Economic Policy and Reform
Reform of the Payment
Bureaus
The Payment Bureaus (PBs) are a major obstacle in the
transformation of BiH to a modern market economy. An
International Advisory Group (IAG), comprised of representatives
from USAID, the IMF, the World Bank, US Treasury, CAFAO, the EU
and OHR, was established to assist and advise authorities in both
Entities on the dismantlement and elimination of the PBs and to
provide technical assistance to the institutions that will take
over the functions currently performed by the PBs. The IAG is
served by a full-time secretariat. On February 19 and 22, the
IAG discussed a “blueprint” for PB reform with Prime
Minister Dodik of the RS and PM Bicakcic of the Federation.
The Payment Bureaus (ZPP and ZAP
in the Federation, and SPP in the RS) are an inheritance
of the Social Bookkeeping Service (SDK) of the former Yugoslavia.
As the SDK was designed as a control mechanism to support a
centrally planned social economic system, the PBs had and still
have monopoly control over all domestic payments. Every night
firms must deposit their cash with the PBs. The PBs also provide
other functions—treasury, tax collection, statistics,
accounting, etc. The monopoly of the PBs, together with their
non-transparency and high transaction fees, cause high risk for
private enterprises and prevent the development of a strong
commercial banking sector. The associated costs for the BiH
economy are huge.
Drawing on earlier studies by IMF and
the World Bank, USAID developed a strategic plan to eliminate the
PBs from the economy. The process will be orderly and all
functions currently performed by the PBs will be transferred to
other government institutions or the private sector. The first
steps will be to complete a functional analysis (IAG has engaged
the authorities to ensure that legislation and other conditions
are in place) and to establish corporate government over PB
management. The PBs will be fully liquidated by December 2000.
More information: USAID (206-691) or Thijs van Rens, (OHR).
The BiH Statistics Agency
After its opening in November 1998, the BiH Statistics Agency
(BiHAS) started to be operational. Through a close co-ordination
with the Federation and RS statistics institutes the BiHAS has
finalised the draft of the first joint bulletin containing data
aggregate covering the whole country.
The BiHAS in consultation with the
International Community also produced the list of surveys to be
carried out: family budget, labour force, and census were defined
as top priorities. As planned in early February 1999, the
Swiss/EFTA and Swedish delegations visited BiH to make the final
assessment in order to proceed with the implementation of the
first phase of the overall statistics project. The information
technology development and the English training are due to begin
soon.
Through co-ordinated efforts of the
donor community, considerable attention was put on rehabilitation
activities for the BiHAS. The Italian Government rehabilitation
projects should focus on providing a definitive location for the
BiHAS in the Marijin Dvor building. Additionally, the
rehabilitation of the RS statistics institute in Banja Luka is
also under consideration. The ongoing co-operation between the
East and West statistics offices in Mostar, accentuates the need
to reunify the office in a single one.
While considerable work lies ahead of
the BiHAS, the professional and continued co-operation among the
various actors involved may pave the way for a successful final
result.
Additional Import Duties replace
illegal customs practices
On 18 February 1999, the Council of
Ministers of BiH adopted a decision on a list of commodities to
which additional import duties will be applied. These import
duties, levied on top of the customs tariffs, replace the so
called 'prelevmans'. The prelevmans were levied by legislation of
the Entities and therefore contradictory to the Constitution of
BiH which grants the responsibility for customs policy to state
level institutions.
This has been a difficult issue where
both entities were not able to reach a common position for over
six months. The main contentious point was to arrive at
acceptable levels of additional duties so that the domestic
industry in both Entities could be protected. A breakthrough was
reached at a meeting chaired by the Deputy High Representative
Didier Fau on 27 January 1999, with Minister Kurtovic (Foreign
Trades and Economic Relations) and the Ministers of Trade from
both entities.
