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U.S. Department of State

Diplomacy in Action

FY 2007 SEED Act Implementation Report


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

U.S. FOREIGN POLICY AND FOREIGN ASSISTANCE OBJECTIVES & PRIORITIES

Twelve years after the signing of the Dayton Peace Accords, Bosnia and Herzegovina (BiH) is still struggling to overcome the effects of a war which poisoned relations among its three main ethnic groups. Physically, the country is largely rebuilt. It is economically stable and shows some signs of growth. In November 2006 BiH was invited to join the North Atlantic Treaty Organization (NATO) Partnership for Peace, and in December 2007 BiH initialed a Stabilization and Association Agreement (SAA) with the European Union (EU).

The country, however, has a largely dysfunctional governance structure geared toward safeguarding the rights of the various ethnic groups. The Dayton Accords 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. The presence of an international overseer, the Office of the High Representative (OHR) and NATO and EU peacekeepers has ensured stability. However, since the October 2006 national elections, which gave rise to increased ethnic polarization, full implementation of the Dayton Accords and self-sustaining progress toward Euro-Atlantic integration has severely stalled. Reforms necessary for eventual Euro-Atlantic integration require continued effort, including constitutional reform and police reform. The country’s GDP is only 70% of its pre-war levels. BiH remains one of the poorest countries in the region.

The overriding U.S. interest in BiH remains its conversion from a source of regional instability to a peaceful, democratic, multiethnic state on the road to Euro-Atlantic integration. The U.S. Government (USG) works to promote a BiH that is secure within its own borders, at peace with its neighbors, capable of combating crime, trafficking and corruption, democratically governed, pluralistic and tolerant and growing economically. Security is a major long-term objective in BiH, which suffers from porous borders and persistent corruption, making it vulnerable to terrorists, traffickers and other criminals.

U.S. assistance programs in BiH focus on transformational diplomacy goals that will help BiH progress toward Euro-Atlantic institutions and long-term stability. The USG works to strengthen BiH’s rule of law by helping consolidate judicial reforms, increasing prosecutorial capacity and strengthening its law enforcement abilities and newly formed institutions. The USG promotes good governance and assists media and civil society to take proactive roles in holding the government accountable and instilling democratic norms. The USG also works to create a single economic space in BiH by helping the government in streamlining the complex system of regulatory procedures for businesses, reforming tax legislation, and by promoting private sector productivity to enable BiH to build a self-sustaining, market-oriented economy. USG assistance helps BiH move toward NATO and develop the capacity to contribute to coalition operations and contribute to greater security in the region. The EU will take an ever larger role in pushing BiH toward sustainable stability and democracy, but the EU’s institutional limitations will continue to require attention and resources from other donors, especially the United States.

OPERATING ENVIRONMENT

A year of stalled reform and political deadlock recently culminated in the most significant challenge to Dayton and the integrity of BiH since the war. The 1995 Dayton Peace Agreement, which ended almost four years of war, divided BiH into two entities: a Serb republic and a Muslim-Croat federation. In October 2007 negotiations between RS and Federation-based parties on implementing police reform, a condition for BiH’s initialing of a SAA with the European Union, collapsed. At the same time, the High Representative announced his intention to use the Bonn Powers to impose reforms to make the state government and Parliament more efficient. RS parties rejected these measures and challenged the High Representative’s authority to impose such reforms. RS-based parties, led by RS Prime Minister Milorad Dodik, threatened to withdraw from state institutions. The political standoff in BiH took place in the context of regional tensions related to ongoing negotiations over the status of Kosovo. Leaders in both the RS and Serbia have become increasingly willing to draw unhelpful parallels between the RS and Kosovo. While the dispute was eventually resolved and a deal enabling the initialing of an SAA between BiH and the EU was reached in December 2007, relations among ethnic groups and the international community are strained and there is increasing frustration with the polarized political environment that impedes reform in BiH.

The situation in BiH is compounded, and partially caused by, a redundant and dysfunctional multi-layered government structure that resulted from the Dayton Peace Agreement. The Government funnels more than 50% of the country’s GDP towards public administration. The complicated structure also diffuses decision making and makes it difficult for the Government to be responsive to its citizenry. The failure to pass the April 2006 Constitutional Reform package significantly hindered needed reforms that would have strengthened state institutions. As a result of continued nationalistic rhetoric and a lack of progress on Dayton implementation and reform, in June 2007 the Peace Implementation Council, an international body responsible for providing political guidance and oversight to the High Representative, decided the OHR should remain in BiH for at least one more year.

