Identifier
Created
Classification
Origin
06SARAJEVO1096
2006-05-18 05:54:00
CONFIDENTIAL
Embassy Sarajevo
Cable title:  

BOSNIA: REPUBLIKA SRPSKA PRIME MINISTER RECEPTIVE

Tags:  ECON EFIN PGOV BK 
pdf how-to read a cable
VZCZCXYZ0003
PP RUEHWEB

DE RUEHVJ #1096/01 1380554
ZNY CCCCC ZZH
P 180554Z MAY 06
FM AMEMBASSY SARAJEVO
TO RUEHC/SECSTATE WASHDC PRIORITY 3514
INFO RUEATRS/DEPT OF TREASURY WASHDC PRIORITY
C O N F I D E N T I A L SARAJEVO 001096 

SIPDIS

SIPDIS

DEPT FOR EUR/SCE (RIEHL, FOOKS),EUR/ACE (VISOCAN) AND
EB/IFD/OMA (YOUTH/VOLK)
TREASURY FOR OFAC (WERNER, LURIE)

E.O. 12958: DECL: 05/16/2016
TAGS: ECON EFIN PGOV BK
SUBJECT: BOSNIA: REPUBLIKA SRPSKA PRIME MINISTER RECEPTIVE
TO ECONOMIC REFORM

REF: SARAJEVO 417

Classified By: AMBASSADOR DOUGLAS L. MCELHANEY FOR REASON 1.5(B).

C O N F I D E N T I A L SARAJEVO 001096

SIPDIS

SIPDIS

DEPT FOR EUR/SCE (RIEHL, FOOKS),EUR/ACE (VISOCAN) AND
EB/IFD/OMA (YOUTH/VOLK)
TREASURY FOR OFAC (WERNER, LURIE)

E.O. 12958: DECL: 05/16/2016
TAGS: ECON EFIN PGOV BK
SUBJECT: BOSNIA: REPUBLIKA SRPSKA PRIME MINISTER RECEPTIVE
TO ECONOMIC REFORM

REF: SARAJEVO 417

Classified By: AMBASSADOR DOUGLAS L. MCELHANEY FOR REASON 1.5(B).


1. (C) Summary: In a wide-ranging discussion on May 15
(political issues reported septel),the Ambassador thanked
Republika Srpska (RS) Premier Milorad Dodik for his quick
action on several USG-sponsored economic priorities,
including revenue allocation, corporate profit tax
legislation, and regulatory reform. The Ambassador praised
Dodik's aggressive campaign to clean up the RS forestry
sector and offered U.S. technical assistance to address the
problems that led Treasury's Office of Foreign Assets Control
(OFAC) to "designate" RS forestry monopoly Srpske Sume in
June 2004. The PM pledged the rapid and transparent sale of
RS Telekom, by far the largest privatization in BiH's short
history. Dodik also agreed to the transfer of banking
supervision to the state level -- with one condition. While
the Prime Minister continues to push some of his more
populist reforms (reftel),his receptivity to sensible advice
offers a window for further near-term economic progress. End
Summary.

Quick Off the Mark
--------------


2. (SBU) Although he has been in office less than three
months, RS Prime Minister Milorad Dodik has already
demonstrated his resolve to pursue economic reform, for which
the Ambassador expressed U.S. support. At the Embassy's
urging, Dodik pushed through a new law on revenue allocation
that introduces transparent and objective criteria for
distributing funds to local governments. The new PM has
introduced legislation (drafted with USAID assistance) to
radically streamline and simplify the tax system, the opening
gambit in Post's strategy to improve the business climate for
small and medium enterprises (SMEs) in BiH. Draft corporate
profit tax legislation has already passed its first reading
in the RS National Assembly (RSNA) and legislation to
modernize personal income tax has been introduced. Dodik has

also enthusiastically embraced a USAID-sponsored regulatory
reform initiative by launching the "Guillotine Process", a
commission he will personally chair to cut the red tape and
bureaucracy that choke small businesses.