The decision on additional import duties
clears the way for proceeding negotiations on harmonising sales
and excise taxation (see elsewhere in this newsletter). Once this
is agreed, the different excise rates on imported goods, which
are in fact a hidden form of customs, will be abandoned. The last
step to full implementation of the Law on Customs Policy of BiH
is the abolishment of the preferential treatment of goods coming
from Croatia to the Croat parts of the Federation, and goods
coming from the Federal Republic of Yugoslavia to the RS. These
imports are currently charged only 1% administrative costs
instead of the full customs rates, despite repeated requests from
the OHR. For more information contact Thijs van Rens - OHR, or
Jasna Hajder OHR Banja Luka (058 - 217 112).
Harmonisation of Indirect Tax rates
between Entities
On 11 August 1998, the Ministers of
Finance and Trade of the Republika Srpska and the Federation of
BiH, signed an agreement to remove obstacles for trade of goods
and services between the two Entities. The main points of the
“August agreement” were to amend the Entity legislation
to recognise trade between the Entities and to bring this
legislation in line with EU standards, to repeal illegal tax and
customs practices and replace them by additional import duties on
the state level, to establish co-operation between the Entity’s
fiscal administrations, and to harmonise sales and excise
taxation.
In the field of indirect taxation, the
point of collection and the base price for the sales tax has been
brought in line. A working group was charged with drafting a
proposal for harmonised excise and sales tax rates. The main
bottlenecks were the list of excisable goods, and the difference
in excise rates between domestically produced and imported goods.
Lowering excises on imported goods would imply a revenue loss.
Therefore the working group experienced severe delay, awaiting
agreement on additional import duties (see above in this
newsletter). These additional duties are meant to replace the
different excise rates for imported goods.
Since the additional imported duties
were adopted by the Council of Ministers, the working group has
started meeting again. A common list of excisables has been
composed, and substantial progress has been made in harmonising
excise rates in the most difficult areas (cigarettes, petrols and
alcohol). More information: Jean Tesche US Treasury (tel
201810), Thijs van Rens (OHR).
Update on Customs Fraud Cases
Various Customs fraud cases in BiH currently under
investigation and monitored by OHR and CAFAO all involve
remarkably similar facts. Although customs policy is made at the
BiH State level, administration is conducted by customs
administrations at the entity level. Customs policy directs that
customs duties are paid to the entity in which the goods are
delivered. Smugglers have seized on the lack of co-ordination
between the entities and the poor administrative procedures of
the Federation. The typical custom fraud case involves trucks
transporting high tariff goods through a Federation border
crossing point. At the border, the driver and transit agent
declare the goods are destined for the Republic of Srpska.
Rather than delivering the goods to the Republic of Srpska, the
goods are delivered to the black market. This denies the
Federation both the tariff and sales tax from these goods.
In 1998, CAFAO completed the
instillation of a computer database for the Federation Customs
Administration. In addition, OHR and CAFAO created liaison teams
between the entities to share necessary customs information.
Within a few months, data was analysed and the Customs
Administration was able to identify widespread customs fraud.
The first successful attempt at
prosecuting individuals involved in customs fraud involved a
group of seven drivers. These seven drivers were responsible for
making numerous deliveries of high tariff goods to the black
market. The Federation Customs Administration, with the help of
CAFAO, developed a list of trucks and drivers who had multiple
"open" border crossing declarations. An exercise was
developed to stop drivers with open border notifications. In a
single day at the Orasje border crossing point, seven drivers
were stopped and detained. Investigation revealed the drivers
had driven their goods to the Arizona Market. No duties were
ever paid. OHR and CAFAO were directly involved in the
investigations and prosecutions. OHR provided expert advice and
facilitated the transfer of evidence between the entities. The
drivers were successfully prosecuted and received sentences
ranging from seven months to two years and seven months.
In a case related to the 7 drivers
case, a middle man facilitated the delivery of black market goods
to the Arizona Market. Each of the drivers testified that he
unloaded the shipments at the Arizona Market and paid the
drivers. The man was convicted of smuggling activities and
received a nine month sentence.
