Bosnian Parties Urged to Unblock Reforms

Tuesday, 6 September, 2005

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Sead Numanovic

The international administration in Bosnia-Herzegovina has warned the government to stop wrangling over details and get on with reforms, otherwise hopes of European integration will fade.

The three main parties in one of Bosnia’s two component parts, the Federation, are threatening to vote against a draft law on taxation later in September because, they say, there are no constitutional guarantees to ensure that the tax revenues go to the central state rather than the separate entities.

Although this might seem an argument over points of detail, it reflects a wider desire in the Federation to bind the other component, Republika Srpska, RS, into the Bosnian state by as many legal mechanisms as possible.

The resulting stalemate has made the Office of the High Representative, OHR, increasingly impatient. In an August 29 interview with IWPR, spokesman Julian Braithwaite said the OHR wants the Bosnian authorities to find a compromise on key reforms, and to approve legislation on them by the end of this year.

“We expect new laws in the areas of tax, defence and intelligence services as well as public service broadcasting by the end of this year,” he said.

He warned that the way the government tackled reforms would have a “decisive effect” on progress towards European integration - Bosnia hopes to join the European Union and NATO’s Partnership for Peace programme.

While the international community - and specifically the OHR - are likely to increase pressure on the government to adopt the reforms, Braithwaite said the onus was on local politicians to take some responsibility.

“Politicians here must learn that it is high time for them to start working hard. They cannot expect the international community to make all the decisions and do their work for them,” he said. “The time has come for them [the politicians] to ask themselves ‘what can we do?’ and not ‘what can the international community do?’”

The leaders of Bosnia’s two entities are currently split over a range of political and economic reforms, but the current dispute is over tax and customs and excise. The Federation and RS currently run separate tax schemes, with different structures and rates. Their unification, with the introduction of value-added tax by 2006, is a key condition for Bosnia’s entry into the EU.

At stake is not so much the tax reforms themselves but where the revenue will go, and whether the Bosnian state or its individual entities ends up stronger as a result. Political parties in RS are happy to accept a tax law that has been suggested by an OHR-initiated independent commission. But most parties in the Federation are demanding cast-iron guarantees that the central authorities will maintain control over all tax revenues, with no get-out clause for the constituent entities.

In April this year, the three largest parties in the Federation said they wanted to see changes to the national constitution before they would agree to customs and taxation reforms. The Party of Democratic Action, SDA, the Party for Bosnia-Herzegovina, SBiH, and the Croatian Democratic Party, HDZ, called for a new clause in the constitution specifying that tax revenue should be held by Bosnia’s central bank, not by entity-based finance ministries.

Bosnian Serb politicians saw this as a tactic to weaken the RS, and rejected the proposal.

To break the deadlock, the High Representative Paddy Ashdown set up an independent Indirect Tax Policy Commission, ITPC, comprising international experts and local politicians, to kick-start the reform. The commission has drafted a bill on indirect forms of taxation which is due to come before Bosnia’s state assembly later in September.

One early benefit has already been seen. Working from an ITPC blueprint, the Bosnian government unified the customs collection system from August 1. The effect was dramatic – by the end of the month, customs officers had brought in at least 100 million convertible marks, about 55 million US dollars, more than in July.

When he spoke to IWPR, Bosnian prime minister Adnan Terzic said he was pleased with the reforms carried out so far. But his optimism is not shared by the SDA, SBiH and HDZ, which are still holding out for constitutional amendments to underpin the taxation plans.

SDA leader Sulejman Tihic, who is the Muslim member of Bosnia’s tripartite presidency, told IWPR that for the moment there were no “reforms per se, but cosmetic changes”. He warned that the three parties will vote against the tax reform bill in parliament.

By contrast, politicians in RS seem happy with the law in the form that it has been drafted by the ITPC. The entity’s finance minister Branko Krsmanovic has warned against making any amendments.

Braithwaite’s response to Tihic’s claims was that they are irrelevant to the reform process, “I would like to warn Bosnian politicians that they could end up making an elephant out of a mouse.” He suggested that to complain about the details was to miss the point of the reforms, which was “to place foundations to Bosnia’s road towards becoming part of the European family”.

OHR has tried – so far without success – to get the Federation parties to accept a compromise deal that would allow the law to be passed and the reforms to proceed.

“No one is going to be 100 per cent satisfied with these reforms,” said Braithwaite. “Like in the rest of the world, politicians in Bosnia must learn to compromise.

“Bosnia is on the road to becoming a normal European country. It will not get there by rulings enforced by the High Representative and ideal solutions, but by painful compromises and agreements made by its politicians. If the international community continues making decisions for Bosnia-Herzegovina, it will never become part of the EU.”

Sead Numanovic is a reporter for the Avaz newspaper, and a regular IWPR Contributor.