Despite the tense political environment, BiH’s economy has been stable and growing for the past four years. This year, the country’s GDP growth remained at 6%. BiH’s private sector hovers at 55% of GDP, and BiH was ranked 105 out of 178 in the World Bank Doing Business Report 2008. Both underscore the need for a reformed business environment. Inflation, as measured by the Consumer Price Index, is holding at around 2.5%. The current account deficit for 2007 increased from 11.5% (2006) to 13.4% of GDP according to the IMF estimates. With assistance flows declining, it is crucial to further promote export growth and foreign direct investment (FDI). In 2007 FDI grew to 11.5% of GDP from 3.7% of GDP in 2006. This was attributed to large scale privatization. The Central Bank reports that the official unemployment rate is 31.1%. The United Nations Development Program (UNDP) estimates that 13% of the population lives below the poverty line. At both the state and entity levels, BiH’s government officials say they are committed to continuing economic reforms. However, officials in the Federation seem to have a more difficult time passing legislation and implementing regulations to advance needed reforms, given the additional cantonal level of government.

Despite many successes over the year, in some areas the political environment hindered program implementation. Following the October 2006 elections, inter-party fighting over government positions delayed formation of the state and Federation governments. This delay slowed implementation of USG parliamentary programs that provide support to the state and entity Parliaments. In addition, work under the USG Streamlining Permits and Inspection Regimes Activity (SPIRA), aimed at improving business registration practices, was also delayed in the Federation.

Furthermore, the recent political tensions between the RS Government and the international community are delaying the USG’s signing of a Memorandum of Understanding with the RS Ministry of Justice to work cooperatively to renovate the Srebrenica Basic Court. The renovation in this municipality, where genocide was committed twelve years ago, will visibly demonstrate the rule of law to citizens.

Despite political challenges, the USG has so far been able to implement its programs without severe interference and has achieved significant impact in the country as planned. The USG is generally well-regarded in BiH and therefore BiH authorities and public are quite receptive to USG technical assistance and policy advice. However, political developments could potentially hinder future program implementation. The USG will monitor the political situation and work to respond appropriately. USG assistance programs continue to be essential to achieve the USG’s policy objectives in BiH.

FY 2007 Country Program Performance

PEACE AND SECURITY

Objectives for USG Peace and Security assistance in BiH fall under three broad categories, namely: counterterrorism; stabilization operations and security sector reform, including law enforcement; and fighting trafficking in persons. With porous borders and a weak legal regime, BiH is a potentially attractive haven for criminal and terrorist organizations lured by the operating environment and proximity to Western Europe. Strengthening BiH’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, BiH is a destination, transit locale, and country of origin for human trafficking. USG assistance is also provided to ensure that BiH's armed forces become NATO-compliant and significantly streamlined following the U.S.-brokered political agreement on a unified national defense structure.

Counter-Terrorism - U.S. assistance goals are to develop a robust bilateral relationship with Bosnian law enforcement agencies combating the global threat from terrorism, as well as increase their capacity. In 2007 USG assistance funds were used to support trainings under the Anti-Terrorism Assistance Program. Officers from a broad spectrum of Bosnian law enforcement agencies participated in the following course offerings: Critical Incident Management Course, Interdicting Terrorist Activities, Airport Security Course, and a Border Patrol Consultation. As a result, BiH law enforcement agencies were able to apply the techniques learned in those courses to the numerous joint U.S.-BiH investigations opened in 2007. Bosnian law enforcement agencies were also able to apply those techniques in response to all USG mission requests for assistance and information in the counter-terrorism arena.

Stabilization Operations and Security Sector Reform (including law enforcement) - U.S. assistance has supported the harmonization of BiH security institutions with NATO/Partnership for Peace standards. It has also focused on strengthening BiH institutions; particularly state-level ones that contribute to regional security and combat terrorism and organized crime.

USG assistance funded advisors within the Ministry of Defense and equipped and trained BiH's Explosive Ordinance Disposal (EOD) team in 2007. Advisors provided technical advice on the structuring of the new state-level Ministry of Defense and Armed Forces of BiH. USG assistance enabled BiH to continue deployment of 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.

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.

USG assistance focused on building sustainable capacity in relatively new state-level law enforcement institutions such as the State Investigative and Protection Agency (SIPA), the State Border Police (SBP), the Foreigners' Affairs Service (FAS), and the Ministry of Security. USG funds were used to continue the training and development of law enforcement institutions in BiH in advanced skills for combating terrorism and organized crime. As part of reducing BiH'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 worked closely with the SBP 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. The USG also promoted border security in BiH by providing additional green border sensors and video surveillance equipment to the SBP.

