IMF loan to BiH creates controversy

04/10/2012

Funds intended for structural reforms and economic development programmes have not always been budgeted for those expenses, critics said.

By Bedrana Kaletovic for Southeast European Times in Sarajevo -- 04/10/12

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Economists argued the BiH economy has not benefited from IMF loans. [Reuters]

Bosnia and Herzegovina (BiH) obtained a new $500 million (387 million euros) loan from the IMF, but critics said the government will spend the funds to pay administration employees and pensioners, fill in other budgetary gaps and repay older debts instead of investing it in economic development programmes.

''By obtaining these funds, we ensured a new grace period that will make the financial functioning of both entities and make possible the continuation of the structural reforms easier," Republika Srpska (RS) Prime Minister Aleksandar Dzombic said.

But successive BiH governments have used loans to support an excessive state, entity and local administration, and have not undertaken structural reforms to shrink it, analysts said.

"It is a fact that the IMF loans are not used for development projects," Kadrija Hodzic, professor of economics at University of Tuzla, told SETimes.

Hodzic said that BiH is in deep economic crisis and the financial prospects for the next several years border on desperation, given the existing policies.

"The unemployment rate is on the upswing path and goes counter to the expecting investment. The situation will bring about austerity in all aspects of life and will push the citizens to the limit," Hodzic said.

Analysts also said officials will use the funds to soothe widespread public dissatisfaction prior to Sunday's (October 7th) local election and pay off salaries, pensions and disability payments as well as to repay other foreign debts.

Some officials, however, are hammering home the idea that BiH must fulfill the obligations it has accepted in taking the loan.

''I expect the politicians to find enough political will to carry out all the structural reforms which BiH promised to do in the country,'' FBiH Minister of Finance Ante Kraija told SETimes.

The IMF said it expects BiH first to reduce the size of the public administration, strengthen co-ordination of economic policies on the state level, maintain fiscal discipline and financial sector stability and improve the business environment.

''Following the IMF arrangement, we are faced with carrying out the structural reforms, which the IMF should not even force us to do, but which should be a task of all levels of government in BiH," BiH Finance Minister Nikola Spiric said.

BiH's foreign debt is about 3.5 billion euros and growing.

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"The IMF and the World Bank have, through the Law on Foreign Debt, ensured repayment of that which our politicians so easily spend -- borrowed money at a high interest rate. What will remain after the spending is insufficient for us all living in this politically and economically unstable country," Vinko Boric, a retiree from Varesh, told SETimes.

"Many of our neighbours have indebted themselves to the IMF and are living in fear of crisis similar to the Greek one. Only here in BiH nobody is mentioning a recession and debts, even though the living standard is worsening," Sladjana Milosavljevic, resident of Bijelijna, told SETimes.

BiH has so far received and spent 400 million euros from the IMF's 1.2 billion euro loan package it had negotiated.

Of the latest loan, FBiH will obtain two-thirds of the funds and Republika Srpska the other third.

This content was commissioned for SETimes.com.
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