Europe Report N°209
28 Sep 2010
EXECUTIVE SUMMARY AND RECOMMENDATIONS
The Federation of Bosnia and Herzegovina (FBiH), the larger of Bosnia and Herzegovina’s two entities, is in crisis. Disputes among and between Bosniak and Croat leaders and a dysfunctional administrative system have paralysed decision-making, put the entity on the verge of bankruptcy and triggered social unrest. Much focus has been on the conflict that pits the Serb-dominated Republika Srpska (RS) against the Federation, but the parallel crisis within the Federation also deserves attention. The need for overhaul of the FBiH has been ignored because of belief that state-wide constitutional reform would solve most of its problems, but any state-level reform seems far off. Bosnia’s challenges all have echoes at Federation level, though in simpler form. Reform in the Federation, starting with establishment of a parliamentary commission, is achievable and could give impetus to state-level reform, while improving the livelihoods of the people in Bosnia’s larger entity. If it does not happen, Bosnia, which was wracked by three and a half years of war in the 1990s, may well slide toward new political and economic ungovernability.
General elections on 3 October 2010 will likely produce more unwieldy, divided coalitions at state and Federation levels that will have to confront urgent economic and social woes. In stark contrast to RS, however, the Federation, primarily a Croat-Bosniak condominium, is highly decentralised. It is loved neither by the Bosniaks, who would like to abolish it together with RS in favour of a unitary Bosnian state, nor by the Croats, who want an entity of their own. A workable balance between majority rule and minority rights eludes the Federation. Its elaborate, internationally-designed mechanisms and quotas are easily circumvented and subverted.
The Federation is endowed with only a few areas of exclusive jurisdiction and shares most of its competencies in a haphazard way with lower levels of administration. The result is a dense bureaucracy, whose various parts function in competition or open conflict with one another, and a suffocating thicket of confusing and often contradictory legislation and regulation. Federation administrative bloat and disorder make Bosnia’s larger entity one of Europe’s worst places to do business and choke its people’s economic potential.
Long dominated by two large parties, the Bosniak Party for Democratic Action (Stranka demokratske akcije, SDA) and the Croatian Democratic Union (Hrvatska demokratska zajednica, HDZ), the Federation political scene has fragmented. The SDA-HDZ duopoly broke down in acrimony a number of years ago, as both lost dominance of their respective ethnic constituencies to hard-line or civic-oriented competitors. A bizarre five-party coalition of rivals, with no common platform or interests apart from retention of power and sharing economic spoils, governs the Federation but since 2009 has been unable to take basic decisions, such as the appointment of judges to the Constitutional Court. As the coalition spans the political and ethnic spectrum, however, it is hard to unseat.
Nevertheless, the Federation cannot ignore the economic crisis for long. It has resources and revenues, but they are ineffectively exploited and distributed. Big industries are beholden to party leaders. Friends in high places are indispensable to cut through complex regulations even for simple transactions. Private companies – often belonging to politicians’ families or friends – exploit the poorly-regulated natural resources for their own gain, with little benefit to local communities. Voters expect their share of benefits, too; Bosniak parties especially have bought support with costly state payouts to favoured groups – notably veterans, pensioners and persons with disabilities – who often abuse the system. International Monetary Fund (IMF) mandated cuts sparked violent demonstrations in 2009-2010. The new government will face a difficult choice; to cave in to protests and lose international financial support, which would lead to Bosnia’s financial collapse, or make long-needed budget cuts and reforms and face public wrath.
Revitalising the Federation is essential for Bosnia’s survival. A well-functioning entity would be more attractive to Bosnian Croats and Serbs and would be more convincing in negotiations with RS at the state level. There are signs of a more realistic attitude among some Croat and Bosniak leaders, a willingness to consider reforms short of their respective ideals. The Federation has much unrealised economic potential waiting to be unlocked by privatisation and regulatory reform. Its successful overhaul could turn the tide and create positive momentum for state-level compromises. On the other hand, continued worsening of relations among Bosniak, Croat and Serb leaders, compounded by a fiscal meltdown after the 2010 elections, could transform public dissatisfaction into ethnic tensions and violence.
Recommendations
To the Parliamentary Assembly of the Federation:
1. Establish a commission to recommend constitutional, legal and structural reforms, through consultations with parties, civil society and international and Bosnian experts, including improvements to:
a) the division of legislative, executive and judicial authority among all three of the Federation’s levels;
b) shared competencies between the cantons and the Federation; and
c) the Vital National Interest (VNI) protection mechanism.
2. Strengthen the Constitutional Court of the Federation by reforming its mandate to match that of the RS Constitutional Court.
3. Adjust the territorial division of the Federation cantons to better reflect the preferences of local populations.
4. Pass the law on natural resource concessions.
To the Government of the Federation:
5. Initiate privatisation of the largest state-owned concerns in consultation with Bosnian and international experts.
6. Equip ministries with officials tasked to harmonise legislation and regulations with the European Union (EU) acquis communautaire.
7. Unblock international investment in the energy sector through transparent tender procedures.
8. Reform the social assistance sector urgently to improve delivery of services to the poorest citizens, while reducing overall spending, including by:
a) speeding up revision of lists of eligible veterans and persons with disabilities to remove fraudulent beneficiaries;
b) shifting spending from passive benefits into measures that increase employment and integrate beneficiaries into the economy; and
c) preparing for a shift from a rights-based to a needs-
based social assistance system.
To the President of the Federation:
9. Nominate new judges to fill the vacant spots on the Constitutional Court of the Federation.
To the EU and its member states, the U.S. and other members of the International Community:
10. Encourage Federation-level reform, for example by providing expertise related to the EU acquis communautaire and lessons learned about power sharing and federalism in the EU to the parliamentary reform commission recommended above.
To the International Financial Institutions:
11. Take a stricter line on the Federation’s macroeconomic stability, while working with local authorities to implement needed reforms, including by designing strategies for sustainable development and ensuring competitive tenders for state contracts.
Sarajevo/Istanbul/Brussels, 28 September 2010
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