In 2007 USG funding provided training to 730 law enforcement officials in the fields of Academy/Instructor Development, Advanced Surveillance, Major Case Management, Interviews and Interrogations, Auto Theft, Basic Police Services, Firearms, Criminal Investigations, Criminal Justice Coordination, Information Systems, and Senior Leadership and Administration.

In FY 2007 U.S. advisors continued providing assistance to SIPA to 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 personal safety equipment, specialized equipment for conducting raids, and a tactical command vehicle. SIPA Counterterrorism and Organized Crime units received communication and surveillance equipment including digital cameras, binoculars, video cameras, computers and undercover and surveillance equipment. USG assistance facilitated the training of 25 special support unit members on hostage negotiation tactics. USG advisors helped SIPA design amendments to the SIPA law to streamline management structures and attract and retain qualified personnel.

In FY 2007 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.

USG assistance provided continued training and material assistance to create secure evidence facilities to ensure successful prosecutions. USG assistance included the donation of evidence packaging supplies to 23 law enforcement agencies and provided training to police officers and prosecutors in evidence handling procedures. U.S. advisors monitored the upgrading of evidence storage areas in 12 locations throughout BiH. USG also provided assistance to upgrade a forensic laboratory in Sarajevo, intended to become the country’s premier evidence processing facility. Up until recently, evidence had to be sent to Croatia or Serbia due to lack of domestic facilities. Improvements to the forensic laboratory in Sarajevo cut down the processing time for evidence and minimized the chances of losing evidence in transit.

In order to allow for vital information sharing between police bodies in BiH, USG assistance in FY 2007 helped expand coverage 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.

The USG provided training and significant equipment donations to the Foreigners' Affairs Service (FAS), an agency created recently with USG support and charged with overseeing immigration and permanent residents as well as preventing illegal immigration. U.S. donations included 24 vehicles and computer equipment. In 2007 the FAS finished drafting the new Law on the Movement and Stay of Aliens and Asylum, which significantly improved due process and streamlined adjudication of asylum cases. FAS has used USG-donated vehicles and equipment while conducting several successful raids targeting hundreds of illegal migrants working without permission in the trade and service industries. To date the FAS has passed decisions on the deportation of approximately 1500 aliens. FAS is also working with the Citizenship Review Commission, which is reviewing cases where Bosnian citizenship may have been illegally granted to foreign nationals including foreign fighters after the 1992-1995 war. USG assistance has been critical in helping the FAS establish a centralized system where all legal procedures pertinent to the movement and stay of aliens are managed from the FAS headquarters. U.S. assistance also delivered equipment and seven training courses in areas such as contraband detection, prevention of dual use technology, and export control regimes to the Indirect Taxation Authority (customs), SIPA, the State Border Police, and the Prosecutors' Office.

USG assistance during 2007 caused a significant increase in the strategic planning and operational capacity of several organizations responsible for law enforcement and the legal regime in BiH. USG-sponsored task force programs and inclusion of participants from multiple law enforcement agencies in training increased inter-agency cooperation and the number of joint actions during the year. In January 2007 RS Police and SIPA officers participated in a joint police action in nine locations in and around Banja Luka to target a crime ring involved in counterfeit funds. Four principal suspects were arrested and over 200,000 in counterfeit euro notes, as well as five currency printers, were seized. In September SIPA officers and entity police officials cooperated to raid several locations suspected of producing counterfeit cigarettes. Police seized a cigarette rolling machine, almost one million BiH marks in cigarettes and several tons of tobacco. Contraband detection equipment donated to the SBP and Indirect Taxation Administration led to a significant increase in illegal narcotics detected at the border including a September bust of over 45 kg of marijuana. In June 2007 a joint action involving the SBP and SIPA led to the arrest of Firat Shinasi and several of his co-conspirators on human trafficking charges. In September 2007 a joint operation of SIPA, RS, and Federation Police arrested members of a luxury auto theft ring in Herzegovina resulting in ten arrests and the recovery of dozens of vehicles.

