Lessons not learnt in B-H
by Zarko Papic
Policies of International Support to the SEE Countries
- lessons (not) learnt in Bosnia-Herzegovina
Sarajevo, March 2001
1. The crisis and disintegration of - and the wars in - the former Yugoslavia were a real challenge for the system of international security and international organization established for peacekeeping, as well as for the policies of the ‘international community’ (whatever that means). Bearing in mind the fact that the culmination of the ex-Yugoslav wars took place in Bosnia-Herzegovina (B-H), the long duration of the war in B-H against the latter’s establishment as a state, and the fact that the consequences of war were greatest in B-H, it is through the example of B-H that policies for the establishment of peace, and for normalization and reconstruction of the countries of former Yugoslavia, can best be analysed.
2. The analysis here of international support policies based on the B-H example will relate to the post-war (post-Dayton) period, i.e. the period from 1995 to 2000, except in certain areas where there is a direct need to make a short review of the wartime period (1992-5).
The role of the local authorities in B-H, in relation to the implementation of international support and assistance policies, is not analysed in this document. Their role is exposed to constant and very justified criticism by the international organizations (lack of efficiency, political obstruction, corruption, etc.), and it is clear that they are mainly responsible for the failures of international assistance and support policies. But justified criticism of them should not lead us to neglect a critical evaluation of international support and assistance policies themselves. Moreover, the structure of the local authorities and their functioning are defined by the General Framework Agreement for Peace (GFAP), which is one of the most important aspects of international policies for normalizing the situation in B-H.
II. Consequences of the War
1. The consequences of the war in B-H are vast and incalculable. Reliable data still do not exist about its measurable consequences and no one dares estimate the immeasurable ones. Such data as are available pertain to the end of 1998, since when there have been no significant changes regarding basic data.
It is estimated that 258,000 B-H residents died or are missing: i.e. 5.9% of the pre-war population was eliminated. Other estimates state that the dead and missing - allowing also for the increased mortality rate - number 269,800 (152,900 Bosniaks, 72,350 Serbs, 31,060 Croats and 13,500 others). It is interesting to note, according to the data of the State Commission for Missing Persons, that 27,371 persons have been declared missing to date; while according to International Red Cross data, 19,000 persons are missing.
During the war, 1995 was the peak year in terms of the sheer number of displaced persons, when they numbered 1,282,000. The estimated number of displaced persons at the end of 1997 was 866,000 and in 1998, 816,000.
There were 1.2 million refugees from B-H at the end of the war, now it is estimated that 712,555 of the total number of refugees have found permanent solutions abroad, while 611,969 refugees are still without a permanent solution and are potential returnees. Approximately 50% of the 1991 population of B-H have changed their place of residence.
2. The economic impact of the war is estimated at 50–60 billion US dollars, of which 20 billion US dollars covers productive capacity. Numerous other estimates exist, taking into account the GDP lost from 1992 to date, which represents indirect economic losses; the combined total of indirect and direct losses is approximately 100 billion US dollars.
Indirect effects - such as the destruction of the governance system, the interruption of economic development, education and technological development, or the ‘brain drain’ - although immeasurable are undoubtedly colossal.
Destruction of the society, social ties, tolerance and coexistence, the breakdown of families and small communities and the general collapse of social values and normal life are the most enduring consequences of the war, which cannot be mitigated in a short time. It will be much more difficult to reconstruct the social fabric than bridges and roads.
3. The ‘brain drain’ is undeniably one of the most severe and specific consequences of the war,. representing a major handicap for reconstruction efforts in both the social and the economic spheres. It is particularly disquieting that the phenomenon has been gathering momentum rather than diminishing since the war. Awareness of this national haemorrhage is barely beginning to dawn upon the country’s policy-makers and well-wishers. Unless the trend is reversed, it is possible that ‘exodus’ will become a greater problem than ‘return’.
III. Economic and Social Situation in Bosnia-Herzegovina 2000: dependency syndrome
1. After the GFAP signing, the level of economic activities in B-H was extremely low, primarily because of the previously described consequences of war. Major international assistance, primarily the Priority Reconstruction and Recovery Programme (PRP) led by the World Bank (WB), started to be implemented in 1996.
