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U.S. Department of State

Diplomacy in Action

II. Country Assessment--Bosnia


U.S. Government Assistance to and Cooperative Activities with Central and Eastern Europe
Bureau of European and Eurasian Affairs
January 2007
Report
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Country Overview  

Country Facts 
  • Map of BosniaArea: 31,770 sq mi (51,129 sq km), slightly smaller than West Virginia 
  • Population: 4,498,976 (July 2006 est.) 
  • Population Growth Rate: 1.35% (2005 est.) 
  • Life Expectancy: Male 74.39 yrs., Female 81.88 yrs. (2006 est.) 
  • Infant Mortality: 9.82 deaths/1,000 live births (2006 est.) 
  • Gross Domestic Product (GDP): $22.89 billion (purchasing power parity, 2006 est.)
  • GDP Per Capita Income: $6,800 (purchasing power parity, 2005 est.) 
  • Real GDP Growth: 5.3% (2005 est.)

Source: CIA World Fact Book 2006

Overview of U.S. Government Assistance

In FY 2006, the USG provided an estimated $53.98 million in assistance to Bosnia, including:

  • $17.61 million in democratic reform programs; 
  • $11.92 million in economic reform programs; 
  • $0.01 million in social reform programs; 
  • $0.20 million in social reform programs; 
  • $19.84 million in security, regional stability, and law enforcement programs; and 
  • $4.41 million in cross-sector and other programs.

 FY 2006 Assistance Overview

U.S. STRATEGIC INTERESTS & FOREIGN POLICY PRIORITIES

A major focus for the U.S. and our allies in Bosnia is to continue to help build democracy in a country that experienced severe ethnic conflict following the fall of Yugoslavia and its communist state. Regional stability is predicated on the success of the Bosnian state, which remains fragile. Prospective membership in the North Atlantic Treaty Organization (NATO) and European Union (EU) offers the potential for increased stability and prosperity, but the path will be long and requires a focus on developing rational and coherent governing institutions. Peace and security is a major long-term objective in Bosnia and Herzegovina (BiH), which suffers from porous borders and persistent corruption, making it an attractive destination for terrorists and traffickers. The EU will take an ever larger role in pushing Bosnia towards sustainable stability and democracy, but the EU's institutional limitations requires additional attention and resources from other donors, especially the U.S. U.S. interests and priorities are to help build a Bosnia that is: secure in its own borders and able to effectively repel extremist and terrorist elements; at peace with its neighbors and contributing to global security through coalition efforts; capable of combating the scourges of organized crime, trafficking and corruption; effectively, efficiently, and democratically governed, and fully engaged in bettering the lives of its citizens; pluralistic, tolerant and welcoming of different faiths, traditions and viewpoints; and, open to local and international infusions of capital and investment.

FOREIGN ASSISTANCE PRIORITIES

The Dayton Accords, which ended the conflict in BiH, provided for two sub-state entities, the Republika Srpska (RS) and the Federation of BiH, which maintain substantial autonomy from the national government. Multiple levels of jurisdiction at the state, entity, cantonal, and municipal levels must be rationalized. Reforms necessary for eventual Euro-Atlantic integration require continued effort, including constitutional reform and police reform, which is an EC condition for concluding a Stabilization and Association Agreement. BiH has made progress in developing new state-level law enforcement and security structures, but continued assistance is necessary to strengthen BiH's capabilities to combat terrorism, organized crime, and trafficking, which remain serious concerns. Strengthening the rule of law remains a high priority, and U.S. efforts will focus on consolidating judicial reforms and increasing prosecutorial capacity, in addition to improving law enforcement capabilities at the State level. The promotion of good governance and private sector development will enable BiH to build a self-sustaining economy less reliant on foreign assistance, and will assist them on the path to European integration. USG assistance will continue to target the media and civil society, which must take a proactive role in holding the government accountable and instilling democratic norms and values.

OPERATING ENVIRONMENT

In late 2005, the European Commission (EC) agreed to launch Stabilization and Association Agreement (SAA) negotiations with BiH, as part of the EU accession process. Technical negotiations to conclude the SAA were completed by the end of 2006, but the EC has conditioned signing the SAA on BiH agreement to reform its police structures. Police reform has stalled as the RS government has refused to agree to specific EU criteria requiring it to cede authorities over its police force to the national government. The Europeans act as a force multiplier to our assistance targeting the strengthening of the BiH State Court and its associated State Prosecutor's Office. USG programs will continue to enhance the capabilities of State-level law enforcement agencies while efforts are underway to remove obstacles to police reform.

The installation of a new RS government following a vote of no-confidence in February enhanced the impact of USG economic assistance programs. With the assistance of RS Prime Minister Dodik, several USG programs to jump-start the economy have proven successful in the RS. A general election in October returned Dodik to power in the RS and also marked the return of Bosniak wartime Prime Minister Haris Silajdzic, who was elected as the Bosniak member of the Tri-presidency, to politics. Silajdzic is opposed to the U.S.-brokered package of constitutional amendments. As of December 2006, a new government was not yet in place, so it is difficult to judge the full impact of the elections on USG assistance programs. The pending decision by the Peace Implementation Council Steering Board in February 2007 whether to close the Office of the High Representative in June 2007 has, along with the lack of a government, contributed to an overall climate of political uncertainty.