Into the Woods
--------------


3. (C) In recognition of recent progress, the Ambassador
praised Dodik's incipient campaign to tackle entrenched
corruption and criminality in the RS forestry sector. The
premier drew attention to his recent dismissal of the entire
supervisory board of Srpske Sume (SS),the entity-owned
forestry monopoly. The PM reported that he himself had met
with the new board and that he had given the incoming team
marching orders to use the reports written by the RS Supreme
Auditor and others to root out corruption in the company.
Dodik claimed the new board has explicit authority to remove
staff, from the general manager on down, and that if they did
not accomplish this task he would replace them. The PM
posited that, in his view, "only a very small number of
current Srpske Sume employees should stay there."


4. (C) The Ambassador noted that the U.S. had not engaged
in the RS forestry sector since OFAC designated Srpske Sume
(i.e., included Srpske Sume on the Western Balkans Executive
Order list, making it illegal for U.S. entities and
individuals to do business with the company) for its support
of war criminals. However, in view of Dodik's show of
resolve, the Embassy is prepared to offer the RS government
technical assistance to reform the RS forestry sector through
USAID. Dodik asked for specific suggestions. In response,
the Ambassador passed him a one-page summary of
recommendations, including legislative and regulatory changes
that would improve governance of the sector and bring it
closer to a market-based system. The Banja Luka Branch
Office will follow up with Dodik and his staff to get the
process moving on an operational level. (NOTE: USAID plans
to work with the RS government, not directly with Srpske
Sume. Post will consult with OFAC on the appropriate
licenses prior to any financial engagement with Srpske Sume
if there is sufficient progress to justify increased
engagement. END NOTE.)

Show Me the Money
--------------


5. (C) The Ambassador asked about progress on the RS


Telekom privatization, expected to generate up to KM 600
million, stressing the importance of an open and competitive
tender. Dodik informed the Ambassador that the technical
report was a bit behind schedule but should be finished in
the next few days. He alluded to difficulties with various
interested parties, dividing them into two groups -- those
that currently control the company and those that used to
control it. However, he expressed his determination to
maximize the sales value of RS Telekom. Specifically, the PM
plans to follow an EBRD recommendation to keep investment
requirements and other commitments to a minimum to ensure the
largest possible cash offers. Additionally, Dodik wants to
sell not just the RS government's 65% stake in Telekom, but
also the RS pension fund's share (15%) to increase the
attractiveness of the company for potential buyers. In line
with another innovative EBRD practice that ensures top dollar
in privatization sales, Dodik intends to hold a live
televised auction among the top three bidders to finalize the
deal. The PM also acknowledged the need to use the RS
Telekom proceeds wisely, pointing out that such a windfall
was unlikely to come along again in the near future.

Banking Supervision
--------------


6. (C) In response to prompting by the Ambassador, Dodik
expressed his willingness to transfer responsibility for
banking supervision to the state level. However, he insisted
that the headquarters of the new agency be in Banja Luka.
When it was clarified that the current plan did not involve
creation of a new agency but rather transferring of
responsibility and staff to the Central Bank (a much cheaper
and quicker solution than creating a new institution),Dodik
agreed -- as long as the oversight for banking supervision
was located in Banja Luka. He claimed that Principal Deputy
High Representative Larry Butler had promised to secure
agreement at the state and Federation levels for such a deal.

Comment
--------------


7. (C) Dodik has made economic reform a priority for both
his administration and his election campaign and has
delivered a number of concrete reforms already in his short
tenure. No economist, the PM continues to pursue some
populist initiatives -- such as an ill-advised privatization
review and a questionable development investment bank
(reftel). However, he has proven receptive to sound advice
as well. Post will continue to search for targeted
interventions of mutual interest that Dodik can sell as
pro-business and anti-corruption reforms in the run-up to the
elections, especially in the forestry sector. End Comment.

MCELHANEY