Bosnia - An Economy in Search of a State

Bosnia-Herzegovina (heretofore "Bosnia") is an artificial polity with four, tangentially interacting, economies. Serbs, Croats and their nominal allies, the Bosniaks each maintain their own economy. The bloated, fractured, turf conscious, inefficient, and often corrupt presence of the international community, in the form of the Office of the High Representative, among others, constitutes the fourth - and most dominant - parallel economy. The divergence of the economies of these components of Bosnia is so high that the inflation differential between them amounts to 13%. The Bosniak-Croat Federation experienced deflation in 1999 - while the Republika Srpska (RS) was in the throes of 14% inflation. The real effective exchange rate in RS appreciated by 13% and depreciated by 6% in the Federation between 1998-2000. Wages in the Federation are higher by 30% compared to the RS.

The International Crisis Group in its October 8, 2001 report about the Republika Srpska estimated that "the RS economy stands on the verge of collapse. Were it not for a continuing flow of direct international budget supports and soft loans, the RS government would be bankrupt." And the RS actually enjoyed a disproportionate part of the more than $5 billion in aid that flooded Bosnia since 1996. The world Bank has disbursed c. $690 million of the $860 million it committed to Bosnia as a whole - twice its disbursements in Slovenia and Macedonia combined.

These jeremiahs may be overkill. Bosnia, its flourishing informal economy and all-pervasive smuggling notwithstanding, has come a long way since the Dayton accords. It has a functioning central bank with growing foreign exchange reserves and a stable and widely accepted currency-board backed currency, the marka. Its payment and banking systems are surprisingly modern. Its anti money laundering and anti corruption legislation is up to scratch and even enforced (especially in the Croat part of the Bosniak-Croat Federation). It is more advanced than all other successor republics to former Yugoslavia in pension, treasury system, and labour market reforms. Its inflation rate is moderate (c. 6% annually) - though reliable consolidated national figures are hard to come by. Bosnia gained tariff-free access to the EU and signed a free trade agreement with Croatia which calls for the abolition of all tariffs by 2004. Similar agreements have either been signed or are being negotiated with Macedonia, Slovenia, and Yugoslavia. WTO accession is slated for 2002. For all these goodnews, Bosnia has been rewarded with a steady trickle of foreign investors.

Still, Bosnia is quintessentially "Balkan" - stifled by red tape, capricious laws, rampant corruption, venality, nepotism, and cronyism run amok. Its state enterprises are patronage machines and its banks coerced into political and unwise lending, propping up zombie enterprises. Credit to the private sector grows at less than nominal GDP which indicates a failure of financial intermediation by the banking system.

Trade among the ethnically cleansed parts of this country is minimal, privatization non existent, corporate governance a distant dream, as are the rule of law and property rights. Bosnia's impressive average growth figures (5-8% in 2000, depending on the source) were skewed by the spurt of reconstruction (especially of the electricity and water supply infrastructure), which followed the devastation of its protracted and savage civil war. This phase over, and the victim of a severe drought, the economy is faltering now, stagnant at less than half the prewar output levels (though more than double the 1995 level, at the end of civil war).

Bosnia faces growing unemployment (officially at close to 40%) and social disintegration provoked by excruciating poverty. Poor tax collection, a minimal tax base, and the transition to a new payment and bank supervision systems - all led to diminishing tax and customs revenues (which created an addiction to the kindness of strangers in donor conferences). Bosnians flee their impromptu country and it suffers a massive brain drain.

Industrial actions are a daily matter - the latest staged by disgruntled teachers in in the canton of Central Bosnia. The government hasn't paid their salaries since August. Bosnia's trade (and budget) figures are notoriously irrelevant (defense spending is still off budget, for instance) but it trades mainly with Germany, Switzerland, and Croatia. It has gaping fiscal (6% of GDP, including arrears) and current account (22% of GDP excluding transfers!) deficits and heavy external debt (close to 80% of GDP) - though a lot of it is long term and concessionary. Had it not been for unilateral transfers of aid (c. $1 billion a year), remittances from Bosnians abroad to their families, and the exploding drug trade (Bosnia is an important thoroughfare of illicit goods - including cigarettes and smuggled cars) - Bosnia would have been in dire straits.

