Area: 51,129 sq km, slightly smaller than West Virginia
U.S. STRATEGIC INTERESTS
Eight years after the Dayton Agreement, Bosnia and Herzegovina (BiH) is still struggling to recover from a vicious ethnic war and to make the transition to a market economy. Despite significant progress in building political, law enforcement, and public administration institutions, and in developing a unified military, BiH remains a fragile state in a potentially unstable region. Dayton also created a highly decentralized system, with overlapping layers of governance at state, entity, cantonal, and municipal levels. Terrorists and traffickers have taken advantage of persistent corruption, porous borders, weak and often competing political structures, and ongoing ethnic tensions to use BiH as a destination or transit point. It is in the U.S. interest to help BiH complete its transition to become a modern European state, tied to Euro-Atlantic institutions, and one that that can contribute to regional stability.
OVERVIEW OF U.S. GOVERNMENT ASSISTANCE
In FY 2003, the U.S. Government (USG) provided an estimated $73 million in assistance to Bosnia and Herzegovina:
U.S. ASSISTANCE PRIORITIES
Democratic Reform Programs: In FY 2003, U.S. democratic reform assistance in BiH focused on fostering responsible political behavior by both government and opposition parties, strengthening responsive and effective local governance, providing organizational and project support to NGOs to increase citizen participation and grass-roots influence, and nurturing the growth of an independent, responsible, and professional media sector. U.S. programs encouraged the development of a strong, self-confident Communications Regulatory Agency, similar to the FCC in the U.S.; promoted inter-ethnic reconciliation through the identification of over 1,500 mortal remains of victims from the 1995 Srebrenica massacre; set up effective NGO coalitions in key public policy areas; and brought over 40 Bosnian officials, journalists, and businesspeople to the U.S. for specific programs focused on democratic reform.
Economic and Social Sector Reform Programs: In FY 2003, USG economic reform programs focused on small and medium-sized enterprise development, fiscal management, and sustainable refugee returns. U.S. assistance is closely coordinated with the Office of the High Representative (OHR), World Bank, IMF, European Union, OSCE, and other donors. U.S. assistance led to a number of major accomplishments in FY 2003. A treasury system was implemented at the state and entity level to control expenditures. Long-term U.S. work in the energy sector resulted in the approval of a $30 million World Bank credit for further restructuring of the sector. U.S. technical assistance created a state-level deposit guarantee agency. U.S.-supported tax administration reform brought about increased tax revenues and a rise in the number of registered taxpayers in FY 2003. Infrastructure work to support refugee returns restored electricity to 1,800 families, provided potable water to 350 families, reconstructed schools for 650 students, and improved transportation links for 200 families.
Security, Regional Stability and Law Enforcement Programs: In FY 2003, U.S. security assistance helped establish and develop a secretariat for the state-level Standing Committee on Military Matters (SCMM), further to the development of a unified BiH military. The USG provided $2.4 million in Foreign Military Financing (FMF) and $900,000 in International Military Education and Training (IMET) to this end. Recognizing that the rule of law and fighting terrorism are inter-related, the USG focused extensive resources on strengthening the judiciary and developing effective law enforcement and counter-terrorism (CT) institutions, encouraging the adoption of effective CT/law enforcement-related laws, strengthening BiH's borders, and shutting down NGOs involved in terrorism. U.S. assistance in FY 2003 led directly to the adoption of new Criminal and Criminal Procedure Codes throughout BiH and continuous training of all Bosnian judges and prosecutors on the new codes; the establishment of new, national-level institutions, including the State Court, State Prosecutors' Office, and State Border Service; and the passage of legislation that will provide the basis for a unified military structure in Bosnia. USG assistance in FY 2003 to state, entity, and local law enforcement officials and NGOs also helped move BiH from Tier III to Tier II status in the State Department's annual report on trafficking in persons.
SECTORAL ASSESSMENTS
Democratic Reform
BiH's performance on democratization was mixed in FY 2003. On October 5, 2002, national and local elections, organized by BiH officials, were recognized as free and fair by domestic and international observers, but these elections returned coalitions of nationalist parties to power at state and entity levels in a demonstration of voter dissatisfaction with the record of the previous multi-ethnic Alliance for Change government. The present governing parties have yielded to intensive international community pressure to accept several important reform measures but have been slow to initiate such measures themselves. Corruption and the division of political spoils and appointments along ethnic lines remain serious problems. Repeated scandals concerning the involvement of ruling parties in the mismanagement of public companies have come to light.