Through PRP, the international community was to spend approximately US$ 5.1 billion on reconstruction aid over a five-year period as of 1996. By the end of 1998 donor nations had committed approximately US$ 4 billion, of which roughly US$ 2.7 billion has been spent.
The result of international assistance was estimated by the achieved level of GDP in B-H in 1998, amounting to 6.9 billion DM (RS 1.94; FB-H 4.96).
It is estimated that at least 30% of the achieved GDP is the result of international assistance. The total growth of GDP was achieved thanks to the investment of donors in the construction sector (reconstruction of infrastructure, road network, etc.), while investment in the manufacturing sector was minimal, totalling only 2.3% of the total PRP expenditure).
Part of the reason for the complete dependency of the B-H economy lies in such a policy of directing donor assistance. Without this massive donor aid, B-H would have negative GDP growth - approximately 1% annually.
2. The estimated achieved level of GDP in B-H in 1999 was 35% - 40% of the level achieved in 1991.
At the same time, the ‘grey economy’ and indirect influx of cash money - based on the expenditures of international organizations and the presence of foreigners in B-H - form an extremely important segment of the economy.
a) The ‘grey economy’ in B-H, together with humanitarian aid, was the only form through which the population survived during the wartime period. The black-market channels created, the soft B-H border, and the absence of a functioning legal system, represented a postwar paradise for expansion of the grey economy. An integral part of this has been the extensive corruption of local authorities and links with political centres.
No data are available regarding the dimensions of the grey economy in B-H. However, research carried out in RS may be a good indicator. This showed that the level of the grey economy in relation to GDP ranges from 56.3% to 67.5%, depending on the research model used. It can be estimated that the level of the grey economy is slightly lower in the Federation. At all events, it is evident that the grey economy produces almost half of the registered GDP, with all the negative consequences of this.
b) The indirect influx of cash money based on the expenditures of international organizations and the presence of foreigners in B-H is enormous.
It has been estimated that in Sarajevo alone 15,000 foreign civilians are present every day, working in international NGOs, international organizations, or the embassies and aid organizations of individual countries. They spend 60 million DM per month just on their living expenses, or 720 million DM per year. If we estimate that Sarajevo today has approximately 400,000 citizens, this produces a monthly influx of 150 DM per Sarajevo resident, or 42% of the average monthly salary. This influx creates a completely virtual picture of Sarajevo - a picture of normal life in a normal European city - lacking any purchase in the B-H economy and the city itself.
Attempts to estimate the expenses of foreigners in B-H as a whole have been made on the basis of the previous estimate. It is estimated that the 55,000 foreigners working in B-H spend 2.5 billion DM per year. This is almost 60 DM monthly for each resident of B-H (3,600,000 citizens).
3. Five years after peace was established in B-H, poverty and unemployment are at the same level as immediately following the war; what is more, they are on the rise.
According to our assessment, by the end of 1998 61% of the total population of B-H (58% in the Federation, 64% in RS) were in a state of poverty. (Since there are no officially adopted criteria for setting the poverty line, for analytic purposes we have set it very low). The wider unemployment rate was assessed at 56.5% (53.3% in the Federation, 61.7% in RS). Since there are no reliable official statistical data and the organization of statistics in B-H is just at the initial stages, these are still assessments. Other assessments do not differ significantly.
During 1999, on the basis of data of the Employment Offices in the Federation and RS, it can be estimated that a mild increase has occurred in the unemployment rate to 57.5% for B-H. Here we should bear in mind that the privatisation of big state-owned enterprises, which will increase the unemployment rate, has not yet begun.
4. It can clearly be seen from the foregoing that the basic characteristic of B-H is its total dependency on foreign assistance. At the same time, after 5 years, the level of foreign assistance is starting to decrease rapidly, facing the country with a very uncomfortable situation and economic reality and an obvious need to change the political set-up. Part of this reality concerns the international community. The question that needs to be answered is what the cause is of the situation in which the country finds itself: being, after 5 years of receiving massive foreign assistance, completely dependent upon it. In other words, this assistance did not prepare the country for sustainable development. In addition, we are talking here about a European country with developed local capacities and experiences stemming from the period when it was an averagely developed country.