It could have been different. Bosnia has rich agricultural endowments - soil and climate. Yet, its myriad tiny, family owned, farms are non-competitive and it is, thus, a net food importer. Its (mostly military, vehicular, heavy, and obsolete) industry is labour-intensive and ridden with obstructive hidden unemployment. It parasitically thrives on services (close to 60% of its economy) - mainly to expatriates and peacekeepers. And wages (especially in the Federation) are set at Hungarian levels, making both the public and private sectors woefully uncompetitive. Bosnia's economy teaches us two diametrically opposed lessons - that Man can put aside a brutal past and work on a better future and that such an effort is doomed if the result of external pressure to sustain a political fiction.

About The Author

Sam Vaknin is the author of "Malignant Self Love - Narcissism Revisited" and "After the Rain - How the West Lost the East". He is a columnist in "Central Europe Review", United Press International (UPI) and ebookweb.org and the editor of mental health and Central East Europe categories in The Open Directory, Suite101 and searcheurope.com. Until recently, he served as the Economic Advisor to the Government of Macedonia.

His web site: http://samvak.tripod.com

---

North Korea and Diplomatic Solutions; Random Thoughts Part I

You know now that North Korea is backing down on... Read More

Government Backed Fraud in Academia

Contrary to the Hobbesian prediction of anarchy (freedom) and brutish... Read More

The Absurdity of the Public School Monopoly

The notion that local governments should have almost total monopoly... Read More

Lack of Peace, Reaching Critical Mass

You have in front of you two buttons, one is... Read More

The Ugly American Returns!

Originally published in 1958, "The Ugly American" (Lederer & Burdick)... Read More

How Many Cases Will Elliot Spitzer Lose Now?

The devastating loss in case of Elliot Spitzer for NY... Read More

Does America Get It about Terrorism?

I have to be honest. It is time to come... Read More

The Black Flag Of Anarchy

Rational, sober, logical citizens wonder what exactly the terrorists want.... Read More

Paid Assassins

The civil war in Iraq seems to be much more... Read More

An Introduction to the Connecticut State Budget for 2004-2005

The Connecticut Conference of Municipalities (CCM) is interested in the... Read More

Political Lobbying & Biblical Aspects of the Mid-East Crisis

1) IS HAVING A DEMOCRACY MORE EFFECTIVE IN ADDRESSING POLITICAL... Read More

Preparing to Invade Japan

This is the fourth and final article in a series... Read More

Simple Middle East Peace Plan

I. WARS ARE BASIC CONFLICTS OVER LAND. II. BOUNDARIES. THE... Read More

Where have all the Heroes gone

America is filled with standouts and perserverance; our nation has... Read More

Environmental Economics, Stream of Thought

Entrepreneurs can clean up the environment if we would let... Read More

Fear, Controversy and Chaos in the Media

Most modern day media stories containing fear, controversy and chaos... Read More

History of the Media, Radio, and Television

When were the forms of media created? When did advertising... Read More

Environmentalism and Roads in Our Forests

Many environmentalists are against roads through the forest because it... Read More

Tax Attorney in Oregon or Washington; Does Your Small Business Have One?

Tax Evasion has been used to criminalize many, Nixon did... Read More

Why the United States just doesnt get the United Nations

For years I have been amazed as I've listened to... Read More

An Overlooked Plan for Bush, Kerry, Democrats, Republicans, and Healthcare Costs

In an effort to assist our political leadership it would... Read More

Using More Trees to Reduce Atmospheric CO2

As global warming continues to escalate the concerns of today's... Read More

News Media Misguided or Just Plain Liars?

Last week, the media coverage called the airplane crash in... Read More

Chinese Military Build Up - Sun Tzu and Chinese War Machine

We are currently seeing a build up in China of... Read More

Ohio Department of Transportation; Sector Economic Reality

Ohio's transportation sector seems to be strong, even with Ohio's... Read More

RFID: Californias Identity Information Protection Act

Utah introduced a bill designed to limit the use of... Read More

A Journey Through History

History repeats itself, goes the cliche. It does so, perhaps,... Read More

Secret Clandestine Facial Recognition Countermeasures and The Future of the CIA

Presently Universities and Private Enterprise are working to build more... Read More

Gas Prices and the Impact of Inflation

Year Item Price Rate of Inflation 03/80 Gasoline (per gallon)... Read More

Michael Moore: The Dumbest People on the Face of the Earth

"Fahrenheit 9/11" auteur Michael Moore recently fueled the epidemic of... Read More

Toll Ways Hurt The Flow of Transportation

The United States has never done a full study on... Read More

Will Gay Marriage Slow Down AIDS Crisis

It is widely known in the Homosexual Male Populations that... Read More

Russian State Administration Gives New Facelift to Oil and Energy Resources

With the world's largest oil and natural gas reserves, second... Read More