The Pandemic Depression
The Global Economy Will Never Be the Same
After 14 years of intense international efforts to stabilize and rebuild Bosnia, the country now stands on the brink of collapse. For the first time since November 1995 -- when the Dayton accord ended three and a half years of bloody ethnic strife -- Bosnians are once again talking about the potential for war.
Bosnia was once the poster child for international reconstruction efforts. It was routinely touted by U.S. and European leaders as proof that under the right conditions the international community could successfully rebuild conflict-ridden countries. The 1995 Dayton peace agreement divided Bosnia into two semi-independent entities: the Federation of Bosnia and Herzegovina, inhabited mainly by Bosnian Muslims and Bosnian Croats, and the Serb-dominated Republika Srpska (Serb Republic, or RS), each with its own government, controlling taxation, educational policy, and even foreign policy. Soon after the war's end, the country was flooded with attention and over $14 billion in international aid, making it a laboratory for what was arguably the most extensive and innovative democratization experiment in history. By the end of 1996, 17 different foreign governments, 18 UN agencies, 27 intergovernmental organizations, and about 200 nongovernmental organizations (NGOs) -- not to mention tens of thousands of troops from across the globe -- were involved in reconstruction efforts. On a per capita basis, the reconstruction of Bosnia -- with less than four million citizens -- made the post-World War II rebuilding of Germany and Japan look modest.
As successful as Dayton was at ending the violence, it also sowed the seeds of instability by creating a decentralized political system that undermined the state's authority. In the past three years, ethnic nationalist rhetoric from leaders of the country's three constituent ethnic groups -- Muslims, Croats, and Serbs -- has intensified, bringing reform to a standstill. The economy has stalled, unemployment is over 27 percent, about 25 percent of the population lives in poverty, and Bosnia remains near the bottom of World Bank rankings for business development.
Most worrisome is the inability of the leading political parties to agree on a basic political structure for the country. The Bosnian Serb leader Milorad Dodik is openly floating the prospect of secession for the RS -- which is doing better than the federation in terms of economic growth and stability -- and many Bosnian Croats are pushing for more autonomy within the federation. Meanwhile, Haris Silajdzic, the Bosnian Muslim representative to the country's collective presidency has called for a more centralized state and the dissolution of the RS, which he regards as an undeserved reward for Serbian-orchestrated genocide.
The political order established by Dayton seems to be careening dangerously off course, just as the guardrails that for 14 years prevented a descent into violence are being dismantled. As locals fret about the future, international organizations have already begun to withdraw from Bosnia. The powerful instruments of authority that the international community once possessed there have been diluted by extremist ethnic factions and by fading global interest in the country. The global financial crisis, the wars in Afghanistan and Iraq, and the diplomatic challenges in Iran and North Korea have made it tempting to declare Bosnia a "mission accomplished" and get out.
There are at least three problems with such thinking. First, Bosnia may not remain peaceful for long. Unless checked, the current trends toward fragmentation will almost certainly lead to a resumption of violence -- and if twentieth-century history is any guide, conflicts that begin in Bosnia rarely remain within its borders. Second, exiting Bosnia now will leave Bosnian Muslims isolated and vulnerable, sending precisely the wrong message to the Muslim world at a time when Brussels and Washington are trying to mend relationships frayed by the Iraq war and the "global war on terror." Finally, if the international community cannot fulfill its promises in Bosnia -- given the country's location in the middle of Europe, the leverage that the EU and NATO possess there, and the massive amount of money invested thus far -- the prospects for international state building elsewhere are extremely grim.
FROM FAVORITE TO FAILURE
The strife that tore the former Yugoslav republic of Bosnia and Herzegovina apart between 1992 and 1995 resulted in mass ethnic cleansing, concentration camps, and over 100,000 deaths. Immediately after the Dayton agreement was signed, dozens of governments, regional organizations, and NGOs descended on Sarajevo and became deeply involved in stitching Bosnia back together.
Thirty-six countries, led by the United States and backed by NATO, sent a total of 60,000 troops to enforce the treaty. Although the peacekeeping force was established for only one year, it was extended in the form of the robust NATO-led Stabilization Force (SFOR), which maintained a major security presence in Bosnia for over a decade. Since World War II, of all the postconflict countries that have had foreign troops on their soil, only occupied Germany in 1946 had more than Bosnia did in 1996.