COUNTRY PERFORMANCE MEASURES

Bosnian Democratic Reform

The "radar" or "spider web" graphs below illustrate Bosnia's democratic performance during FY 2005. Ratings are based on a 1 to 5 scale, with 5 representing the greatest advancement. These charts provide a disaggregated look at each of the indices and are reported to Congress on a regular basis. The gray shaded area represents 2005 performance levels, while the two dark lines indicate how each country compares in its progress vis-�-vis two standards: (1) the average of Romania's and Bulgaria's performance in each indicator as of 2002 (2002 was the year that Romania and Bulgaria - the "threshold countries" - were invited to join NATO and received favorable indications of future EU membership); and, (2) where the country stood in each indicator in 1999. Together, these charts provide a broad picture of where remaining gaps are in a country's performance, and to what extent these gaps are being filled. For more information, including a detailed explanation of each indicator shown in the graph, see USAID/E&E/PO, "Monitoring Country Progress in Central and Eastern Europe & Eurasia," No. 10 (August 2006). Found online at: http://inside.usaid.gov/EE/po/mcp.html.

 

Graph shows Bosnian Democratic Reform:  Average of Romania and Bulgaria-2002, corruption, 2.7; electoral process, 3.5; civil society, 3.2; independent media, 3.0; governance/public admin, 2.5; rule of law, 2.8

The graph above shows Bosnia's democratic reform scores in 2005* (the gray shaded area) as compared to the average of Romania's and Bulgaria's democratic reform scores in 2002 (the bold line) when they were invited to join NATO and receive favorable indications of future EU membership.

*Actual 2006 scores not yet available.

Graph shows Bosnian Democratic Reform: 1999, corruption, 2.7; electoral process, 3.5; civil society, 3.2; independent media, 3.0; governance/public admin, 2.5; rule of law, 2.8

The graph above shows Bosnia's democratic reform scores in 2005* (the gray shaded area) as compared to its democratic reform scores in 1999 (the bold line).

*Actual 2006 scores not yet available.


Bosnian Economic Reform

The "radar" or "spider web" graphs below illustrate Bosnia's economic performance during 2005. Ratings are based on a 1 to 5 scale, with 5 representing the greatest advancement. These charts provide a disaggregated look at each of the indices and are reported to Congress on a regular basis. The gray shaded area represents 2005 performance levels, while the two dark line indicates how each country compares in its progress vis-�-vis two standards: (1) the average of Romania's and Bulgaria's performance in each indicator as of 2002 (2002 was the year that Romania and Bulgaria - the "threshold countries" - were invited to join NATO and received favorable indications of future EU membership); and (2) where the country stood in each indicator in 1999. Together, these charts provide a broad picture of where remaining gaps are in a country's performance, and to what extent these gaps are being filled. For more information, including a detailed explanation of each indicator shown in the graph, see USAID/E&E/PO, "Monitoring Country Progress in Central and Eastern Europe & Eurasia," No. 10 (August 2006). Found online at: http://inside.usaid.gov/EE/po/mcp.html.

 

Graph shows Bosnian Economic Reform: Average of Romania and Bulgaria-2002, external debt percent GDP, 4.0; private sector share, 2.5; share of employment in SMEs, 4.0; export share of GDP, 1.0; FDI pc cumulative, 2.0; GDP as percent 1989 GDP, 1.5; 3yr avg inflation, 5.0

The graph above shows Bosnia's economic reform scores in 2005* (the gray shaded area) as compared to the average of Romania's and Bulgaria's economic reform scores in 2002 (the bold line) when they were invited to join NATO and received favorable indications of future EU membership.

*Actual 2006 scores not yet available.

Graph shows Bosnian Economic Reform: 1999, external debt percent GDP, 4.0; private sector share, 2.5; export share of GDP, 1.0; FDI pc cumulative, 2.0; GDP as percent 1989 GDP, 1.5; 3yr avg inflation, 5.0

The graph above shows Bosnia's economic reform scores in 2005* (the gray shaded area) as compared to its economic reform scores in 1999 (the bold line).

*Actual 2006 scores not yet available.

FY 2006 Country Program Performance

Governing Justly and Democratically

Bosnia and Herzegovina's multi-layered governance structure remains a significant constraint to smooth and effective political and economic decision making. While progress has been made in consolidating certain functions at the State level, the re-emergence of nationalist politics prior to the October elections, and the election of leaders with divergent views towards constitutional and other reforms, could hamper further efforts, and will make the EU SAA process more difficult. The October nationwide elections were the first to be fully administered by Bosnian authorities since the Dayton Accords. Bosnian civil society mobilized as never before, supporting a platform of concrete economic and social issues. A maturing judiciary tried its first war crimes cases transferred from the Hague Tribunal.