USG capacity building efforts with the police bodies, prosecutors, and judges served to improve evidence collection, witness protection, and trial effectiveness. Bosnian authorities successfully prosecuted several organized crime, public corruption, money laundering, human trafficking, war crimes cases and terrorism cases. For example, in January 2007 the State Court of BiH handed down its first conviction against defendants charged with conspiracy to commit acts of domestic terrorism. The three defendants received prison sentences ranging from 8-15 years and a fourth was found guilty of illegal possessions of weapons and explosives and received 2 ½ years in prison. This not only represents the first terrorism conviction in BiH, but also the first time a guilty plea was secured on conspiracy charges. Conspiracy was recently introduced as part of the new Criminal Procedure Code and USG had conducted joint training on these codes for judges, police and prosecutors. The USG also funded both mine surveying and mine clearing through its partner, International Trust Fund of Slovenia.

Combating Trafficking in Persons - BiH is a country of origin, transit, and destination for women and girls trafficked internationally and internally for the purpose of commercial sexual exploitation. A USG-funded anti-trafficking program in BiH aims to empower governmental institutions and non-governmental organizations to become sustainable and accountable, and to take ownership of the anti-trafficking actions. In 2007 the USG-funded anti-trafficking program provided direct assistance to 60 victims of trafficking and trained 1,000 individuals from governmental institutions and nongovernmental organizations (NGOs) on standards of assistance, vocational services, and reintegration services.

GOVERNING JUSTLY AND DEMOCRATICALLY

In FY 2007 USG-funded democratic reform assistance to BiH focused on trying to improve the administration of justice, achieve more rational and democratic governance structures, improve the accountability of political parties and legislatures to their citizens, increase the effectiveness of local governments, and increase civil society’s efforts to influence policy making. Technical and material assistance were provided to courts, the High Judicial and Prosecutorial Council (HJPC) and the State Ministry of Justice to improve the administration of justice. USG funding continued to support the International Commission on Missing Persons, which promotes post-conflict reconciliation efforts. Local government support concentrated on delivering more effective services to citizens, as well as drafting and helping pass entity-level legislation to improve the enabling environment. Grants were given to partner municipalities for community-driven infrastructure and employment generation projects. Assistance was provided to political parties and legislatures to enable them to improve their accountability to their constituents. Civil society programs funded local efforts to influence policy making and increase local NGOs’ capacity to advocate for their constituencies as well as increase their sustainability through improved techniques for fundraising.


Rule of Law - The USG continues to direct assistance toward efforts to improve the efficiency, transparency, and fairness of BiH’s justice system and to enhance BiH’s capacity to handle serious criminal cases, particularly cases involving terrorism, war crimes and organized crime.

In FY 2007 the USG Justice Sector Development Project (JSDP) supported activities designed to strengthen two state level institutions, the High Judicial and Prosecutorial Council (HJPC) and the State Ministry of Justice; to improve court administration and access to justice in courts throughout BiH by making court proceedings more professional, transparent, and uniform; and to facilitate dialogue among government officials in all three branches of government about policy development necessary to advance judicial independence and accountability. For example, one project assisted the HJPC in developing and adopting a new strategic plan and provided management training to both the Council’s and the secretariat staff. In addition, the project supported a specialized training for the HJPC’s Office of the Disciplinary Counsel (ODC). This immediately resulted in improved professional and management performance by ODC in the areas of judicial discipline and performance of judges and prosecutors and improved public communication and outreach skills shown by HJPC/ODC. All ODC requests were accepted by the First Instance Disciplinary Committee of the HJPC, and were confirmed by the Second Instance Disciplinary Committee. In 2007 a total of 800 justice sector personnel received USG training. The court administration component of the JSDP resulted in seven model courts with improved case management and the beginning of a transfer of administrative responsibilities for the Model Court Initiative to the HJPC.

In FY 2007 USG efforts in the area of court administration included a donation of 38 workstations (computer, flat panel monitor, printer, UPS, three-year warranty, and application software) to the Sarajevo Municipal Court to enable their full implementation of a court automation process in all Divisions of the Court, including the Criminal Division. This donation led to completion of an automated case management system (CMS) allowing the court to track the progress of cases and store relevant data. The USG also supported the HJPC in its efforts to implement automated CMS throughout BiH. The support of HJPC's efforts by the USG signals to other international donors that full implementation of the CMS is vital to advancing the rule of law in BiH.

USG assistance also supported improvements in legal education in BiH by assisting with the development and introduction of new courses and teaching methodologies in law faculties in Banja Luka and Bihac. In FY 2007 these activities included successful transfer of organizing responsibilities for the national moot court competition to the law faculty in Bihac and a subsequent transfer to the Mostar law faculty in 2007. USG assistance to live-client law clinics organized through the law faculties in Banja Luka and Bihac, including U.S. expert advice on improving the sustainability and administration of the clinics, has led these faculties to agree to incorporate clinical education within their curriculum in the near future.

