Economic Policy and Reform
Update on Privatization
A non-navigable bureaucracy resulting from the communist-era, legislative
barriers, resistance from enterprise managers, and political resistance
have been the central obstacles to a rapid privatization. These impediments,
in turn, regularly dissuade investors.
The US Government has decided to suspend its assistance to the BiH
Federation privatization program. Further technical assistance will
be conditioned on proven commitments and progress. The Economic Task
Force is reviewing ways to reduce the influence of political parties
and advance the privatization process in an expeditious manner so that
growth led by the private sector could replace declining foreign aid.
Federation officials recently announced a "last" deadline
of 10 February for enterprises to submit their Opening Balance Sheets.
After this date, balance sheets will be prepared under "streamlined
preparation methodologies".
The State Framework Law on Restitution, drafted by OHR, has been submitted
to the Council of Ministers for adoption in the immediate days ahead.
It is an important law and covers the main principles of restitution
including protection of investors. It will support the privatization
process.
Satellite Offices: With financial support from the US Government, in
late 1999, the RS authorities opened a satellite office in Sarajevo
in assist those living in the Federation and eligible under the RS privatization
scheme. A similar office in Banja Luka, supporting the Federation scheme,
was established earlier in 1999.
Registration of Claims in the Republika Srpska: The process commenced
in early January. There are 75 permanent and 175 mobile registration
points in the RS but only one registration point in the Federation.
Displaced persons and refugees who live in the Federation and do not
wish to cross the Inter-Entity Boundary Line can use the proxy mechanism
or register at the satellite office in Sarajevo. Despite significant
enrollment, the registration process has not yet covered the majority.
The State Framework Law on Privatization of Enterprises and Banks in
Bosnia and Herzegovina, originally imposed by the High Representative
in July 1998 and later adopted by BiH parliaments, stipulated the criteria
for Citizens Claims. It includes those who were citizens of the former
Socialist Republic of BiH and permanent residents on 31 March 1991 on
the territory that falls within the privatizing Entity. Refugees and
displaced persons, in accordance with Annex
7 to the General Framework Agreement
for Peace in Bosnia and Herzegovina, as well as legal successors
of dead and missing entitled persons are also included
Seminar on Corruption
The Council of Europe and the Office of the High Representative jointly
organized a Workshop on Corruption, Organized Crime, and Money Laundering
in Banja Luka in mid-December. The seminar reviewed existing and planned
measures against corruption, organized crime and money laundering,
as well as priority actions needed to strengthen the judiciary and
law enforcement agencies to effectively investigate and prosecute fraud,
corruption and organized crime. Representatives from the international
community and judicial and law enforcement institutions from both Entities
were present.
Participants agreed that it is necessary to create various anti-corruption
laws to strengthen the independence of the judiciary and enhance the
efficiency of law enforcement agencies in both Entities. To ensure the
implementation of European norms, BiH needs to accede to a variety of
standards including the Council of Europe’s Criminal and Civil
Law Conventions on Corruption, the Convention on Money Laundering, and
OECD’s Bribery Convention. In addition, participants discussed
preventive measures to eliminate opportunities for fraud and corruption
that include legislation on political party financing, transparency
in government decision-making and financial procedures, as well as a
de-politicized, independent and accountable civil service.
The conclusions of the seminar will further the implementation of
OHR’s "Comprehensive Anti-Corruption Strategy for BiH"
and induce a political will amongst leaders.
Bosnia and Herzegovina Anti-Corruption and Transparency Conference:
The "Comprehensive Anti-Corruption Strategy for Bosnia and Herzegovina"
identified pubic awareness as one of four strategic pillars. The conference,
envisioned by the strategy as a forum for the country’s political
leaders to demonstrate commitment to fighting fraud and corruption,
will take place on February 14 in Sarajevo.
The High Representative will open the conference and address representatives
of all three levels of government from both Entities, members of judicial
and law enforcement agencies, as well as members of civil society and
media. The assembly will provide an opportunity for joint action from
all sectors of society against corruption.
Federation Pension Reform Faces Obstacles
In the broader context of fiscal reforms, the OHR is working closely
with relevant international organizations in reforming the pension system
in BiH. Before addressing the harmonization of Entity laws, ethnically
divided pension funds in the Federation need unification. This is another
contentious example of the parallel structures remaining from the postwar
period. Appropriate legislation would enable the unification of the
Mostar (Croat) and Sarajevo (Bosniak) pension accounts.