U.S. ASSISTANCE PRIORITIES

In FY 2006, rule of law and human rights programs assisted with judicial reforms, increasing prosecutorial capacity, justice sector development, and secondments of international prosecutors and judges to the Bosnian State Court. The Court and its associated State Prosecutor's office received special emphasis, particularly given the court's oversight of cases involving organized crime, terrorism, war crimes, and trafficking.

USG-funded democratic reform assistance also focused on making governance structures more rational and democratic, while strengthening citizen participation in political, social, and economic decision making. Civil society programs funded local efforts to influence policy making and increase local NGOs' capacity to advocate as well as increase their sustainability through improved techniques for fund raising. Assistance was provided to political parties and legislatures to enable them to improve their accountability to their constituents. Local government support concentrated on delivering more effective services to citizens, as well as drafting and helping pass revenue allocation legislation. Grants were given to partner municipalities for community-driven infrastructure and employment generation projects. In media reform, the USG fostered the development of politically independent, professional, and economically sustainable media.

DESCRIPTION OF PROGRAMS AND ACTIVITIES

USG support for the rule of law and human rights focused on strengthening judicial institutions and ministries, improving court functions, advancing citizens' legal rights, increasing the government's compliance with administrative legislation, and introducing new courses and teaching methodologies within law faculties.

To promote consensus building, the USG provided assistance to reform the way parliamentarians and their staffs carry out lawmaking and oversight duties. This program developed the institutional capacity of parliaments by working on legislative drafting as well as procedural reforms and improvements, a transition from the recent past, when most substantial policy reforms were drafted by international organizations. The USG also provided training on coalition building, assisting in the development and improved efficiency of party caucuses, promoting issue-based politics, developing local policy analysis organizations, and supporting select ministries in developing communication strategies. USG-funded elections-related activities promoted issue-based politics.

Within the civil society arena the USG supported local organizations through training, technical assistance, and the provision of grants, as well as by supporting policy research organizations' efforts to expand their capacity to provide data and research to legislative bodies. The USG provided core funding to the GROZD civic movement designed to promote issue-based politics. In addition, the USG supported independent media outlets with training and technical assistance focused on business practices and production techniques. The USG also provided assistance to the local Center for Investigative Journalism.

The USG provided small grants averaging $15,000 to approximately 25 Bosnian NGOs, contributing to a more open and competitive political system and the protection of human rights. A USG civic education program introduced a uniform, state-wide civics curriculum, which will reach more than 350,000 secondary and primary students each year. Other initiatives such as an English teaching program and speaker program reached thousands of Bosnians in such thematic areas as U.S. foreign policy and Islam and democracy.

Within the area of good governance, the USG provided assistance to make local governments more efficient, accountable, and better able to promote local economic development by improving customer service provisions through One-Stop Shops, modernizing budget and finance methods, and improving municipal financial management, including through multi-year capital plans. USG macro-level policy assistance better defined roles, responsibilities, and financing between levels of government.

OUTPUTS

USG assistance trained over 300 judges and prosecutors throughout the country on principles of the adversarial system and their application. It also oversaw the writing, translation and publication of the BiH State Court Book of Practice, a manual designed to make implementation of the Criminal Procedure Code more uniform country-wide. USG funding helped the State Court strengthen its witness protection program, and conducted specialized training for 60 prosecutors and tax administrators throughout Bosnia, focusing on the investigation and prosecution of tax evasion and corruption cases. Also, throughout the year the USG conducted a series of joint seminars for police and prosecutors, focusing on the collection of evidence and building a professional dialogue between police and prosecutors.

USG assistance helped update the High Judicial and Prosecutorial Council's (HJPC) strategic plan, and provided training to secretariat staff. Using the State Ministry of Justice as a model, USG assistance delivered training on legislative drafting to other line ministries. Four model courts graduated during 2006. To further modernize the storage and sharing of court records, USG assistance allowed the State Court to complete its Court Automation Project by funding deployment of 300 workstations consisting of computers, printers, uninterrupted power supplies, operations system software, and end user training at 14 court locations.

In political party development, USG assistance trained over 1,000 political party activists in message development, Get-Out-The-Vote (GOTV) campaign management, and membership recruitment. It helped develop manuals and distribute them to 18,500 poll-watchers, and provided training to over 4,000 political party poll-watchers in more than 30 municipalities in September 2006. Forty-five interns completed an extensive internship program in the State and two entity parliaments. USG assistance funded two national polls and more than 30 focus groups to measure public perception and help in campaign message development.

Within civil society programs, the GROZD civic platform collected 500,000 signatures nationwide to push for issue-focused political debate. USG assistance funded 13 sub-grants to conduct GOTV campaigns and to monitor the election process, 17 grassroots projects to increase civic participation at the local level, and four policy organizations to conduct assessments on important national issues. These groups presented their resulting policy papers before the elections and provided them to political parties for platform development. USG assistance funded meetings with representatives of local authorities and civil society in 74 municipalities in order to present local agreements to outline principles and procedures for NGO-government collaboration at the local level. USG assistance funded 20 elections-related grants to media outlets to encourage them to follow specific issues and platforms throughout the elections campaign. Media outlets published three major investigative journalism series on food safety, domestic violence, and the lack of follow-through in political corruption prosecutions.

