• The BiH stand-by agreement with IMF is jeopardized by the FBiH government’s inability to agree upon budget revision. Introducing some last-minute changes might require the consent of the Fiscal Council, which would mean the revision of the original agreement with IMF. 
  •  Numerous consultations are currently underway in FBiH with cantonal governments on this topic but once again, all budgetary users have threatened with demonstrations and strikes should budget cuts   affect their population.  
  • Deputy FBiH Prime Minister and Minister of Finance have said that FBiH might end up with 400 M KM deficit in their budget by the end of this year unless the budget is revised according to original plans by the Parliament of FBiH.  
  • This could mean that Bosniak partners in the FBiH government might rush to privatise BH Telecom much sooner that anticipated in order to patch up the budgetary hole and preserve social stability. 
  • According to the latest report by the Transparency International, the level of corruption in Bosnia and Herzegovina is rising and at the same time TI warns that BiH authorities are failing to initiate discussions with its neighbors concerning the reparations for the use of BiH energy resources.
  • State-level government and governing parties have fallen under heavy criticism for failing to meet the demands of the EC regarding the Visa Liberalization Roadmap which leaves Bosnia and Herzegovina, Albania and Kosovo on the Black Schengen list.



Leading Trends



Troublesome PIC Meeting


On 29 June, the Peace Implementation Council Political Directors met in Sarajevo in order to discuss the notable standstill in reform process which have occurred since March. The Council reiterated that BiH must fulfil five requirements: come up with a sustainable solution for the division of state property between the state and other levels of administration, produce  a sustainable solution for the military property, complete the process of final status of the Brcko District, achieve fiscal stability and strengthen the rule of law and further two conditions before the Office of the High Representative can be transformed into an office of the Special Representative of the EU.


Political directors also expressed their concern regarding the adoption of Conclusions by the National Assembly of RS. These were labelled as an attempt to weaken the state-level institutions and reverse the undergoing reform processes and therefore must be halted. The Russian delegation did not agree with this formulation and sided with Dodik on this issue. The novelty in the meetings of Political Director is that Turkey also sided and openly argued for the Bosniak side during the meeting which clearly shows that PIC now officially lacks the unity it previously had, or maybe managed to keep publicly visible.


Political Directors agreed that three main goals remain in force for Bosnia and Herzegovina; in the short-term - the visa liberalisation issue, in the medium term - the membership of NATO and in the longer term - the accession to the EU.



 Law on Protection of Agricultural Products Annuled by the Constitutional Court


Despite numerous protests from both Serbia and Croatia and the European Commission’s Delegation to Bosnia and Herzegovina, the House of Representative of the Parliament of Bosnia and Herzegovina adopted the Law in question. Soon after the Law was passed, the Chairman of the House of Peoples of the Parliament of Bosnia and Herzegovina Ilija Filipovic requested the review of the legislation by the Constitutional Court of Bosnia and Herzegovina. The Court acted and rejected the Law  following the demand and pending the Court ruling on the case.


BiH Minister for Foreign Trade and Economic Relations Milan Zirojevic greeted the decision of the Court saying that it contributes to the reparation of BiH’s shaken credibility. Both the request from Chairman Filipovic and subsequent reaction by the Minster Zirojevic indicate the contradictory nature of political consensus on the level of state and proneness to influences of import lobbies. Regardless of the content of the Law and its apparent miss disconformity with CEFTA, let us be reminded that the House of Peoples that Filipovic presides upon had already passed the Law earlier this month. The opposition to the Law were among the Croat representatives coming from HDZ (Croat Democratic Union) and HDZ 1990 (Croat Democratic Union 1990). Both these parties are considered a proponent of import lobbies from Croatia, ergo the swift reaction with involvement of the Constitutional Court in the play. Needless to say the Law itself came into being under the proposal from Jerko Ivakovic Lijanovic, MP and an owner of the largest food processing factory in Bosnia and Herzegovina. However, the complexities of the inter-ethnic setup of the country and more than a clear advocacy of some Croat and Serb parties for import lobbies from Croatia and Serbia respectively, shows the weaknesses of the state of Bosnia and Herzegovina.


Minister Zirojoevic, has acted along the same line by protecting the interests of Danube Foods Corporation from Serbia by famously reacting promptly protecting the interests of the BiH–based milk processing company from Kozarska Dubica (daughter company of Danube Foods), which, faced with a non-customs barrier by Croatia after their exports to that country increased, was protected through the introduction of reciprocal measures against the Croatian milk producers. This time, Zirojevic opted against the Law most likely because it treats products from Serbia too.


So, even though these BiH politicians receive significant salaries from the citizens of this country, their allegiance lies with the import lobbies from the neighbouring countries. The Court has not yet ruled on this case and the Law remains suspended until it does so.