Military force played a crucial role in stopping the violence, but it was only one part of a broader multi-institutional mission that included restructuring domestic institutions and providing large cash infusions for reconstruction and reconciliation. From 1996 to 2007, $14 billion in foreign assistance flooded into Bosnia -- amounting to approximately $300 per person per year in a country of less than four million people. (By comparison, since 2002, international donors have pledged only about $65 for each resident of Afghanistan per year.)
The Dayton framework had many advantages. It stopped the bloodshed, and it created the conditions for life to return to normal -- at least on the surface. Bosnia has had several sets of municipal and national elections; its three armies have been integrated into a single multiethnic Bosnian army (each of the army's three major brigades is comprised of three ethnically based battalions), whose soldiers even fought alongside multinational forces in Iraq until December 2008. Dayton and the subsequent surge in international attention provided a high level of internal security, facilitated a widespread return of refugees and displaced persons, and created the conditions for a modest level of economic growth.
Areas such as the self-governing Brcko District, in the country's northeast, have become success stories. Brcko was the site of some of the worst violence during the war, but today the Muslim, Croat, and Serb communities there live in relative harmony. The international community established a strong protectorate structure in Brcko, under which the United States led a coordinated effort involving international organizations and domestic Bosnian institutions. At one point, SFOR included Russian troops working alongside U.S. soldiers, patrolling the streets and keeping the peace. Meanwhile, the Organization for Security and Cooperation in Europe coordinated a series of municipal elections, the EU and the U.S. Agency for International Development provided humanitarian relief, and Western NGOs helped reduce prostitution and human trafficking in the city. Just a decade after Dayton, Brcko was able to demonstrate the possibility of ethnic cooperation. Unfortunately, it has remained an exception.
The Dayton agreement's priority was to end the violence, but it included compromises that laid the foundation for Bosnia's current fragmentation. Today, most Bosnian Muslims and Bosnian Croats live in the federation, whereas most Bosnian Serbs live in the RS -- but neither entity is completely homogeneous. The brutal ethnic cleansing carried out during the war was never completed, and many villages still contain pockets of minority ethnic groups.
Decentralization and power sharing, the twin principles underpinning this consociational democracy, allow each entity to have its own government, police force, and educational system. Within the federation, power is further decentralized to ensure that Muslims and Croats are able to rule themselves. To prevent any one group from dominating, quotas were adopted in national institutions. Bosnia's three-member presidency, for example, requires one Muslim representative, one Croat, and one Serb, and each representative can veto legislation that he believes undermines his own group's vital interests. As a result, almost every important issue at the central-government level is deadlocked.
In addition to political gridlock, this structure has several other detrimental effects: it breeds corruption, weakens political moderates, and stunts economic growth. Almost every public office -- including low-level administration jobs -- is allotted according to an ethnic quota, a spoils system that has led to extensive patronage networks, corruption, and inefficiencies. As a result, there are far too many bureaucrats running around the country. With 160 government ministers and a bloated public sector that gobbles up nearly half of the country's GDP, the framework is tailor-made for those who wish to stoke ethnic antagonisms for political gain. These ethnic chauvinists -- in particular, Dodik and Silajdzic -- preach to their respective constituencies and pledge to "protect" their groups. This, in turn, weakens moderates who advocate greater national unity and civic, rather than ethnic, identities.
Although Bosnia professes to seek the creation of a unified multiethnic state, its political institutions support ethnic partition at every level of government. The city of Mostar, where Muslims, Croats, and Serbs once intermingled peacefully, provides a clear example of the harmful effects of decentralization. Mostar was scarred by some of the worst violence of the war and remains deeply divided: the Muslims now live primarily on the east side of the city, and the Croats dominate most of the city's west side. Prior to the war, there were nearly 24,000 Serbs living in the city, but today only a handful remain. Furthermore, most Croats in Mostar also hold Croatian citizenship and can vote in Croatia -- a fact that has contributed to a significant immigration of Bosnian Croats to Croatia.