USG small grants programs supported youth NGOs involved in public outreach campaigns for the October 2006 national elections that led directly to the organization of 30 major public events and a major radio campaign encouraging Bosnians to vote. More than 5,500 Bosnian teachers received civic education training and certification through a civic education program. More than 75,000 teenagers participated in a Project Citizen competition. More than 200,000 civic education textbooks were donated to Bosnian schools. A USG-funded English Language Fellow trained more than 500 future Bosnian English teachers and initiated the first-ever English teaching program at madrasah.

In local governance, USG assistance funded 20 new One-Stop Shops in partner municipalities throughout BiH and helped complete 60 community-based small-scale infrastructure projects to promote increased citizen involvement in municipal decision-making and to improve quality of life. It also helped establish financial management systems in 13 municipalities and conducted numerous trainings for municipal officials in the fields of financial management, process engineering, zoning, permitting, capital budgeting, and revenue allocation. USG assistance was also used to assist with the drafting of revenue allocation systems laws, which passed in both entities.

PROGRAM PERFORMANCE/IMPACT

In the past year, USG assistance helped equip the State Ministry of Justice (MoJ) and provided it with a management structure. This assistance allowed it to develop into an institution covering five sectors with 150 employees that administered the judiciary at the State level and harmonized BiH legislation with international conventions and international legal assistance. In addition, USG funding was used to assist in the development of strategic plans for both the MoJ and the HJPC. Four model courts graduated from USG assistance, with improved court administration resulting in a modern case management IT system.

With USG support through secondments of international judges and prosecutors and USG-provided training, the War Crimes Chamber at the BiH State Court has begun to function at a level that fully comports with international standards. Bosnian prosecutors are using the adversarial system to investigate war crimes cases, prepare indictments, and successfully bring war crimes cases to trial. Significantly, Bosnian prosecutors have accepted transfers of cases from the ICTY, and those indictments have been successfully prosecuted at the Bosnian State Court.

With USG support, a coalition of Bosnian civil society groups formed the GROZD movement, a non-partisan effort designed to increase citizen interest in elections and promote issue-based politics. Their Civic Platform petition gathered over 500,000 signatures from citizens urging politicians to focus on substantive issues. GROZD volunteers, with their orange T-shirts, became a ubiquitous sight across Bosnia. Unfortunately, the nationalist rhetoric largely suffocated discussion of real economic and social issues, including a critical discussion of the performance of incumbent parties over the previous four years.

In part due to USG assistance in GOTV efforts through political party, civil society and media programs, voter turnout in 2006 general elections was more robust than it had been in 2002, breaking a steady trend towards decreasing electoral participation. The USG's extensive support for elections observers through political party and civil society programs helped ensure that the domestically-administered elections were free and fair.

As a result of small grants given to NGOs supporting freedom of information, Bosnian journalists had access to more objective sources of information, allowing them to better serve the Bosnian public. USG-supported civil education programs throughout the country led to the signing of a Memorandum of Understanding by BiH Ministers of Education in both the Federation and RS - one of the few cases of RS and Federation government officials working together to pursue national goals. English language teaching programs provided the first close and continuing USG contacts with Bosnian madrasah.

After intense lobbying by the USG, both BiH and RS entities adopted revenue allocation legislation in 2006 developed through the joint USG-Swedish Governance Accountability Project. The legislation enables municipalities to have more predictable and transparent revenue transfers from shared taxes, in particular from the newly introduced Value-Added Tax (VAT). The new laws will empower local governments, and allow them to provide better services and plan for longer-term investments. In the past, revenues had been allocated on an ad hoc basis, often based on political affiliations, and the lack of transparency in the system created an environment ripe for corruption. In the Federation, revenue allocation legislation has for the first time successfully challenged the power of the cantons. This major governance reform has opened the door to further fiscal decentralization, with increased accountability and authority at the local level.

MEASURES OF PROGRAM EFFECTIVENESS

In order to determine how U.S. Government assistance affects a country, U.S. embassies set targets for improvement called "performance indicators." Data for these indicators are collected by research institutes, embassies and international organizations. By examining data over time, U.S. policymakers can better understand whether or not assistance programs are having the intended impact.

Please find below two important indicators in the area of Governing Justly and Democratically. In the charts, the "Baseline" refers to a starting point from which to measure progress or regression over time. The embassy and its partner organizations then agree on a "Target" figure that they hope to achieve as a result of U.S. assistance programs. The "Rank" figure is the resulting measurement. "FY" stands for "fiscal year," the period of the U.S. budget that runs from October 1 - September 30 of the following year. "CY" stands for "calendar year," or January 1 - December 31.

Performance Indicator: NGO Sustainability Index 2005. Seven different dimensions of the NGO sector are analyzed each year in the NGO Sustainability Index: legal environment, organizational capacity, financial viability, advocacy, service provision, NGO infrastructure and public image. The NGO Sustainability Index uses a seven-point scale, to facilitate comparisons to the Freedom House indices, with 7 indicating a low or poor level of development and 1 indicating a very advanced NGO sector. Source: USAID, NGO Sustainability Index for Central and Eastern Europe and Eurasia. Found on line at http://www.usaid.gov/locations/europe_eurasia/dem_gov/ngoindex/2004/.

