A New Monarch in the Balkans
By VITOMIR MILES RAGUZ
Bosnia has a new monarch. That's how the Scotsman newspaper billed the May 27th transfer of
authority in the country from Wolfgang Petritsch to Paddy Ashdown. Over the years, the chief
administrator of Western policy in Bosnia and Herzegovina (BiH) certainly has evolved from a
bureaucratically dry high-representative, to a colorful colonial-like governor with all the trappings
-- an effective monarch. The increasing powers of the office have done mostly good for the country
and the region as a whole. But in order to succeed, Mr. Ashdown will need to be more realistic,
non-ideological and iconoclastic than his three predecessors.
In his inaugural speech to the BiH parliament, Mr. Ashdown hinted that he may indeed be heading
in this direction. He said that the regeneration of BiH's economy is his priority, while, among other
changes, he will hold back on interfering in the elections and will work to remake the image of his
omnipotent seat of power.
The economic policy in BiH has been to prepare the country so it can move away from dependence
on donor funds to reliance on private capital for its development needs. Mr. Ashdown suggested
that this transition might not be possible so soon, as the state is already heavily indebted.
BiH external debt stands at €2.9 billion, and amounts to 220% of its exports. When a country's
debt-to-export ratio reaches 160%, banks usually place it on their watch lists, and when it rises
above 200%, the country is generally considered to be a high default risk. True, the bulk of BiH's
external debt is priced below market rates, and its export earnings don't include grants and
transfers, so the real ratio may be somewhat lower. Yet it would be enough for international debt
markets to say no to BiH.
The country's entities and municipalities have borrowed domestically, too. Due to the already high
level of external obligations, the IMF has been vigilant in dissuading local banks from making loans
to government institutions. Most banks followed this advice, but some did not, and this may also be
developing into a problem area.
As the debt markets seem to be fully tapped, BiH may be left with only the international equity
markets to restart its moribund production capacity. Mr. Ashdown will face difficulties here as
well. BiH is too small a market to attract big investors. Moreover, corruption in the bureaucracy
and a politicized judicial system often turn away smaller regional players. They don't have the
clout of multinationals to protect them if problems arise with local authorities or partners, and
must be able to rely on efficient, independent courts.
Mr. Ashdown is right to focus on fixing up the judiciary, and energizing local resources -- primarily
the small-to-medium enterprise sector, or SMEs. But here he will need the banks again, as he wants
these "small businesses to borrow and expand." As most SMEs in BiH come to the banks with little
operational history, and with substandard financials and collateral, banks are rightly hesitant to
lend to them.
To enter this sector wholeheartedly, the banks would need credit guarantees, such as those
available to SMEs in Austria and the Netherlands, for instance. The World Bank recently pursued
the idea of such a program for BiH, in the form of credit insurance purchased by SMEs and financed
by the banks themselves, but concluded that it would be too expensive. Hopefully, a new program
can be crafted for this crucial sector, but on a larger scale, and with guarantees of Western
The only other outside resource that may be available to Mr. Ashdown would be experienced
Western managers. They could be invited to restructure and jump-start the failing state enterprises
in lieu of foreign direct investment that is unlikely to ever come to some of the enterprises, many of
which employ thousands.
BiH simply cannot move forward without realism focused on the economy. As former BiH defense
minister Miroslav Prce noted (applying the management theories of Albert Maslow) in the Winter
2001 issue of the Fletcher Forum of World Affairs: "A society which cannot satisfy the economic and
security needs of its members nor provide them with a sense of identity and belongingness will be
hard-pressed to make gains in higher order areas of human rights and democratization."
To reintegrate the fragmented BiH society, however, Mr. Ashdown may also need to practise the
idea of "triangulation" made famous during Bill Clinton's U.S.presidential campaign in 1992. Faced
with dipping poll numbers, the Clinton team decided to sidestep its largely leftist program, and
instead adopt the main objectives of the left and the right, satisfying both on the key issues, and
thus rising -- triangulating -- above both ideologies and to the middle of the political spectrum.
BiH was torn apart by radical nationalists, who were hostile to co-existence and multi-ethnic
societies, and is now being stitched together largely by romantic internationalists, who are
generally intolerant toward identity issues and prone to social experimentation. This pendulum
swing from the right to the left was a natural reaction to the horrific crimes during the tenure of
radicals, primarily on the Serb side, lasting many years. As BiH is largely a rural society where
tradition takes paramount importance, it will be difficult to building a cosmopolitan society of the
left there. In this respect, BiH is no different than any other rural part of Europe.
The divide between the internationalist left and the traditionalist right must be bridged if the
society is to find peace with itself. The country is divided enough already along the ethnic lines.
Beyond that, virtually its entire professional class is criminal in somebody's eyes, for different
reasons: communism, nationalism, corruption, and/or war crimes.
Mr. Ashdown is trying to change perceptions of the office of high representative. He has begun by
referring to himself as the servant of the Bosnian-Herzegovene people, by avoiding the use of his
royal title of Lord while on duty in BiH, and by keeping open the imposing iron gates at his office
compound. But this symbolic shattering of images must also include overtures in the policy area.
BiH has changed substantially from its wartime years, and new times require new solutions. For
instance, addressing the smallest community in BiH, the Croats, who have been systematically
disenfranchised by earlier high representatives, will require discarding trite clichés. How Mr.
Ashdown handles issues like this will be the real test whether he will pass into history as yet
another monarch, or as the first wise public servant BiH has ever had.
Mr. Raguz was ambassador of Bosnia and Herzegovina to the European Union from 1998 to 2000,
and is now a banker.
Updated June 21, 2002