BOSNIA:EU PROGRESS REPORT REPORTS LITTLE PROGRESS

UNCLAS SARAJEVO 001721 DEPT FOR EUR/SCE, EUR/ERA; TREASURY FOR LINDQUIST E.O. 12958: N/A TAGS: ECIN PREL PGOV EU BK SUBJECT: BOSNIA:EU PROGRESS REPORT REPORTS LITTLE PROGRESS REF: 07 SARAJEVO 2414 ¶1. Summary. The European Commission (EC) on November 5 published its 2008 progress report on BiH's accession efforts. It acknowledges that progress since November 2007 in the four key areas led to the signing of a Stabilization and Accession Agreement (SAA) in June 2008, but that since then Bosnia has made litle progress implementing EU-required reforms. The report cites the lack of political consensus, inflammatory rhetoric, the insufficient functioning of BiH institutions, lack of movement on constitutional reform, and the failure of BiH to speak with one voice as the primary causes of the gridlock. EC Ambassador to BiH Kourkoulas judged that BiH scored a 2.5 on a scale of 1-5, although, he said, it could have scored a 5 had it made more of an effort. This decidedly optimistic view is not reflected in the report. End summary. ¶2. Based on progress in the four key areas set out by the EU in 2005 (implementation of police reform; full cooperation with ICTY; adoption and implementation of public broadcasting legislation; and public administration reform),the European Union signed an SAA with BiH in June, together with an Interim Agreement, which entered into force on July 1. //Political Criteria// ¶3. Bosnia does not fare well in the EC's discussion of its fulfillment of political criteria for EU accession. The report notes that nationalist rhetoric has prevailed of late, preventing the development of more functional and efficient state structures through constitutional reform. Some changes have been made to improve the efficiency of the state Parliament, but its work is still hampered by the "unstable political climate, systematic voting along ethnic lines and insufficient administrative resources," according to the report. The Council of Ministers has become marginally more functional and efficient, but "lack of resources, lack of coordination, ethnic tensions, and internal conflicts continue to delay reform." The report also cites discrepancies between the entities in adopting legislation - with the Republika Srpska (RS) performing more efficiently that the Federation, mainly due to competing party/ethnic interests in the Federation's governing coalition. It also concludes that Bosnia made only "limited progress" on making state-level istitutions more functional and efficient, which is necessary to ensure that Bosnia can meet its EU commitments. ¶4. Public administration reform has shown some progress, although since it is still in its early phases, the country's complex institutional structure continues to undermine efficiency. Progress on defense reform was also apparent, as evidenced by BiH's invitation to start NATO's "Intensified Dialogue." BiH also made advances in developing a more effective judicial system, particularly in the area of war crimes. But the country suffers from a lack of a Supreme Court, and no provision has been made for establishing one. BiH also lacks a single judicial budget and a single criminal law. This fragmentation and inconsistencies among the judicial frameworks at different levels of government continue to impair the system's efficiency. BiH made very little progress on improving its tools to fight corruption, according to the report. The report noted that the temporary suspension of Transparency International's operation was a serious concern. ¶5. The report notes that implementation of international human rights conventions needs to improve. Although limited progress was seen in the area of civil and political rights, no progress was made on fostering freedom of expression or assembly. While BiH established a Council of National Minorities at the state level, other progress, such as enforcement of minority rights has been weak. ¶6. Nationalist and inflammatory rhetoric from political leaders belonging to all constituent peoples continues to challenge the Dayton Peace Agreement and has grown more frequent, although the report still claims that Dayton implementation has continued. It also claims that BiH cooperation with the ICTY has reached a satisfactory level. It chides BiH for failure to abrogate the bilateral immunity agreement with the U.S. regarding the International Criminal Court. The RS is also singled out several times for its opposition to attempts to strengthen state institutions or comply with treaty obligations, such as the RS failure to meet its obligations under the Athens Energy Community Treaty. //Economic Criteria// ¶7. The economy has continued to expand rapidly, with real GDP growth for 2007 at 6.8%. While BiH maintained political consensus on market-based economic policy, the report notes that concrete policy measures failed to back the government's Economic and Fiscal Program for 2008-2010. A number of successes were nevertheless achieved, such as the establishment of a National Fiscal Council, agreement on a methodology for allocation of indirect tax revenues, the reduction of direct taxes, and the elimination of double taxation through certain legislative measures. However, fiscal risks mounted, in particular in the Federation, where large social spending commitments were made despite decelerating budget revenues. Wage increases at all levels of government have weakened fiscal sustainability and external competitiveness. Overall, the report concludes that the macroeconomic policy mix worsened because of BiH's expansionary fiscal policy, which has fueled inflationary pressures and widened the current account deficit. ¶8. Unemployment remains high, although according to a Labor Force Survey conducted using ILO (International Labor Organization) standards, it has fallen from 29% to 23.4%. The report notes that the public sector continues to have excessive influence over the economy. While the share of the private sector as a percentage of GDP rose to approximately 60% in 2007, privatization has all but halted in the Federation. It is somewhat better in the RS, which sold off 13 companies between January and September 2008. Yet neither entity has any concrete plans regarding privatization of the utilities sector. Overall, the commitment to structural reforms remains uneven across the country, and considerable effort must be made to enable BiH to deal with competitive pressures and market forces within the EU. //EC Ambassador Positive// ¶9. Comment. EC Ambassador to BiH Kourkoulas remarked yesterday that overall, he'd rate BiH's progress toward accession at 2.5 on a scale of 1-5. To us, this would indicate that BiH had fulfilled 50% of its obligations, which is far from the truth. Kourkoulas further stated that with a little effort, BiH could have rated a 5. Again, given the shortcomings pointed out in the report, Kourkoulas comes across as overly optimistic. He may hope that by painting an optimistic picture, BiH politicians will realize that real progress is in fact possible. But overall, the picture painted in this report is grim by European standards. Even though the report does not fully present the threat to Bosnian political stability represented by RS Prime Minister Dodik's efforts to undermine state-level institutions, it shows that under the prevailing political conditions in BiH, little progress toward the EU is possible. Unless we see a marked downscaling of nationalist rhetoric and an increased willingness to work together to strengthen the state (both of which are unlikely in the near term),progress toward meeting EU standards will continue to stall. End comment. ENGLISH