BOSNIA: SOCIAL BENEFITS REFORM PASSES FEDERATION

UNCLAS SARAJEVO 000181 SENSITIVE SIPDIS STATE FOR EUR/SCE AND EEB/IFD TREASURY FOR OASIA JEFF BAKER AND PETER MAIER E.O. 12958: N/A TAGS: PGOV EFIN ECON SOCI BK SUBJECT: BOSNIA: SOCIAL BENEFITS REFORM PASSES FEDERATION HOUSE OF REPRESENTATIVES REF: SARAJEVO 171 ¶1. (U) Summary: In an extraordinary session February 24, the Federation House of Representatives speedily passed a set of amendments to reform the system of social benefits. If also passed in the House of Peoples, the legislation is expected to fulfill requirements for release of budget-support funds from the World Bank and IMF. It is unclear at this point whether the legislation as passed will conform to World Bank and IMF requirements, but expectations are high that a financial and political crisis has been averted. End summary. ¶2. (U) Recognizing the urgency to pass the social benefits reform, leaders of the four parties in the Federation government coalition (Party of Democratic Action - SDA, Party of Bosnia and Herzegovina - SBiH, Croat Democratic Union - HDZ, and HDZ-1990) had hammered out an agreement with veterans' organizations over the previous two days that enabled passage of the legislation. As a concession to veterans, the package included additional hastily-drafted laws a) to accept pay cuts for members of Parliament and appointed officials, and b) to apply an indexing system and means-testing to other budget users, matching cuts for their programs with any that the veterans have to undergo. A handful of veterans' leaders attended the parliamentary session, demonstrating their acceptance of the package, and ensuring that the members of Parliament would swallow their pay cuts. Members of the four parties all voted for the package, while members of the opposition SDP voted against it, but without significant comment. One additional piece of legislation, which would have applied a 10 percent wage cut to all Federation employees, was stricken from the agenda at the outset, in response to massive trade union demonstrations the previous day. The bill cutting only parliamentarians' and executive appointees' wages took its place. ¶3. (SBU) The seven bills that make up the package are on the agenda for an extraordinary session of the upper chamber, the House of Peoples, on February 25. Given the solidarity of the leading parties and the compliance of the veterans groups in the House of Representatives, barring some surprise development overnight, we do not expect problems. World Bank and IMF officials have said that they will want to review the additional legislation before drawing final conclusions. ¶4. (U) As another key provision of the package, the legislation requires that no future legislation will be considered without an analysis by the Federation government of its budget impact. This will help prevent future cases of unfunded programs that got the Federation into the fiscal situation that it is now in. ¶5. (SBU) Comment: The session was unusual for its rare show of unity among the four leading parties, and its speed. At the eleventh hour, the Bosniak political parties SDA and SBiH stepped back from the brink, faced with the stark consequence of losing hundreds of millions of dollars of international financial support if they continued to pander to their constituencies of war veterans. While encouraging, it took a long time and a lot of urging from the international community for them to get there. ENGLISH