Post by MiG on Feb 23, 2010 1:51:08 GMT -5
Bosnia-Herzegovina financial aid under threat
Bosnia-Herzegovina stands to lose hundreds of millions in financial help because one part of the fragile country has failed to rein in payments to veterans and victims of the 1992-1995 war.
The Muslim-Croat Federation – one of the two entities that form the ethnically divided Balkan country – had promised to reduce and restructure welfare payments as a condition of help from international financial institutions. However, it has failed to cut the Bosniak – Bosnian Muslim – war pensions.
The other entity, the Republika Srpska, will use federation financial woes to justify secession from the country, western diplomats warned.
The International Monetary Fund has said it will withhold $110m in stand-by credit for the current fiscal year – the second tranche of a three-year package for the country – unless both entities meet their fiscal targets.
Resistance to cutting social benefits comes mainly from Bosniak members of the federation parliament. But the failure to meet IMF terms has jeopardised the finances of the whole state, officials said.
“We’ve told federation officials they’re underestimating the cost of inaction,” says Marco Mantovanelli, World Bank country manager. “The entity’s budget was already unsustainable in 2008, before the crisis. Beyond 2010, the budget will remain unsustainable if the reforms are not enacted.”
World Bank budget support and €100m in European Union funds also depended on the reforms promised to the IMF, officials said. Commercial banks have maintained their exposure in Bosnia-Herzegovina thanks to an IMF-brokered agreement in Vienna that assumed the reforms would happen.
International institutions treat Bosnia-Herzegovina as one state, although internal spending is mostly separate. Concerns have arisen over $300m in IMF reserve funds deposited with the country’s central bank in December and promptly split by the entities without close oversight.
Bosniak politicians, who promised pension increases before parliamentary elections in 2006, face voters again this year. Bosnian Serb leaders, also in campaign mode, have edged closer to calling a popular referendum to secede from the Bosniak-dominated country.
The federation last year paid out nearly €320m, or 42 per cent of its budget, in social transfers. Benefits mostly reach the richest fifth of the population, while the poorest veterans, who lack political connections, are left out, critics say.
Handouts have outpaced economic growth for the past five years.
The US, EU and other guarantors of the 1995 peace treaty are to meet on Wednesday to review Bosnia-Herzegovina’s progress. The country of 4.5m remains under EU-led political supervision.
Bosnia-Herzegovina stands to lose hundreds of millions in financial help because one part of the fragile country has failed to rein in payments to veterans and victims of the 1992-1995 war.
The Muslim-Croat Federation – one of the two entities that form the ethnically divided Balkan country – had promised to reduce and restructure welfare payments as a condition of help from international financial institutions. However, it has failed to cut the Bosniak – Bosnian Muslim – war pensions.
The other entity, the Republika Srpska, will use federation financial woes to justify secession from the country, western diplomats warned.
The International Monetary Fund has said it will withhold $110m in stand-by credit for the current fiscal year – the second tranche of a three-year package for the country – unless both entities meet their fiscal targets.
Resistance to cutting social benefits comes mainly from Bosniak members of the federation parliament. But the failure to meet IMF terms has jeopardised the finances of the whole state, officials said.
“We’ve told federation officials they’re underestimating the cost of inaction,” says Marco Mantovanelli, World Bank country manager. “The entity’s budget was already unsustainable in 2008, before the crisis. Beyond 2010, the budget will remain unsustainable if the reforms are not enacted.”
World Bank budget support and €100m in European Union funds also depended on the reforms promised to the IMF, officials said. Commercial banks have maintained their exposure in Bosnia-Herzegovina thanks to an IMF-brokered agreement in Vienna that assumed the reforms would happen.
International institutions treat Bosnia-Herzegovina as one state, although internal spending is mostly separate. Concerns have arisen over $300m in IMF reserve funds deposited with the country’s central bank in December and promptly split by the entities without close oversight.
Bosniak politicians, who promised pension increases before parliamentary elections in 2006, face voters again this year. Bosnian Serb leaders, also in campaign mode, have edged closer to calling a popular referendum to secede from the Bosniak-dominated country.
The federation last year paid out nearly €320m, or 42 per cent of its budget, in social transfers. Benefits mostly reach the richest fifth of the population, while the poorest veterans, who lack political connections, are left out, critics say.
Handouts have outpaced economic growth for the past five years.
The US, EU and other guarantors of the 1995 peace treaty are to meet on Wednesday to review Bosnia-Herzegovina’s progress. The country of 4.5m remains under EU-led political supervision.
www.ft.com/cms/s/0/ad06e232-1fd2-11df-8deb-00144feab49a.html