With no new elections scheduled until municipal elections in October 2004 and national elections in October 2006, the bulk of USG FY 2003 democracy assistance focused on long-term efforts to strengthen and improve the accountability of political parties and legislatures. USG programs targeted reform parties; helped them understand the appropriate role of a modern, democratic opposition; and provided techniques and methodologies for promoting issue-based politics through local party structures. The programs' effectiveness has been evident in the increasingly sophisticated approaches by party activists to the electorate. USG programs for the legislature have promoted the professional development of parliamentary caucuses and committees. A parliamentary internship program gave 58 university students and recent graduates a chance to participate in the democratic process by working in state or entity-level parliaments.
USG assistance has also tackled the problem of overlapping layers of government administration, which often results in inefficient services to citizens, particularly at the local level. An FY 2003 USG program helped municipalities become more efficient and transparent by installing One-Stop-Shop service centers for citizens and businesses. This highly successful initiative reduced the confusion and burden of dealing with local governments.
USG assistance to the civil society sector focused on the organizational development of leading NGOs, resulting in four issue-based coalitions advocating for children at risk, the prevention of alcohol and drug addiction, environmental protection, and the rights of the disabled. Small, targeted grants funded local democratic initiatives, including information campaigns to help refugees return and search for employment, volunteer drives to clean up polluted rivers, radio call-in programs connecting citizens with elected officials, and youth centers promoting student integration and media education in high schools, as well as assistance to open 12 computer and information centers fostering civic activities in small communities.
The unresolved disappearance of up to 30,000 persons, presumed killed in the war, continues to inhibit reconciliation and undermine efforts to establish a culture based on democracy and human rights. In FY 2003, the USG supported efforts by the International Committee on Missing Persons (ICMP) to resolve missing persons cases and thereby provide closure to survivors and heal the breach among BiH's ethnic groups. Over 1,500 human remains, primarily victims of the 1995 Srebrenica massacre, were identified.
In FY 2004, the USG will continue to assist political parties in the run-up to municipal elections, providing local-level training on recruitment, research, political planning, and the strengthening of party connections to local communities. FY 2004 civil society programs will target corruption through grants to support investigative journalism, NGO monitoring activities, and implementation of a Law on Conflict of Interest. Additional grants will support the efforts of local organizations to monitor such issues as defense spending, healthcare, and environmental protection. Grants will also shore up the capacity of NGOs to perform credible financial reporting and encourage domestic funding for the NGO sector.
In media reform, the USG has sought to foster politically independent media that are professional and economically sustainable, as well as develop an apolitical telecommunications regulatory authority at the state level. In broadcast media, USG support to the Communications Regulatory Agency (CRA) enhanced its ability to function effectively as it completed the transition from an international community-created and staffed body to a domestic state-level institution. The CRA will be essential to ensuring that outside and domestic political forces do not dominate public broadcasting. USG assistance provided critical professional skills training to CRA staff and also enabled private broadcasters to develop the marketing and business skills needed to function in a market system. Journalists in both electronic and print media are sometimes subject to harassment and intimidation, while print media have been used as for a forum for political vendettas. The USG has worked to build effective journalist associations capable of protecting members' rights and helped the BiH Press Council foster professionalism through self-regulation.
Economic and Social Sector Reform
Economic growth is projected at 3.3 percent of GDP in 2003, down from 3.8 percent in 2002. The IMF estimates that inflation will remain low (around 1 percent), thanks to Bosnia's currency board arrangement, which ties the Convertible Mark (KM) to the Deutschmark component of the Euro at a rate of about 2:1. FY 2003 fiscal performance is likely to deteriorate as a result of pension increases in the Republika Srpska (RS) that have not been offset with corresponding structural revenue increases. Even before the pension hike, government spending was projected to consume almost 59 percent of total GDP in 2003, making public administration reform an urgent priority. Bosnia's domestic debt overhang is estimated to be as high as KM 8.4 billion, or 74 percent of projected 2003 GDP. Resolution of this issue is crucial for future economic development, and the USG may offer technical assistance in this area.
