If It's Not One Thing, It's Another: Bosnia and the Economics of War and Peace

The leaders on all sides have learned the words to use: free enterprise, Western-style, market economy, dynamic, efficient. They say these things with great passion, but that is superficial. Nothing has changed from the days when this was a communist country.

--Jean Le Roch, French investment entrepreneur in Bosnia, 1998

As cruel and ironic as it may seem, the Kosovo crisis of 1999 and the subsequent proclaimed commitment by Europe to support Balkan reconstruction and economic development may have been the best things to happen to Bosnia-Herzegovina since the signing of the Paris Peace Agreement in 1995. Before Kosovo, when the notion of exit strategies for the North Atlantic Treaty Organization's and the Stabilization Force's (SFOR's) withdrawal from the region had devolved into rhetorical exercises played out in the U.S. Congress, little or no progress could be made toward helping Bosnia become a viable and functioning civil society, albeit one composed of three disparate and formerly warring entities. Accompanying the political inertia was the fact that reasonable reconstruction estimates for the Balkan nations reached an astounding level of $100 billion required by 2004. ¹ Even with the Balkan Stability Pact of 1999, however, it remains unlikely that investment will approach such a high level, with the consequence that the war and its aftermath will affect both the Balkans and Europe for decades to come.

In Bosnia, NATO and SFOR together had proven an effective instrument --perhaps the only effective instrument--for providing some measure of internal regional stability. Some observers have criticized the Bosniak government's slow postwar efforts to reintegrate ethnic communities or foster means for refugee return, and others had directly accused the government earlier with indifference to peace because of the aid it had received during the war:

While Bosnian Serb interest in NATO has mainly to do with military calculations, the Muslims [Bosniaks] gain both economically and militarily from NATO's presence. Economic benefits are the direct descendant of wartime aid, particularly of the role that [such aid] played in allowing the Bosnian government--more precisely, Sarajevo authorities --to allocate hundreds of millions of dollars worth of resources to its army that it otherwise would have had to squeeze out of a desperate population. ²

The one quality that Bosniak, Serbian, and Croatian entities within Bosnia have shared has been a propensity for corruption. That propensity is further fueled by postwar reconstruction, in which massive amounts of funds flow into a previously devastated region. While there have been examples of customs officials in both the Republika Srpska and the Bosniak-Croat Federation working mutually to combat Mafia operations, these examples appear more the exception than the rule. Further, there remain large disparities in the ways funds intended to spur economic and, by extension, social growth have been distributed among the formerly warring parties.

In terms of rooting out corruption and instituting internal reforms, it is too early to predict the success or failure of Bosnia as a state, but the indications are not good. One would hope that economic growth based on postwar aid would lead to increasingly tolerant communities, allow a return to civil order, and provide opportunity for social, political, and further economic progress. ³ Hope, however, is not certainty.

A brief review of the challenges facing Bosnia, the opportunity that the Balkan Stability Pact might provide, the reasons for the lack of successful economic growth thus far, and alternative strategies for the future form the focus of this essay. Bosnia's economic situation is by no means the worst in the Balkans; in comparison to Kosovo, which had no infrastructure or viable economy even prior to the NATO military strikes of March 1999, Bosnia's prospects might seem almost bright. In contrast to Serbia, which has been locked in an economic death spiral since 1989, Bosnia...