Despite the rebuilding of Mostar's famous sixteenth-century bridge, which was bombed during the war, the city remains extremely polarized. Unlike in Brcko, the international community decentralized its efforts in Mostar -- a policy that gave rise to a number of absurd situations. Just a few years ago, for example, it was not possible to pay for a night's stay in a hotel in the Croatian section of the city with Bosnian currency because these hotels only accepted Croatian kuna. Even the markets in Mostar are segregated: for the most part, cigarettes and beer from Zagreb companies are sold in the Croatian section of the city; only cigarettes and beer from Sarajevo are sold in the Muslim district. It is no small financial burden for federation officials and municipal authorities to have to support separate hospitals, postal services, fire stations, and educational systems.
The federation as a whole is similarly dysfunctional. This year, the federation government is facing a 250 million euro budget deficit and will have to institute a ten percent budget reduction to qualify for a new 1.2 billion euro International Monetary Fund standby agreement (a short-term loan). The resulting cuts have already triggered a wave of protests from war veterans and trade union members who were lavished with social payments in the run-up to the 2006 and 2008 elections.
Sarajevo's bustling urban landscape -- with its smattering of skyscrapers, rebuilt mosques, and charming outdoor cafés -- masks a crucial fact: its citizens are embittered and frustrated by the country's institutional structure, which has left the federation economically worse off than the RS.
MONEY FOR NOTHING
As institutional fragmentation and unnecessary parallel structures drain the Bosnian Treasury, corruption has become endemic throughout the country, and the international community has been powerless to stamp it out. In 1999, a high-profile investigation uncovered that more than $1 billion in aid -- nearly one-fifth of the total dispersed between 1996 and 1999 -- had disappeared. Corruption is common to all transitional societies, but the political impact of corruption in Bosnia is particularly corrosive.
The police, political parties, the federation and RS governments, and the health-care and construction industries are generally cited as the most corrupt institutions and sectors. Bosnia's courts are also weak and susceptible to interference from ethnic nationalist elites. The establishment of the International Criminal Tribunal for the Former Yugoslavia (ICTY), in 1993, has left little energy and few resources for the development of Bosnian courts. Furthermore, now that the ICTY has begun referring war crimes cases back to Bosnia's domestic court system, the judiciary is simply overwhelmed by the number of cases. As a result, it is difficult to uphold the rule of law or control the rampant corruption, which has discouraged foreign direct investment and stifled private-sector development. In March 2009, for example, the Czech energy group CEZ canceled a 1.4 million euro contract because of pervasive corruption in the RS.
Bosnia's weak and disjointed domestic institutions have been further undermined by a series of international missteps. For more than a decade after Dayton, Bosnia was a hotspot for international do-gooders intent on making a difference. But good intentions and deep pockets were often accompanied by little historical knowledge and incoherent plans. Organizations that worked at cross-purposes or initiated efforts only to abandon them in the face of distraction, complacency, or fatigue undermined the entire state-building enterprise. As one Bosnian NGO officer put it, "Bosnians have come to understand the bargain well. Westerners come here with money and ideas, wanting to do good. In the end, we waste their money and they waste our time."
By default, civil-society development gained cachet as the central strategy for political development and ethnic reconciliation. If the international community's efforts were focused on supporting marginalized groups and encouraging citizen involvement from the bottom up, a culture of tolerance, it was assumed, would take root. Those advocating such ideas, however, lacked an understanding of the complexities of managing a postconflict transition overlaid on the postcommunist transition that had begun prior to the war. The strategies for a smooth postcommunist transition elsewhere in central and eastern Europe focused largely on decentralizing political and economic authority. In ethnically fractured postwar Bosnia, however, such decentralization further weakened efforts to build a coherent state.
