BOSNIA:CONSTITUTIONAL COURT IGNORES POTENTIALLY

C O N F I D E N T I A L SECTION 01 OF 02 SARAJEVO 001127

SIPDIS

EUR/SCE (FOOKS),TREASURY FOR LINDQUIST

E.O. 12958: DECL: 07/08/2018
TAGS: ECON EFIN PGOV BK
SUBJECT: BOSNIA:CONSTITUTIONAL COURT IGNORES POTENTIALLY
UNCONSTITUTIONAL RS BOND ISSUANCE

REF: A. SARAJEVO 411

B. SARAJEVO 570

C. SARAJEVO 152

Classified By: A/DCM Michael Murphy for reasons 1.4 (b) and (d).


1. (C) SUMMARY: The BiH Constitutional Court (CC) continues
to refuse to rule on two critical petitions challenging the
constitutionality of the Republika Srpska (RS) Law on Frozen
Foreign Currency Accounts (FFCA). The RS law allowed for the
issuance of bonds to repay frozen foreign currency account
holders in the RS in February 2008 (Ref A). The CC ruled in
2005 that old foreign currency accounts fell within the
exclusive competence of the state. Outside observers,
including members of the international community,
increasingly speculate that the CC,s failure to rule is the
result of political pressure from the RS. The CC issued a
narrow, technical ruling on the FFCA issue in June, but it
did not address the constitutionality of the RS government,s
actions. OHR experts speculated that CC issued its technical
ruling in order &to appear engaged8 and to deflect pressure
from the international community and others. The longer the
CC takes to rule on the issue, the harder it will be to roll
back the RS bond issuance and replace it with a state bond
issue. If that it the case, then RS Prime Minister (PM)
Dodik and his government will have successfully reclaimed a
state-level competency. This episode has also exposed what
some consider growing problems with the CC, which suggest
that the fragile foundations of another state institution are
cracking. END SUMMARY

Constitutional Court Postpones Currency Decision (Again)
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2. (C) The BiH Constitutional Court (CC) failed to place on
its June or July plenary session agendas two petitions
regarding the constitutionality of the December 2007 RS Law
on Frozen Foreign Currency Accounts (FFCA). The two
petitions, one co-drafted by Presidents Silajdzic and Komsic
(the Bosniak and Croat members of the Tri-Presidency
respectively),and one from SDA president Sulejman Tihic
(authored by the Office of the High Representative - OHR),
question the constitutionality of a the law, which authorized
the RS to issue frozen foreign currency bonds to RS residents
whose accounts were expropriated during the war. The CC also
failed again to consider both petitions, request for
&interim measures8 to put the bond issuance on hold until
the CC could issue a final ruling on one or both petitions.
The Silajdzic/Komsic and Tihic petitions argued that interim
measures were necessary to prevent irreparable harm to the
state, protect holders of frozen foreign savings in the
Federation and Brcko, and protect third party purchasers of
RS bonds that might subsequently be declared illegal. The RS
began issuing bonds on February 28, 2008. RS account holders
will receive their first payments on August 28. (Note: Not
long after the Silajdzic/Komsic and Tihic petitions were
filed, the Serb Member of the Tri-Presidency Radmanovic filed
his own petition challenging the constitutionality of the
state-level law. End Note)

Growing Concerns About Politics and the Court
-------------- --


3. (C) The 2007 RS law and subsequent issuance of RS bonds
was a clear challenge to a December 2005 Constitutional Court
decision, which ruled that old foreign currency accounts fell
within the exclusive competence of the state and held the
state responsible &for enacting a legislative framework for
resolving the issue of old foreign currency savings in a
unified manner for all citizens of Bosnia and Herzegovina.8
In April 2006, the state parliament adopted a Law on the
Settlement of Liabilities for Frozen Foreign Currency
Accounts (aka the Settlement Law),which, among other things,
set a March 31, 2008 deadline for the state to issue bonds.
OHR and others within the international community (IC)
believe that the RS bond issuance was illegal and
unconstitutional, and has quietly urged the CC to consider
the petitions and issue a decision. Concerns within OHR and
the IC over the CC,s failure to consider the issue are
growing, including speculation that RS officials have
actively pressured some within the CC to repeatedly postpone

SARAJEVO 00001127 002 OF 002


its consideration of the Silajdzic/Komsic and Tihic
petitions.

The Court,s Attempt to Appear Active
--------------


4. (C) In contrast to its failure to act on the request for
interim measures, let alone rule on the Silajdzic/Komsic or
Tihic petition, the CC did consider a petition at its June
session from the state-level Deputy Minister for Finance and
Treasury Kasumovic, asking the CC to determine whether the RS
actions on frozen foreign currencies were in compliance with
the two rulings issued by the Human Rights Commission (HRC)
in 2005. It was these rulings that ultimately led to the
CC,s December 2005 ruling that frozen foreign currency
issues were a state-level competency. The CC issued a
narrow, technical ruling that it lacked the jurisdiction to
consider the Kasumovic petition because the HRC rulings it
had been asked to consider had been superseded by subsequent
CC rulings and the state-level Settlement Law. OHR legal
experts told us that they were not surprised by the CC,s
ruling on the Kasumovic petition, which they indicated had
been filed prior to the far more important Silajdzic/Komsic
and Tihic petitions. They believe that the CC,s decision to
ignore the latter and rule instead on Kasumovic was designed
to allow the CC to argue that it was addressing the frozen
foreign currency issue even as it avoided ruling on the
critical constitutional issues at stake.

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


5. (C) The two petitions regarding the constitutionality of
the RS law remain in play, and the IC continues to urge they
be placed on the agenda for the next CC session (dates as yet
unknown). Unfortunately, the longer the CC refuses to either
issue interim measures or rule on the Silajdzic/Komsic and
Tihic petitions, the harder it will be to roll back the RS
bond issuance if it is in fact ruled unconstitutional. As
one expert put it to us, with RS bond holders scheduled to
receive their first payments in August, it will soon become
&an almost practical impossibility8 to ensure that there is
a single, country-wide, and unified settlement of frozen
foreign currency issues. If that it the case, then RS PM
Dodik and his government will have successfully reclaimed a
state-level competency. It would constitute another victory
in Dodik,s battle to undermine state institutions and a huge
blow to the rule of law which we have worked so hard to build
in Bosnia.


6. (C) This episode has also exposed what some consider
growing problems with the CC. The CC has been seen as a body
committed to protecting the state,s interests as well as the
interests of all Bosnia,s citizens. Many outsiders
attribute its failure to rule on the constitutionality of the
RS bond issuance to political pressure from the RS. In
addition, the CC,s decisions are supposed to be ethnically
neutral and by majority vote. In fact, the CC is the only
state-level body that does not have an ethnic quota system
built into its decision-making processes. Nonetheless, we
were told that a CC panel of judges declined to a rule on
possible interim measures earlier in the year, because a
judge from the RS blocked consensus. If true, this is yet
another disturbing sign that the fragile foundations of the
Bosnian state and its institutions are cracking.
ENGLISH