Bosnia Gets IMF Loan Amidst “Social Revolution”

Amidst growing threats of “social revolution” in Bosnia and Herzegovina, the International Monetary Fund, IMF, has approved a badly needed 1.2 billion euro stand-by arrangement for the troubled country.

“The IMF stand-by arrangement is approved,” reported Sarajevo daily Dnevni Avaz on Thursday.
“Social revolution over the revision law,” read the front-page headline in the Sarajevo daily Oslobodjenje on the same day.

The IMF’s executive board on Wednesday afternoon approved a 36-month stand-by arrangement for Bosnia and Herzegovina worth 1.2 billion euros (about US$1.57 billion). The loan is intended “to support an economic program designed by the authorities to mitigate the effects of the global financial crisis,” read an IMF press release issued around midnight.

“Bosnia and Herzegovina exhibited solid growth performance in recent years, largely reflecting the effects of reforms in key sectors, the benefits of the currency board, and a favorable external environment,” the press release said.

“Robust growth has been increasingly accompanied by macroeconomic imbalances, as rapid credit expansion, funded by large capital inflows, drove domestic demand past sustainable levels. The loosening of fiscal and income policies in 2008 further aggravated the overheating and left public finances vulnerable when the global financial crisis hit,” it added.

“Against this background, the corrective policies adopted by the authorities, along with international financial support, will contribute to realizing an orderly adjustment,” the IMF concluded.

Upon this approval, the first tranche in the amount of US$282.37 million will become immediately available while the rest of the funds will be provided after quarterly reviews.

Bosnian government officials welcomed the IMF deal, without which the country, and especially its Bosniak- (Bosnian Muslim) Bosnian Croat Federation entity could have faced serious financial troubles and maybe even bankruptcy.

According to the agreement, all administrative levels in Bosnia were to undergo drastic cuts by the end of the month. Of the country's two entities, the Federation was required to make the largest spending cuts, around 207 million euros, which is some 10 per cent of its entity, cantonal and municipal budgets. The Serb-dominated entity of Republika Srpska would have to reduce spending by 73 million euros. The budgets of the state government and the separate administrative District of Brcko would be reduced by 20 million euros and 5 million euros, respectively.

Ever since the country started negotiations with the IMF in early May, influential associations for war veterans and the disabled in the Federation have warned the government against cutting their benefits.

Several trade unions and syndicates joined the fray and threatened a country-wide general strike against a proposed to reduce social benefits.

At the end of June, the stand-by arrangement seemingly reached a dead end, since the IMF rejected last- minute changes that the Federation government tried to make in order to appease war veterans.

Hopes were revived a few days later, after the new Federation Prime Minister Mustafa Mujezinovic proposed a compromise that apparently satisfied both the IMF and angry war veterans. Instead of reducing all social benefits to war veterans and the disabled, Mujezinovic proposed that a swift revision could eliminate all illegal users of these benefits, which was expected to reduce the total cost by required 10 per cent.

The revision is supposed to take place within the next 120 days. Federation officials said they would not use available IMF funds until the revision was completed.

However, on Wednesday, war veterans associations said that they had been cheated, claiming that the Federation government's decision could bring extra reductions, in addition to the agreed revision.

“Social revolution awaits Federation government until our demands are met. We’ve been cheated again,” the association's Huso Tucak told media.

At the same time, trade unions and syndicates continue planning a general strike for July 13, which would be aimed either at bringing down the proposed law on cuts, or the government itself.