The international community could have used a strong hand to stamp out corruption and strengthen national institutions. Unfortunately, it did not. The Dayton accord created the Office of the High Representative to coordinate and implement the accord's civilian aspects. The work of the OHR is overseen by the Peace Implementation Council -- a grouping of 55 countries and international organizations that was charged with overseeing Bosnia's reconstruction. Yet PIC representatives rarely see eye to eye, and they have frequently been unable to press for the full implementation of Dayton for fear of rocking the boat. Even after the PIC gave the OHR expanded executive powers in 1997 to impose national policy and to remove political elites who obstructed the long-term goals of the peace agreement, the OHR was unable and often unwilling to demand the necessary reforms to develop a functional central governing system. Even when international organizations were successful in their own discrete areas, they often failed to coordinate their actions with others or carry out extensive evaluations to hold themselves accountable. As achievements slowed and as average Bosnians grew frustrated by the lack of success and the failure of the international community to solicit input from them, the credibility of the international community waned.
DRIFTING TOWARD CHAOS
In April 1999, the world's attention was once again focused on the Balkans by the war in Kosovo. Paradoxically, Kosovo's relative instability fueled the perception that Bosnia had succeeded in becoming just another eastern European country in transition.
Following the Kosovo war, the Stability Pact for South Eastern Europe offered all countries in the region a road map for possible EU and NATO membership, on the condition that they develop certain institutions to help facilitate their eventual integration into these organizations. This seemed a necessary corrective for Dayton's deficiencies; both Brussels and Washington assumed that the allure of EU and NATO membership would override other political dynamics in Bosnia and finally give the international effort there some much-needed momentum.
But the international community faltered at the very moment when Bosnia needed a more robust commitment. After 9/11, the United States and much of the international community shifted its attention away from the Balkans. The Bush administration, which was at the time focused on defeating the Taliban in Afghanistan and mobilizing support for an invasion of Iraq, was reluctant to commit resources to Bosnia. Russia's increasing obstructionism within the PIC, a lack of international unity on Kosovo, and disagreements within the EU over Bosnia pushed France, Germany, and the United States to the point of wanting to declare victory in Bosnia and leave. Meanwhile, the allure of EU and NATO membership was not enough of an incentive to convince Bosnia's ethnic elites to scrap the institutions that had given them extraordinary power bases and to replace them with ones that would reduce their influence and strengthen the central government.
Rather than expend more effort, which might have generated a backlash from nationalist parties, the international community delegated much of its power in a misguided effort to let the Bosnians rule themselves. Given the dysfunctional institutional structure that the international community had helped create, this merely shifted power to obstructionist political elites rather than to those committed to improving Bosnia's situation. The transatlantic tensions that erupted over the Iraq war, along with Brussels' and Washington's subsequent scrambles for military resources to cope with the simultaneous conflicts in Afghanistan and Iraq, diverted attention away from Bosnia even more, laying the groundwork for the country's slow disintegration.
Although Bosnia experienced modest economic growth from 2000 to 2006 and seemed to be plodding along, major fault lines existed just beneath the surface. In 2006, the PIC announced its intention to close down the OHR and end Bosnia's status as an international protectorate. At the same time, the international community embarked on its first major effort to persuade Bosnia's elites to reform the constitution set up by Dayton to rid it of its flaws. In an effort spearheaded by the U.S. Institute of Peace, eight of the leading Bosnian political parties were urged to develop a series of constitutional reforms to centralize decision-making and state institutions. These reforms led to a tentative agreement to strengthen the central government's Council of Ministers and create two new national government ministries, one for a unified agricultural policy and one for science, technology, and the environment. The so-called April package broke down, however, due to last-minute obstructionism by Silajdzic and the leaders of a breakaway faction of the Croatian Democratic Union. In the end, the proposed amendment failed by two votes to garner the necessary two-thirds majority in Bosnia's parliament.
As the constitutional reform process faltered, the European Commission warned Bosnia that it would not move forward on a Stabilization and Association Agreement (SAA) -- the precursor to EU membership -- until the country adopted a series of significant reforms. Most urgently, the EU wanted reforms that put the central government, rather than the ethnic entities, in charge of the country's police force. But RS officials refused to relinquish control over any of their entity's institutions. This impasse, coupled with the failure of the constitutional talks, became the central issue in the 2006 national elections, which both Dodik and Silajdzic successfully exploited to gain strong showings for their respective Serb and Muslim exclusivist ethnic parties.