The USG has worked closely with investigators, prosecutors, and judges at the State Court to educate Bosnian colleagues on handling serious criminal cases under the new Criminal Code in compliance with the new Criminal Procedure Code. Improved implementation of these new codes has significantly strengthened BiH's capacity to handle serious criminal cases. Prosecutors at the BiH State Court successfully prosecuted their first terrorism case in 2007, and have continued to prosecute major war crimes figures based upon indictments transferred from the International Criminal Tribunal for the former Yugoslavia (ICTY) and indictments developed by Bosnian investigators. In February 2007, for example, a defendant transferred from the ICTY was convicted of crimes against humanity and received a 34-year sentence. In July, another defendant was also found guilty of war crimes and sentenced to 30 years in prison. In total the War Crimes Division of the BiH State Court reached 15 verdicts in war crimes cases, while 10 new indictments were raised.

Central to USG support of the State Court is USG funding for international secondees to the Court and State Prosecutor’s Office, many of whom are U.S. judges and prosecutors. The secondees have helped BiH investigate, prosecute, and sentence war criminals and individuals engaged in organized crime and corruption. USG-funded secondees -- judges, prosecutors, and investigators -- have worked on a number of complex cases, including cases transferred from the International Criminal Tribunal for ICTY, by helping to ensure that these and other cases follow international standards and norms. In addition, those assigned to the State Prosecutor’s Office have developed a variety of needed guidelines (charging, plea, immunity, investigative, and case selection), that will better position that office to tackle a daunting war crimes caseload and the most complex organized crime and corruption cases in the country. The USG-funded secondees have also played a valuable role by helping BiH counterparts adapt to the relatively new adversarial system and by advising them on best practices and policies.

In 2007 the USG committed to providing further assistance needed to assure that war criminals and perpetrators of serious crimes are held accountable for their actions in BiH. Along with the BiH Government and many other donors, the USG pledged to support the building of a state-level prison, which would house, among others, war criminals, whose incarceration in entity-level prisons leaves them subject to more lax regimes and leads to an increased risk of escape.

Human Rights - An important goal of USG assistance is to help bring closure to those affected by the wars in former Yugoslavia by helping States identify the remains of missing persons and return them to their families. In 2007 USG support enabled the International Commission of Missing Persons (ICMP) to collect ante-mortem data and blood samples from 3200 relatives of the missing, identify more than 2200 individuals through DNA -- including the identification of 1030 Srebrenica victims -- and providing expert assistance at excavations of more than 177 mass grave sites and exhumations of more than 600 complete or partial remains. Additionally, funding enabled ICMP to assist in founding the state-level BiH Missing Persons Institute in a political climate generally hostile to reconciliation and cooperation. These accomplishments have contributed significantly to developing sustainable Bosnian state-level institutions to address the issue of reconciliation and missing persons in the long term, while also ensuring that the international community has addressed the legacies of tragic wartime events, such as Srebrenica.

Legislative Function and Political Parties - The USG has provided assistance to help BiH reform the way parliamentarians and their staff members carry out lawmaking and oversight duties and become more accountable to constituents. This program develops the institutional capacity of the RS National Assembly (RSNA), the Federation Parliament and the BIH state level Parliament by working on legislative drafting as well as procedural reforms and improvements. In the past, most substantial policy reforms had been drafted by international organizations. The USG has 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 issues-based politics.

Results included political parties’ production of policy papers on 16 targeted issue areas, including early education, emergency medical care, housing, small/medium-size enterprise development, and local traffic systems. With USG support, 30 constituency offices were opened, which received 436 visits by citizens, resulting in 131 constituency concerns submitted to the government. The internship program in the RSNA was successfully handed over from the USG implementer to the RSNA. Nine former interns accepted professional positions within legislatures, indicating the value to both individuals and institutions of the internship programs. The RSNA organized its first ever Open Parliament Day, and the Federation Parliament updated its website. The BiH state level Parliament’s working group drafted its Code of Conduct with USG assistance.

Local Government - The USG provided assistance to help local governments become 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, providing tools for transparent and efficient urban planning and permitting, and improving the ability of municipalities to manage finances, including multi-year capital plans. Macro-level policy work better defines roles, responsibilities, and financing between levels of government.

