FEDERATION OF BOSNIA AND HERZEGOVINA – A PARALLEL CRISIS Europe Report N°209 – 28 September 2010 TABLE OF CONTENTS EXECUTIVE SUMMARY AND RECOMMENDATIONS ................................................. i I. INTRODUCTION ............................................................................................................ 1 II. COLLECTIVE RIGHTS VERSUS MAJORITY RULE ............................................. 3 A. ADMINISTRATION AND INSTITUTIONS .......................................................................................... 3 B. OUTVOTING AND CONSENSUS ...................................................................................................... 5 C. PROTECTING VITAL NATIONAL INTERESTS .................................................................................. 6 III. ETHNIC INTERESTS AND REPRESENTATION ..................................................... 8 A. THE BOSNIAKS ............................................................................................................................ 8 B. THE BOSNIAN CROATS ............................................................................................................... 10 C. SERBS, BOSNIANS, MUSLIMS AND “OTHERS” ............................................................................. 10 IV. INSTITUTIONAL PARALYSIS .................................................................................. 11 A. CRISIS IN THE FBIH GOVERNMENT ............................................................................................ 11 B. LEGAL MAZES, OVERLAPPING COMPETENCIES .......................................................................... 13 C. TERRITORIAL DISPUTES ............................................................................................................. 15 V. FINANCIAL MELTDOWN .......................................................................................... 16 A. REVENUE COLLECTION .............................................................................................................. 17 1. The tax system ........................................................................................................................... 17 2. Public companies ....................................................................................................................... 17 B. (OVER)SPENDING ...................................................................................................................... 18 C. RESOURCE (MIS)MANAGEMENT ................................................................................................ 19 VI. REFORMS AND CHALLENGES ................................................................................ 20 VII. CONCLUSION ............................................................................................................... 22 APPENDICES A. MAP OF BOSNIA AND HERZEGOVINA ............................................................................................... 24 B. GLOSSARY OF ABBREVIATIONS AND ACRONYMS ............................................................................. 25 C. BOSNIA GOVERNMENTAL ORGANISATION CHART ........................................................................... 26 D. ABOUT THE INTERNATIONAL CRISIS GROUP .................................................................................... 27 E. CRISIS GROUP REPORTS AND BRIEFINGS ON EUROPE SINCE 2007 .................................................... 28 F. CRISIS GROUP BOARD OF TRUSTEES ................................................................................................ 29 Europe Report N°209 28 September 2010 FEDERATION OF BOSNIA AND HERZEGOVINA – A PARALLEL CRISIS EXECUTIVE SUMMARY AND RECOMMENDATIONS The Federation of Bosnia and Herzegovina (FBiH), the and disorder make Bosnia’s larger entity one of Europe’s larger of Bosnia and Herzegovina’s two entities, is in cri- worst places to do business and choke its people’s eco- sis. Disputes among and between Bosniak and Croat nomic potential. leaders and a dysfunctional administrative system have paralysed decision-making, put the entity on the verge of Long dominated by two large parties, the Bosniak Party bankruptcy and triggered social unrest. Much focus has for Democratic Action (Stranka demokratske akcije, SDA) been on the conflict that pits the Serb-dominated Repub- and the Croatian Democratic Union (Hrvatska demokrat- lika Srpska (RS) against the Federation, but the parallel ska zajednica, HDZ), the Federation political scene has crisis within the Federation also deserves attention. The fragmented. The SDA-HDZ duopoly broke down in acri- need for overhaul of the FBiH has been ignored because mony a number of years ago, as both lost dominance of of belief that state-wide constitutional reform would solve their respective ethnic constituencies to hard-line or civic- most of its problems, but any state-level reform seems far oriented competitors. A bizarre five-party coalition of off. Bosnia’s challenges all have echoes at Federation rivals, with no common platform or interests apart from level, though in simpler form. Reform in the Federation, retention of power and sharing economic spoils, governs starting with establishment of a parliamentary commis- the Federation but since 2009 has been unable to take basic sion, is achievable and could give impetus to state-level decisions, such as the appointment of judges to the Con- reform, while improving the livelihoods of the people in stitutional Court. As the coalition spans the political and Bosnia’s larger entity. If it does not happen, Bosnia, ethnic spectrum, however, it is hard to unseat. which was wracked by three and a half years of war in the 1990s, may well slide toward new political and economic Nevertheless, the Federation cannot ignore the economic ungovernability. crisis for long. It has resources and revenues, but they are ineffectively exploited and distributed. Big industries are General elections on 3 October 2010 will likely produce beholden to party leaders. Friends in high places are in- more unwieldy, divided coalitions at state and Federation dispensable to cut through complex regulations even for levels that will have to confront urgent economic and so- simple transactions. Private companies – often belonging cial woes. In stark contrast to RS, however, the Federa- to politicians’ families or friends – exploit the poorly- tion, primarily a Croat-Bosniak condominium, is highly regulated natural resources for their own gain, with little decentralised. It is loved neither by the Bosniaks, who benefit to local communities. Voters expect their share would like to abolish it together with RS in favour of a of benefits, too; Bosniak parties especially have bought unitary Bosnian state, nor by the Croats, who want an support with costly state payouts to favoured groups – entity of their own. A workable balance between majority notably veterans, pensioners and persons with disabilities rule and minority rights eludes the Federation. Its elabo- – who often abuse the system. International Monetary rate, internationally-designed mechanisms and quotas are Fund (IMF) mandated cuts sparked violent demonstra- easily circumvented and subverted. tions in 2009-2010. The new government will face a dif- ficult choice; to cave in to protests and lose international The Federation is endowed with only a few areas of ex- financial support, which would lead to Bosnia’s financial clusive jurisdiction and shares most of its competencies in collapse, or make long-needed budget cuts and reforms a haphazard way with lower levels of administration. The and face public wrath. result is a dense bureaucracy, whose various parts func- tion in competition or open conflict with one another, and Revitalising the Federation is essential for Bosnia’s survival. a suffocating thicket of confusing and often contradictory A well-functioning entity would be more attractive to legislation and regulation. Federation administrative bloat Bosnian Croats and Serbs and would be more convincing in negotiations with RS at the state level. There are signs Federation of Bosnia and Herzegovina – A Parallel Crisis Crisis Group Europe Report N°209, 28 September 2010 Page ii of a more realistic attitude among some Croat and Bos- b) shifting spending from passive benefits into meas- niak leaders, a willingness to consider reforms short of ures that increase employment and integrate bene- their respective ideals. The Federation has much unrealised ficiaries into the economy; and economic potential waiting to be unlocked by privatisa- c) preparing for a shift from a rights-based to a needs- tion and regulatory reform. Its successful overhaul could based social assistance system. turn the tide and create positive momentum for state-level compromises. On the other hand, continued worsening of To the President of the Federation: relations among Bosniak, Croat and Serb leaders, com- pounded by a fiscal meltdown after the 2010 elections, 9. Nominate new judges to fill the vacant spots on the could transform public dissatisfaction into ethnic tensions Constitutional Court of the Federation. and violence. To the EU and its member states, the U.S. and other members of the International Community: RECOMMENDATIONS 10. Encourage Federation-level reform, for example by To the Parliamentary Assembly of providing expertise related to the EU acquis com- the Federation: munautaire and lessons learned about power sharing and federalism in the EU to the parliamentary reform 1. Establish a commission