During the Federation Forum on Economic Matters in May 1999, both parties
agreed to a proposal to organize the two funds, a condition of the World
bank’s second tranche of the Public Finance Structural Adjustment
Credit. The Federation Government had approved a law to merge the two
funds. Simultaneously, the Croat-HDZ representatives presented an alternative
text. In January 2000, due partly to the low attendance of parliamentary
officials, the draft supported by the international community was not
approved. The HDZ asked to withdraw its proposal from the agenda. A
new text will be necessary to reopen parliamentary discussions. The
lack of participation reflects political constraints as well as weak
institutional capacity. The international community remains concerned
over the delay in an important area of reform, which ultimately affects
one of the most vulnerable groups.
The merging of the two Federation funds will reinforce accountability,
enhance efficiency, and offer the scope to develop a sustainable and
an equitable pension system. It would also pave the way for eventual
reciprocity of pension benefits between the Entities, support a countrywide
benefit scheme and enhance labor mobility.
Foreign Reserves Surged in 1999
As 1999 closed, foreign reserves on December 31 were DM 877 million –
three times as high as in the beginning of the year – up from DM
132 million in August 1997. The Central Bank of Bosnia and Herzegovina
predicts that by March-April 2000, the reserves could break the DM 1 billion
mark.
With legislation for exclusion of all secondary currencies (e.g. Kuna)
in the Federation and payments of salaries and utility bills with KM,
the circulation of KM has soared. The RS had already taken these steps.
Entities Adopt 2000 Budgets
The Federation and the Republika Srpska have adopted 2000 budgets at
KM 940 million and KM 621 million, respectively. However, the Federation’s
budget is not fully consistent with the recommendations of the International
Monetary Fund. The international community urges the Federation to take
the necessary steps to proceed with the guidelines of the IMF.
The State budget of KM 265 million was accepted by the Presidency.
It is going through parliamentary approval. It includes KM 33 million
from own-source revenues; KM 45 million for administrative costs –
shared by the Federation (2/3) and the Republika Srpska (1/3), according
to the Constitution of BiH; and, KM 187 million for external debt service,
paid by the Entities
New Trade Agreement Enables Free BiH Exports To
EU
A new trade agreement with the European Union came into force on January
1, 2000. It regulates the imports of products from Bosnia and Herzegovina
and from Croatia to EU member countries. Both countries would be entitled
to autonomous trade preferences. The preferential concessions provide
exemption of customs duties and lift quantitative restrictions on certain
industrial products. This would allow a significant portion of BiH
exports to the European Union, free of customs and quotas.
The agreement provides for the first time increased quotas for BiH.
Free exports of industrial products from BiH encompass a wide range
including apparel and clothing, plywood, shoes, aluminum and furniture.
Certain food products (e.g., mushroom, horse meat) will be exempt of
duties while others will be subject to custom tariffs and quotas (e.g.,
fats, pasta, bread, cigarettes, beer, mineral water).
The preferential agreement negotiated between the BiH Ministry of Foreign
Trade and Economic Relations and the European Union provides an opportunity
for BiH companies to enter the EU market. It should mitigate BiH’s
trade deficit. Entity Laws on standards and veterinarian control should
be urgently harmonized for products of BiH to enter the European markets.
US Budgetary Support to Republika Srpska Completed
To lessen the fiscal impact on the Republika Srpska stemming from the
Kosovo crisis, the Government of the United States had provided US$10
million for budgetary support to cover public service wages. The OHR,
tasked to disburse these funds, completed the process in December and
January. The assistance was principally targeted to pay net salaries
(i.e. excluding social security contributions) of teachers and professors
and benefited more than 17,000 employees in the Ministry of Education.
A part of the assistance also assisted the workers of the Ministry of
Refugees and Displaced People.
Income Distribution in BiH
A small team of social policy advisors from Canada is working with
the BiH Social Policy Task Force to design reform mechanisms for social
security benefits. To devise efficient and equitable measures and estimate
the associated costs, they have compiled income distribution data of
various groups.
The statistical information shows levels of monthly income obtained
from three sources: pensions, invalid and survivor benefits, and employment
(please see insert).
Each source of data uses its own breakdown of income. In addition,
not all sources of income are available. Therefore, comparisons are
difficult. Assuming a "minimum food basket" at KM120 for
one adult, the proportions of each group who fall below that threshold
would be distributed as follows: Sarajevo Fund pensioners: 28%; Mostar
Fund pensioners: 0%; Republika Srpska pensioners: 74%; Federation war
invalids and survivors: 20%; RS war invalids and survivors: 97%; Federation
workers: 3%; and RS workers: 27%.
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