By BORUT GRGIC, Wall Street Journal Europe
The saying went something like this: After we sort out Kosovo’s independence, the rest of the Balkans’ transition and accession to the European Union will be routine procedure. But now there is a new hurdle in the road, and it’s a high one: Bosnia.
Bosnia and Herzegovina never really recovered from its postwar traumas, and the Dayton Accord has proven to be weak glue. The federation run from Sarajevo is going in one direction while the autonomous Serb region, the Republika Srpska, is headed in another. Neither is coming any closer to the EU.
It doesn’t help that the signals from Europe point to a stall in enlargement. Slovenia is holding up Croatia’s accession process because of a bilateral border dispute, Greece objects to Macedonia’s membership because of a disagreement over the latter’s name, and Cyprus is standing in Turkey’s way. Germany’s Christian Democrats, led by Chancellor Angela Merkel, have sent out a clear message ahead of the European parliamentary elections in June that all enlargement should take a backseat to EU consolidation. For many, apparently, the EU is already too big.
But to blame Europe for what’s happening in Bosnia is not justified. Bosnian’s fundamental problem is its own leadership. There isn’t any. Bosnia’s political leaders are too busy playing big kings in a fish tank to notice that they are throwing away their country’s future.
The Bosnian economy is on its knees. And still the government refuses to embrace privatization, modernization and supply-side economic reforms. Comparing the levels of government innovation in economic planning with, say, Macedonia or Montenegro, Bosnia is light years behind. Where are the industrial parks, the tax incentives for foreign direct investment, the support structure for small and medium-size businesses, the stimulus packages for start-ups?
The new high representative, Valentin Inzko, who as the country’s de facto international governor is supposed to ensure that it is progressing toward EU membership, will have to take note of this. Bosnia will not survive as a state if its economy is not modernized and revitalized. The new team at the U.S. State Department has expressed a keen interest in making Bosnia work. The key should be familiar to Hillary Clinton: It’s the economy, stupid.
A functional economy should be at the core of Bosnia’s political turnaround, and privatization should be at the core of Bosnia’s economic recovery. The country is rich with human potential and has vast hydropower resources. Even in this global economic downturn, the interest in Bosnia from foreign companies and investors is high. The problem is that the conditions for doing business in Bosnia are not ideal. Corruption among high-level officials is still prevalent: Companies are bullied into bribing officials administering tenders. And the government is not committed to carrying out privatization.
Take, for example, the case of BH Telecom, which has been under consideration to be privatized for more than two years. One day the government says privatization is on; the next day it pulls it from the Parliament floor.
This inconsistency is driving away the best foreign buyers and devaluing the asset. The market price of BH Telecom today is half of what it was two years ago. Part of reason has to do with the collapse of stock markets across the region, but part of the problem is also infrastructure-related. Without foreign know-how and technology, BH Telecom will turn into a dinosaur, unable to offer competitive services. This has a direct and negative impact on the market value of the company.
BH Telecom needs a foreign partner, and there are buyers interested. The country’s energy sector is in much the same shape. But if the federal government can’t get its act together to put these companies up for privatization, Bosnia will miss yet another opportunity to kick-start its economy.
Many ask, why sell? Can’t Bosnia just borrow money on the market to cover its current account deficit and finance infrastructure projects? Not anymore. Credit premiums and interests rates are high. And private money, which used to flow into the region, is now going to the AAA-rated borrowers, which are also asking for money.
Borrowing from the International Monetary Fund or the World Bank brings its own set of constraints, and inflating the state budget deficit is a problem. Bosnia is not the U.S., which can still sell its government bonds abroad, and it doesn’t have a strong export market that will eventually cover the government debt. Bosnia needs fiscal discipline, which means privatization and other supply-driven economic reforms are the best means to get cash flowing into the state budget.
The EU can help by identifying, and focusing its energies on cultivating, a new generation of leaders. The more we pander to the war generation, the less the young, the go-getters and the can-doers will feel inspired to fight for their rightful place in Bosnia — which is at the top, leading the country toward a better tomorrow.
Mr. Grgic is an investor in the Balkans and founder of the Institute for Strategic Studies in Ljubljana.