A similar prosecution was initiated in
Mostar. Instead of going after drivers however, the transit agent
and importer were put under investigation. As a result,
officials from a Mostar company were charged and the case
referred to an investigative judge. During the investigation, a
high level customs official testified falsely in an attempt to
aid the smugglers. As a result, charges were filed against the
Customs Official who was based in Sarajevo. The investigative
judge still has the case and we are awaiting a decision.
The BAZ Continental case in Mostar is
awaiting trial. In this case, paperwork was submitted to the
Federation Customs Administration by officials of BAZ
Continental. This paperwork falsely claimed that certain high
tariff goods had cleared customs in the Republic of Srpska and
that duties were paid. Investigation revealed the stamps used on
the paperwork were false. OHR and CAFAO provided paperwork to
the investigative judge in the Federation from the Republic of
Srpska which showed the goods were never delivered. The drivers
involved in this case were released after 90 days pre-trial
detention and are awaiting trial.
A similar smuggling scheme was
conducted in Livno. There was unmistakable evidence that goods
were not delivered to the Republic of Srpska clearing house
declared on the border crossing notification documents.
Unfortunately, the Municipal Prosecutor handling the case
dismissed it without presenting all necessary evidence.
Questions of a cover-up remain. After reviewing the case, the
Federation Prosecutor indicated he would consider filing charges
against the Livno prosecutor for failing to perform his duties.
The Federation Prosecutor however, decided against such action.
There is a civil case involving the owners of the trucking
company who transported the goods in which they filed suit
against the Federation for return of their import tariff
guarantee. Citing the dismissal of the criminal case, the Livno
judge ordered the Federation to return the guarantee. The case
is pending appeal in the Cantonal Court in Livno.
Finally, a dozen trucks were seized in Bihac. These trucks
were identified as having been involved in previous smuggling
activities. It is interesting to note that although no criminal
prosecutions are pending against any of the owners or drivers of
those vehicles, the owners have walked away from the trucks and
have made no attempt to claim them.
Council of Ministers pass by-law on
Customs Policy Implementation Commission
In its session on 25 February 1999 the Council of Ministers
adopted the “decision on the regulation of the composition,
operation and authority of the BiH Customs Policy Implementation
Commission (CPIC)”. Six other by-laws to the Customs Policy
Law had already been adopted on 21 January 1999. The most
important parts of the legislative framework for customs is now
in place. The CPIC will prepare drafts for the remaining
implementation laws, which are of a technical nature and
non-controversial.
Unlike what its name might suggest, the CPIC is not meant to
monitor the implementation of the customs policy. Its main tasks
are to draft regulations and advise the Minister of Foreign Trade
and Economic Relations. To supervise implementation the Council
of Ministers will, in co-operation with the EU Customs and Fiscal
Assistance Office (CAFAO), establish a working group as described
in article 2, item 4, of the Law on Customs Policy.
Trade agreement between BiH and Croatia
Preliminary work has started to open negotiations between
Bosnia and Herzegovina and Croatia concerning a trade agreement.
Croatia has expressed its wish to see economic relations with BiH
normalised through such an agreement and has forwarded a first
draft to BiH.
On the BiH side, the Presidency has
appointed a three member delegation to negotiate the agreement
with Croatia. The three members are Vice Chair Neven Tomic,
Minister Kurtovic and Minister Loncar. A first meeting with
Croatia is planned for beginning of March. In the meantime,
internal BiH discussions have started with the participation of
both entities to prepare the BiH position.
It is in the interest of BiH to
normalise its economic relations with neighbouring countries for
the benefit of its economy and for a full respect of the GFAP.
Bank Privatisation
The Federation and RS Parliaments passed
banking privatisation laws on 26 February and 26 June 1998
respectively. In order to implement the privatisation process,
each government established a Bank Privatisation Unit (BPU). The
initial step in privatisation is the preparation of Opening
Balance Sheets (OBS). Banks whose OBS show a higher value of
active assets than liabilities are considered solvent. Solvent
banks will prepare privatisation plans, and after approval from
the entity government, will enter into the privatisation stage.