CY 2003 Baseline

CY 2004 Rank

CY 2005 Rank

CY 2006 Target

4.1

4.0

3.9

3.8


Impact of U.S. Assistance on the Above Indicator: Progress on NGO sustainability continues, in part due to the impact of USG assistance that focused on increasing NGOs effectiveness, particularly through increased public exposure and activism. NGO recognition, legitimacy, and cooperation with the government are reflected in the scores for the Advocacy and Public Image dimensions, which showed the greatest improvement. Notably, GROZD's 200 NGOs and 2,000 volunteers successfully advocated to political parties and citizens in the election campaign period to adopt the GROZD platform of issue-based politics. This is reflected in increased networking and cooperation between NGOs. In addition, indigenous policy research capabilities were encouraged through targeted grants to local policy research institutions.

Performance Indicator: Media Sustainability Index 2005. The MSI assesses five "objectives" in shaping a successful media system: 1) free speech; 2) professional journalism; 3) plurality of news sources; 4) business management; 5) supporting institutions. The MSI uses a four-point scale, with a 0-1 range indicating unsustainable, anti-free press, a 1-2 range indicating an unsustainable mixed system, a 2-3 range indicating near sustainability, and a 3-4 range indicating a sustainable, free media environment. Source: USAID/IREX, Media Sustainability Index 2004. Found on line at
http://www.irex.org/msi/index.asp

CY 2003 Baseline

CY 2004 Rank

CY 2005 Rank

CY 2006 Target

2.09

2.52

2.41

2.5


Impact of U.S. Assistance on the Above Indicator: Media outlets, particularly in the print media, remain strongly influenced by political parties, and are limited in their reach to one or the other of Bosnia's two entities. USG assistance supports the development of independent, objective, private media in BiH through training and technical assistance in newsroom management, business development, independent domestic production, and legal, regulatory and policy issues. Twenty elections-related grants to media outlets encouraged them to follow specific issues and platforms throughout the elections campaign. Assistance to journalism associations enhanced their ability to protect their rights and foster professionalism through self-regulation. Though Bosnia's rating on the Media Sustainability Index is approximately the same in FY 2004 and FY 2005, media outlets have become considerably more sustainable over the period of several years.

Economic Growth

The International Monetary Fund (IMF) forecast that BiH's GDP grew by 5.5% in 2006, up from 5% in 2005. Inflation, as measured by the Consumer Price Index (CPI), crept up from 2.5% to 6.1% in 2006. Although its current account deficit has dropped from 26.6% of GDP in 2005 to 23% in 2006 according to World Bank estimates, this is still far too high and is not sustainable since it is largely funded by unpredictable sources such as assistance, remittances, and foreign direct investment (FDI). With assistance flows declining, it is crucial that BiH promote export growth and FDI. In 2006 Bosnia's FDI was only 7.5% of GDP. The slow growth of Bosnia's private sector underscores the need for a reformed business environment. USG assistance is helping Bosnia to reduce dependence on exports of raw materials, but further assistance is necessary for BiH to reach its full potential in the tourism and energy sectors. The Central Bank reports that the official unemployment rate is 31.1%. The World Bank estimates that 17.8% of the population lives below the poverty line. At both the state and entity levels, Bosnia's government officials say they are committed to continuing economic reform and EU accession, although officials in the Federation seem to have a more difficult time passing legislation and implementing regulations to advance needed reforms.

U.S. ASSISTANCE PRIORITIES

In FY 2006 USG assistance priorities were to reform direct tax administration, make the business environment more conducive for small and medium-sized enterprises (SMEs) to start or expand their operations, and strengthen commercial legal and regulatory institutions to adjudicate bankruptcy and dispute resolution. In addition, the U.S. supported the reform of BiH's energy sector regulatory structure and helped targeted industries become more productive, transparent, and internationally competitive.

DESCRIPTION OF PROGRAMS AND ACTIVITIES

The USG carried out a number of activities to help reform BiH's legal, regulatory, business and fiscal environment. USG assistance worked to promote an accountable, transparent and modern tax regime that simplifies compliance with tax laws and regulations. The USG provided support to reduce the legal, regulatory and administrative barriers faced by small and medium-sized enterprises. USG assistance also worked to modernize labor inspection regulations and to reduce excessive labor taxes which currently discourages formalization of business activity. This effort was complemented by an activity to streamline tax administrations operations. Programs to develop the capacity of BiH's commercial courts to adjudicate commercial cases in a timely manner were designed to strengthen their ability to implement bankruptcy procedures.

The USG implemented projects to promote forestry sector reform, and worked directly with SMEs to increase the profitability, employment, and competitiveness of BiH's wood processing and tourism sectors.

The USG supported efforts to develop a predictable and sustainable energy regulatory framework that is in harmony with the EU directives on electricity, the requirements of the European Union accession requirements, and the Energy Community Treaty. This activity also provided institutional support to the three regulatory commissions. Energy restructuring and privatization programs supported the new state Ministry of Energy in energy policy issues and technical assistance to the BiH Government in the development of a privatization plan for energy distribution and generating companies.

