BOSNIA: PLIGHT OF PENSIONERS DIRE

UNCLAS SECTION 01 OF 02 SARAJEVO 001173

SIPDIS

SIPDIS

DEPT FOR D (SMITH),P (BAME),EUR (DICARLO),EUR/SCE
(ENGLISH, FOOKS, MITCHELL, SAINZ),NSC FOR BRAUN, OSD FOR
FLORY, USNIC FOR WEBER AND GREGORIAN

E.O. 12958: N/A
TAGS: ECON PGOV PHUM PREL SOCI BK
SUBJECT: BOSNIA: PLIGHT OF PENSIONERS DIRE

SARAJEVO 00001173 001.2 OF 002



1. Summary: Bosnia's 500,000 pensioners represent its largest
special-interest group and will be influential in the October
2006 general elections. They also vote in a higher proportion
than younger citizens. Increasingly squeezed by Bosnia's new
national value-added tax (VAT) and rising health care costs,
there are signs that the entity-level pensioners'
associations are finally coming together to discuss issues of
common concern. Although some pensioners will likely vote
along ethnic-nationalist lines, they represent a potential
source of support for opposition parties provided these
parties reach out to them as part of issue-based campaigns.
End summary.

BARELY GETTING BY


2. With 307,000 pensioners in the Federation and about
200,000 in the Republika Srpska (RS),pensioners represent a
significant segment of BiH's population of about 4 million.
In the Federation, an estimated 75 percent of them, or
225,000 people, are below the poverty line, with an average
monthly income of less than $164 (250 KM). In the RS, where
pensions are lower, the proportion of elderly poor is even
higher. Many pensioners live with their extended families or
receive remittances from relatives overseas. However, the
minority who must survive solely on pension income are truly
in dire circumstances.


3. For example, if a pensioner receives a monthly pension of
$131 (200 KM),he will have to spend about $99 (150 KM) on
utilities. (Note: In the Federation, regulators recently
approved a 6.6 percent tariff increase in addition to the
seven percent increase generated by BiH's new value-added tax
(VAT)). This leaves him with 50 KM or 1.6 KM per day for
food, clothing, medicine, transportation and other expenses.
On average, a pensioner supports 1.6 people, which translates
to less than a dollar a day per person. This is an income
level considered to be "extreme poverty" by the World Bank,
and puts many of Bosnia's pensioners on a par with people in
the poorest countries in the developing world.

UNEQUAL TREATMENT


4. Benefits vary widely between the entities and within the
Federation. Some of the more affluent Cantons within the
Federation are able to offer additional benefits to the most
vulnerable pensioners. In Sarajevo Canton, for example,
pensioners with incomes less than $118 (180 KM/month) (the
minimum pension in the Federation) receive a $33 (50
KM/month) subsidy for winter heating costs. In Sarajevo
Canton, more than 100,000 people or about one third of the
population receive some kind of social assistance, including
free public transportation, heating subsidies, and at-home
nursing care or are on the client list of NGO-run soup
kitchens, which are subsidized by the local government. In
the city of Mostar, pensioners with incomes under $131 (200
KM/month) are eligible for free public transportation.
However, pensioners in impoverished areas must survive solely
on their pension payments.

THE IMPACT OF VAT


5. Since the introduction of VAT in January 2006, the
economic situation of pensioners has worsened. According to
the Federation Association of Pensioners, prices of medicines
have gone up at least 30 percent, and most pensioners spend a
large portion of their incomes on medications, which are not
covered by public health insurance. By the Association's
estimate, pensioners who were living on $1/day (1.6 KM) are
now reduced to 66 cents (1 KM/day),with which they must
cover food, clothing, medical expenses, utilities, rent and
transportation. One positive development in the Federation is
that the Federation Pension Fund is currently making payments
to wipe out past unpaid benefits dating back to 2000.
However, according to the Association, the Pension Fund still
owes pensioners back payments from 1991-August 1998, a total
of some $4.5-$5.2 million (700-800 million KM). The
Federation has also implemented one limited element of its
proposed VAT mitigation program (designed to lessen the
impact of VAT on BiH's poor) by increasing pensions by $6 (10
KM/month). Since the RS instituted its VAT mitigation program
in April 2006, almost 130,000 pensioners who receive less
than $164 (250 KM/month) are getting subsidies of an
additional $6-10 (10-15 KM/month). In the RS, almost 70
percent of the mitigation funds are allocated to pensioners
through the entity Ministry of Labor and Veterans Affairs. In
the Federation, VAT mitigation activities are delegated to

SARAJEVO 00001173 002.2 OF 002


the ten Cantonal Ministries of Social Welfare. Although these
Ministries received a forty percent budget increase in 2006,
their policies are so poorly targeted that much of the
assistance is not reaching the neediest beneficiaries.

AN UNTAPPED POLITICAL FORCE?


6. As in many other countries, pensioners tend to vote in
greater numbers than younger citizens. Although some are
politically conservative and vote along ethnic-nationalist
lines, many civil society observers feel that pensioners
would be responsive to issue-based campaigns that focus on
the topics that are most critical to them: social benefits
and health care. The RS and Federation Associations of
Pensioners are members of the NGO coalition Citizens'
Organization for Democracy (GROZD),which is funded by the
Center for Civic Initiatives (CCI). GROZD members represent a
wide spectrum of the Bosnian population in addition to
pensioners, including union members, youth, women, and
farmers. GROZD is organizing a conference in Sarajevo on May
24 to develop a citizens' platform for the October 2006
general elections, which will identify key issues on which
parties should focus during the campaign period.

COMMENT


7. Because pension and health insurance funds are
administered at the entity level, pensioners in each entity
have often seen their interests as competing rather than
complementary. One example: Pensions owed by one entity to
internally displaced persons (IDPs) living in the other
entity divided pensioners, who did not want IDPs to be paid
from "their" fund. However, we are encouraged by the
participation of the entity pensioners' associations in the
development of a common citizens' platform. Given the
pensioners' numbers and record high turnout in past
elections, we will encourage opposition parties to increase
outreach to pensioners on issues of health care and social
benefits in the run-up to October's general elections.
MCELHANEY