World Bank Efforts in Bosnia—Conflict-Solving Through Reconstruction

World Bank involvement in the reconstruction of Bosnia has been significantly stepped up since the December donor meeting in Brussels agreed to mobilize a $500 million aid package in war-torn Bosnia over the first quarter of 1996. This is to be followed by a longer-term, $5 billion program. The Bank recently opened a field office in Sarajevo, headed by Director Rory O'Sullivan. World Bank delegations to the Bosnian capital are arriving in rapid succession to assess damages and design reconstruction programs. Central and East Europe Department Division Chief Michel Noel, who is directly involved in the Bosnia reconstruction efforts, spoke to Transition editor Richard Hirschler about the latest developments.

Q. You were in Sarajevo for the first time last December, as head of a World Bank mission there. What were your most vivid impressions?

A. When we started our fieldwork last December, it was before the arrival of the IFOR groups. The truce was still extremely fragile, tensions were high, and exchanges of fire across the front lines in Sarajevo were a daily routine. But even in these circumstances we saw the incredible determination of our Bosnian partners to rebuild the country. They are literally working day and night, notwithstanding that almost all are just emerging from personal tragedies, loss of family members, children, mothers. On top of that they live in very hard conditions. When we returned, the entire team felt an unshakable commitment to give them our very best.

Q. What are the major new developments in the World Bank's assistance program?

A. The Bank decided to help Bosnia before it becomes a member of the World Bank Group. In this first phase of support, we set up a Bosnia Reconstruction Trust Fund—to channel a $125 million concessional loan under IDA terms (no interest, thirty-five to forty years' maturity with a ten-year grace period) and $25 million in grant money. The fund will be managed by the IDA and financed from the profits of the IBRD. This $150 million will be the World Bank's share out of a total of about $520 million, pledged during the Brussels donor meeting on December 20-21. Over the next three months the money will be committed to the most urgent reconstruction needs, and disbursed in twelve to eighteen months.

Q. Can you detail these needs?

A. In this first phase we have prepared a $160 million emergency recovery project to which the trust fund for the reconstruction of Bosnia contributes $45 million. The project had been approved by the Board of Directors on February 29, and its implementation has already began. It has four components:

• Financing of emergency imports, to provide food, medicine, and indispensable spare parts and equipment.
• Credits to enterprises through local banks and local NGOs, to jump-start production and get people back to work.
• Assistance to key government institutions, to help them resume operation (provision of equipment and tolerable working conditions) and rehabilitate their education and health systems.
• Provision of minimum income support for the most disadvantaged through setting up a social fund.

The emergency recovery project will be followed by a series of sectoral projects, also on an emergency basis. These will include rehabilitation of the gas, power, and heating supply, repair of the shattered water distribution networks, reconstruction of the transport grid, restoration of waste management, removal of mines, and revitalization of agriculture.

More specifically, on March 28, the Board of Directors will discuss Transportation, Water and Sewerage, and Farm Reconstruction projects, having a total cost of $250 million. In April another three projects will be brought to the Board: district heating, rehabilitation of war victims, and educational development. The total cost of these investments will come to another $150 million.

Q. And what about the second phase of support?

A. It will start once Bosnia becomes a member of the World Bank Group, and clears its arrears. The country has inherited some $500 million of debt arrears from the former Yugoslavia. Since the Bosnian government accepted the plan to clear the arrears which was proposed by the Board of Governors, membership became imminent. As a member, Bosnia will be able to settle it's debt and then the Bank can move into a full-fledged multibillion dollar reconstruction program. It would include both policy-based operations to support the economic transformation, and reconstruction projects in all sectors of the economy. At first we could provide concessional IDA credits, but as the economy picks up, Bosnia could very quickly qualify for World Bank lending. Before the war, per capita GDP in Bosnia was $2,000, four times as high as at present. The average level of skill and education is high in Bosnia. Therefore, once internal conditions stabilize, a significant economic rebound could be in the cards. Right now, the major challenge is to ensure the safe and free movement of people and goods within the country.

Q. Thus, the first phase of the Bank's program is dominated by the requirements of reconstruction and the second stage is policy-oriented?

A. In the first phase we are launching a series of emergency projects, but we have also started discussions on privatization of banks and enterprises. The second phase will start with the proposed structural adjustment credit which will focus on public finance reform as well as bank and enterprise restructuring.