Payment for bank shares must be in cash. Insolvent banks will be
liquidated or merged.
In the Federation, 15 banks were
originally candidates for privatisation, but 7 banks notified the
BPU that they were privatised prior to 8 April 1998 when the law
went into effect. The Ministry asked the BPU to check these
transformations, especially those where state capital has been
transformed into private capital. The BPU is now performing
these checks. The BPU received opening balance sheets from the
remaining 8 banks that are mostly state owned. Three of these
have been accepted and forwarded to the Federation Banking Agency
for the required solvency test. The remaining 5 balance sheets
are under correction.
In the RS, there
are 11 State-owned banks. Until OBSs are received, it is
difficult to ascertain their status vis-à-vis
privatisation.
The deadline for the Federation Government to make decisions
on privatisation plan is August 1999; the deadline for the RS
government is October 1999.
Organization of Public Services
Telecommunications : numbering
From 26
February - 3 March an ITU expert investigated the technical
capabilities of the switching and transmission capacity in Bosnia
and Herzegovina in order to determine the possibilities and
limitations which the present infrastructure puts on possible
numbering schemes. Discussions were held with all the operators,
the result of which will be laid down in a detailed report which
the expert intends to present before the end of the month. A
second mission will be carried out if necessary. The final
roundtable to discuss the results of this technical mission and
the proposals for a numbering scheme which will be made on the
basis of this technical information will be held in Geneva on
15-16 April.
Telecommunications Regulatory Agency
The Council
of Ministers at its session of 18 February 1999 appointed the
Members of the Telecommunications Regulatory Agency (with the
exception of the part-time Croat member). The three full time
members are: Emin Skopljak (B), Slobodan Karisik (S) and Jasenko
Lasta (C). The part-time members are: Fikret Kasumagic (B) and
Mile Bajalica (S).
The CoM
instructed the newly appointed members to submit their plans
within 3 weeks. To that end there will be a meeting of the TRA on
10 March with the Members of the Agency along with
representatives from ITU and OHR.
Postal sector
On
25-26 February, a first preparatory meeting was held in Bern at
the headquarters of the Universal Postal Union (UPU) to discuss
the draft of the State for Posts. At the meeting representatives
were present from UPU and OHR as well as the Netherlands
consultant. As a result of that meeting, the text will be amended
and submitted to the Bosnian participants in time for the first
full meeting which will be held on 29-31 March in Bern.
Following
the donation by the Italian Government of six vehicles to the
Srpska Post, the mail exchanges between Republika Srpska and the
Federation will be carried out by Srpska Post. In principle there
is also agreement that the number of mail exchanges should be
increased from 3 times a week to once every day. This has not
been implemented due to the bad weather conditions over the last
month.
The three Ministers responsible for Posts and
their respective Directors-General are being invited to the
Netherlands for a study visit. The visit is planned to take place
from 17-24 March.
Reconstruction
Update
Bridges and Border Crossing points
The Brod
bridge was closed in February and the repair work will last a
year and a half. Moreover, the closing of the Gradiska bridge on
March 15 is expected to negatively impact traffic and travel
times until its reopening in the autumn.
The Joint
Border Commission decided during its 24 February session in
Zupanja to support the temporary opening of the Novi Bridge,
presently restricted to SFOR only, to civilian traffic and
trucks. The opening of the Novi Bridge could take place in the
next few weeks. Proposals for the use of ferry crossings at
Srbac/Davor, Brod (about 25 km east of from Gradiska) and other
sites will be considered by the Croatian government and a
decision made in two weeks. During the same meeting, the opening
of the Trebinje (Ivanica) and Dubrovnik (Brgat) Border Crossing
Point was recommended, and the actual opening of the Border to
civilian traffic is expected to take place soon.
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