumed. The first commercial inter-entity train traveled from Banovici to Doboj and from Doboj to Sarajevo across the inter-entity boundary lines on Thursday 26 February. Status of Reconstruction Transport summary During the last Transport Task Force meeting, held at March 10, an overview was presented of the current status of project implementation. The following figures outline the progress made so far:

Roads	1996	1997	1998	Total
Financed/Pledged	35,712,155	42,329,100	0	78,041,255
Realised Projects	16,813,456	4,591,078	0	21,404,534
Ongoing Projects	0	2,250,000	0	2,250,000
Progress %	47,1%	16,2%	0,0%	30,3%
Road Bridges
Financed/Pledged	35,659,039	15,586,204	0	51,245,243
Realised Projects	7,843,694	149,358	0	7,993,052
Ongoing Projects	2,698,690	0	0	2,698,690
Progress %	29,6%	1,0%	0,0%	20,9%
Railways
Financed/Pledged	27,882,553	20,292,750	0	48,175,303
Realised Projects	25,007,553	5,330,850	0	30,338,403
Ongoing Projects	28,750	3,800	0	32,550
Progress %	89,8%	26,3%	0,0%	63,0%
Civil Aviation
Financed/Pledged	27,426,000	10,558,500	4,200,000	42,184,500
Realised Projects	2,406,000	38,500	0	2,444,500
Ongoing Projects	9,969,600	347,500	0	10,317,100
Progress %	45,1%	3,7%	0,0%	30,3%

(Note: Ongoing Projects include projects under design, tendering and construction, but in the respective column only the costs of actual construction works are included) Progress in the field of Civil Aviation As determined in Article 3 of the BiH Constitution, air traffic control is a responsibility of the State. Accordingly the State Department of Civil Aviation (DCA) was set up 5 September 1997 to fulfill this task. An International Secretariat (IS) is in the process of being established, the Chief Executive arriving on 22 March. The IS shall function as an independent advisory body to the DCA and work to guidelines accepted by the International Civil Aviation Organization (ICAO). Funding is provided by the Swedish Government (1st year) and the EC (2nd and 3rd year). Furthermore, a bilateral agreement was signed on 2 March between the DCA and EUROCONTROL (the delegated authority of European Nations on flight charges), regarding route charges on flights crossing BiH airspace. Expected annual revenues from this agreement will amount to $1.2 million (DM 2.2). Owing to OHR mediation, the DCA and Civil Aviation authorities of the Federal Republic of Yugoslavia (FRY) signed an agreement on reciprocal flight authorization. The arrangement, signed on 2 March, followed talks by Yugoslav air carrier JAT and Air Bosna. As a result, the first flight between Belgrade and Banja Luka since 1992 took place on the same day. The current agreement is valid for 6 months, in which an Air Service Agreement between BiH and FRY should be concluded. Renewed coordination in the Energy sector The Task Force (TF) on Electric Power and Coal has started to become operational again, after a period of 15 months of non-activity. Members of the core Task Force are the WB, EBRD, EC, USAID, IMG, DFID and the OHR. In addition a Full Group TF will be established, which will consist of all members of the core TF, extended with representatives of Ministries of Energy, Donors, Elektroprivredas, PIU's etc. During the first TF assembly since November 1996, it was concluded that the assessment process will be re-started, giving an overview of what has been done in the past, the status of ongoing projects and the remaining needs-requirements. The output of the re- assessments will be processed into a database, most likely the IMG PIMS Database, free accessible to all actors involved. (More information on this subject can be obtained by the IMG Energy Unit, Mr. M. Alberts, Tel: 071 666020) Coordination of the general Reconstruction Process One of the mandates of the High Representative as stipulated in Annex 10 of the Dayton Agreement is to coordinate the activities of the civilian organizations and agencies, in particular in the field of economic reconstruction. To that end in 1996 the Economic Task Force (ETF) was established, in order to advice the High Representative on main policy matters. The ETF deals with reconstruction as well as economic reforms and policy. It is chaired by the High Representative, meets every second week and include the European Commission, World Bank, IMF, EBRD, USAID, IMG and EC-CAFAO. Reconstruction projects carried out by donors or their implementing agencies are coordinated through sectoral Task Forces. The main role of each sector Task Force includes: Policy Setting, Needs Assessment and Program/Project Development, Fund Gap Identification, Monitoring of Project Implementation, and to provide regular information on all the above mentioned matters. Task Force Leaders meet monthly with the OHR to coordinate and harmonize their work. The following table gives a brief overview of the currently existing sectoral Task Forces;

Sector Task Force	Organisation	STF-Leader
Agriculture and Food	FAO	Mona Chaya
Economic Policy	WB/IMF	Saumya Mitra
Education and Culture	UNESCO	Colin Kaiser
Electric Power and Coal	IMG	Marcel Alberts
Health and Social Safety Net	WHO	Jean Laliaberte
Housing	IMG	Klaus Purup
Industry	USAID	Craig Buck
Landmines	UNDP/OHR	Hans Bruijntjes
Transport	IMG	Michele Mallard
Water/Waste Water/Solid Waste	IMG	Werner Labi

For further information concerning this publication please contact: Paul Hulshoff, IMG - tel.: 666 020 Clement van de Coevering, OHR - tel.: 447 275

Sector Status Summary Report (as per March 1998) - Figures in DM
Sector	Completed	In Implementation	Not Specified*	Total
Agriculture	31,900,605	56,161,764	8,085,872	96,148,241
Education	40,868,321	27,099,696	7,295,076	75,263,092
Energy	59,062,465	142,627,648	61,422,330	263,112,443
External Debt Service	42,262,919			42,262,919
Finance & Trade	10,806,714	596,447	17,564,172	28,967,333
Government Institution Building	39,676,641	26,112,312	2,326,300	68,115,252
Health	52,685,779	37,430,448	50,309,288	140,425,515
Housing	88,623,097	52,159,089	144,050,611	284,832,797
Industry & Industrial Finance	58,226,648	198,327,418	25,832,365	282,386,432
Landmine Clearing	15,372,314	15,374,516		30,746,829
Multi-Sector	2,463,744	390,010	5,107,359	7,961,113
Other	1,233,461	2,777,285		4,010,746
Peace Implementation Activities	95,342,914	710,087		96,053,000
Social Support	86,957,365	39,877,245	2,011,349	128,845,959
Telecommunications & Communications	1,347,493	12,193,802	6,000,373	19,541,668
Transport	104,798,871	37,543,370	76,643,669	218,985,909
Water & Waste Water Management	64,806,111	17,609,879	11,081,240	93,497,231
Grand Total:	796,435,460	666,991,017	417,730,005	1,881,156,482

* Includes contracts for which no milestones have been provided, therefore the status could not be determined. Source of information: RCM Database Note 1: Figures include all contracts since June 1996 Note 2: This report is based on information provided by Implementing Agencies and other participants willing to contribute to the RCM Database. Therefore, the ETF Secretariat nor the RCM Database can take any responsibility for incorrect or incomplete information potentially contained within this report. Original values are converted to DM based on annual average exchange rates.

Office of the High Representative