A FOUR-YEAR CHECKUP

A visitor to Sarajevo is struck by how far this city and country have come since Bosnia's brutal war ended just four years ago. This once-beautiful city that dominated headlines for much of the first half of this decade has seen significant reconstruction. Many of its facades are freshly painted, apartment complexes have been repaired, new houses have been built, the inner city bustles with activity, and the innumerable cafes are filled with animated conversation. And yet, it is also immediately apparent how far Bosnia still is from recovery. Nationalist politics and ethnic differences continue to dominate every aspect of daily life. The line dividing Bosnia's two entities is still regarded by nearly all who live there as a "border" separating friendly from unfriendly territory. What little economic activity exists directly relies on the foreign assistance that has flooded in since the 1995 Dayton Accord. But without substantial reforms, it would grind to a halt as soon as the foreign aid dried up.

Bosnia's post-Dayton reality is a complex one. Although the country has moved a long way from its war-shattered past, it still functions only because the international community has poured vast resources into it. Whatever progress has been achieved in Bosnia is due to the untiring efforts of foreign soldiers, diplomats, and aid workers to provide security for all individuals, to cajole and persuade the country's leaders to move forward one small step at a time, and to assist in the rebuilding of the physical and psychological infrastructure that was devastated by more than three years of war. Instead of moving toward self-sustaining peace and economic growth, the country's economy, politics, and even its security remain firmly dependent on foreign, rather than Bosnian, efforts.

Bosnia's reality presents the world with a choice: Either it follows what might be called the "Kosovo model" and takes matters into its own hands, using the power thus gained to build the multiethnic, democratic, and economically sustainable country that many hoped Dayton would achieve, or it settles for safeguarding the one clear achievement of Dayton -- ending the war -- by ensuring that hostilities do not resume. What the international community can no longer do is avoid this choice and continue to foster Bosnia's dependence on international goodwill in the hope that somehow and in some way this reliance will lessen over time. Four years after Dayton it is clear that this is unlikely to happen of its own accord.

ON THE BRIGHT SIDE

Daily life in Bosnia today is immeasurably improved over what it was just a few years ago, let alone at the time Dayton was signed. Most striking is the fact that insecurity -- individual as well as that of minority groups more generally -- no longer dominates life the way it did for many months after the war ended. Ethnic divisions remain in nearly all levels of society, but there is no longer a sense that getting on with daily life requires overcoming fears about personal safety. The arrest of nearly 40 indicted war criminals by NATO troops in the last two years has contributed to this sense of security, even though many who committed wartime atrocities -- including Radovan Karadzic and Ratko Mladic, the Bosnian Serb leaders indicted for unspeakable crimes -- have not yet been arrested.

The palpable sense of increased security throughout much of Bosnia has led to an acceleration in refugee returns, with some 60,000 "minority returns" (refugees returning to areas where they are in the minority) expected in 1999 -- a 50-percent increase from 1998. Although this figure is modest compared to the nearly one million that continue to be displaced in Bosnia and abroad, it is significant that three out of four people going back to minority areas do so without international assistance or sponsorship. Serbs once again constitute a majority in Drvar, Bosnians have returned in great numbers to Stolac, and thousands of Croats and Serbs moved back to Sarajevo this year. Minorities are even returning to formerly notorious sites of "ethnic cleansing."

Although Bosnia remains deeply divided into ethnic groupings, some of the joint institutions founded at Dayton are beginning to bridge these divisions. Those that work best are ones in which foreigners play a particularly prominent role. The Central Bank, currently governed by a New Zealander, has successfully introduced the "konvertabilna marka," thus keeping inflation low and restoring faith in Bosnia's currency. Even the Bosnian presidency, once a caldron of ethnic tensions, is showing signs of moderating temperatures, with the three presidents meeting regularly and adopting a common rhetoric -- if not yet common policies -- to address mutual problems. Increased cooperation in this and other government institutions (including the state border service, the standing committee on military matters, and police academies) reflects the emergence of a more moderate Bosnian Serb leadership as well as the decision by most Bosnian Serbs to abandon any hope of finding salvation in Belgrade following the Kosovo war.

Finally, a host of political parties, including many that cross ethnic lines, is competing for power in municipal, entity, and countrywide elections. Although nationalist political parties still dominate, increasingly open news media -- especially in print, but also in television and radio -- are providing new parties more opportunity to broadcast their messages around the country.

UNFINISHED BUSINESS

Dayton's first and most critical objective has been achieved successfully. Security, both personal and military, has been restored and the physical infrastructure has been rebuilt. But Dayton's broader goal of creating a multiethnic, democratic, and economically sustainable country is unlikely to be achieved if Bosnians and the international community continue along their current trajectory.