IV. Costs to the International Community for Establishing Peace and for Reconstruction in Bosnia-Herzegovina
1. No overview exists of the total resources expended by international organizations and specific donor countries in B-H in various areas (costs of peace-keeping operations; costs of refugees from B-H in asylum countries; humanitarian donations, primarily to displaced persons in the country; donations for economic reconstruction, reconstruction of the housing fund, infrastructure, etc.). It is possible to find only partial data on some of the costs of peacekeeping operations or refugees. All international organizations do publish their annual budgets for B-H, particularly the World Bank for the PRP; however, this does not encompass all the donations that enter B-H.
The lack of transparency of our domestic authorities in this regard is obviously politically motivated: it makes it hard to determine to what extent large donations may have been inefficiently used. The absence of a general overview of all the costs and donations of the international community, as well as the provision of only partial indicators by specific organizations, perhaps have similar motives.
Nevertheless, we consider the issue of the cost-effectiveness of international support to B-H as a very important starting-point for a critical analysis of aid and support policies.
The following estimate is based on available data for some segments of ‘costs’, and it should be considered a working estimate. In calculating the estimate, the lowest possible proportions have been taken, meaning that the real proportions are probably higher.
The estimate of the ‘costs’ of the international community and donations for all purposes refers to the period 1992–2000 (including 2000), and is arrived at through an estimation of two sub-periods: the war period and the post-Dayton period.
2. There are three basic sectors of ‘costs’ of the international community in the four-year war period 1992-5
a) Humanitarian assistance to refugees from B-H in the countries of asylum, i.e. an estimate of the costs of the induction of refugees.
By the end of 1992 the number of refugees was already 840,000, and it remained at the level of 1.2 million from 1993 to 1995. Excluding the countries of former Yugoslavia, the largest number of refugees from B-H during the four war years was in Germany, with between 300,000 and 400,000.
The estimated total costs for B-H refugees were US$13–14 billion.
b) Humanitarian aid in the country, primarily for the population of cities under siege (Sarajevo) and displaced persons.
The total number of displaced people increased from around 700,000 by the end of 1992 to 1.3 million in 1995, while in Sarajevo practically the entire population lived only from humanitarian aid during the four years of war (in 1992 over 500,000, and at the war’s end around 300,000).
The estimate for total humanitarian aid in the country was US$ 5–6 billion.
c) The estimated costs of peacekeeping operations, UNPROFOR and other organizations, including the costs of the NATO air intervention during 1995, were US$ 7–8 billion.
Therefore, the total estimated costs (a + b + c) in the period 1992-5 were US$ 25–28 billion.
The costs of neighbouring and other countries for financing the war in B-H are not included. According to the available estimates, those costs were very large. The costs of military support to the RS Army by the Federal Republic of Yugoslavia (FRY) were around US$ 4 billion. The costs of military support to the Croat Defence Council (HVO) by the Republic of Croatia were around US$ 2 billion. By the end of 1999, Alija Izetbegoviƒ had publicly announced on several occasions that the B-H Army had been supported with US$ 10 billion during the war, which seems an incredibly large amount. It is more likely that support to the B-H Army from Islamic countries and the Bosniak diaspora did not exceed US$ 4–5 billion.
Therefore, the estimated cost of the external financing of war in B-H was US$ 10–11 billion.
3. During the peace process - 1995–2000 (5 years) - five basic sectors of ‘costs’ of the international community could be analysed.
a) Humanitarian aid to refugees from B-H in asylum countries was significantly reduced. The number of refugees decreased each year, mostly with their departure to third countries (finding a ‘durable solution’), because return to B-H was slow. Approximately 700,000 refugees managed to return. During 1997 the number of refugees was approximately 600,000, of whom 200,000 were in Germany. Return to B-H was very slow during the following years too.
The total estimated cost of B-H refugees was US$ 7–8 billion.
b) Humanitarian aid in the country, during this period, covered a wider spectrum of activities, above all the attempt to create conditions for return. The number of displaced persons however, fell very slowly because of the political obstacles to their return: it was approximately 860,000 in 1998.