The issue of police reform remained deadlocked for more than a year, until the summer of 2007, when the Slovak diplomat Miroslav Lajcak became the UN high representative for Bosnia and tried to break the impasse. Lajcak instructed Bosnia's parliament to pass police reform, threatening to use his powers to remove obstructionist officials from power. When Dodik refused in early October, Lajcak made a series of moves intended to secure the reform and break other important deadlocks by restricting the ability of entity representatives to boycott or veto decisions in the executive branch's Council of Ministers or legislation in the Parliamentary Assembly. For the next six weeks, however, Dodik and the RS parliament stood firm, vowing to protect Serbs' interests under any circumstances.
In early December 2007, at this critical juncture in the state-building effort, the international community blinked. Instead of facing down ethnic nationalism and addressing institutional contradictions, it gave in. Javier Solana, secretary-general of the Council of the European Union and high representative of the EU's Common Foreign and Security Policy, along with the PIC and Lajcak, agreed to negotiate with Dodik. With uncertainty over Kosovo's independence looming and ambivalence regarding Bosnia growing in Brussels and Washington, no one wanted trouble. In the end, Lajcak and the EU accepted watered-down commitments from the RS, and six months later Bosnia signed an agreement with the EU, starting it on the path to accession.
The OHR's capitulation to Dodik and the RS caused severe damage to the OHR's legitimacy. As the International Crisis Group put it in a March 2009 report, the episode revealed the worst of the international community: "It overreached in its demands on police reform, overreacted to its failures, and was unprepared for the consequences."
As this situation was unfolding, the international community decided to transfer the international peacekeeping mission from the NATO-led Stabilization Force to a smaller, weaker EU-led mission, EUFOR. Between 2005 and 2007, the international security presence declined from roughly 7,000 troops to fewer than 2,000, and these soldiers had less military capability. In 2007, EUFOR withdrew all the 1,000 troops stationed in Banja Luka, the capital of the RS and the only RS city with a significant international troop presence. Today, EUFOR has fewer than 2,000 troops deployed throughout the entire country. Soon, it will be reduced to a 200-person training presence without Chapter 7 UN peacekeeping authority, which is what has allowed the international security force to actively enforce key security elements of the Dayton accord. The reduced force levels and more limited mandate will cripple the international community's ability to deter an outbreak of interethnic violence or respond rapidly to local incidents that could potentially escalate.
The failed efforts at constitutional reform, the loss of the OHR's credibility, and the declining international security presence in Bosnia are all strengthening the country's nationalist politicians and parties. As a result, the international community is now in its weakest position since the war's end, with factions from all three ethnic groups now challenging the Dayton structure. Waning U.S. and EU interest in Bosnia has coincided with rising Russian commercial and diplomatic involvement in the Balkans, which Dodik has actively exploited to stabilize his political position within the RS and to strengthen the RS's hand in Bosnian politics. In particular, Dodik has used Russia's invasion of Georgia in August of 2008 and its diplomatic opposition to the United States and the EU's position on Kosovo as a rallying cry for his increased obstructionism when it comes to strengthening Bosnia's central institutions. Reversing these centrifugal trends will require a renewed focus on Bosnia to address core issues: rising ethnic nationalist pressure, weak central governance, and endemic corruption.
First, a strong U.S. commitment is necessary. One of the central features of Bosnian politics over the past three years has been the systematic and effective exploitation by nationalist parties of international complacency and of disagreements between the OHR, Brussels, and Washington. These divisions must be reconciled. EU policy currently reflects a diverse range of motivations and interests, and U.S. leadership is needed to refocus the international community's effort, starting with the appointment of a U.S. special envoy for the Balkans to spearhead a new initiative on Bosnia and the region as a whole. U.S. Vice President Joe Biden's visit to Sarajevo in May, his decision to travel there with Solana, and his sharply worded rebuke of the increasingly nationalist rhetoric emanating from Bosnia's political elite were all necessary and important first steps for U.S. reengagement. However, a single visit will not on its own produce lasting changes in policy.