By 2007, 41 One-Stop Shops were operating throughout BiH, designed and built with USG assistance. An urban planning project utilizing modern zoning techniques and GIS technology was introduced in the larger municipalities of Tuzla, Novo Sarajevo, Banja Luka, Travnik, Velika Kladusa, and Konjic. Hundreds of workshops and roundtables for municipal officials were conducted in the fields of financial management, process engineering, zoning, permitting, capital budgeting, and revenue allocation. A study tour on sub-sovereign debt for Federation MPs, and municipal officials was conducted in June to raise issues concerning the municipal debt market and its regulation. Sixty community development grants were successfully completed in 2007. Revenue allocation systems laws which were passed in both entities following introduction of the value-added tax (VAT) are providing municipalities with greater and more predictable revenue flows. The USG organized regional meetings throughout BiH between mayors and the ambassadors of the US, the Netherlands, and Sweden to push for bottom-up governance reform in 2007.

Civil Society and Media Support - The USG has supported local organizations with training, technical assistance, and grant funds, as well as supporting policy research organizations’ efforts to expand their capacity to provide data and research to legislative bodies. In addition, the USG supports 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.

USG-funded programs resulted in an Agreement on Cooperation between the NGO Sector and the Council of Ministers in April 2007, which was followed by the election of 31 members to the Civil Society Board in October. Over 40% of municipalities committed themselves to long-term cooperation with civil society by signing similar local agreements with NGOs. For the first time, an NGO provided the government and broader public with a serious assessment of the work of BiH legislative and executive authorities -- assessments which were widely publicized. The Center for Civic Initiatives identified eight organizations to undertake specific advocacy campaigns in areas identified by civil society organizations.

The USG awarded 68 small grants to Bosnian NGOs to implement advocacy campaigns to promote active participation in the democratic process.

Through the “Civitas” Program, the USG enabled Bosnian students throughout BiH to participate in civic education courses that are taught from a uniform curriculum. The Civitas civic education program, BiH's only nationwide course on democracy and human rights that is required for primary and secondary students, trained 4,895 teachers in the fundamentals of teaching civic education and resulted in more than 150,000 Bosnian students receiving a civic education course. Civitas distributed 41,000 high school-level, and almost 100,000 primary-level textbooks on themes related to democracy and human rights to these students and teachers. English Language fellows supported by SEED funding taught classes in Bosnian universities and high school madrassas located in Tuzla, Mostar and Bihac.

The English Language fellows program continues to build bridges with the Muslim community in BiH; the leader of Bosnia's Muslim community has cited this outreach program through English teaching as one of the most effective ways that the U.S. is communicating with and supporting BiH's Muslim community.

ECONOMIC GROWTH

U.S. policy and economic growth assistance in BiH aims to encourage a single economic space, progress toward EU standards, and the private sector expansion and foreign investment that is critical to creating jobs and solidifying future stability of the country. Specifically, during 2007, USG assistance continued to work toward a rationalization of tax legislation throughout the country and to develop a domestic bond market in order to contribute to fiscal stability in BiH. USG assistance also focused on making the business environment more conducive for small and medium-sized enterprises (SMEs) to start or expand their operations, and assist the tourism and wood processing sectors in becoming more productive and internationally competitive.

Macroeconomic Foundation for Growth - USG assistance promoted an accountable, transparent, and modern tax regime that simplifies compliance with tax laws and regulations. The success of the effort was evident with implementation in the RS of the Corporate Income Taxes and Personal Income Tax. Furthermore, significant investment has been made in educating and securing political and business support of new personal and corporate income tax laws in the Federation. These laws are currently in the Parliamentary process, having successfully passed through the first readings in both houses. The Brcko District enacted a simplified, market-based real estate and is in the process of implementing this law. It will serve as a model for the two entities.

USG-led efforts to reform the system of corporate and personal income taxes have continued to bear fruit with the implementation of legislative reforms in the RS. The education of the business community and parliamentarians in the Federation on the need for income tax reform has resulted in significantly improved parliamentary engagement and ownership of the laws currently in the Parliamentary process. Adopting these reforms is one part of the RS and Federation Governments' commitment to reducing their dependence on various business (so-called "nuisance") taxes that have previously slowed the development of the private sector. Further, the pending passage of the laws in the Federation will be a major step forward in harmonization of the tax laws in the country to advance the objective of a single economic space.

USG-led efforts have ensured that BiH is sufficiently prepared to issue bonds to cover frozen foreign currency liabilities no later than March 31, 2008. Over 60,000 claims for lost foreign currency savings were submitted by individuals and authenticated in the verification process during 2007. USG funding assisted with preparation of a central securities registry at the Central Bank of BiH, and with the passage of various amendments to the frozen foreign currency laws, to facilitate ease of issuance and completion of the verification process in 2007. USG assistance was instrumental in ensuring that the upcoming bond issue will be conducted in a fiscally responsible manner.

