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Bosnia
and Herzegovina
Searching for car hire is never much fun. That is why
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Bosnia
and Herzegovina's declaration of sovereignty in October
1991 was followed by a declaration of independence from
the former Yugoslavia on 3 March 1992 after a referendum
boycotted by ethnic Serbs. The Bosnian Serbs - supported
by neighboring Serbia and Montenegro - responded with
armed resistance aimed at partitioning the republic along
ethnic lines and joining Serb-held areas to form a "Greater
Serbia." In March 1994, Bosniaks and Croats reduced
the number of warring factions from three to two by signing
an agreement creating a joint Bosniak/Croat Federation
of Bosnia and Herzegovina. On 21 November 1995, in Dayton,
Ohio, the warring parties initialed a peace agreement
that brought to a halt three years of interethnic civil
strife (the final agreement was signed in Paris on 14
December 1995). The Dayton Peace Accords retained Bosnia
and Herzegovina's international boundaries and created
a joint multi-ethnic and democratic government charged
with conducting foreign, diplomatic, and fiscal policy.
Also recognized was a second tier of government comprised
of two entities roughly equal in size: the Bosniak/Croat
Federation of Bosnia and Herzegovina and the Bosnian Serb-led
Republika Srpska (RS). The Federation and RS governments
were charged with overseeing most government functions.
The Office of the High Representative (OHR) was established
to oversee the implementation of the civilian aspects
of the agreement. In 1995-96, a NATO-led international
peacekeeping force (IFOR) of 60,000 troops served in Bosnia
to implement and monitor the military aspects of the agreement.
IFOR was succeeded by a smaller, NATO-led Stabilization
Force (SFOR) whose mission was to deter renewed hostilities.
European Union peacekeeping troops (EUFOR) replaced SFOR
in December 2004; their mission is to maintain peace and
stability throughout the country. EUFOR's mission changed
from peacekeeping to civil policing in October 2007, with
its presence reduced from nearly 7,000 to less than 2,500
troops.
The interethnic warfare in Bosnia and Herzegovina caused
production to plummet by 80% from 1992 to 1995 and unemployment
to soar. With an uneasy peace in place, output recovered
in 1996-99 at high percentage rates from a low base; but
output growth slowed in 2000-02. Part of the lag in output
was made up in 2003-08 when GDP growth exceeded 5% per
year. Banking reform accelerated in 2001 as all the Communist-era
payments bureaus were shut down; foreign banks, primarily
from Western Europe, now control most of the banking sector.
The konvertibilna marka (convertible mark or BAM)- the
national currency introduced in 1998 - is pegged to the
euro, and confidence in the currency and the banking sector
has increased. Bosnia's private sector is growing and
foreign investment is slowly increasing, but government
spending, at nearly 40% of adjusted GDP, remains high
because of redundant government offices at the state,
entity and municipal level. Implementing privatization,
however, has been slow, particularly in the Federation
where political division between ethnically-based political
parties makes agreement on economic policy more difficult.
A sizeable current account deficit and high unemployment
rate remain the two most serious macroeconomic problems.
Successful implementation of a value-added tax in 2006
provided a predictable source of revenue for the government
and helped bring in gray market activity. National-level
statistics have also improved over time but a large share
of economic activity remains unofficial and unrecorded.
Bosnia and Herzegovina became a full member of the Central
European Free Trade Agreement in September 2007. Bosnia's
economy has been largely sheltered from the global financial
downtown although key economic indicators have worsened.
Key exporters in the metal, automobile and wood processing
industries have reported a worsening performance and have
announced layoffs and output reductions.
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