OUTPUTS

Building on USG assistance to modernize its tax system, new initiatives to reform Bosnia's system of direct taxes scored a major success with the adoption in the RS of the Corporate Income Taxes and Personal Income Tax.

Also in the RS, a "regulatory guillotine" process was launched to reduce the administrative burden on SMEs. As a result of a review of registration and inspections-related business regulations, approximately 27% of these formalities were proposed for deletion and 42% proposed for modification. For the inspections regulations examined, it was proposed that 43% of regulations be eliminated outright and another 31% be streamlined.

Six Bosnian cities successfully piloted court management systems. USG assistance has considerably strengthened Bosnian courts' ability to use bankruptcy proceedings to close insolvent firms and allow their idle assets to be redeployed to other economic uses. In addition, USG assistance helped found the Sarajevo Auction Center, which has increased transparency and reliability in the auctioning of forfeited pledged assets, thereby maximizing returns to creditors.

USG assistance provided training to the energy regulatory commissions and their staffs for the state and both entity-level energy regulatory commissions. These trainings in license monitoring and enforcement and tariff rate approvals process were in areas vitally important for the commissions to function on the professional, technical, and administrative levels.

Assistance also helped shift exports away from raw wood toward higher value-added furniture and processed wood products. Exports of the latter increased by 110% in 2006. In that period, USG assistance to small businesses in wood processing and tourism increased jobs.

PROGRAM PERFORMANCE/IMPACT

As small businesses are one of the engines for economic growth, the USG focused economic sector assistance on developing BiH's SMEs. In order to create a more conducive business climate, the USG assistance sponsored the use of the regulatory guillotine process in the RS. As the regulatory regime SMEs face is reduced, the amount of time and energy businesses spend on complying with complex and confusing procedures will be reduced significantly.

USG-led efforts to reform the system of corporate and personal income taxes began to bear fruit with the adoption of legislative reforms by the RS National Assembly in August 2006. Adopting these reforms is one part of the RS Government's commitment to reducing its dependence on various business (so-called "nuisance") taxes that have previously slowed the development of the private sector.

USG assistance to the Bosnian first instance court system helped develop its capacity to employ bankruptcy proceedings to close insolvent businesses, enabling their resources to be more quickly redirected to more profitable uses. As a result, the courts are a more efficient mechanism for allowing markets to work, thereby strengthening the business environment.

USG efforts to strengthen Bosnia's regulatory bodies developed crucial technical and administrative capacity in Bosnia's energy regulatory commissions to review and process tariff applications and monitor and enforce licenses. These measures bring Bosnia closer to having the fully functioning commissions required by Bosnia's ratification of the Southeastern European Energy Community Treaty.

One of the major successes during FY 2006 was the RS National Assembly's adoption of a USG-developed forestry reform package that, if fully implemented, will institutionally and operationally overhaul the RS forestry sector. A better functioning forestry sector will allow Bosnia to expand production, sales, and exports of higher valued added outputs, rather than relying on raw materials exports as it had in the past.

MEASURES OF PROGRAM EFFECTIVENESS

In order to determine how U.S. Government assistance affects a country, U.S. embassies set targets for improvement called "performance indicators." Data for these indicators are collected by research institutes, embassies and international organizations. By examining data over time, U.S. policymakers can better understand whether or not assistance programs are having the intended impact.

Please find below two important indicators in the area of Economic Growth. In the charts, the "Baseline" refers to a starting point from which to measure progress or regression over time. The embassy and its partner organizations then agree on a "Target" figure that they hope to achieve as a result of U.S. assistance programs. The "Rank" figure is the resulting measurement. "FY" stands for "fiscal year," the period of the U.S. budget that runs from October 1 - September 30 of the following year. "CY" stands for "calendar year," or January 1 - December 31.

Performance Indicator: Share of government tax revenue in GDP. This indicator addresses the status of tax reform and budget performance. Source: IMF BiH Mission Report 2006.

FY 2002 Baseline

FY 2003 Rank

FY 2004 Rank

FY 2005 Rank

FY 2006 Target

46.0 %

50.3%

50.0%

51.1%

51.3%


Impact of U.S. Assistance on the Above Indicator: USG assistance to modernize tax administrations and reform direct taxes ensured that the tax revenue base remained stable even as personnel shifted from the entity to state level and the tax composition changed.

Performance Indicator: Bosnia's Internal Debt Crisis Resolved. This indicator addresses the status of Bosnia Herzegovina's internal debt crisis. Source: U.S. Embassy Sarajevo.

FY 2003 Baseline

FY 2004 Actual

FY 2005 Actual

FY 2006 Actual

BiH internal debt estimated at over 200% of GDP. No legal framework for debt issuance or restructuring. No sovereign debt market operating.

Eight laws drafted and five passed to restructure internal debt. Work begun to develop procedures to register and verify claims.

State framework law was adopted. Entity-level laws were drafted.

The state framework law was adopted. Entity-level laws were drafted.