Trade data are unavailable for 2003, but the current account deficit rose sharply in 2002 (4.5 percent of GDP). Imports outnumbered exports by two to one. Remittances also dropped, as refugees continued to return, but the decline in reserves was modest (�125 million). The current account deficit was financed through a combination of assistance flows and increased foreign direct investment (FDI), which rose from �143 million in 2001 to �244 million in 2002. Assistance flows will be unsustainable in the long run, making it correspondingly more important to promote economic growth by removing obstacles to investment.
The UNDP ranks BiH as the second poorest country in Europe, after Moldova. In its January 2003 survey, 47.9 percent of households were below the poverty line, defined as the ability to purchase a basic basket of goods. Poverty varies sharply by region and ethnic group and is most acute in the RS.
After the war, U.S. assistance was aimed at channeling credit to the productive sector to stimulate economic growth through a $233 million finance program. During its operation, the program made nearly 600 loans worth $163 million, generating 15,000 jobs and preserving a further 30,000.
Current USG assistance efforts focus on fostering small and medium- size enterprise (SME) development through firm-level assistance to improve competitiveness in key sectors. A separate program to improve SME access to financing and to strengthen the financial sector is under way. Other USG programs seek to advance commercial law reform and support the adoption of international accounting standards. In FY 2004, a key U.S. objective will be to remove obstacles to SME growth, including excessive taxation and other burdensome regulations that impede the start up of new businesses.
On the macroeconomic side, U.S. assistance has funded the development and installation of treasury systems to control expenditure. For the first time, obligations to the budget are recorded when incurred, and unauthorized payments are rejected. Work is under way to expand the program to the cantonal level, where government expenditures have been unchecked in the past. Other USG programs focus on improving tax administration, which resulted in higher FY 2003 revenues collected and an increase in the number of registered taxpayers. Assistance efforts in FY 2004 will be devoted to streamlining and rationalizing direct taxes to encourage SME growth.
Progress on energy sector reform has been modest. However, the World Bank recently approved disbursement of a $30 million credit for the sector, indicating that long-term USG efforts to promote restructuring in that sector have begun to pay off. In FY 2004, U.S. programs will complement World Bank work with technical assistance to unbundle the energy sector by creating a transmission company and independent systems operator. Similarly, privatization has moved very slowly in BiH, hampered by political unwillingness to close outdated, state-owned industrial concerns. To promote reform, U.S. assistance has funded audits of corrupt state-owned enterprises with real profit potential in the future.
Following the war, U.S. programs facilitated the return of ethnic minorities to their pre-war homes through the repair of water, electricity, schools, and transportation networks. Infrastructure work will continue in FY 2004, but increasingly, USG programs provide income-generation grants and loans to promote economic self-sufficiency in returnee areas.
U.S. assistance funded 65 long-term and 103 short-term exchanges in FY 2003, in the education, social sector reform, economic development, democracy, regional stability, and law enforcement areas. In the education reform area, USG exchanges and a major civic education initiative have helped tofoster classroom integration, support American Studies, and engage BiH youth. The U.S.-sponsored CIVITAS project has been instrumental in implementing a new civic education course in all BiH schools, teaching basic concepts necessary to support a democratic society.
Security, Regional Stability, and Law Enforcement
In FY 2003, BiH made tremendous strides toward transferring operational control over entity-level militaries to a future state-level Ministry of Defense, recognizing that such a step was a pre-condition for Bosnia's participation in Partnership for Peace (PfP) and other Euro-Atlantic institutions. When fully implemented, the process will create a smaller, more professional army under civilian state control, and that poses a minimal risk for inter-ethnic conflict and significantly enhances local and regional stability. FY 2003, U.S. programs supported this undertaking through the provision of Foreign Military Financing (FMF) and International Military Education and training (IMET) funds and technical assistance to the secretariat of the Standing Committee on Military Matters, which guided the process. The secretariat will form the core of a national-level Ministry of Defense, slated under new legislation to be introduced in 2004.