USG assistance facilitated the development of BiH’s capital market which, once bonds are issued, will enable the country to address substantial debt-related issues. These debts include frozen foreign currency liabilities, other general liabilities and war-related claims resulting from the most recent conflict, and restitution issues for property seized after World War II. A domestic capital market will also provide a means to fund anticipated future budget deficits.

Trade and Investment - In 2007 the Commercial Law Development Program (CLDP) organized workshops and consultations with the BiH Ministry of Foreign Trade and Economic Relations designed to assist BiH with its accession to the World Trade Organization (WTO). Five separate rounds of consultations were provided on Sanitary and Phyto-Sanitary (SPS) procedures, intellectual property, trade remedies, enquiry points and negotiations. The CLDP program focused its activities on economic reforms based upon WTO guidelines.

The WTO Accession Working Party for BiH met twice in 2007 following a hiatus of several years during which the country focused its attention on EU accession. The BiH WTO negotiating team credits CLDP consultations with helping them get back on track. Members of the Working Party are satisfied with the work BiH is doing in advancing remaining WTO legislation.

Private Sector Competitiveness - The USG implemented projects that work directly with small and medium-sized enterprises (SMEs) to increase the profitability, employment and competitiveness of BiH’s wood processing and tourism sectors. During 2007 USG assistance helped shift exports away from raw wood toward higher value-added furniture and processed wood products. The USG provided assistance to SMEs in the wood processing sector applying the cluster model, which encouraged business networking in product line development and joint action in promotion and marketing. This assistance has enabled SMEs to present a wider integrated product range and a large unified footprint at trade shows. In the tourism sector, USG assistance to tour operators to develop specific tourism products elevated the BiH tourism profile in general and helped start connecting BiH to global tourism markets. USG assistance to small businesses in wood processing and tourism has also increased employment in these industries.

Successful application of the cluster model allowed wood processing SMEs as a group to respond better to market trends toward increased sales to high volume buyers and wholesalers, consolidated supply chains, and preferred supplier arrangements. This resulted in increased exports which grew by 33% in the first six months of 2007. In the tourism sector, the joint promotion of BiH tourism packages led to a 19% increase in foreign tourist arrivals.

Economic Opportunity - USG activities helped reform BiH’s legal, regulatory, business and fiscal environment. Support was provided to reduce the legal, regulatory and administrative barriers faced by SMEs. In order to create a more conducive business climate for SMEs, USG assistance sponsored the use of the regulatory guillotine process in the RS, i.e., a process which reviews legislation and regulation with the aim of reducing the regulatory regime SMEs face. Twelve improvements were proposed in the laws and regulations affecting the registration of micro- and small enterprises. In the RS, the time to register a small business there fell from 33 to just 8 days. The cost and energy businesses spend on complying with complex and confusing procedures are now reduced significantly.

This effort was complemented by activities which seek to streamline tax administrations’ operations and improve labor mobility. USG-supported draft amendments to laws on tourism, catering, and entrepreneurship, aimed at reducing the time and cost of registration of businesses, have made progress this year. In the RS, the amendments were submitted to the National Assembly for adoption, and in the Federation, the appropriate ministers committed to submitting similar legislation for adoption before the end of the calendar year. The USG also helped draft a comprehensive reform of the RS Law on Spatial Planning. The amended law is complete and awaits its introduction into the RS National Assembly. The by-laws required for successful implementation of the new law are also complete and comprehensive.

FY 2007 Measures of Country Performance

The following data are based on the Monitoring Country Progress in Europe and Eurasia system developed by the United States Agency for International Development (USAID) to measure and track progress in the region. The system uses four different indices to monitor progress, drawing on readily available standardized country-level data on economic reform, economic structure and performance, democratic reform, and human capital. The primary data sources are the European Bank for Reconstruction and Development (EBRD), the World Bank, the United Nations Children’s Fund (UNICEF), and Freedom House. The data for each of the four indices are converted and standardized to a 1-to-5 scale, with a “5” representing the best performance of the Eastern Europe and Eurasia region, and a “1 the least advancement of the region.

Bosnia Herzegovina’s Democratic Reform* Scores in 2006 compared to Romania and Bulgaria in 2002

Date: 01/01/2008 Description: The graph to the left shows Bosnia Herzegovinas democratic reform scores in 2006* (the grey shaded area) as compared to the average of Romanias and Bulgarias democratic reform scores in 2002 (the bold line) when they were invited to join NATO and received favorable indications of future EU membership. State Dept PhotoThe graph to the left shows Bosnia Herzegovina’s democratic reform scores in 2006* (the grey 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 received favorable indications of future EU membership.

