Government of RS and economic crisis

Mladen Milosavljevic

TUE, 29 AUG 2000

Banja Luka, August 21, 2000 - “Bosnia & Herzegovina is in a serious financial crisis and urgent measures must be taken, because both entities, due to deficit in their budgets, are very close to bankruptcy”, declared recently Joseph Ingram, director of the World Bank Mission in B&H. By saying this Ingram has made public the by now notorious fact which was persistently denied by officials of Republika Srpska that the current allegedly economic success in B&H is based on someone else’s money and economy of donors.

“The deficit in the budget of RS at the moment amounts to 200 million convertible marks (KM) and that of B&H Federation 140 million”, Ingram specified. Head of IMF Mission in B&H, Bruno de Sazzen, assessed that the main cause of such a high deficit in the budgets was evasion of taxes of various kinds. And this is not the worst of all. This situation could further deteriorate, so that “payments for pensioners, workers waiting for work and salaries for government employees might be interrupted”, Ingram warned.

All this could happen even before November elections, which is a dramatic warning for the ruling team in RS to take urgent measures. According to statistical indicators which refer to industrial production, the impression is that almost nothing is produced in RS. When prices are concerned, the situation is catastrophic because between February 1998 and December 1999 the prices have gone up by almost 100 per cent.

Neither these facts nor the report of CAFAO according to which RS is losing 200 million KM only because it does not collect taxes on cigarettes, nor the statement of American Ambassador James Perdew in American Congress that due to tax evasion RS is losing 136 million KM, have worried the government of RS as the warning of international officials about depriving RS of the aid for its budget before the elections.

One of the first moves made by prime minister Dodik, who is at the same time one of the main candidates for future president of RS, was to reduce pensions by 40 per cent, having deprived pensioners of two previous pensions. As consolation they were promised to receive a 50-KM coupon for electricity consumption.

Head of the office of the World Bank in B&H Joseph Ingram called this move “a stupid idea”, because for a short time the position of pensioners would be made easier, but problems of electric-power industry would be increased by it, and it had too many of them as it is.

Aware that the pensioners are right to protest and that the cost Dodik might be forced to pay for this move would be loss of 172 thousand pensioners’ votes, the government initiated another risky move. Director of the public retirement and disability insurance fund of RS Svetozar Mihailovic informed the public that the office of the fund in Bijeljina had instigated criminal proceedings against 11 directors of partly state- and partly privately-owned companies because of the failure to meet their obligations to the retirement fund. This might, however, be another unpopular move, not only because it should not have been made, but because criminal charges were raised only against responsible persons in companies in the eastern part of Reublika Srpska which is not inclined towards Dodik and the ruling coalition anyway. These are also companies which are the biggest in this part of the Republic and which employ the biggest number of workers, such as the tool industries from Trebinje, Birac Holding from Zvornik, Ugljevik mine and thermo-electric power plant, Maglic from Srbinje, etc. The government has in this way aroused suspicion that this was not done with other enterprises because directors of companies with large debts in the western part of RS are controlled by the ruling coalition. Reassurances that this is not the case was not helped even by the fact that criminal charges were raised in Prijedor, and that there will probably be more. Director of Banja Luka branch office of the fund Nedeljko Vujovic declared that this branch was collecting data on debtors from the territory of this region, but no steps were actually taken against them although it is very well known who the indebted are. Vujovic himself stresses that they are enterprises which employ a large number of workers. They are Cajavec, Incel, Vrbas, Jelsingrad, Fruktona, Univerzal and Sentetik from Banja Luka, Svila from Celinac, Itris from Srbac and Machine Service from Gradiska, which are not only failing to pay contributions to the retirement and disability fund, but are not even paying salaries to their workers.

In fact, however, a large part of these enterprises simply are not capable to meet their obligations, it is not a matter of their wish to evade them. The hard times, the war, disappearance of the former market, bad personnel policy and postponement of privatisation have simply pushed them to the verge of destruction.

The move with the pensioners was an attempt to create an impression in public of an efficient government capable of coping with the problem and solving it vigorously and of taking seriously the warnings of international officials. However, it just blurred the essence of the problem which cannot be avoided and which the government has to face and solve in order to avoid bankruptcy of RS, and it is not at all a problem of pensioners which is just a result of the key problem. And the key problem is that due to lack of strategy of restructuring, the large systems do not attract the attention of investors, and their privatisation plans are such that in fact everything is done to prevent privatisation.

At a meeting held in Serb Sarajevo representatives of international monetary institutions and political envoys of international community warned the leadership of the People’s Assembly and heads of groups of deputies about where the solution should in fact be sought. Regardless of whether it is the matter of retirement reforms, the labour law or filling the gap between expenditures and income, the problems will not be solved if they continue to deal with them through their party activities.

The government should therefore immediately remove obstacles which are slowing down the development of the private sector and simplify the procedure for local and foreign investors. There are no laws on registration of direct foreign investments which is not a welcoming signal for possible investors.

This is, therefore, not just a matter of failing to pay contributions for pensioners, but malfunction of the entire system which the government is also responsible for. This is the essence of the problem. If the authorities, that is, the government, makes just partial moves, moreover only when it needs to ensure international support or that of the voters, and if it does not touch the system it controls, there will be no solution whatsoever. What the government must immediately do, as suggested to it by international representatives is, if it cannot draw the economy out of collapse, at least it can busy itself with establishment of the legal state, reduce corruption, gray economy and tax evasion.

Original article