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  Bosnia's precarious economy: still not open for business

SARAJEVO/BRUSSELS, 7 August 2001: Bosnia's economic reality is still bleak. After more than five years and five billion dollars of Dayton implementation, the country remains in the early days of an economic transition that should have begun in 1996.

In a new report released today, Bosnia's Precarious Economy: Still not Open for Business, the International Crisis Group (ICG) provides an analytical snapshot of the Bosnian economy. It argues that - if the country is finally to capitalise on the promise held out by peace - urgent and wide-ranging reforms are needed that require the active engagement of Bosnians and the international community.

While many impressive gains have been registered since the signing of the November 1995 Dayton Peace Agreement, these have not moved Bosnia significantly closer to sustainable economic growth or created an environment attractive to more than a handful of foreign investors.

Most importantly, the international community has taken insufficient action to cut the Gordian knot that binds Bosnia's politicians to its state-owned firms and allows them to benefit from the funds and jobs they generate. This is seen most clearly in the failure of international efforts to ensure the rapid and effective privatisation of the commanding heights of the Bosnian economy and the creation of a single, country-wide, economic space.

ICG's Bosnia project director Mark Wheeler said: "The engagement of the international community has been unbalanced in one major respect. Rather than attempting to carry out the numerous microeconomic reforms needed to make Bosnia attractive to investors, the international community has focused on institution-building and on strengthening the several Bosnian governments' abilities to collect revenues. While this is important and necessary, a strong state does not in and of itself generate economic growth. What must be tackled more effectively now are the underlying causes of corruption and tax evasion, mainly the unreasonable and irrational tax codes and business regulations that force much economic activity underground."

The past unwillingness of many Bosnian politicians to enact meaningful reforms, particularly in Republika Srpska and in the Croat majority areas of the Federation, argues for more aggressive and specifically targeted action by the international community.

As international attention turns away from Bosnia to its neighbours to the south and east, Bosnians and the international organisations working with them must focus urgently on weaning the economy off its dependence on foreign aid. Without a business environment attractive to foreign and domestic investors alike, Bosnia's European future will remain in jeopardy.

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