B-H is heading for total bankruptcy
by Dragoljub Stojano
Contrary to unremitting protestations by Bosnia-Herzegovina politicians that the economic situation in the country has improved over the last year, and that once privatization has been completed we shall sail into the magic land of market economy that will enrich us all, Professor Dragoljub Stojanov from the University of Sarajevo economics faculty believes that ‘our economic situation is so bad that one can only conclude we are facing total bankruptcy.’
B-H is Heading For Total Bankruptcy
Dragoljub Stojanov - interviewed by Reporter (Banja Luka)
What has brought about this economic catastrophe?
Incompetent economic decisions by the international community, and also by our own governments which have not only accepted these but have also applauded them, in the belief that they contained a magic formula that would bring about an economic miracle. This same is true for all the countries undergoing transition. A few days ago I read an article beginning with a quotation from Boris Yeltsin, in which he apologized to the Russian people for his naivety in believing that transition and privatization could be speedily accomplished and make Russia a brighter and better society. So he apologized. It is probable that the same will happen here: at some point quite soon, representatives of the international community and our politicians will be apologizing to us. The same will happen in the neighbouring countries: FRY, Croatia, Macedonia.
Does it mean that the approach was wrong from the start?
Exactly so. We in this region needed quite a different approach. Instead a concept was adopted that was meant to apply to all countries in transition, and its effects as we can see are similar everywhere: high unemployment, great social differentiation, highly uneven distribution of wealth, emergence of powerful gangsters - all coupled with slow economic growth. Poland is treated as a great success case, because its rate of growth is today around 120% of what it was in the 1980s. This means in reality that Poland is today producing only a little more than it did ten years ago. The Czech Republic and Slovenia, which are considered to be particularly successful, have not yet reached their earlier levels.
What is your main criticism of the international community and of our governments in regard to their approach to the transition?
The first strategic mistake was the choice of shock-therapy. The second was the idea that transition should be accomplished overnight. This clearly is impossible. The third is privatization by way of vouchers, which also makes no sense. All countries that have used the Czech approach, including the Czechs, are saying today that this was a mistake. The Czechs are today talking of re-nationalizing companies privatized by way of certificates or vouchers. Voucher privatization is a non-monetary privatization. If there is no capital there are no managers; companies that are not restructured cannot begin to function. There is, in addition, a sudden opening up to international markets. A quick liberalization of external trade is inane, since it exposes our firms to the merciless competition of far more efficient international producers. This is something no one has done before. There was also the dogma, which is still being upheld, that we do not need large firms and should instead rely on medium and small ones. This is ridiculous. I cannot think of a single successful country that has developed on the basis of small and medium firms. The best argument against shock-therapy is that neither Slovenia nor Poland have used it in their concept of transition. This is why they have been more successful.
Why did RS and the B-H Federation not adopt, for example, the Slovene model?
Slovenia, as you know, is an independent state. It did not have to negotiate with international financial bodies or accept any of their conditions - such as shock-therapy - but chose its own way. Poland, on the other hand, has a strategic location, which helps to explain why its foreign debt was written off, why it got a lot of new foreign credits, why fresh capital appeared. It was not forced to accomplish privatization overnight, but was allowed to restructure its firms before gradually privatizing them: there are still 2,500 firms awaiting privatization. Poland and Slovenia for various reasons were more independent in their decisions than countries like Romania, Bulgaria, Macedonia or B-H. B-H is a protectorate without being organized as a protectorate, which is the greatest problem.
The models that we and our neighbours are persuaded to follow are anti-developmental. Shock-therapy accompanied by strict monetary restrictions and a convertible currency introduced by decree, which has exposed the domestic economy to foreign competition, is something of a precedent. In addition we do not possess the necessary state and economic institutions. A market economy cannot function without the institutions of a market economy. The foreigners seem unaware of the fact that we do not have a capital market, labour market, goods market. And yet we are advocating a market economy. This is absurd.
It is generally accepted that the economic situation would be even worse without international aid. How do you judge the performance of international financial institutions in B-H?