Total humanitarian aid in the country is estimated at US$ 7–8 billion.
c) The costs of peace operations and peacekeeping have a military and civil component. We assess military costs (IFOR, SFOR), which covered 60,000 soldiers in 1996 with a gradual reduction of their number to 20,000 in 1999, at US$ 14–15 billion.
The civil costs, relating to international organizations and the implementation structure of the GFAP (OHR, UN, IPTF, OSCE, etc.), could be estimated at US$ 3–4 billion during the five-year period.
Therefore, the estimated costs of peacekeeping and implementation of the GFAP in total amounted to US$ 17–19 billion.
d) Total assistance and support to economic recovery in B-H - which has a wide diapason, from the World Bank’s PRP (US$ 5.1 billion to be spent by the end of 2000) to EU support, support of bilateral donors, and support to financial and monetary stability - could be estimated at US$ 10–12 billion.
e) Various forms of direct donations of international NGOs, decentralized co-operation, direct solidarity with local communities in B-H, assistance for development of civil society, democratisation, media and various forms of direct assistance from Islamic countries, amount to US$ 5–6 billion.
Therefore, the total costs and donations (a + b + c + d + e) for the 1995 – 2000 period could be estimated at US$ 46–53 billion.
4. The total estimate for the costs and donations of the international community in B-H during the war and the post-Dayton period is, therefore, US$ 71–81 billion.
It is interesting that the ICG, in one of its reports, mentioned en passant that the annual costs of maintaining operations in B-H amounted to US$ 9 billion, without explaining whether this estimate related also to the war period, or more plausibly only to the post-Dayton period. Our estimate for the post-Dayton period, conducted independently of any hypothetical ICG information resources, is basically in line with the ICG data, since in annual terms it amounts to US$ 9.2–10.4 billion.
It is also essential to be aware of the important data of the US General Accounting Office (GAO), showing that total US military and civilian costs in B-H, in the period from 1992 to 2000, were US$ 12.558 billion.
The above-mentioned ICG assessments and GAO data indicate the realistic character of the above-mentioned assessment of the international community’s general costs.
V. Lessons Learnt in Bosnia-Herzegovina
1. The experience of B-H, as a country benefiting from extensive international assistance with the ‘results’ we have described, can be an important contribution to the reform of international organizations and their approaches and policies. This is particular the case because of the lack of relevant analyses of international assistance carried out by the ‘beneficiary’. All analyses have been completed by, and for the needs of, the ‘donor’. This creates a completely one-sided picture of international assistance, disables critical analyses and precludes more radical policy changes - as is noticeable to a certain extent in the aforementioned document.
On the basis of the international assistance to B-H, and the enormous disproportion between implemented assistance and its results, it is clear that there is a need to find new solutions for the problems related to the approach and concept of assistance policies. For example:
a) The existing policies are not adjusted to new conditions. The new conditions for international assistance in B-H include the fact that it is a European country with developed domestic and above all human capacities, and the fact that B-H has been undergoing a transition in post-war conditions since 1995. Assistance policies traditionally developed for other cultural-civilization conditions and static social situations could not provide good results in B-H.
b) Additionally, the example of B-H confirms that international organizations are very bureaucratic and dogmatically oriented, without internal motives for the adjustment of policies. Their lack of co-ordination - including of bilateral donors - and frequent ‘competitiveness’ demonstrates their bureaucratic nature, and various interests that have nothing to do with their official aims, and finally leads to low cost-effectiveness.
c) There are no instruments and policies for early prevention of the dependency syndrome. Instead, reactions are a consequence of an already formed dependency.
d) Policies for economic reconstruction, as well as attempts to support economic transition, are completely separate from policies of social-sector adjustment. Worse still, support for the reconstruction of social structures in B-H has been completely neglected, even though the structure of society itself has been destroyed to a greater extent than the economy.
e) All this seems to be a result of the approach already mentioned, whereby the development of a market economy should automatically lead to the development of new social structures and institutions, and fair multi-party elections will automatically ‘introduce’ democracy. On the contrary, as the experience of B-H clearly shows, a legal state and transparent institutions are preconditions for the development of a market economy. Similarly, multi-party elections mean democracy only if they are attached to the process of development of civil society, NGOs and local self-governance, along with free media. Otherwise economic transition and privatisation become new fields for the activities of organized crime, and multi-party elections help the functioning of three (national) one-party systems.
f) The critical evaluation of existing policies of international assistance, as well as suggestions for changing them, could be of great importance for the Stability Pact (SP).
