The Role of Pensioners in Bosnia's Bankruptcy

AIM Sarajevo, September 19, 2000, by Drazen Simic)

When all is said and done, pensioners will be the only people to blame for Bosnia-Herzegovina's bankruptcy. Demands by the World Bank and the International Monetary Fund asking the governments of the two entities immeditely to adopt changes to their pension insurance laws have not been fulfilled yet, although September 15 was the final deadline, and a delay could cause sanctions - the loss of almost US$150 million in international aid..

The essence of the required changes is that pension benefits be paid regularly, on condition that the monthly sum to be paid in pensions does not exceed the amount collected for that purpose during a given month. As pensions are, at present, ordinarily up to several months overdue, depending on the pension fund, this demand by the two international institutions should have been a reason for delight among this segment of the population. Instead, pensioners are fierecely struggling against the proposed changes. The reason for their discontent is not the part of the requirement urging the regular payment of pensions, but the other, which says that only the sum that was actually collected by local pension insurance funds during a certain month can be used to pay that same month's pensions. Although international community representatives have not made any statements saying that this would practically mean that pensions will be lowered, and senior government officials have even announced they could be increased, pensioners themselves know only too well who they are dealing with and fear with good reason that their meagre monthly income would end up being even lower.

Simply speaking, the coffers of local pension insurance funds are empty. The monthly amount that reaches the accounts of these funds - pension deductions from the salaries of the 412,000 officially employed people in the Federation of Bosnia-Herzegovina, the average salary being 408 convertible marks – does not suffice to pay pension benefits. The checks that the 272,000 pensioners in the Federation receive average 176 convertible marks, and not even the best statistics experts can turn that into enough for them to live on. The average four-member family needs 426 convertible marks for food and drink alone. Pensioners usually live alone, or with their spouses, and, if the statisticians are right, require less for the consumer basket, but like any other family still have to pay utility bills.

In this respect the example of the Sarajevo-based Pension Insurance Fund of Bosnia-Herzegovina is quite illustrative. This institution needs 45 million convertible marks per month to pay pensions. But in any particular month, however, it can collect 40 million marks at most. This led to the introduction of the practice of spending the money in advance. That means that for the March pensions that were recently paid, all the money that had reached the fund during March was used, but since it did not suffice, the fund had to wait for deductions for April to start coming in. Thus, unfortunate retirees unwittingly spent as their March pensions a portion of their April pensions as well. It is only logical that such a system can but only lead to an accumulation of pension arrears.

There is another pension insurance fund in the Federation based in Mostar. Those affiliated with it are in a somewhat better position because their pensions are paid more regularly but are, consequently, lower. In the other Bosnian entity, Republika Srpska, the situation is similar -pensions are less late than in Sarajevo, but are a half of what Sarajevan pensioners receive.

The international financial institutions' demands came at the worst moment for the current authorities and are fiercely opposed by the legislatures of both Bosnian entities. Behind the arguments ostensibly protecting pensioners' social status, however, lie much more practical reasons. General elections in Bosnia are due in less than two months, and no one, least of all the current authorities, is willing to provoke the anger of hundreds of thousands of pensioners, who as a rule, are most devout voters.

That the issue here is nothing but a pure pre-electoral covering of the eyes of senior citizens is confirmed by announcements of the Federation's government officials that the adoption of the required changes would result in pensions increasing up to 30 percent! Even if this were true (and no one in the government has substantiated the claim with any tangible figures), the question of why the government was unable to provide for regular pension payments in the past two years would have to be answered.

The claim that once changes to the proper laws are adopted and the spillover of money from one month to the next prevented, there would be more of it in the funds' accounts implies that the money was, in fact, there all along. What happened to it and its current location, since it obviously has not been given to pensioners, is something the government would have to explain.

If, on the other hand, there was no surplus of money in the past, the claim means that the pension insurance funds will find their accounts owerflowing with money virtually overnight. Unfortunately, no one, except the cabinet ministers, can find any acceptable reason for that to happen right now, when there have been absolutely no changes in the sector.

There is only one way to fill the depleted funds - curbing untaxed employment and increasing employment through proper channels. This is something those in power are fully aware of, but the two simple measures require a radical change of present practices. What is needed is the creation of such legal and financial conditions wherein all forms of private ownership would be maximally stimulated and existing regulations applied to all equally, regardless of political, or any other suitability.

Such a radical move would deal a death blow to the existing parallel system, wherein politics, monopolies controlled by state-run companies, mass smuggling of the most profitable goods over unchecked borders and tax evasion are intermixed. The problem is that the current government is built on this very foundation and, once this foundation is eliminated, incumbent government officials on all levels would disappear with it. This is why the fierce struggle "to defend pensioners' interests" in the two legislatures does not serve to protect the elderly, but lucrative businesses belonging to a select few, who can make profit only in a state of chaos.

Of course, the required changes to the law on pension insurance funds would have to be passed, and it is not important whether it will take place in seven days or in seven months. They would eventually be passed not because of the international community, but because there is no alternative. The World Bank's and the International Monetary Fund's threats to stop over US$100 million in support to Bosnia should not be taken for granted. It is highly unlikely that such drastic measures, including a decision not to extend a stand-by arrangement with the IMF, would take place so swiftly, and certainly not before the election. According to well-informed sources, officials of the Sarajevo-based offices of the above institutions are not as concerned as one would expect given that what is at stake. A decision on the severity of the penalty for disobendience, if made at all, will come from Washington, where the head offices of the World Bank, the IMF and other important institutions are located. In making it, political arguments, in addition to economic and financial ones, will certainly play an important role.

Trouble is, mere mortals in Bosnia do not need a worse punishment than the preservation of the current state of affairs. There are no signs of any serious economic recovery, the number of companies facing closure is increasing by the day, as is the number of workers whose jobs are insecure. There are no new jobs, and people who are employed receive their pay checks ever more irregularly. This is to say that with or without the adoption of changes to the pension insurance laws, a bleak future is in store for pensioners, because the funds intended for them, as well as other budgets, will have less money available. In the end someone will have to be held responsible, and pensioners seem to be the ideal scapegoat. "It is all because of you," the government might well say. "This happened because you wanted us to protect your interests, that is, your income." In such a case, the list of culprits could also include the World Bank, the International Monetary Fund, and the whole international community as well, because it "refused to give us money." All will be to blame except, of course, for the national oligarchies in power.

Drazen Simic

(AIM)