Impact of U.S. Assistance on the Above Indicator: In FY 2006, the two houses of the Federation parliament drafted versions of a domestic debt law, and are still seeking compromise language as of December. The Republika Srpska has not yet drafted a domestic debt law.

Peace and Security

With porous borders and a weak legal regime, BiH is an attractive haven for criminal and terrorist organizations lured by the operating environment and proximity to Western Europe. Strengthening Bosnia's judicial and law enforcement institutions is a prerequisite for sustained and effective action against terrorism and criminal activity, including narcotics and human trafficking, money laundering, public corruption, and organized crime. A USG-designated Tier Two country, Bosnia is a destination, transit locale, and increasingly a country of origin for human trafficking.

Bosnia's armed forces are in the process of becoming NATO compliant and significantly streamlined after a U.S.-brokered political agreement on a unified national defense structure.

BiH legal institutions remain fractured, with multiple semi-autonomous centers of power: the State, two entities, ten cantons and Brcko District. While the State Court made progress on prosecuting war crimes, terrorism, and organized crime cases, the Ministry of Justice did little to reduce administrative redundancy and jurisdictional conflicts in the country.

U.S. ASSISTANCE PRIORITIES

In FY 2006, USG assistance priorities were to strengthen Bosnia's justice sector and law enforcement mechanisms, particularly through developing state-level law enforcement institutions, police, and judicial training for local and state-level officials, and to ensure Bosnia's increased capability to combat organized crime, narcotics and human trafficking, money laundering, public corruption, and terrorism. The U.S. was the primary provider of assistance in the counter-terrorism field, with a number of Embassy agencies acting in concert to impart hands-on guidance, equipment, and training.

DESCRIPTION OF PROGRAMS AND ACTIVITIES

In the field of law enforcement, USG assistancefocused on building sustainable capacity in State-level institutions such as the State Investigative and Protection Agency (SIPA), the State Border Service (SBS), the Foreigners' Affairs Service (FAS), and the Ministry of Security. As part of reducing Bosnia's vulnerability to terrorist exploitation, USG assistance programs devoted significant energy to helping Bosnian authorities make appropriate changes to the country's laws to improve the capacities to handle immigration, asylum, naturalization, and deportation. The USG also worked closely with the SBS to increase investigative capabilities to prevent terrorism, smuggling of weapons of mass destruction, trafficking in persons, and illegal migration. USG advisors helped the BiH Anti-Trafficking Strike Force and the BiH Counter-terrorism Task Force become more effective, and brought the Criminal Intelligence Data Application (CIDA) on line to facilitate law enforcement information sharing. Focusing particularly on counter-terrorism, war crimes, and organized crime cases, the USG worked closely with investigators, prosecutors, and judges at the State Court to educate Bosnian colleagues on handling cases under the new Criminal Code and Criminal Procedure Code, which significantly strengthen Bosnia's legal capacity to deal with serious cases. If ongoing initiatives to reform the state police structure are successful, the Ministry of Security will become the focal point for all law enforcement policy matters.

USG funds were used to continue the training and development of law enforcement institutions in Bosnia to combat terrorism. The USG conducted counter-terrorism courses in Instructor Development, Police Executive Role in Combating Terrorism, and Vital Installation Security. Additionally, the USG completed a program management review to assess Bosnia's success in implementing counter-terrorism training to date and focus future training efforts.

USG assistance funded advisors within the Ministry of Defense and equipped and trained BiH's Explosive Ordinance Disposal (EOD) team. Advisors provided technical advice on the structuring of the new state-level Ministry of Defense and Armed Forces of BiH. The EOD team deployed its fourth rotation to Operation Iraqi Freedom, and is the only multi-ethnic unit in the armed forces.

Additional USG funding was dedicated to advancing officer development in support of meeting NATO's Partnership for Peace requirements. The USG provided professional development training to junior officers, staff training to mid-level officers, and other courses to upper-level officers. The USG also solidified and expanded English language programs by providing language labs and teaching materials.

OUTPUTS

In FY 2006, U.S. advisors helped SIPA develop and harmonize 41 policy and procedure documents on essential topics ranging from recruitment to human resources to firearms procedures to VIP protection. U.S. advisors helped the SIPA Special Support Unit (SSU) streamline hiring regulations and fill positions to increase institutional capacity to fight terrorism, organized crime, corruption, money laundering, and trafficking in persons. The USG donated 76 sets of personal safety and tactical equipment. The SSU has since utilized the equipment in the arrest of over 24 dangerous criminals, including two war criminal suspects. USG assistance facilitated the training of 25 special support unit members on hostage negotiation tactics.

In FY 2006, USG assistance increased the effectiveness of the Organized Crime Task Force (OCTF), which includes representatives from SIPA, the entity interior ministries, and cantonal police. U.S. advisors helped the OCTF focus its efforts and limited resources by targeting specific organized crime organizations. To further build OCTF capacity, USG assistance financed the training of more than 75 investigators in major case management and informants' techniques.