We have received some donations from the international community which have revived a good part of our infrastructure, but which unfortunately have not managed to stimulate production. This is the weakest part of the whole process. The accent has been on monetary stability, and this is justified by the argument that our politicians are so irresponsible that they would create hyper-inflation. I agree that this is highly likely, but the solution does not lie in creating the opposite situation: a deflationary crisis and an accompanying high level of unemployment. It would have been better if the international community had taken matters into its own hands and introduced a protectorate, thus assuming full responsibility for events. They should have done so already in 1995. We would have been much better off today, since they would have become responsible for all the mistakes issuing from their economic strategy. They would probably have changed it, once it became obvious that it was not working. We would be living much better, since far more loan capital would have entered the country. As things are, the international community has rights but no responsibilities. The responsibility belongs to our politicians. Being what they are - disorganized - they fell for the proposed model of development and also, of course, made their own contribution to the problem.
The money received from the international community has been largely invested in infrastructure. Why was none spent to stimulate production?
That was their condition. The donations were targeted and all went into rebuilding the infrastructure. It is possible that the donors believed that once the infrastructure was revitalized, the economy would start to function automatically.
People talk about five billion DM of aid extended to B-H. How realistic is this estimate?
I have never seen precise data. I only know what is said, which is that we actually got a little over three billion. It is also said that a good deal of this returned to the donor countries in the form of purchase of equipment and salaries, which is probably true. If so, we have been left with much less money than is generally believed.
Was this money at least rationally invested? Do the entity governments share the responsibility for the fact that nothing has been invested in industry?
Corruption is evident. The governments bear a great deal of responsibility, including for the corruption. Putting corruption aside, they are certainly responsible for doing nothing for industry. They should not have accepted the shock-therapy and all the things which clearly could not work. They should at least have tried to explain to the international community the specific nature, needs and interests of B-H. They have failed to do that.
The governments have argued that it is impossible to revive production before privatization has been completed.
That is absolutely untrue, and is why we find ourselves in this situation. We should first have restructured, we should have got some money and invested it in the economy, and then started privatization.
What are the errors of the model of privatization here in B-H? Are the concepts of privatization applied in RS and the Federation equally bad?
We are dealing with a psychological mind-set. The directors of our firms have been given the task of depreciating the value of their enterprises in order to sell them quicker and more cheaply. The managers’ task is to ensure that the firms do not work - which is a unique phenomenon in the world. Another problem is that certificates or vouchers are worthless and should be dropped. Our citizens would fare better - they in any case do not know what to do with them. The fact that firms are expected to pass into private hands in this way will bring about a catastrophe. Instead of being restructured and sold, their privatization conducted in this manner will simply result in their closure. Their assets will be sold off and their workers will lose their jobs. If firms were sold by being put out to tender, protection of jobs could be part of the deal. But if shares in them are distributed in the form of vouchers, this condition cannot be posed.
Can the errors of which you speak be remedied? Is it still possible to do something that would make it possible for the B-H economy to escape from the dead-end situation in which it finds itself today?
We need a new concept. At first almost all economists supported the notion of shock-therapy, but now there are more and more who think a change is needed. We need to persuade the international community that we need a new model. Such a model should aim to revitalize production. That is not easy, of course. I and my colleagues in the cantonal Agency for Privatization have tried to make changes by insisting on tenders, i.e. on sale for cash. We have proposed that an agency for this form of sale be established at the B-H level, or at least at the level of the entities.
There is also the idea that a fund for restructuring and revitalizing firms intended for privatization should be established at the entity level. The idea is that money allocated for this purpose would go to these funds, which could then be used for restructuring the enterprises. This would enable firms that could work, but lack an elementary cash flow, to begin to operate. If we could restructure Elektroprivreda or Telekom throughout B-H, we could gain 4-5 billion DM. This money we could then invest in production to great effect. The international community’s response, however, has been that the idea itself is not bad, but what is bad is that the newly created fund would be a state institution. This problem could be solved, of course, by turning the fund over to joint management by Bosnian and foreign experts. It is possible, in other words, to find a solution.
But it is necessary first to change the dogmatic concept adhered to by the economists who instruct both us and the international community. The money we could gain by restructuring, plus a few billions aid of the ‘Marshall Plan’ type, would enable us to start producing. Significant capital will come once industry begins to work, once a climate of profit-making has been created. This could be achieved, however, only by a new economic approach. Otherwise the country will become bankrupt. A viable economy will remain a dream. For neither the international community nor our own governments have managed to create a viable state in Bosnia-Herzegovina, still less a viable economy.
Translated from Reporter (Banja Luka), 20 December 2000