Given the high unemployment rate in BiH, idle discharged soldiers could pose a potential security problem. In FY 2003, the USG funded a program to register discharged soldiers and provide them with prospective employment information, as well as training and tools for employment in such areas as farming, carpentry, and mechanics. The program helped over 7,000 soldiers from both entity armies make a successful transition to the civilian workforce. With extensive further demobilization expected in FY 2004, a follow-on program is under consideration.
After 2002 revelations that an RS-based arms facility was engaged in the illegal transfer of arms technology to Iraq, BiH took steps to strengthen national control over all exports of defense-related equipment. In FY 2003, the USG provided technical support for the drafting and implementation of improved export control procedures. An MOU has been signed under which, in FY 2004, the USG will provide hardware and software systems to track all defense exports.
In FY 2003, the USG contributed technical expertise and about $1.1 million to help BiH comply with its Chemical Weapons Convention obligations by eradicating potentially toxic residue from the former Yugoslavia National Army (JNA) chemical weapons facility in Livac. The USG also consulted extensively with state and entity-level military officials on eliminating light weapons, small arms, and Man-Portable Air Defense Systems (MANPADS). The USG is expected to provide financial support to destroy significant quantities of these weapons in FY 2004.
An estimated 4 percent of Bosnia's territory is riddled with landmines. The presence of these weapons constitutes a serious threat to internal security and an obstacle to refugee return and economic development, particularly in rural communities. To counter this menace, the USG in FY 2003 contributed $2.5 million to the International Trust Fund in Slovenia for mine clearance programs in BiH. About 3 million square meters were cleared in 2003. The USG also funded the local construction of a Mine Detection Dog Training Center.
Bosnia is a destination and transit point for terrorism, trafficking in persons, and other forms of organized crime. An important portion of USG assistance in FY 2003 was devoted to bolstering BiH's capacity to develop effective rule-of-law institutions capable of simultaneously administering justice, fighting crime, and defending BiH from terrorism.
With USG equipment support and training assistance (FY 2003 and previous), Bosnia's State Border Service (SBS) has begun to exercise greater control over BiH borders. While Illegal migration dropped markedly in FY 2003, terrorists and other criminal elements still manage to infiltrate. USG assistance helped secure adoption of several key pieces of counterterrorism-related legislation in FY 2003, including new Criminal and Criminal Procedure Codes at state and entity levels and amendment of the Citizenship and Immigration laws to include provisions that will allow authorities to take action against foreign-born terrorists and terrorist supporters. USG equipment and training assistance also contributed to the more effective functioning of the BiH State Court and State Prosecutor's office, both of which have important CT and anti-organized-crime functions. FY 2003 assistance helped establish the State Information and Protection Agency (SIPA), an organization that, when fully functional in 2004, will have FBI-like investigative and law enforcement functions. USG training assistance, through the Department of Justice, International Criminal Investigative Training Assistance Program (DOJ/ICITAP), has made major contributions to enhancing the professionalism of local law enforcement bodies. USG-BiH cooperative efforts have led to the creation of a shared criminal, intelligence, and border security data network and to the shutting down of three terrorist-related NGOs.
Trafficking in persons (TIP) remains a problem in Bosnia, but USG assistance in FY 2003 to state, entity, and local law enforcement officials and NGOs helped move BiH from Tier III to Tier II status in the State Department's annual report on trafficking. This status was obtained after the BiH government demonstrated its commitment to fight TIP by passing a Criminal Procedure Code that makes trafficking a crime punishable by up to 20 years imprisonment, establishing a state-level Ministry of Security and national Anti-TIP coordinator, and arresting several high-profile traffickers, who face prosecution in the State Court under the new Criminal Code. With USG training and assistance, BiH now has a functioning investigative task force focusing on trafficking under the supervision of the State Prosecutor.
Bosnia's criminal justice system is still plagued by corruption, low salaries, and poor training. The ineffectiveness of the courts and law enforcement bodies weakens national security. USG FY 2003 support contributed to strengthening the courts and law enforcement bodies at all levels. Assistance to the Independent Judicial Commission (IJC) helped that body begin to restructure and rationalize the court system and to vet candidates for judicial and prosecutorial positions. In addition, assistance to the Judicial and Prosecutorial Training Centers developed a local capacity to train judges and prosecutors. USG assistance also contributed to the physical renovation of several court buildings and prosecutors offices. USG-funded programs trained judges, prosecutors, and police officials in the provisions of the new Criminal and Criminal Procedure Codes and trained public officials in freedom of information procedures. Other programs provided specialized police training in undercover and surveillance operations, money laundering detection, and other investigative tools. Custom-designed hardware and software IT support to prosecutor and court registry offices created a capacity to manage and track cases in what will ultimately become an area-wide network. USG assistance also supported study trips by bar associations and established an Administrative Law Clinic at the University of Sarajevo. USG-funded exchange programs brought 24 Bosnian police officers to the U.S. for hostage rescue and close combat training.
