Bosnia and Herzegovina’s reform programme has set it on the road to recovery and foreign investment
osnia
and Herzegovina is emerging from the dark shadows of a war that cost
it dearly as the government embarks on a programme of reform, aimed
at attracting foreign investment to boost economic recovery.
A decade after declaring itself a sovereign state independent of Yugoslavia,
only to plunge into a conflict that was to last four years, the country
is trying to move on from the internal dissent of the past.
Squaring the circle between the three religious and ethnic groupings
making up most of the population of Bosnia and Herzegovina has proved
far from easy since the war formally ended with the signing of accords
in Dayton, Ohio, in 1995.
Efforts
to reconcile the differences bet-ween Muslims (now known as Bosniaks
to emphasise that not all of them are
necessarily adherents of Islam), Croats (mostly Catholic) and Serbs
(Orthodox Christian) delayed attempts to get the country back on course.
The Dayton agreement divided the country into two distinct political
entities: the federation of Bosnia and Herzegovina, peopled mainly by
Bosniaks and Croats, and the Serb Republic. Each part occupies almost
half of the country and has its own government. The central government,
which is responsible for the country’s foreign, economic and fiscal
policy is headed by a tripartite presidency (one Bosniak, one Croat,
one Serb) and a Council of Ministers.
The
process of reforming the economy and rebuilding infrastructure in the
wake of the four-year conflict has been both painful and slow. Bosnia
and Herzegovina has received aid well in excess of $1 billion a year
from international agencies and Western donors since the fighting ended,
but the sums disbursed to the country have grown smaller in recent years.
The aid was to finance reconstruction and the donors expected this to
be accompanied by reforms they considered vital to redirecting the economy
along free market lines. They were disappointed when the changes they
expected did not take place.
However,
following the elections of November 2000, which replaced the post-war
government with the Alliance for Change, a broadly pro-Western and reformist
coalition, analysts now believe that Bosnia and Herzegovina is finally
on the road to becoming a modern, competitive economy.
Statements outlining the aims of the central government made by Zlatko
Lagumdzija, chairman of the Council of Ministers, have encouraged such
hopes.
Mr Lagumdzija, effectively the country’s prime minister, says the
main priorities of the government are to introduce viable economic and
social reform, ensure the rule of law, enable state institutions to
function properly, and allow the refugees displaced by the civil war
to return home.
He
emphasises, however, that the country is unable to achieve these aims
on its own and needs all the outside help it can get. But he has made
it clear that the country must change in order to attract foreign direct
investment (FDI).
“These priorities can only be achieved if we manage to create conditions
that are favourable for foreign investment,” he says. And he adds
that the central government is ready to undertake the necessary economic
reforms, “no matter how difficult that might be”.
|
||
 |
The
last government concentrated on social and political issues, bringing
economic reform to a virtual standstill. Only small, state-owned firms
were sold off, often to local investors when what was really needed
was foreign capital.
Alija Behmen, prime minister
of the Bosniak-Croat Federation, is hopeful there will be a fundamental
shift in direction. “There has been a change in politics,”
he says, “a difference in understanding in the whole country and
between the two entities. And there is a new government. We have formulated
goals and reached a consensus of political will.”
The goal is to reduce unemployment, poverty and economic inequality,
and to increase production and exports, explains Mr Behmen. “But
this depends on the creation of a private initiative society, a competitive,
stable and prosperous economy and development of the state under the
rule of law,” he says.
|
||
|
The
privatisation process is vital. “We are moving into it in a more
serious way this year. We expect strategic investors
to come with cash and it is in our own interest to have as many payments
as possible,” says Mr Behmen.
In the Serb Republic, prime minister Mladen
Ivanic says that Bosnia and Herzegovina needs to forge
closer links with its neighbours and the world.
“There are two reasons why we have not been very successful in
attracting FDI into this country. Just a year ago Bosnia and Herzegovina
was a very small market with an unpredictable political situation, and
not too interesting to investors.
We
were isolated both from Croatia and Yugoslavia and separated into two
small entities,” he says.
“But now there are no more problems between the two entities. We
have, despite all the difficulties, a single BiH market space, although
I personally believe that this is still a very small market and we need
access to larger markets.”
“We have already signed an agreement on zero customs trade with
Croatia and soon will sign the same agreement with Yugoslavia. Then
these three markets will practically become one market and will be big
enough to attract foreign investors. We have also signed deals with
the EU,” says Mr Ivanic.
Bosnia and Herzegovina needs, he adds, to be part of the monetary and
fiscal system of the European Union. “I don’t know how at
this stage, but we have to find a way of doing it somehow.”
|
||
|
With
the declining flow of aid, Bosnia and Herzegovina’s economic growth
rate has slowed sharply in recent years. The first few years after the
civil war saw the economy grow rapidly, although this was from a very
low base.
Gross domestic product (GDP) grew by more than 20 per cent a year. But
Joseph Ingram, director
of the World Bank’s mission in Bosnia and Herzegovina, estimates
that GDP rose only 4.7 per cent in 2000. Although he forecasts an improvement
to perhaps six per cent for last year, World Bank officials warn that
this is unsustainable without economic reform.
In a sense, the aid itself is part of the problem. Analysts say that
while it has fuelled growth, this has not been channelled back into
sustainable economic expansion. GDP is still not back to the level of
1990.
Mr Ingram says the government can still make up for lost time if it
creates a business-friendly environment. “This will generate growth,
create employment, boost exports and provide financing that is no longer
coming from the aid agencies,” he adds.
[email protected]