Recognizing that improper evidence storage and handling procedures hindered successful prosecutions, USG assistance provided training and material assistance to create secure evidence facilities. USG assistance included the donation of evidence packaging supplies to 23 law enforcement agencies and provided training to 120 police officers and 60 prosecutors in evidence handling procedures. U.S. advisors monitored the upgrading of evidence storage areas in nine locations throughout Bosnia.

The USG promoted border security in Bosnia by providing 500 border sensors and video surveillance equipment to the State Border Service.

In order to allow for vital information sharing between police bodies in Bosnia, USG assistance in FY 2006 helped provide the backbone of the State Police Information Network (SPIN). U.S. advisors helped develop specialized software packages, the Criminal Intelligence Data Acquisition (CIDA) and Border Control Systems (BCS) to utilize the SPIN IT backbone to better identify and detain wanted criminals. USG assistance also provided 33 computers to the Ministry of Security for the Executive Body of the Police Reform Directorate.

The USG provide a study trip to the U.S. for members of the Bosnia Counter-Terrorism Task Force. The Task Force members met with USG law enforcement officials in order to promote cooperation and information sharing among the Bosnian police agencies.

PROGRAM PERFORMANCE/IMPACT

USG assistance during FY 2006 caused a significant increase in the strategic planning and operational capacity of several organizations responsible for law enforcement and the legal regime in Bosnia. The increased capacity of the Ministry of Security improved implementation of several law enforcement-related mandates. The Anti-TIP Strike Force conducted multi-agency raids that successfully stopped a major trafficking operation, and the level of trafficking in persons in Bosnia has significantly decreased due to aggressive action by law enforcement. As a result of one OCTF investigation, seven members of a Trebinje-based organized crime group were arrested and charged. SIPA and SBS's ability to interdict narcotics and contraband, and to identify wanted persons immediately at airports and border crossings, is increasing significantly.

USG efforts with the police bodies and the judiciary served to improve evidence collection, witness protection, and trial effectiveness. Bosnian authorities successfully prosecuted several organized crime, public corruption, money laundering, human trafficking, and war crimes cases. Among these was a case against a major financier of war crimes fugitive Radovan Karadzic, the former Croat member of the Tripresidency, and the sitting President of the BiH Constitutional Court. The BiH State Court is conducting its first-ever terrorism trial. In June 2006, the ICTY again reaffirmed that the State Court War Crimes Chamber was conducting trials in accordance with ICTY standards.

In FY 2006 critical amendments to the Law on Citizenship were passed, creating a Citizenship Review Commission to address the problem of foreign extremists who obtained Bosnian citizenship illegally. The new Foreigners Affairs Service was created and by the end of 2006 will finish drafting the new Law on the Movement and Stay of Aliens and Asylum, which, inter alia, significantly improves due process and streamlines adjudication of asylum cases. Agencies that form the Counter-Terrorism Task Force (State Prosecutor, SIPA, SBS), oversaw two successful deportations, one of whom is a convicted terrorist.

USG assistance enabled Bosnia to deploy an EOD unit in support of coalition efforts in Operation Iraqi Freedom, and advance the design and implementation of a major Defense Reform creating a unified, multi-ethnic army under civilian control. This and other USG programs supported Bosnia's bid to join NATO's Partnership for Peace, which Bosnia was invited to join at the 2006 NATO Summit.

MEASURES OF PROGRAM EFFECTIVENESS

In order to determine how U.S. Government assistance affects a country, U.S. embassies set targets for improvement called "performance indicators." Data for these indicators are collected by research institutes, embassies and international organizations. By examining data over time, U.S. policymakers can better understand whether or not assistance programs are having the intended impact.

Please find below an important indicator in the area of Peace and Security. In the chart, the "Baseline" refers to a starting point from which to measure progress or regression over time. The Embassy and its partner organizations then agree on a "Target" figure that they hope to achieve as a result of U.S. assistance programs. The "Rank" figure is the resulting measurement. "FY" stands for "fiscal year," the period of the U.S. budget that runs from October 1 - September 30 of the following year. "CY" stands for "calendar year," covering events from January 1 - December 31 of the subject year or last calendar year.

Performance Indicator: Judicial Framework and Independence Rating (formerly Constitutional, Legislative, and Judicial Framework Rating). This indicator highlights constitutional reform, human rights protections, criminal code reform, judicial independence, the status of ethnic minority rights, guarantees of equality before the law, treatment of suspects and prisoners, and compliance with judicial decisions. (7-point scale: 1 is the highest, 7 is the lowest). Source: Freedom House, Nations in Transit 2006. (This volume covers events from January 1 through December 31, 2005). Found on line at http://www.freedomhouse.org/research/nattransit.htm.

CY 2003 Baseline

CY 2005 Rank

CY 2006 Rank

CY 2007 Target

5.00

4.25

4.00

3.75



Impact of U.S. Assistance on the Above Indicator: The High Judicial and Prosecutorial Council (HJPC) continued in its efforts to reappoint judges and prosecutors, which contributed to the independence and professionalism of the judiciary. Courts intensified their utilization of the Criminal Procedure Code making court proceedings more professional, transparent, and uniform. USG assistance to the State Ministry of Justice improved its capacity in drafting and coordinating nation-wide legislative reforms.
 



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