*Actual 2007 scores not yet available


Bosnia Herzegovina’s Democratic Reform Scores in 2006 compared to its Reform Scores in 1999

Date: 01/01/2008 Description: The graph to the left Bosnia Herzegovinas democratic reform scores in 2006* (the grey shaded area) as compared to its democratic reform scores in 1999 (the bold line). State Dept PhotoThe graph to the left Bosnia Herzegovina’s democratic reform scores in 2006* (the grey shaded area) as compared to its democratic reform scores in 1999 (the bold line).

*Actual 2007 scores not yet available

* Democratic reforms include the electoral process (the extent to which elections are free, fair and competitive), civil society (primarily NGO development), the independence of media, public governance and administration, rule of law (primarily judicial reform) and the scope of corruption as well as anti-corruption income.

Bosnia and Herzegovina’s 1st Stage Economic Reform* 2007 Scores Compared to Bulgaria and Romania in 2002

Date: 01/01/2008 Description: The graph to the left shows Bosnia Herzegovinas stage one economic reform scores in 2007* (the grey shaded area) as compared to the average of Romanias and Bulgarias economic reform scores in 2002 (the bold line) when they were invited to join NATO and received favorable indications of future EU membership. State Dept PhotoThe graph to the left shows Bosnia Herzegovina’s stage one economic reform scores in 2007* (the grey 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.


Bosnia and Herzegovina’s 1st Stage Economic Reform 2007 Scores Compared to its 1999 Scores

Date: 01/01/2008 Description: The graph to the left shows Bosnia Herzegovinas stage one economic reform scores in 2007* (the grey shaded area) as compared to its economic reform scores in 1999 (the bold line). State Dept PhotoThe graph to the left shows Bosnia Herzegovina’s stage one economic reform scores in 2007* (the grey shaded area) as compared to its economic reform scores in 1999 (the bold line).
 



Bosnia and Herzegovina’s 2nd Stage Economic Reform 2007 Scores Compared to Bulgaria and Romania in 2002

Date: 01/01/2008 Description: The graph to the left shows Bosnia Herzegovinas stage two economic reform scores in 2007* (the grey shaded area) as compared to the average of Romanias and Bulgarias economic reform scores in 2002 (the bold line) when they were invited to join NATO and received favorable indications of future EU membership. State Dept PhotoThe graph to the left shows Bosnia Herzegovina’s stage two economic reform scores in 2007* (the grey 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.

Bosnia and Herzegovina’s 2nd Stage Economic Reform 2007 Scores Compared to its 1999 Scores

Date: 01/01/2008 Description: The graph to the left shows Bosnia Herzegovinas stage two economic reform scores in 2007* (the grey shaded area) as compared to its democratic reform scores in 1999 (the bold line). State Dept PhotoThe graph to the left shows Bosnia Herzegovina’s stage two economic reform scores in 2007* (the grey shaded area) as compared to its democratic reform scores in 1999 (the bold line).

*Economic reforms include “first stage” reforms of privatization, stabilization, and liberalization (domestic price liberalization and trade liberalization), and “second stage” reforms in the financial sector, infrastructure (physical and energy), corporate governance and competition policy.


Bosnia and Herzegovina’s Progress on the USAID Country Progress Indices, 1998 vs. 2007

Date: 01/01/2008 Description: Bosnia and Herzegovinas Progress on the USAID Country Progress Indices, 1998 vs. 2007. State Dept Photo


(1) Economic reforms index include “first stage” reforms of privatization, stabilization, and liberalization (domestic price liberalization and trade liberalization), and second stage reforms in the financial sector, infrastructure (physical and energy), corporate governance and competition policy.

(2) The economic structure and performance index tracks indicators such as the size of the private sector as % of GDP, export share of GDP, and the size of the small and medium enterprise sector as % of GDP, economic growth, inflation, debt, and foreign direct investment.

(3) The Democratic reforms index include the electoral process (the extent to which elections are free, fair, and competitive), civil society (primarily NGO development), the independence of media, public governance and administration, rule of law (primarily judicial reform), and the scope of corruption as well as anti-corruption efforts.

(4) USAID tracks progress on the Human capital index by analyzing trends in health (life expectancy, under five mortality rates, and public expenditures on health), education (secondary school enrollment rates and public expenditures on education) and per capita income.



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