Take the economy. In the aftermath of Dayton, Bosnia faced three economic challenges: postwar reconstruction, the transition from Yugoslav-style communism, and the creation and maintenance of institutions capable of sustaining a market economy. Bosnia has witnessed significant reconstruction since the disbursement of $3.7 billion in foreign assistance. On the other two fronts, however, it has made virtually no progress and shows few signs of doing so in the near future.

Bosnia's leaders show little commitment to the type of reforms necessary to create a prosperous, or at least sustainable, economy. Rather than champion economic reform, Bosnia's leaders act as though they were unreconstructed, Yugoslav-style communists mired in nationalist politics. Instead of lessening their grip on the country's financial sector, privatizing its assets, and creating an atmosphere that encourages private-sector economic activity (including foreign investment), they have maintained control and tolerate, if not participate in, a system rife with corruption -- all in the service of what they define to be their nationalist political interests. For example, no real banking system has been permitted to develop because, to date, the Bosnians have insisted on maintaining the Yugoslav payments system, which allows them to track every transaction in the country and to skim off the top to fund nationalist political activities. The same type of ethnic politics now threatens to distort the privatization process.

Of course, Bosnia faces economic challenges that transcend nationalist politics and go to the heart of creating strong economic institutions: the creation of a transparent regulatory regime, a reliable tax system, and a judiciary with integrity, to name a few. In Bosnia, multiple approvals by a wide array of petty officials are required for almost any type of economic activity, opening the door to widespread graft. Taxes are unevenly collected. (It is believed that the nonpayment of taxes accounts for much of the oft-cited $1 billion lost to corruption.) And according to one senior member of the judiciary, 90 percent of the judges are viewed as compromised and needing to be replaced.

The result is an economy that has grown almost completely dependent on foreign aid. Even the most intrepid foreign investors, such as McDonald's, have all but given up on trying to do business there. Without major reforms, private inflows cannot take the place of the foreign assistance that will taper off in the next few years. Indeed, it is easy to imagine a situation in which the economy, rather than becoming sustainable, just grows smaller and poorer as the aid dries up.

BOSNIA'S TRAP

The combination of these problems creates a cycle from which it is difficult to escape. For Bosnia ever to become a functioning multiethnic society, refugees in large numbers need to return to their homes. Yet for refugees to go back home, jobs need to be created in these areas; to create jobs, economic reforms favoring private-sector activity and investment must be adopted; to institute these reforms, corruption and the leadership's commitment to communism and control must be eliminated; to defeat the culture of corruption, communism, and control, the nationalist dynamics of Bosnian politics must give way to a politics of reform; yet to denationalize politics, a multiethnic society must first exist.

It may be possible to escape this trap if Bosnia's leaders have a change of heart and fully commit themselves to implementing the economic and political reforms they have in theory accepted as necessary. Indeed, the prospect of the World Bank's four-year, $5.1 billion economic reconstruction program's drying up in 2000 may be just the kind of wake-up call that is needed. But given Bosnia's near-total dependence on foreign assistance of any kind, it is hard to imagine this will happen short of a serious crisis (e.g., one brought about by a complete withdrawal of outside aid). And a crisis that serious could have untold consequences for the country's stability.

Moreover, even if this cycle can be broken, it may be too late. The assumption that refugees will return home under the right circumstances is an increasingly doubtful basis for Western policy. Many refugees and internally displaced persons enjoy better standards of living in their new communities than they would if they returned to their former homes. The recent increase in refugee returns is still the exception, not the rule. If it is true, as refugee experts claim, that with each coming year the probability of a refugee returning home decreases by ten percent, the prospect of recreating Bosnia's multiethnic society is dim -- and becomes dimmer with each passing day.

TERMS OF ENGAGEMENT

To move to the next phase of Dayton -- from the elimination of violence in Bosnia to the development of a heterogeneous, democratic, and economically strong Bosnia -- the current level of U.S. and Western involvement must be reassessed.

The choices for future Bosnia policy are clear. At one end of the spectrum, international engagement could expand to take over many of the governing powers now left to the local parties, in order to force the necessary economic and political reforms. At the other end, their engagement could be scaled back and focused mainly on preventing a resumption of armed hostilities among ethnic groups. Although present U.S. policy is much more active than it was during the first 18 months after Dayton (for example, it has encouraged the international community to more actively enforce compliance with the agreement), it still falls well short of the requirements for fundamental reform. At the same time, international engagement in Bosnia is far greater and more expensive than necessary if its primary purpose is to prevent a return to hostilities.