Second, EU accession remains the most significant diplomatic lever available to the West, although its allure has diminished in recent years due to the global financial crisis. Many Bosnians now wonder what tangible benefits EU membership would provide in the midst of a worldwide economic downturn. Given how easily Brussels watered down the conditions for Bosnia's SAA, most Bosnians believe that the conditions for EU membership will also be flexible, if not inconsequential. But they should not be. Brussels needs to launch a much more aggressive public diplomacy campaign to highlight not only the potential benefits of EU membership but also the costs of not meeting the EU's standards. As Kurt Bassuener of the think tank the Democratization Policy Council has noted, the failure to develop a centralized Bosnian agriculture ministry, for example, means that Serb farmers in the RS who grow high-quality organic fruits and vegetables cannot sell this lucrative produce in the EU market. Dodik's politically motivated obstructionism is thus costing Serbs in the RS jobs and income. Likewise, within the federation, disagreements between Muslims and Croats over ownership of state property continue to deter foreign direct investment, costing citizens jobs.
Exposing the costs of obstructionism and corruption to all Bosnians would weaken political support for the ethnic nationalists, create a stronger domestic constituency for reform and for the development of a functioning central state, and increase the allure of EU membership. Furthermore, the EU needs to impose more specific and strict conditionality for membership by demanding basic functionality, transparency, and accountability in Bosnia's state institutions. These institutions, as currently structured, are not even remotely consistent with EU standards. The Bosnian government needs to be given specific prescriptions on privatization, on the necessary cuts to bloated and inefficient public-sector spending, on the needed reform of government hiring practices, on creating a more equitable distribution of state property, and on the adoption of formal rules on budgeting and accounting. Brussels must also refrain from accepting compromises to the existing conditions it has specified for the closure of the OHR.
Third, as was true with the Dayton agreement, any solution for Bosnia will require the active support of its neighbors. Bosnian Serbs and Bosnian Croats look to Belgrade and Zagreb, respectively, for support, and Brussels currently has more leverage over Serbia's and Croatia's leaders than it does over ethnic elites in Bosnia. It must use this leverage to pressure the Croatian and Serbian governments not only to keep their ethnic brethren in line but also to actively support reform efforts within Bosnia.
Finally, the international security force should be maintained at current levels. Weakening it further would leave the international community without the capability to respond to a crisis. And withdrawing troops would further lessen the international community's diplomatic leverage. One possible solution would be to use Bosnian military installations as training camps for EU and NATO forces about to deploy to Afghanistan. Conducting predeployment training in Bosnia would be cheaper than maintaining a full peacekeeping operation and at the same time would reaffirm the international community's commitment to Bosnia, provide the means to begin the process for possible NATO membership for Bosnia, and help prevent a return to war.
CLOSING THE DEAL
After 14 years of the international community's efforts in the Balkans, eight in Afghanistan, and six in Iraq, it is clear that state building is not for the faint of heart. It is impossible to create a functional state that can be sustained and governed by local actors merely by throwing money and resources at the problem. As the experience in Bosnia has proved, state building is not a problem to be solved but a process to be managed.
The Dayton peace agreement is a model to emulate because it ended the violence and built the conditions for a return to normal life for many. At the same time, it offers a cautionary tale of the potential for institutional structures to create perverse incentives, spawn extremists, and eventually undermine national unity. Diplomats engaged in peacemaking in Bosnia and elsewhere must learn to weigh the long-term implications of the deals they make and ensure that both peace agreements and postconflict implementation strategies are flexible and open to adaptation as situations change.
Compared to the other major international state-building projects today -- such as those in Afghanistan, Iraq, and Kosovo -- the one in Bosnia appears to have the most going for it. Although it is not considered completely neutral, the international community has never been viewed as an occupying force in Bosnia, and global public opinion has largely seen Bosnia as a legitimate humanitarian project. Bosnia is also a small state with a postwar population of just under four million -- a stark contrast to Afghanistan and Iraq, which are both six times as large as Bosnia in terms of population. Finally, although Bosnians may not feel blessed by their geography, their location in Europe prevents them from being ignored by their wealthy neighbors, a luxury that most conflict-ridden countries do not have.
It is tempting to assert that it is now time -- nearly 14 years after Dayton -- for Bosnians to take charge. But this is impossible within an institutional structure based on ethnicity that rewards those who appeal to fear and ethnic chauvinism. If the international community does not reverse these trends, the result may well be the redivision of Bosnia and a return to war.