2. Recommendations based on a critical analysis of international support policies in B-H are not universally valid. It should be taken into account that this concerns a specific crisis in a specific country, which is among other things European and which used to be semi-developed. It could even be said that, according to the full experience of B-H, universal international support policies are being implemented in different conditions and are inefficient. B-H has accepted these policies, which were not adapted to this country, as an object of assistance: like a patient who knows they are receiving the wrong therapy but cannot change it, still less change doctors. The fact that the doctor starts modifying the therapy after several years cannot compensate for the money lost, the time wasted and the suffering of the patient. Therefore, the first and basic recommendation, based on the B-H experience, is the need for flexibility of international support and assistance policies, and their rapid adaptation to local specificities. Thereafter, a number of specific recommendations are important for new approaches in international support policies:
a) International support for economic reconstruction should be integrated with support for social reconstruction, from sectors such as education, health, social security, pensions or unemployment benefit to rebuilt social structures (local communities, civic organizations, families, etc.). Social reconstruction means much more than institution building or the protection of human rights and democratisation. It means reconstructing and building a new social environment necessary for the success of economic reconstruction, in particular success of the economic transition.
b) Co-ordination is needed between GFAP implementation, a programme of economic reconstruction and support for sustainable development in B-H and the SP programme. Existing attempts at linking GFAP implementation with economic reconstruction are reduced to making financial support depend on the fulfilment of political conditions. This simple carrot-and-stick approach has brought changes in RS, for example, and some other local areas. However, it has over-politicized the linkage between two basic support options for the reconstruction of B-H and has de facto finished by merely rewarding or punishing policy-makers. Real and complex links have not been made, and the SP has remained totally sidelined.
c) Immediate support is necessary for defining and implementing new social policies that will alleviate the forthcoming social explosion, which threatens the process of normalization. Without this poverty will engender new, or renew old, radical and totalitarian ideologies and threaten democratization and stabilization, not only in B-H but in the region as a whole. The development of sustainable social policies in the region also has a preventive effect, since poverty not Balkan geography is the ‘powder keg’. It is necessary to ‘push’, stimulate and support the authorities in B-H to take responsibility for the social situation, instead of constantly seeking foreign aid; to find a way out of the state of dependency through the development of sustainable social policies.
d) Support must be provided for local communities and local self-governance, as well as for community-based organizations, civic initiatives and NGOs at the grass-roots level.
3. It is necessary to define new support policies for transition. B-H is a doubly specific case: a transition in post-war conditions represents a far more complex problem.
Since PRP, which is being implemented by the WB, attempts to support transition by setting criteria and through a series of activities in B-H (monetary sector and Central Bank, technical assistance, etc.), the transition process itself has received international financial support, which was not the case in other countries at the beginning of the transition. This support for the process of transition could be much more efficient, and the transition itself could be faster and more successful, were the policies of this support adapted to B-H’s post-war conditions, as well as to general experiences of transition. More precisely, it is necessary for support policies targeting transition to be oriented towards:
a) Balanced efforts to encourage transition in the economy and in social structures, particularly new support for the development of sustainable social sectors adapted to market conditions.
b) Support for restructuring the economy and the relations among certain sectors. A market that is fully effective in building the economic structure in non-market conditions will demonstrate the irrationality of the existing structure by dismantling it. This good academic answer, however, does not provide a solution for increased social problems and poverty, since it is poor consolation to the unemployed that the market will restructure the economy in time. So it is necessary to develop policies of international support for e.g. SMEs. Such expenditure represents a more rational investment than money ‘lost’ in advance, through budgetary credits or debt cancellations when a social explosion looms.
c) At the very beginning of the transition process, policies should be developed to prevent the growth of the ‘grey’ economy’; policies which should not just restrict the latter, but also stimulate the ‘formal’ economy.
d) More sophisticated policies relating to the criteria and conditions imposed on the local authorities should be developed for external support, above all by the WB and the IMF.