Corruption erodes the functioning of Bosnia's political, public, and business life. To combat this, the USG funded the secondment of four U.S. citizen crime and corruption investigators to the Crime and Corruption Unit of the Office of the High Representative. The USG also funded a Banja Luka-based NGO, the Narodni Front, to develop a nation-wide public outreach campaign to educate citizens about the problem of corruption and advise them on legal and institutional modalities for resisting corruption. The bulk of the campaign will be conducted in FY 2004.
A USG priority in 2004 will be to support the setting up of a state-level Ministry of Defense with full operational control over all BiH military units, further to BiH's entry into PfP. This will include the construction of a state-of-the-art command and control center and the formation and training of a military joint staff and a cadre of effectively trained civilian MOD personnel. The U.S. will also continue to focus attention on establishing SIPA as an effective state-level law enforcement organization, strengthening the State Border Service fully to control BiH's borders, unifying the country's intelligence and security agencies, and building the capacity of domestic judicial and law enforcement institutions to dispense justice and fight crime and terrorism effectively.
COUNTRY PERFORMANCE MEASURES
Ratings based on a 1 to 5 scale, with 5 representing the most advanced.
Sources: EBRD, Transition Report 2003 (November 2003); Freedom House, Freedom in the World 2003 (2003); and (various years).
Economic Structure and Human Development in BiH, 1991-2002
The Human Capital Index is based on an average rating of four variables, scored on a 1 to 10 scale: per capita income; secondary school enrollment; health, as measured by life expectancy and under 5 mortality; and public policy, as measured by public expenditure on health and education as % of GDP. World Bank, World Development Indicators 2003 (2003); and UNICEF, Social Monitor 2003 (2003).
MEASURES OF PROGRAM EFFECTIVENESS IN FY 2003
DEMOCRATIC REFORM
Performance Indicator: Citizen Participation in Political/Social Decision-making (Source: USAID NGO Sustainability Index Ranking) (1 = highest; 7 = lowest)
|
FY 2002 Baseline |
FY 2003 Target |
FY 2003 Actual |
|
4.2 |
4.0 |
4.0 |
FY 2003 Results: USG programs, particularly support for NGO and other grass-roots networks, led to moderately improved levels of citizen participation in local and national politics, increased public understanding of civic rights and obligations, and improved public support for human rights, in FY 2003. These efforts specifically enhanced public understanding and support for initiatives leading to greater protections for the rights of children and the disabled, the environment, and drug/alcohol rehabilitation. In FY 2004, USG efforts will focus on working through NGOs to improve citizen/local community involvement with political parties and provide citizens with tools to combat corruption and monitor defense spending, healthcare, and environmental protection.
Performance Indicator: Independent Media (Source: IREX Media Sustainability Index)
|
FY 2002 Baseline |
FY 2003 Target |
FY 2003 Actual |
|
1.66 |
1.9 |
2.1 |
FY 2003 Results: USG support to the Communications Regulatory Agency in FY 2003 enhanced its ability to function effectively and professionally as an independent, state-level institution, capable of ensuring that domestic or outside political forces do not dominate public broadcasting. However, most media outlets, particularly in the print media, remain strongly influenced by political parties, and there were a number of cases of harassment and intimidation. Most media outlets are limited in their reach to one or the other of BiH's two entities.
