AIM: start

MON, 17 DEC 2001 22:50:14 GMT

Are You Better Off than Last Year?

Fearing Tomorrow

Are you better off today than at the beginning of the year? This is the type of question usually asked when the year is about to end, and when the 12 months that are behind us are being reviewed. Ordinary people in Bosnia and Herzegovina could hardly give a positive answer.

AIM Sarajevo, December 12, 2001

When a coalition of non-nationalist parties gathered in the Alliance for Change came to power in Bosnia and Herzegovina's Muslim-Croat Federation, they promised to curb corruption, underground institutions, uncontrolled budget spending, and enhanced economic reforms, primarily the privatization process. The people were interested in more down to earth issues -- having a job and regular income, getting a pension check every month.

The start of 2001 brought two changes for the 280,000 pensioners in the Muslim-Croat entity -- a good and a bad one. The good one was actual enforcement of legal provisions requiring regular payment of pensions from money collected by the pension funds during the current month. The bad thing was that these funds could not collect enough to pay all pensions. They were, therefore, reduced by 18 percent until "conditions change." Average pensions in the federation amount to DM170 per month. Earlier, pensioners used to get the full amount, but up to three months late. Pensioners aren't delighted, but since they are the most vulnerable social group, a group that has managed to survive despite the laws of economic logic, they believe it is better to regularly receive less than to get more who knows when. Still, this improvement should not be ascribed either to the former or the current government, because the enforcement of this principle was based on a decree passed by the international high representative in Bosnia at the very end of last year.

Those who do have jobs have no reason to be too content either. This year 5,499 additional people were registered as seeking a job, and this September the number of unemployed was 269,639. This 2 percent increase in unemployment would not be alarming if the unemployment rate in the Muslim-Croat federation wasn't almost 40 percent. What is even worse, it hasn't dropped for years and despite all promises is likely to continue to grow. The situation, however, is even more alarming because the number of 406,224 officially employed people include 31,000 people who have been laid off. They are, de facto, unemployed and it is a matter of days before their companies finally fire them. They are not the only ones waiting in fear to see what tomorrow will bring. When the privatization process ends, it will not only mark the transfer of property into private hands, but will also bring a review of the number of people employed in them -- all of the 406,244 people who in September had a job. New company owners will no longer be ready to act as welfare institutions and retain redundant workers on their payrolls. That means that the current trend -- 5,090 workers lost their jobs in nine months -- will probably continue in the future.

The brighter side of the story, which will probably be highlighted by state officials, includes reforms in the financial sector and macroeconomic indices. At the beginning of the year, Bosnia transferred all payment operations to commercial banks, closing all payment authorities from the former, socialist era. Paradoxically, Bosnia was the first of the former Yugoslav republics to take this radical step forward towards a market economy, even before Slovenia, a likely member of the EU. Now the Bosnians can give the Slovenians advice on how this is done. Although there are many who would like to take credit for this move, it also was a result of a decision made by the high representative. Were it not so, preparations for its enforcement would still be under way, and new delays would constantly arise. True, the new authorities should not be accused of avoiding its responsibilities because the decision was already enforced when they actually took over.

This was a great step forward for the entire economy, the banking sector, and Bosnia's image in the eyes of potential investors. For ordinary people, however, the founding of the Agency for Insuring Deposits in the Muslim-Croat Federation was of much greater importance. Because of this, six domestic banks have been issued licenses guaranteeing the safety of deposits of up to DM5,000. The agency will reimburse account holders should any of the six banks go bankrupt.

Other general economic indices in the entity are satisfactory at the first glance. In the January-October period of 2001, industrial output went up 10 percent year on year. The trouble is, however, that growth was supposed to be much higher, because even now production is barely 40 percent of the pre-war level in 1991. Not even the most optimistic experts believe that this goal will be attained soon. The good news is that exports continue to grow, and that in the period surveyed they went up 23.8 percent compared to 2000, and that imports dropped slightly (0.8 percent). While the statistics can suggest that goods "Made in Bosnia-Herzegovina" are flooding markets from Tokyo to New York, the real picture is quite different. In the fist nine months of this year, Bosnia earned US$625 million from exports, but it simultaneously paid three times as much for various imported goods -- US$1.68 billion. This means that its exports cover only slightly over 37 percent of imports.

In the year that is about to end, thanks to a massive privatization process, about 400,000 residents of the Muslim-Croat federation became "capitalists," which is to say they became shareholders of privatized companies, either directly or by investing their certificates in privatization funds. So far the state has sold all or some of its capital in 571 companies in the entity, which is slightly over one-half of the companies marked for privatization. On paper, the state did a good job, because it got a little over DM5 billion for capital nominally worth DM2.5 billion. This, however, does not mean much in practice, because buyers used their privatization certificates as legal tender, and real money changed hands only in symbolic amounts. Like goods, like buyers, some would say. It is already clear that a number of privatized companies will not manage to survive very long. If they do not get urgent investment, accompanied by radical restructuring, they will have to shut down. This is why most of the 400,000 new shareholders have little hope that dividends will boost their meager income.

So far only slightly over one-third of all state capital planned to be privatized and worth about DM13 billion has been sold. The privatization process, therefore, will continue for another year or two. This particularly pertains to some 50 companies which are to be sold at international tenders and paid for with "real" money. Judging from results so far, finding buyers for them will be neither easy nor speedy.

Macroeconomic indices are of little help to ordinary people when it come to buying food or paying electricity, water, gas and telephone bills, nor do they guarantee regular salaries. Unreported jobs, with local businesses, international organizations, or someone else, make it possible for thousands of families to make ends meet. But such jobs, unregistered by the statistics, are becoming more difficult to find. With the period of donations gone, cash in circulation is diminishing, as well as the number of foreign organizations as potential employers. The number of business offices put up for sale or lease is growing by the day. Cafes are still working well, but the number of patrons is down. Fear of what the future may bring is shared by a vast majority of people, pensioners, unemployed, and employed alike. This is why most of them, when asked if they are better off today than a year ago will say: "We're doing fine, because we could be much worse off tomorrow."

Drazen Simic