SMUGGLING AND CORRUPTION DELAY DEVELOPMENT
BiH, Republika Srpska:Bosnia & Herzegovina, Republika Srpska:
By Branko Peric (Banjaluka)
Republika Srpska came out of the war in Bosnia and Herzegovina as a separate entity with a ruined economy and devastating social conditions, and politically and economically completely isolated from the rest of the world. Most companies stopped production or reduced it to a minimum.
Notable donations started coming in only after 1998, simultaneous with numerous political and economic changes. Republika Srpska has yet to receive another 1.1 billion convertible marks to complete its share of pledged donor assistance, which so far has been mostly channeled to infrastructure reconstruction projects and assistance to the needy.
It turned out, however, that the donors' model of development no longer provides for any progress and is, in fact, preserving existing conditions. The lack of efficient central institutions to manage transition and development, a segmented economy, lack of economic freedom, inefficient investment and donation, low level of domestic savings and direct foreign investment, slow and controversial privatization are some of the possible reasons for that.
On the brink of bankruptcy
Republika Srpska's 1,400,000 inhabitants are living in rather poor conditions. An average net salary of some 240,000 people, registered as permanently employed, is about KM290. Given that the consumer basket is estimated at KM400 (in RS there are no regular reports on the value of the consumer basket), the average person's financial situation it is not hard to imagine. Some 172,000 pensioners receive an average of KM90 per month, whereas according to official statistics, 145,000 people are unemployed. After privatization, their number is expected to go up.
In curing this social problem, as in the privatization process, the the large industrial complexes that dominated the Bosnian economy before the war are the greatest burden. Most of them are no longer operational, be it because of damage they suffered during the war, or because of a lack of skilled workers, obsolete technology or lost markets.
Although it has natural resources, especially those important to the energy and food industries, RS is still far from the hard currency revenue from exports that it could have. Its foreign trade deficit in the two last years was over one billion marks, surpassing several times the amount of assistance and foreign loans, and is one and a half times greater than the RS budget. Total imports, or those that are officially registered, equal 80-85 percent of the GDP.
Bosnia and Herzegovina, and Republika Srpska as its part, are in a serious financial crisis and quite close to bankruptcy due to their budget deficits, said Joseph Ingram shortly before the last elections in Bosnia and Herzegovina. Ingram is director of the World Bank Mission in Bosnia. The RS budget deficit amounts to KM200 million, and a sustainable narrowing of the trade gap will not be possible in the long run without mass production for export, a speedier internationalization and globalization of Bosnia-Herzegovina and the strengthening of the entrepreneurial sector. Strategic assistance in this can be offered only by global foreign investors, but RS, much like Bosnia-Herzegovina as a whole, is no their favorite choice due to numerous barriers at the state and regional levels. Most such barriers preventing the establishment of a normal market-oriented atmosphere in developing regular business conditions and repelling foreign investors are due to politics.
The situation with prices in RS is also not enviable. Since 1998, prices went up 100 percent in real terms, although hard currency was in circulation and the 2000 inflation was only 4 percent.
Corruption and violations of economic laws are also rather frequent and pose one of the major problems. No adequate legal framework for their curbing has been created, and they are often hard to prove.
Back to pre-war levels in 10 years
The current model of pumping in fresh foreign donations, coupled with slow transition and delayed reconstruction of the entrepreneurial sector, cannot provide for necessary economic growth. The deficit is covered by new loans, the accumulation of debts, spending of foreigners, and funds coming from donations, people working abroad, and returnees. Republika Srpska, however, will have to offer a much more liberal environment than the current one to private capital and existing and new investors. This requires the removal of numerous political, systemic, administrative and psychological barriers which are an obstacle to establishing a normal business environment, even when only Bosnia and Herzegovina is in question.
Privatization of state capital in RS companies is also entering the final stage. By Jan. 20, 2001, 25,431,421 vouchers were deposited in privatization investment funds, and 1,820,259 vouchers were invested in 733 companies. The deadline for investing vouchers in privatization funds expired on Jan. 20, and Jan. 31 was the deadline for placing vouchers in companies. The Privatization Directorate has closed a tender for privatizing six strategic companies from the lumber industry, and a tender for seven companies is still open. The list of strategic companies in RS has 52 names.
By mid December, 67 companies with state capital of up to KM300,000, and 15 companies with larger capital, had been privatized. RS also has 20 banks, of which 11 are state-owned. The RS government has approved a program for the privatization of banks which are solvent and whose capital is KM5 million.
A reform of the tax system, which is in progress, should harmonize taxation in both entities to ensure a unified Bosnian market.
It is highly unlikely that RS economic growth in 2001 will proceed as in the previous year. It is estimated that at least 10 years will be needed to reach the pre-war level of development. Exports will require even more time.