ECONOMIC AND SOCIAL REFORM
Performance Indicator: Employment in small and medium-sized enterprises (SME) as a percentage of total employment (Source: World Bank, August 2003)
|
FY 2002 Baseline |
FY 2003 Target |
FY 2003 Actual |
|
Data not available yet |
Data not available yet |
Data not available yet |
FY 2003 Results: SME development in BiH is hampered by an irrational and burdensome tax system, limited access to financing, and the presence of large, inefficient state-owned enterprises that discourage private sector development. Despite the existence of an extensive informal SME sector, unemployment rates remain high. Draft framework legislation to simplify and streamline indirect taxes was submitted to Parliament in the fall of 2003, but had not received final legislative approval by the end of the reporting period.
Performance Indicator: Effectiveness of Legal Rules for Investment (Source: EBRD, 2002)
|
FY 2002 Baseline |
FY 2003 Target |
FY 2003 Actual |
|
3.0 |
3.3 |
Data not available yet |
FY 2003 Results: Significant progress has been made in recent years to create a legal framework for private investment, including legislation on companies, business entities, bankruptcy and liquidation, banking, taxation, securities, and land registries. However, considerable work remains to implement and enforce these laws. BiH institutions are weak and suffer from severe resource constraints. Judicial capacity must be strengthened.
Performance Indicator: Bank Reform and Interest Rate Liberalization (Source: EBRD, 2002)
|
FY 2002 Baseline |
FY 2003 Target |
FY 2003 Actual |
|
2.33 |
2.5 |
Data not available yet |
FY 2003 Results: The financial sector has experienced the largest, most successful transition to a market-based economy in BiH. This sector has attracted the greatest share of FDI, and foreign banks are prominent and active participants in the local market. However, considerable work remains to implement fully Bank of International Settlements (BIS) standards, and strengthen prudential supervision. Private sector companies have difficulty obtaining financing, particularly long-term loans.
SECURITY, REGIONAL STABILITY AND LAW ENFORCEMENT
Performance Indicator: Trafficking in Persons (Source: State Department Annual Report on Trafficking 2003)
|
FY 2002 Baseline |
FY 2003 Target |
FY 2003 Actual |
|
Tier III |
Tier II |
Tier II |
FY 2003 Results: BiH government and law enforcement authorities demonstrated heightened commitment to combating TIP by passing a new Criminal Procedure Code with anti-trafficking provisions, appointing a national TIP coordinator, and arresting several high-profile traffickers. These actions resulted in BiH's elevation from Tier III to Tier II status in the State Department's Annual Report on Trafficking for 2003.
Performance Indicator: Attain NATO Benchmarks for PFP Entry
|
FY 2002 Baseline |
FY 2003 Target |
FY 2003 Actual |
|
Separate entity-level Militaries |
Obtain broad support for defense reform including unified military |
Target exceeded with full adoption by entities and state of legal framework for state-level Ministry of Defense |
FY 2003 Results: In FY 2003, the BiH national government and both constitutive entities made dramatic progress in moving from separate, often contending entity-controlled armed forces, to formal acceptance, through constitutional amendments, of a single state-level Ministry of Defense with full operational control over all military forces. These changes, which significantly reduce the likelihood of inter-ethnic violence and enhance overall regional stability, were accomplished under the guidance of a USG-led Defense Reform Commission. The reforms, when implemented, will establish baseline conditions for BiH's entry into NATO's Partnership for Peace program, a further stabilizing step that, with USG support, BiH could achieve in FY 04.
FY 2003 Support For East European Democracy (SEED)
Funds Budgeted for Assistance To:
Bosnia (In millions $, as of 12/31/03)
USAID - Democratic Reform $11.63
USAID - Humanitarian Response $8.76
USAID - Parking Fine Withholding $0.01
USAID - Private Sector $10.16
USAID Total: $30.56
State - Anti-Trafficking $0.30
State - Criminal Justice System $5.80
State - DRL/Int'l Commission Missing Persons $2.10
State - ECA Exchange Programs $1.88
State - EUR Democracy Programs $2.10
State - EUR Law Enforcement Programs $0.35
State - EUR Public Diplomacy $0.69
State - IIP Public Diplomacy $0.03
State - INL Law Enforcement Activities $3.20
State - INL Police Training $1.70
U.S. Department of State Total: $18.15
Broadcasting Board of Governors - Public Diplomacy $0.15
U.S. Department of Treasury - Technical Assistance $0.20
U.S. Department of Treasury - Advisors $0.95
Other Agencies Total: $1.30
GRAND TOTAL: $50.00
