Nando Times
Experts worry about economic collapse in Bosnia

By MELISSA EDDY


SARAJEVO, Bosnia-Herzegovina (January 1, 2000) - Despite billions of dollars in foreign aid since the end of the war in Bosnia, experts fear the nation's economy will collapse as that money is cut in half by the end of the new year.

After the 1995 Dayton agreement ended Europe's bloodiest conflict since World War II, the United States and other major powers agreed to provide $5.1 billion over four years to rebuild the country and set Bosnia-Herzegovina on its way to a sustainable market economy.

The last installment of $1.05 billion was approved in May at a donors' conference in Brussels. Bilateral aid programs will continue, but Bosnian and international officials expect total foreign assistance to be cut to half the current levels.

"Economic collapse is possible," Neven Tomic, a vice chairman of the Bosnian council of ministers, told The Associated Press. "The donor supply is going down, and we didn't solve all of the political problems. There is still no framework for (foreign) investment."

The $5.1 billion package was supposed to jump start the economy and encourage foreign investment, which the World Bank and others see as the key to Bosnia's long-term economic future.

Rampant corruption and communist-style bureaucracies, however, have discouraged foreign investment. Most economists agree that there is not enough capital inside the country to revive the economy without substantial foreign funds. What money there is here is believed to be controlled by politically connected criminal syndicates that emerged during the 1992-1995 war.

According to the office of Bosnia's top international overseer, Wolfgang Petritsch, of roughly $2 billion that flowed into the country between 1996 and 1998, only 2.3 percent of that was private funds, invested in the manufacturing sector.

As a result, unemployment in the Muslim and Croat part of the country stands at about 70 percent, according to the government's statistics office. Unemployment in the Serb-ruled area is believed to be even higher although current figures are unavailable.

The bureaucracy was inherited from the old Yugoslav model. Entrepreneurs must submit reams of paperwork, acquire official stamps and wait in line at various offices to obtain necessary approvals.

Bosnians have friends within the bureaucracy to help them move through it with comparative ease. For foreign investors, the system has spawned a subculture of well-connected fixers, who find shortcuts through the bureaucratic web - for a fee.

An American businessman who spoke on condition of anonymity, however, said it took him nearly four months simply to register his private company.

U.N. Secretary-General Kofi Annan has recently announced a campaign to fight corruption and organized crime in Bosnia's police forces and judiciary. But the nature of Bosnia's ethnically based political system, codified in the Dayton agreement, complicates those efforts.

Dayton allowed the Bosnian Serbs to run their own autonomous region, which comprises nearly half the territory. Bosnian Serbs have resisted demands by international overseers to allow a multiethnic police force to patrol its borders with Croatia and Yugoslavia.

As a result, border guards are vulnerable to bribery by smuggling gangs of similar ethnicity.

James Lyon, a former American businessman who now heads an independent think tank here, estimates that the Bosnian Serb region alone loses over $8 million a month because smugglers evade customs fees.

Lost fees as well as widespread tax evasion means there is not enough money to pay pensions, unemployment insurance and salaries, encouraging officials to seek bribes.

Many Bosnians and international officials fear corruption will continue as long as the ethnically based political parties, which took Bosnia into the 1992-1995 war, still run the country.

"The government names the directors of the big (state-run) companies," said Cedo Volas, who heads the main trade union in the Serb republic. "Consequently, most directors are heads of political parties."

Volas said the unions are "on the verge of a general strike" to demand higher wages, public accountability in the running of state companies and the establishment of a government-run pension fund for workers.

But Milorad Dodik, the Western-backed president of the Bosnian Serb republic, denies any problems.

"We can exist with lower international donations," Dodik said. He insisted that a new social program planned for 2000 would create new jobs through construction projects - including a $21 million government complex his administration is building in the Bosnian Serb capital, Banja Luka.

Dodik had no figures on how many jobs would be created. And the Office of the High Representative, the international body which oversees government operations, doubts such public works projects can replace a healthy private economy.




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