Economic Policy and Reform
IMF Declines Review of BiHıs Stand-By Arrangement
On March 8, the Executive Board of the IMF considered Bos-nia and Herzegovina’s
annual Article IV consultation but IMF Management had withdrawn its
recommendation to complete the second review under the Stand-By Arrangement
due mainly to the Federation’s failure to implement prior actions.
These include bringing the 2000 budget in line with the agreement reached
with the IMF, particularly transfers to the State for administrative
expenses and external debt charges in a manner that is consistent with
the State Budget. In addition, the Federation should pass the law on
excise taxes on ciga-rettes and remove various exemptions on sales taxes.
The Re-publika Srpska needs to adopt permanent legislation on excise
tax harmonization with the Federation. Both Entities should also become
current on their transfers to the State for adminis-trative expenses.
If the Entities take the steps to implement these measures by March
17, the IMF would consider the review of the Agreement and the program
would be on-track within a few weeks, allowing BiH to draw about US$15
million. Failure to complete the review would have grave consequences
for donor support and foreign direct investment.
The International Community shares the IMF’s concern over the
delays by the Entities in implementing agreed meas-ures, particularly
the Federation. In June 1999, to alleviate the impact of the Kosovo
crisis, the IMF provided an augmenta-tion of US$23 million to BiH’s
Stand-By Arrangement, originally approved for nearly US$81 million in
May 1998. The IMF has already disbursed US$72 million..
Possible Revisions to 1999 GDP Growth
In its BiH Economic Update, released on February 25, USAID estimated
that real GDP growth in 1999 would be revised down between 5 percent
and 8 percent. In 1998, for an increase of 1 percent in industrial production
index coincided with approximately 0.8 percent growth in GDP. This has
data led to this revision of previous estimates. In the Federation and
in the Republika Srpska, industrial production in 1999 registered at
10.6 percent and 1.6 percent respectively. While the Kosovo conflict
had repercussions on the BiH economy, the of delays in the restructuring
of the socially owned enter-prises was more significant. According to
USAIDıs data, a small group of such companies (approximately 50) is
respon-sible for the major share of losses.
In 1999, the Federation witnessed increases in industrial production
in tobacco, pulp and paper, chemicals, rubber and basic materials. Sectors
where the Federation is believed to have comparative advantage experienced
negative performance. These included construction, transport, coal mining,
textiles, apparel and machinery. There were similar patterns in the
Re-publika Srpska with decreases in food processing, textiles, apparel,
finished wood products and machinery. Significant increases were registered
in construction, electric power and forestry production. Forecast of
real GDP growth for BiH in 2000 varies between 7 percent and 14 percent.
KM in Czech Republic and Slovakia
On March 1, the Konvertible Marka marked another important step in
its trading in Europe, as it became available in the Czech Republic
and Slovakia through Ceskoslovenka Ob-chodni Banka, Bank Austria Czech
Republic and Volksbank Brno. This is expected to help foster further
growth in eco-nomic partnership with the two countries.
The KM could be traded in eight European countries: Aus-tria, Croatia,
Czech Republic, Germany, Hungary, Slovakia, Slovenia and Switzerland.
The Central Bank of Bosnia and Herzegovina is negotiating with Turkey
for trading of the KM there. The KM is a pillar of the single economic
space and an important part of macroeconomic stability.
Update on Anti-Corruption Activities
BiH Conference on Anti Corruption and Transparency
More than 200 participants
from all levels of government, media, civil society, international agencies
and NGOs attended the conference on Anti-Corruption and Transparency Confer-ence
held on 14 February. Attendees unanimously endorsed the strengthening
of the rule of law in Bosnia and Herzegovina and guiding those involved
in the fight against fraud and cor-ruption. The conclusions from this
conference called for a de-tailed action plan:
- Take concrete steps to demonstrate political will to fight fraud
and corruption, and support transparency and ac-countability;
- BiH should adopt and implement the Council of Europeıs Conventions
on Corruption;
- Harmonize laws at each level of government to advance fight against
corruption and transparency;
- Non-governmental institutions and individuals in civil society should
become active partners to promote trans-parency and anti-corruption
efforts;
- Implement and abide by certain fundamental principles including
selflessness, integrity, objectivity, accountabil-ity, openness, honesty
and leadership.
OHR Welcomes the Signing of Conventions on Corruption
On March 1, BiH Foreign Minister, Jadranko Prlic, signed two Conventions
of the Council of Europe -- Criminal Law Convention on Corruption and
Civil Law Convention on Corruption. These conventions oblige the countries
that have signed them, to introduce legal measures in civil and criminal
law that sanction the offense of corruption. This action dem-onstrates
a positive step in establishing the political will to take concrete
steps to fight fraud and corruption and to support transparency and
accountability.
OHR Launches Anti-Corruption Public Awareness Campaign Drawing
on real-life experiences, the Office of the High Repre-sentative, in
conjunction with the Center for Contemporary Art in Sarajevo, designed
and launched the first phase of the Anti-Corruption Public Awareness
Campaign. The campaign is targeted to educate the public about the types
of corruption that are dominant in Bosnia and Herzegovina and their
detri-mental cost to society.
The first phase of the campaign includes a series of elec-tronic and
print media announcements that cover a wide array of issues: abuse of
public office and public contracts, tax eva-sion, and the lack of government
transparency. The second phase of the campaign will educate citizens
on exerting their rights.
Second Visit from Transparency International To proceed
with the establishment of a BiH Chapter, represen-tatives from Transparency
International visited Bosnia and Herzegovina for the second time and
met with key individuals to strengthen the contacts gained during the
first visit. Trans-parency International is a non-governmental organization
dedi-cated to increasing governmental accountability and curbing corruption.
Canton Seven Privatization Agency Unified
Following the resolve of two long-pending issues a joint account
and seal of the Herzegovina-Neretva Cantonal Privati-zation Agency
the privatization process started in the Herze-govina-Neretva Canton.
The first auctions of enterprises were held in early March.
The Agency is expected to relocate to the newly con-structed Federation
Government building.
Agreement Reached on Central Zone of Mostar
On March 3, representatives of the Herzegovina-Neretva Can-ton and
City authorities signed an Agreement on two key is-sues related to the
Central Zone -- the Court for the Central Zone and Collection of revenues
by the City Administration.
The Central Zone was established by the former EU Ad-ministrator, Hans
Koschnick in February 1996 and endorsed by the High Representative and
the Federation Constitutional Court. The Central Zone has been a significant
test of rela-tions between Bosniacs and Croats as it forced the parties
in Mostar to administer the City in a joint and unified way.
By this Agreement, the two parties undertook the obliga-tion to find
practical solutions to the temporary financing of the City Administration
until the adoption of the Law on Lo-cal Self-government and the Law
on Allocation of Public Revenues. The Central Zone is under the exclusive
compe-tence of the City Administration. For financing of the City Administration,
revenues belonging to the City of Mostar would flow to a single account.
The parties agreed that the City Council of the City of Mostar would
adopt a decision on the collection of non-tax revenues from the territory
of the Central Zone. They also agreed that the Cantonal Government would
pass a temporary decision to regulate the proportion of the public revenues
for an automatic allocation to the City Administration.
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