RECONSTRUCTION OF BOSNIA & HERZEGOVINA

Donors in the Jaws of Entities

AIM Sarajevo, October 2, 1996

Resources for reconstruction of B&H, despite promises, are arriving much slower than expected. It is encouraging that things have finely started to move from a standstill and after several months of haggling and mutual accusations between donors and state agencies of B&H, the process of reconstruction has finally started to accelerate.

As a result of two donors' conferences held in Brussels last December and April, the international community promised 2.06 billion dollars for reconstruction of B&H during 1996, which is even a little over the global plan according to which B&H was expected to get 1.8 billion dollars.

Now it is quite certain that by the end of this year, not even half of the promised sum would be effectuated. Foreign donors seem to find it very difficult to separate from their money, regardless of the promises made at donors' conferences.

According to the latest data from the Sector for Reconstruction of the Ministry of Foreign Affairs of B&H, projects worth 878.6 million dollars are implemented at the moment. The situation is changing for the better every day, which especially refers to the European Union which should sign new contracts on effectuation of reconstruction projects in the next few days.

According to the words of the head of the World Bank mission in B&H, Rory O'Sullivan, by the end of the year, between 600 and 800 million dollars could be spent, and the reason for the delay of the planned rate of reconstruction is primarily in the lack of the appropriate organizational structure whose construction lasted the entire first half of the year, as well as slow incoming of the promised resources. Along with it, the quality of offered reconstruction programs is greatly "variegated". Among the programs competing for funds are those which are elaborated according to top world standards, but there are also those whose economic justification is highly disputable.

The greatest share of resources for reconstruction of B&H was to be provided by the USA, the EU and Islamic countries. The USA with the promised 281.7 million dollars out of which 107 have already been implemented, have actually taken upon themselves less obligations than it had been expected from the world leader.

One third of the whole sum needed for this year was promised by countries of Western Europe, either individually, or by the EU. The promise made by the EU on provision of 358.2 million dollars for reconstruction makes it the second on the list of donors according to the amount of promised resources, but implementation of only 82.9 million dollars so far is not something that the Europeans could brag about. The general impression when speaking of the EU is certainly improved by the amount of 95.5 million dollars allocated for financing humanitarian aid, support to implementation of the civilian part of the Dayton accords and assistance in transition to market economy, which are not directly included into the reconstruction process, but have their price.

The first on the list of donors is the World Bank which has already ensured 323.49 million out of the promised 423.5 million dollars. Besides its own resources, in financing reconstruction projects, the World Bank engages resources of other donors in whose name it negotiates and concludes contracts with the state agencies of B&H.

All contracts with donors are signed by the Government of B&H, and then the Government of the Federation signs contracts with the Government of B&H on using resources earmarked for the Federation. The same procedure is prescribed for the part of resources earmarked for Republika Srpska, but so far they have not shown readiness to use their part of the resources primarily for political reasons. Establishment of joint institutions prescribed by the Dayton accords will probably resolve this problem. Out of 5.1 billion dollars planned for reconstruction of B&H in the three year period, 1.2 billion American dollars are assigned to Republika Srpska. If for any reason, Republika Srpska fails to follow the prescribed procedure for approval and granting this money, the donors will simply keep this portion of the money, and the Federation of B&H cannot expect to get more than planned for it by the donors.

Out of the amount promised for reconstruction of B&H for this year, 316 million dollars are still utterly uncertain. Apart from the verbally made promises at donors' conferences, there is no official confirmation that this sum of money will actually be allocated.

Announcement of a more abundant inflow of resources for reconstruction during the last quarter this year practically confirms what could be heard in the past few months among the donors only unofficially - that the condition for allocation of resources was organization of the elections. Their outcome was not as important as organizing them.

Apart from the elections, several other conditions were set to leaders of the Federation which they were expected to meet if they expected any significant inflow of funds for reconstruction. These conditions were publicly repeated a few times by high officials of international financial institutions, and they are: foundation of a federal banking agency, establishment of a uniform system of payments on the entire territory of the Federation, uniform customs system on the territory of the Federation, and adoption of the law on privatization. Therefore, haggling between the federal partners was paid for dearly by the delay of the beginning of reconstruction in B&H.

A good illustration is the example of a recent credit of 90 million dollars granted by the World Bank as assistance in transition to market economy whose largest part was earmarked for social welfare and pension funds. Although the contract on using this credit was signed, the money has never reached the bank account of the Government of B&H until representatives of international financial institutions were reassured that the uniform payment system had become operational.

The key condition for faster inflow of fresh money for reconstruction of B&H - privatization, reached the stage of a draft law. By adoption of the law on a federal agency which will be in charge of privatization, the beginning of this process has become somewhat more certain while the beginning of privatization is expected to commence from the first day of next year because by then the law on privatization is expected to be adopted.

Among donors of resources for reconstruction of B&H are both the largest and the richest countries of the world and the smallest and poorest ones. For instance, participation in reconstruction of B&H was announced both by Saudi Arabia with 50 million dollars out of which implementation of 20 million has already begun, and San Marino whose contribution of 140 thousand dollars will come in construction material.

At the moment, the largest sum of money is engaged in reconstruction of housing facilities - 161 million dollars, in power generation - 141 million, and industries - 120 million dollars.

Nevertheless, despite data on hundreds million dollars already invested in reconstruction of B&H, there is hardly any visible progress especially in two key fields - provision of housing and start up of production which would open possibilities of employment and finally transform the army of the unemployed into an army of people who would live off their work. There are certain results, but it is still just a drop in the ocean in comparison with the needs. Donors are still giving money for reconstruction "by teaspoon" and it is clear that the money is used as a highly efficient means of exerting pressure whenever needed. Money and politics have always been and still are inseparable, so reconstruction of B&H is equally an economic and a political issue. The latest warning from the IMF addressed at the agencies of the Federation and RS speaks in favour of this statement: if an agreement with the IMF on implementation of measures for stabilization of economic circumstances is not signed soon, donors could withhold the resources they had promised for reconstruction.

DRAZEN SIMIC