Q. All this requires lots of money. Priority reconstruction needs under the program are estimated at $5.1 billion over the next three to four years, and commitments of $1.8 billion are needed for the first year. The Bank not only cosponsors the aid efforts and acts as economic consultant to the Bosnian government, but also tries to coordinate the efforts and ambitions of the international donors. With how much success?

A. The pledges made in Brussels are currently being translated into actual commitments for the specific emergency projects. The next donor meeting in Brussels in mid-April, will require all the coordinated efforts of the EU and the World Bank to generate longer-term commitments from the international donors. In particular, we will seek firm pledges amounting to $1.2 billion for the remainder of 1996. Meanwhile, in Bosnia—"on the ground"—things are moving ahead. A number of sectoral task forces are being formed, to be chaired by a donor with comparative advantage. For example, in telecommunications the EBRD would delegate the chairperson, in bank and enterprise restructuring, the World Bank. Rory O'Sullivan, our Resident Representative, is chairing the task force that will coordinate the countrywide reconstruction efforts.

Q. Taking into account the complex political structure of Bosnia-Herzegovina, the Bank has to deal with a number of government bodies. Will this complicate the aid process?

A. Institution-building has just begun, and for the time being there are quite a few uncertainties. We are dealing with four levels of government, depending on the kind of support we want to provide. The Bosnia-Herzegovina Government, the top executive body, is establishing key state institutions, such as the central bank, the state's ministry of finance, and the ministry of foreign affairs. We will help with these efforts and, besides, will support improvements in budget planning and management and in customs and tax administration. At the next level, the separate governments of the Croat-Bosnian Federation and the Serb Entity will have their own branch ministries, responsible for specific sectors. Consequently, these will be our partners for delivering our sector projects in the respected areas.

At the third level, within the federation, ten cantons have to be set up as regional subdivisions by the end of March 1996, as specified in the Dayton agreement. At this point only three cantons are operational. The cantons will play a key role in delivering World Bank services, including social services. The fourth level are the municipalities.

Q. How can the Bank avoid dealing with indicted war criminals during these operations?

A. The Bank only works with internationally recognized governments and of course we do not deal with indicted war criminals. It does not mean that we cannot approach local authorities anywhere in the country to set up practical projects to meet basic needs of the poor. But our contacts with various agencies and groups in the country are closely coordinated with Carl Bildt, UN High Representative for Bosnia. He is a key person as he received a mandate under the Dayton peace agreement to shape the political framework for the contact between the country's various entities and international organizations.

Q. Still, the big question remains: How can the international community, and the World Bank in particular, prevail over the deep-seated animosity and mistrust among the Serbs, Muslims, and Croats?

A. Building the federation is proving to be very difficult. A goal full of risks. Constant efforts are required to stay on course. If the various entities get actively involved in the reconstruction efforts, it will substantially reduce tensions and restore mutual confidence between the communities. Reconstruction money is an important policy tool. We hope that shifting people's attention from conflict and repression toward reconstruction and economic recovery will bring the parties together. This could be the World Bank's most important contribution to peace and prosperity in Bosnia.

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"The Whole Country Is Just One Big Opportunity"

"I don't think there has been anything quite like this since the reconstruction of Germany after the Second World War," said Kevin Mannion, a senior official with the International Management Group, a nonprofit organization financed by the EU that is a principal consultant to the World Bank for the reconstruction of Bosnia. Meanwhile, the Washington Post reports that to a growing number of executives, Bosnia looks a lot like a cash cow, and many are eager to start milking it. Billions of dollars in aid have been pledged to Bosnia from various sources, and to scores of U.S. companies the country's shellhole-strewn highways and bombed-out buildings represent a chance that a few snipers aren't going to ruin.

"The whole country is just one big opportunity," a representative from Bosnia's Chamber of Commerce is quoted as saying at a Washington seminar this week on business opportunities in the reconstruction of Bosnia. The seminar drew more than 200 business executives representing telecommunications companies, and engineering and transportation firms. A trade company, CMMA International, has begun publishing the Bosnia Reconstruction Newsletter, a collection of facts about the extent of damage in the country and hints about where future aid money might come from.

The World Bank and the EU propose spending $5.1 billion over three to four years on such programs as schools, health clinics, agriculture, manufacturing, essential services (for example, rebuilding and maintaining power plants and lines), and mine clearing. The Bosnian government has a list of some 700 projects to be tackled and the World Bank has worked up a budget that goes into meticulous detail, including $7.4 million for ninety dump trucks and $500,000 for one lot of street lights. Officials acknowledge that this is just the beginning.