Bosnia and Herzegovina
The Development Challenge
Bosnia-Herzegovina (BiH) continues to struggle with the structural challenges of the Dayton Peace Accords. Composed of two entities, the Federation and the Republika Srpska, and with a weak state government, the arrangement places few demands on the three ethnic groups to work together. Add to that the fact that the three Serb, Croat and Bosniak (Muslim) hard-line parties have all returned to power, and the result is a country with very little centralized power, whose ethnic rivalries turn even the smallest decisions into political stalemates. As a result, BiH functions in large part as an international protectorate, with the Office of the High Representative (OHR) stepping in to impose decisions that the governments refuse to implement. The entity structure also imposes far too great a financial burden on BiH, which has a population of four million and GDP of $5.2 billion. In the Federation, the situation is even more critical, as that entity is broken down into 10 cantons, all of which have their own mini-state structures that duplicate entity and state institutions. Given BiH citizens' almost universal approval of their former ruler, Tito Broz, the advent of democracy has always been viewed with some ambiguity. Multi-layered bureaucratic structures make it difficult for reformers to initiate significant change, thus provoking a sense of resignation in the population when it comes to electing officials. This sense of resignation was reinforced by the failure of the moderate Social Democratic Party (SDP) to make a noticeable difference in government. As a result, the hard-line parties were voted back into power in 2002, with one of the lowest voter turnouts in BiH history.
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In contrast to its political problems, BiH has achieved significant success in the banking sector, enjoying a stable currency (linked to the Euro) and an absence of inflation. The Central Bank is probably the most trusted institution in the nation, while the private banking sector has consolidated and grown stronger, thanks in large part to USAID's support for deposit insurance. Bank deposits increased by 30% in the first year of the program and 17% over the past year. OHR has used input from local businesspeople to push through reforms that make it easier to own and operate a business in the country. Nevertheless, BiH is still only at the beginning stages of transition to a market economy. Per capita income stands at about one-half the pre-war level, making BiH one of the poorest countries in the region. The public sector dominates the economy, accounting for about two-thirds of the country's $5 billion GDP. Political uncertainty, slow progress on privatization and the prevalence of organized crime and corruption deter both domestic and foreign investment. On a brighter note, a USAID-conceived initiative to recompete all judicial positions throughout the country has resulted in a restructuring of the court system, and thus improved the quality of justice for all citizens.
The overriding U.S. interest in Bosnia remains the conversion of this multi-ethnic country from a source of regional instability to a peaceful, viable state on the road to European integration, along with its neighbors. U.S. assistance in creating new laws and robust institutions will help prevent terrorists from using Bosnia and Herzegovina to threaten American citizens and interests, a high priority goal.
The USAID Program: USAID is addressing BiH's development challenges through a program targeted at economic transformation, democratic reform, and the reestablishment of multi-ethnic society. USAID's economic programs focus on supporting small- and medium-sized businesses, enhancing government services and accountability through improved treasury and tax collection systems, and strengthening the banking sector and commercial law regimes. The mission's democracy programs are promoting greater transparency and professionalism in the legal sector, helping moderate political parties to modernize and become more issues-based, increasing citizen participation through support to NGOs and independent media, and improving responsiveness and efficiency in local government. Efforts to re-establish a multi-ethnic society are focused on providing access to basic services through repairing infrastructure, improving the economic self-sufficiency of returned refugees, and strengthening institutions responsible for the delivery of power and water. Cross-cutting programs support the previous three areas with a wide range of participant training activities, as well as combating trafficking in persons, promoting values, and helping children at risk.
Other Program Elements: Risknet is a USAID regional project managed out of USAID's Regional Support Center in Budapest. Through cross-border activities, Risknet represents a regional approach to reducing the transmission of the HIV virus by reaching such high-risk behavior groups as intravenous drug users and youth and increasing knowledge about risk factors. The program aims to increase outreach and activities for HIV prevention among vulnerable populations and improve harm reduction activities on a regional level.
The Commercial Dispute Resolution project seeks to promote, develop, and support effective commercial dispute resolution in countries within the Europe and Eurasia region. It is managed by the Europe and Eurasia Bureau's Office of Economic Growth.
USAID's Global Trade Network is a program designed to assist BiH businesses to build partnerships with firms in the U.S. and South-East Europe. GTN provides free services and information to BiH businesses. The assistance helps them increase trade, implement joint ventures, and enter into licensing and franchise agreements. GTN facilitates linkages between Bosnian firms and firms in Croatia, Albania, Romania, Hungary, Bulgaria, Macedonia, Montenegro, and the U.S. through qualified trade leads. The program is managed by the Bureau for Economic Growth, Agriculture and Trade.
Other Donors: The International Bank for Reconstruction and Development (IBRD) and European Union (EU) are the two largest donor institutions in BiH, with the U.S. being the largest bilateral donor. Other significant contributors include the German, Swedish, Dutch and Japanese governments, as well as the European Bank for Reconstruction and Development (ERBD). USAID works closely with the German, Swedish and Dutch governments, who support minority returns through housing reconstruction in areas where USAID funds infrastructure. USAID also collaborates closely with other major donors in the World Bank Power III project. Partners in this project include the Spanish, Italians, Norwegians, Japanese, Canadians, and EBRD. On the economic front, USAID works closely with the IBRD, EU, International Monetary Fund (IMF), German Organization for Technical Assistance (GTZ) and the EU's Customs and Financial Assistance Ofice (CAFAO) on a variety of issues. In the democracy sector, Rule of Law activities are coordinated with the EU and the Organization for Security and Cooperation in Europe (OSCE), while media and civil society projects include collaboration with the Soros Foundation and the EU. Governance activities support efforts by OSCE, Swedish International Development Agency, the Dutch Embassy, IBRD and the IMF.
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