In Bosnia, economy still struggling with fallout of civil war

02/18/2014 1:44 PM

02/18/2014 3:28 PM

Nineteen years after the end of Bosnia-Herzegovina’s 1992-95 civil war, the country is beset by dire economic hardship that broke out into violent unrest earlier this month and rumbles on in low-key protests and public assemblies.

From a small-scale industrial march in the northeastern city of Tuzla on Feb. 4, the violence spread to 30 towns and cities. In the capital Sarajevo, the presidential palace was set on fire.

This unrest has now given way to public meetings, called plenums, to draw up demands. But the reason for the discord – poverty – is unlikely to be resolved by meetings or proposed revisions to the constitution.

More than 100,000 people died in the three-year war that pitted ethnic Serbs against ethnic Croats and Muslim Bosnians after Bosnia-Herzegovina declared independence from the fracturing Yugoslavia in 1992. Economic distress is typical for the survivors.

In the Muslim-Croat Federation, one of the two autonomous areas that were created in 1995 by the agreement that ended the war, unemployment is around 40 percent and the per capita gross domestic product, a measurement of the economy, is less than a third of the European average and only a tenth of what it is in the United States.

The Serbian Republic, the Serb entity that is the country's other autonomous zone, suffers the same miserable conditions, though the protests didn’t take off as they did in the Muslim-Croat sector.

The focus of protesters’ anger is a political elite whose pilfering and cronyism allows it to live in relative comfort. But while revulsion against the political elite is generally accepted as driving protests, others say a deeper cause is the way Bosnia is governed and the European Union's unwillingness to exercise power it was granted under the 1995 Dayton peace accord that ended the war in 1995.

A recent report by the Democratization Policy Council, a Washington, D.C., research organization, blamed "Western policymakers – particularly in the European Union" for rewarding what it called Bosnian politicians' "malfeasance." It said that outside powers had abdicated their responsibilities in 2005 under the Dayton agreement to make sure Bosnia's politicians were acting in the public interest.

Others say the complicated government structure that was designed to prevent Muslims from dominating the smaller Serb and Croat populations, which, respectively, tend to be Orthodox and Roman Catholic Christians also makes it impossible to pass laws or to implement them. It has also proved immune to significant change.

But many say it’s too easy to blame the governing structure of the country. They say it makes better sense to blame the people who run the government.

“It is not all the fault of Dayton,” said Alexandra Stiglmayer of the European Stability Initiative, a think tank focused on southeast Europe. “The political elite could have done more to improve the economy.”

The initial mistake was not recognizing the scale of the problem. On the surface, Bosnia was a thriving economic hub in the communist Yugoslavia of the 1970s. In reality its distance from hostile borders and its mountainous terrain brought in huge subsidies for its weapons, coal and chemical industries.

So in 1995 the destruction of war was only part of the problem. In the aftermath of the dissolution of Yugoslavia, there was no one left to trade with or to bail out companies that lost money, many of which had been earmarked for bankruptcy as early as 1987. Nevertheless, Bosnia’s rulers decided simply to restart them and somehow everything would work out in the end.

“The politicians kept businesses going rather than bankrupting them,” Stiglmayer said. “They themselves personally believed they could be made to work.” There were “irregularities” in privatizations, she said, where politically connected people profited from buying and selling assets on false pretences.

Siphoning off funds through corruption, however, wasn’t the biggest issue. What loomed larger was the crippling cost of supporting legions of long-defunct businesses with large workforces that could not be paid and mounting debts to the government and electricity companies for unpaid utility bills. Many employees found that their employers were not paying promised health insurance and pension contributions.

Bosnia’s viable businesses, meanwhile, had no financial support, development bank funding, technical support or technology transfer, said Milford Bateman, a Croatia-based business consultant. Instead, international development specialists favored microcredit – tiny loans to untried businesses – that sparked a spectacular meltdown when those businesses failed.

Bosnia’s desire to join the European Union, which requires countries wishing to join to submit a survey assessing their economy by sector, may be an opportunity. Up to now nobody has thought to do a systematic economic development assessment.

“In Bosnia they didn’t break with the past,” said Stiglmayer. “They long for the past.”

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