No visa liberalisation for citizens of Bosnia and Herzegovina


The European Commission will recommend the liberalisation of visa arrangement for Macedonia, Serbia and Montenegro, while Bosnia  and Herzegovina, Kosovo and Albania will have to make additional efforts in order to be put on a White Schengen list. This decision came as no surprise to the Bosnian and Herzegovinian public already used to negative events concerning the country’s capacity to meet its obligations. Nevertheless, many had expected slightly more political wisdom from Brussels, particularly regarding the fact that Bosnia and Herzegovina still tries to come to terms with its complex post-conflict setup and requires the broadest consensus for every policy to be made. If we add to this the fact that political elites instituted by such a system pursue diametrically different paths with regard to the future of Bosnia and Herzegovina, the outcome could hardly have been different.


Part of the failures to meet even the minimum demands set forth by the European Commission can only be blamed on the local authorities. Petty political bickering has taken place instead of the serious political debate aimed at removing obstacles to full liberalisation of visa regime for Bosnia. An inexplainable delay in the introduction of biometric passports, poorly handled negotiations with the EC,  and apparent absence of lobbying in Brussels can only be attributed to the incompetent local politicians. The only trouble is that the price for such mishandling will once again be borne by the citizens of the country.


European Commission has stated that Bosnia and Herzegovina can still get on the White Schengen list by mid-2010 if all the demands are met, and the High Representative Valentin Inzko remains confident that this will be achieved.




Unemployment in Bosnia and Herzegovina in the period Jan – Apr 2009



Source: Agency for Statistics of Bosnia and Herzegovina




Stand-by agreement with IMF and budget revision prompt discontent

As a part of the arrangement for closing the stand-by arrangement with IMF, BiH will have to revise its budgets and introduce saving measures in the total amount of 616 M KM (315 M €)[1].  So far the government of the FBiH, under new Prime Minister in the hot seat has announced cuts which prompted unrest among the socially vulnerable parts of the population. Following extensive meetings with IMF, the Government of the FBiH committed itself in writing to cutting back on social spending. The items which have to be scaled down involve among others total amount foreseen for the war veterans, civilian and military invalids, and also the salaries of a sizable administration.


The organisations and associations of the groups in question reacted promptly threatening to launch demonstrations and strikes if their groups are targeted by intervention laws currently being prepared by the Government. The argument proposed by the Union of the Civil Service workers, the IMF has confirmed to them that they are only interested in a decrease in budget spending and that they are not concerned who this is done by at a micro level. Therefore, the Union argues, we propose the cuts in various forms of fees and not salaries. Similarly, other groups targeted by the budget cuts argue that the government should save the money elsewhere and not further endanger already vulnerable categories. What these disputes might lead to is a situation where, even though the IMF indeed has not substantially objected to “what” as long as “how much” remains the same, the revisions of the deal will have to be approved by the Fiscal Council and that might prompt another round of negotiations with the IMF or even a result in a complete failure of the deal.


In Republika Srpska, which at the initial stages of negotiations claimed that they depend on IMF assistance, the budget revision was completed on time and lots of criticism was addressed to the FBiH authorities for failing to complete their tasks thereby jeopardizing the whole package. The debate in the National Assembly of RS was very heated. The opposition proposed around more than hundred amendments all of which were rejected while the only two amendments which received support came from Dodik’s SNSD party. As a sign of protest, all opposition parties left the session of the National Assembly and held a press conference accusing the SNSD of autocratic behaviour. Among the more prominent amendments, most of which are concerned with the details of budget revision and necessary saving measures, an additional amount of 5M KM will be allocated for media in RS. Faced with a deteriorating economic and social situation in RS, Dodik has decided to at least enlist the support of the media to help him steer through treacherous days lying ahead.


Energy recourses could bring billions into strain budgets


Bosnian political landscape’s marking feature is a strong attachment of both Croat and Serb political elites to the neighbouring countries. The most prominent example which resurfaces every now and then and occupies the public for some time is the question of energy reparations which BiH neighbours should pay for using BiH’s energy resources. These questions were apparently never initiated thanks to the fact that some politicians serve the interests of the neighbouring countries rather than own. So, instead of filling the budgets with this, the authorities are filling the budgetary gaps by seeking the loans from commercial banks at high interest rates.

Both Croatia and Serbia are using vast energy resources which belong to Bosnia and Herzegovina and so far they have not paid a dime for it. Assuming that some stakeholders on the BiH side have benefited from such an arrangement, the question remains how these  revenues are accounted for in Croatia and Serbia. Transparency International in BiH believes this money is being used to cover for their losses. During the recent negotiations with the IMF, they insisted on receiving the transparent information on all claims Bosnia and Herzegovina has towards other countries and vice versa. Minister Zirojevic explained that Bosnia and Herzegovina does not have the information how much money is owed by the neighbours for use of energy resources.

The most recent initiative came from Croat MP in the FBiH Parliament from Livno who requested that the Council of Ministers of Bosnia and Herzegovina and the Presidency initiate the talks with the neighbours on this issue.


[1] FBiH and cantons 414 M KM, RS 146 M KM, Council of Ministers of BiH 40 M KM and Brcko District 10 M KM