The B-H example shows this very clearly. One condition for financial assistance being transferred from PRP to an industry is its privatization. Privatization (so-called big privatization) is only at its initial stages. As we have previously seen, out of US$ 2.7 billion spent within the framework of PRP, only 2% was invested in industry. At the same time, the unemployment rate in the country was 57.5% in 1999, while the level of its GDP depends in large part on foreign donations that are spent on infrastructure, rather than on sustaining and increasing that level of GDP - i.e. sustainable development. Since the privatization criteria (generally normal and favourable criteria for supporting a transition) are dogmatically inaccessible, the WB and other donors prepare urgent programmes for extinguishing social conflagrations, by providing ‘credits’ (according to IDA conditions) to the Federation and RS budgets. Thus, since according to transition dogma the production of state-owned industries cannot be supported financially, state expenditure is financed instead. It is hard to imagine any market or economic doctrine capable of proving that it is better for the transition to finance expenditure (without any real chance for credits to be returned) than production (where credits will be returned even following privatization), when the state is the ‘owner’ in both cases.
4. Full support for the development of local capacities should be the basis, from the very beginning, of international support policies. Partners in the implementation of projects and support should be local organizations, NGOs, and government or other public institutions, at the local and national levels. They can be rapidly and effectively enabled, particularly in countries like B-H where a tradition of local institutions and developed human resources exists. In this way sectoral support programmes would obtain additional indirect effects, additional multi-sectoral results. For example, when local NGOs are included in social security projects, more qualitative social protection of beneficiaries will be realized, the transition from social security to a welfare mix will be supported, and the NGO sector will be strengtthened, leading indirectly to the development of civil society. These multiple effects will thus help to create both a sustainable social security system and an active civil society.
On the other hand, in the same example, if international NGOs were involved there would be high implementation fees or reduced provision of social security itself - of routine assistance to beneficiaries - as well as nil sustainability of local social security, i.e. its full dependence on new assistance. An early reliance on local capacities in the implementation of support policies is thus an important condition for realizing sustainable economic and social development, which should be the goal of any international assistance.
5. It is necessary to develop mechanisms that will act preventively against the ‘dependency syndrome’; i.e. to clearly define methods for realizing self-sustainability, as a component of all sectoral policies of international assistance. The recommendations listed above can be elements of support policies that, from the very beginning, would directly and indirectly strengthen self-sustainability.
6. The organization, planning methodology and implementation of the programmes of international organizations and bilateral donors should be critically evaluated, in particular with regard to the bureaucracy of international organizations. This is not just about bureaucratically inefficient operation. The problem is more serious. It is about bureaucracy that separates the international organizations and their support policies from their objectives (which are still support for the peace and reconstruction of war-affected countries and peoples). Bureaucracy forms its own independent and ever-present objectives for organizations, according to which these organizations as such become objectives for themselves - and, of course, for their employees. The lack of co-ordination among the activities of the different international organizations in B-H, which has already been mentioned, results from such interests that remain in the shadows.
7. A critical analysis of the experience of international support policies for B-H, with suggestions as to how these might be transformed and replaced by new policies, might be prepared either in a single study analysing the entirety of international efforts or in a number of separate studies. But there is little sign of this being done, while the mistakes made here are repeated in other countries. So the most important recommendation we can make is doubtless to commit international organizations to enabling a constant critical evaluation of the totality of their activities in certain countries. This evaluation should be made separately, in equal co-operation with local independent experts, governmental institutions and civic organizations. The existing practice of evaluation missions analysing the activities of specific organizations has not yielded good results: basically nothing changes as a result of such analyses, since their basic criteria seem to be merely the cost-effectiveness of international policies of support and assistance.
Zarko Papic heads the Sarajevo-based International Bureau for Humanitarian Issues, and is an editor of Forum Bosnae. This article is part of a more comprehensive text prepared as part of the OSF BiH (Soros Foundation) Special Initiative, Policies of International Support to the SEE Countries – Lessons (not) Learnt in B-H, within which a special study is being produced.