B&H AND DONORS' CONFERENCE

Mini Money for Mini Politicians

AIM Sarajevo, 2 June, 1997

Will B&H, instead of the promised donors' conference and the planned 1.4 billion dollars for reconstruction in this year, get a "mini" conference", and therefrom "mini" resources depends on whether representatives of both entities in joint institutions of B&H will finally reach a political agreement on controversial economic laws by the end of June. Patience of the international community is wearing out, but adoption of the whole package of laws necessary for a quick beginning of cooperation and signing of the agreement with the IMF before the end of June, in view of the current situation, would be equal to a miracle.

Although the attention of the media is mostly focused on the central bank and the new currency, their adoption without reaching the agreement with the IMF will not be sufficient to convince the donors to dig into their purse.

"The idea about organizing a 'mini donors' conference' in exchange for the announced donors' conference exists, but I think that it would not be a good solution for B&H. First of all, much less money would be collected at such a conference than the planned 1.4 billion dollars, and these resources would be used mostly for financing return of refugees and projects directly in connection with it. At the same time, this means that all the planned projects for this year would be left without resources which would have serious consequences. It would then be impossible to organize a new donors' conference before 1998, which would certainly slow down the process of reconstruction of B&H", claims Rory O'Sullivan, director of the Standing Mission of the World Bank in B&H.

The recent visit of a high delegation of the World Bank in B&H and their talks with the co-chairmen of the Council of Ministers of B&H, Haris Silajdzic and Boro Bosic, were just another warning that the international community has no intention of giving up its conditions for the donors' conference. Although all participants in the talks, after their completion, expressed optimism concerning deadlines for adoption of laws from the package necessary for quick beginning of cooperation, results are more than humble so far. The latest warning from the high representative's office "that it would be good if the laws were adopted before the meeting of the managing board of the International Conference on Former Yugoslavia" just held in Portugal, was obviously not taken seriously by anybody. Since no progress had been made before the meeting in Sintra, donors may rightfully decide to organize a mini donors' conference and to leave the "real", big conference for next year. On the other hand, according to unofficial information from well informed sources, the expected compromise concerning the law on central bank, if not accompanied by signing of an agreement with the IMF, would also result only in a "mini conference".

Although experts of B&H authorities and the IMF have practically completed the technical part of the job, whether the prepared material will officially be verified depends on the will of the local political leaders.

The agreement with the IMF does not only open the possibility for organizing the donors' conference, but also for negotiations with the Paris and the London Club of Creditors about the prewar foreign debt of B&H, the manner in which it could be paid back and the possibility of a new loan. According to the assessments of experts, the largest portion of the foreign debt which amounts to about three billion dollars would be written off. It is strongly believed that at least 75 per cent of this debt would be written off, and this percentage could be even higher.

Nevertheless, this is just the brighter side of the agreement with the IMF. Globally, the IMF is considered to be the "world financial policeman" whose recipes for recovery of economies of developing countries are mostly very painful for majority of their citizens. In the situation B&H is in this implies profound reforms of the existuing taxing and customs system accompanied by rigorous reduction of government expenditures. There is also the unavoidable privatization, so the unwillingness of the authorities in B&H to carry out the offered solutions is understandable.

In conditions when the economy is operating with only ten odd per cent of its capacities, and the number of the unemployed, pensioners, disabled and other socially vulnerable groups is several times larger than the number of the employed, cutting down of government expenditures and short-term reduction of government revenues due to the demanded reduction of tax rates, could easily trigger off the growing social tensions and cause an uncontrollable explosion. Probably an even more important reason for hesitation of the current authorities lies in the fact that the beginning of the long announced transition to market economy would also mark the beginning of the process in which the state would irretrievably lose control over the economy. And who would be the biggest loser in this process is quite clear to everyone.

And while the political trench warfare about the package of economic laws continues, the voters who have elected the current autghorities are paying the bill, along with the other citizens of B&H. The expected swing of reconstruction and mass employment failed to take place because the donors are waiting for the adoption of the key laws.

If the end of June, as the deadline for their adoption is not met, and in view of the forthcoming season of vacations in the West and shortness of the construction season in B&H, both entities together can kiss 1.4 billion dollars goodbye, at lest until next year.

The fact that the donors are in no hurry to give away their money is logical, but that the authorities in the entities and their representatives seem to care even less - it is difficult to understand. If the promised donors' conference is going to actually be replaced by the "mini" variant, the local authorities should account for it to their voters and citizens and bare consequences for the failure to do what was expected of them. In any case, it would be very difficult to explain why it was impossible to carry out what was already agreed and signed in Dayton.

The existence of all citizens in B&H after all depends on the inflow of fresh money for setting the economy in motion and opening of possibilities of new jobs, and it depends on the authorities of both entities in B&H whether there will be money. Of course, 1.4 billion dollars is a big sum of money worth the trouble, especially if there is no alternative, because barely surviving on the verge of poverty (which is the only prospect without assistance from abroad) cannot seem to be a good solution for anyone in their right mind. In the meantime, the social bomb has started ticking and its explosion could easily turn this space into a twilight zone again and definitely bury all chances for catching up with the developed world.

Drazen SIMIC