The first policy option of attempting large-scale reform is now underway in Kosovo, where the U.N. administration -- backed by more than 50,000 NATO-led troops -- is authorized to take control of the territory's institutions with an eye toward creating democratic self-government. In the process, the transitional authorities have the mandate to create new political and economic institutions and are able, at least in theory, to force through any changes and reforms necessary to ensure their viability.

In contrast to this broad power in Kosovo, international civilian authorities in Bosnia possess little more than the power of persuasion. At times, such powers have proven effective -- such as when the Office of the High Representative (OHR) forced through the adoption of a national anthem, a new flag, and license plates that do not reveal the owner's geographical origin. But as one senior OHR official told us, the OHR's powers are like those of the pope: it can issue an encyclical, but unless people believe, there is very little it can do about their behavior. In Kosovo on the other hand, the U.N. administration's powers are like those of the emperor: there is very little it cannot do.

Even after four years of peace, the challenges in Bosnia loom larger in many respects than those in Kosovo. Communism is more deeply rooted in Bosnia than in Kosovo, where Albanians have grown accustomed to operating outside of state political and economic structures. Corruption has not yet become institutionalized in Kosovo as it has in Bosnia, although there are real risks of widespread criminality and semi-official extortion. And while destructive nationalism characterizes both societies, Kosovo, for better or worse, is close to becoming homogeneous, thus easing many of the complications that still confront Bosnia.

Moreover, the international investment needed for a successful transformation of Bosnia would be much greater than the already considerable investments currently in place there and in Kosovo. It would involve additional personnel capable of running major sectors of the government and even the economy. A larger international security presence -- both military and police -- would also be required. Criminal cartels would have to be eliminated, independent judiciaries would need to be set up, and individual compliance with new laws and regulations would have to be enforced. None of these changes will be easy to implement. All will be resisted, possibly violently, by those who stand to lose from large-scale reforms.

Bosnia's leaders are not likely to consent to what amounts to a virtual takeover of their government by the international community, since that would mean the demise of the very power from which they have profited so much. Even if a far-reaching governing mandate were granted, it is not likely that the United States or any other country would be prepared to pay the price for implementing the massive operation that needs to be undertaken, particularly given the competing demands of Kosovo.

DO THE RIGHT THING

The option of increasing international efforts to create a multiethnic, democratic, and economically self-sustainable Bosnia may not be an option at all. Money from the official donor community is slated to decline. And there already is a perceptible redeployment of human, financial, and diplomatic resources from Bosnia to Kosovo.

So rather than insist that Dayton will have failed if Bosnia does not soon become a multiethnic democracy, it is better to accept reality and concentrate instead on safeguarding Dayton's biggest achievement -- ending the bloodiest war in Europe since World War II. From a military perspective, this possibility has the advantage of being achievable at much less cost than the current investment. Ten thousand NATO troops with a U.S. core -- which could be rapidly reinforced -- would be sufficient to deter military action by any of the parties. This force is one-third of NATO's current Bosnian presence and only half of what it plans to deploy in 2000. This deterrence mission is one the U.S. and NATO militaries have performed for decades in Europe and is fully consistent with their future security requirements. Moreover, banning force as a means to settle differences in Bosnia would be no small achievement.

On the economic front, the Stability Pact, announced at the Sarajevo summit last July, may create a much-needed incentive for Bosnians to do the right thing. It offers Bosnia and its surrounding region the prospect of integration into the European mainstream. Over time, the pull of Europe as a home for the Balkans could powerfully affect political and economic reforms in Bosnia.

Most important, this approach would place Bosnia's political and economic future where it belongs -- firmly in the hands of the people themselves. It would present Bosnia with a fundamental choice: to accept its decline as nationalism, communism, and corruption continue to erode the political and economic systems, or to build on what the international community has accomplished and embark, however slowly, on the painful process of reform.

Generational change may help: those who led Bosnia during the war may never be able to leave behind their nationalist or communist mindsets, but future generations -- drawn by the allure of a European identity -- may be able to guide Bosnia down the right path. Modern-day Europe was not built in a day; a thriving Bosnia will not be either.

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  • Ivo H. Daalder is Senior Fellow at the Brookings Institution. He served on the National Security Council during President Clinton's first term. Michael B.G. Froman is Senior Fellow at the Council on Foreign Relations and Resident Fellow at the German Marshall Fund. He recently served as the Treasury Department's Chief of Staff.
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