COMMENT: Is there a ‘Plan C’ for Bosnia?

COMMENT: Is there a ‘Plan C’ for Bosnia?
By Alex Young in Belgrade December 9, 2015

Bosnia & Herzegovina has been a thorn in Europe’s side since the end of the war there 20 years ago – an event which will be commemorated on December 14. A succession of plans by the West to heal the divisions and fix this broken country have largely failed, and there is the very real prospect of a ‘Plan C’ arising where Russian, Turkish and possibly Middle Eastern influence becomes more pronounced. 

In February 2014 widespread protests spread throughout the Federation of Bosnia & Herzegovina, one of the country’s two entities, after years of frustration with corruption, economic stagnation and failed privatisations. The riots brought into focus the international community’s failings over this ethnically divided country, prompting a fresh approach spearheaded by the UK and Germany. By emphasising socio-economic change over constitutional change, it was hoped that greater prosperity would ultimately ease opposition to the more contentious measures Europe is pushing for.

The Anglo-German initiative was intended to defer the controversial constitutional amendments that had to be passed following the 2009 ruling by the European Court of Human Right over the Sejdic-Finci case. That ruling obliged Bosnia to remove discriminatory provisions that were preventing members of certain communities (ie. Jews and Roma) from running for highest office. Debates over how to implement the European Court’s ruling stalled all political and economic progress, including on Bosnia’s EU accession.

By kicking this can down the road, it was hoped that easier to achieve reforms would build a more conducive environment for making the trickier constitutional changes. In doing so, however, it also had the effect of further eroding the carrot and stick of ‘conditionality’ – the EU’s prime tool for dealing with recalcitrant countries in the Western Balkans – at a time when the prospect of membership already looks bleak.

Little appetite for reform

The EU’s “Compact for Growth and Jobs” laid out a number of practical reforms designed to foster economic growth: reduced taxation on labour, improved labour market competitiveness, streamlined processes for starting a business and lower privileged pensions. After Bosnia’s leaders signed a renewed commitment to European integration, the country’s Stabilisation & Association Agreement (SAA) with the EU finally entered into force in June, having originally been signed seven years prior. With the country having already enjoyed SAA’s trade terms from 2008, however, its short-term economic benefits will be minimal.

Bosnia’s political elites have demonstrated little appetite for undertaking the deep-seated reforms required, especially of the public sector, pensions and labour markets. Dependent on networks of patronage and clientalism to underpin their political bases, Bosnia’s politicians do the absolute bare minimum necessary to satisfy an international community eager to see its new approach vindicated. With 2016 a local election year across Bosnia, and powerful trade unions and war veterans groups stretching their vocal chords, the appetite for reform will only further diminish.    

Financial assistance from the International Monetary Fund (IMF), which is key to shoring up the country’s budget deficits, has been an important element of the new strategy. Again, however, there has been slow progress on meeting the IMF’s conditions for a possible new loan to replace the previous €630mn, 33-month programme. Indeed, the IMF was forced to freeze a previous deal in September 2014 because of delays in enacting economic measures.

Governments of the two halves of Bosnia – the Muslim-Croat Federation and the predominantly-Serb entity Republika Srpska – have long resorted to loans from private banks to cover up financial shortfalls, paying crippling rates of interest. There are significant concerns about the country’s financial system, especially following the December 2014 collapse of Bobar Bank (which significantly affected Brcko District and Trebinje municipality), and subsequent allegations of financial mismanagement and compromised banking regulations.

Into the vacuum

In this context of stagnation, the Russians have moved to strengthen their diplomatic, financial and cultural influence with their fellow Slavs in Republika Srpska, which has long-flirted with the idea of secession.

Considerable speculation surrounds a $300m loan from US-based Global Bancorp Commodities & Investment (GBCI), with allegations that the money actually comes from Russian sources and is intended to help stave-off a liquidity crisis. Republika Srpska’s president, Milorad Dodik, has also threatened a referendum designed to challenge the powers of the international community's High Representative and laws pertaining to Bosnia’s state court and prosecutor’s office – seen by many as a further step towards a referendum on independence by 2018.

As Bosnia's economic problems grow more acute, so any failure to fulfil salary, pension and social benefit obligations will sow the seeds of more public discontent.

With the deficiencies of the UK and Germany’s ‘Plan B’ already exposed, there is growing concern as to where Bosnia could turn for its ‘Plan C’. Letting the country slide into further misery in an effort to motivate reform is a dangerous game for the EU – one that is only likely to fuel the country's ethnic divisions. Yet only with credible conditionality, a clear accession path and progressive partners can the EU reassert its influence.

In the absence of that, ‘Plan C’ could be heavily determined by the likes of Turkey, Russia and countries in the Middle East (UAE, Iran, Saudi Arabia).

It seems that Bosnia’s future will continue to be defined by outsiders – but it could be outsiders with vastly differing ideas and interests than those to date.