The economy of Bosnia-Herzegovina is a unique case among transition countries, its most striking feature being its division into the economy of the Croatian and Muslim-dominated Federation of Bosnia-Herzegovina and that of the Republika Srpska.
There has been slow progress on trying to integrate the economies of the two entities. The Central Bank of Bosnia-Herzegovina, which functions as a currency board and is headed by IMF-appointed Peter Nicholl, put the convertible mark (KM) into circulation on 22 June 1998, supposedly for use in both entities.
However, in mid-January, Nicholl observed that "four currencies [the KM, the Deutsche mark, the Yugoslav dinar, and the Croatian kuna] are still in use here. The KM is developing well and is used all over all the country, but its use is still uneven and we have a long way to go in Herzegovina and the Republika Srpska before the KM can be described as the dominant currency of the whole country."
The economies of the two entities display different trends, with the Republika Srpska generally performing worse. However, the two entities share the feature that economic growth has slowed from the rapid rates displayed beginning in 1995, as the immediate reconstruction tasks have been completed. Industrial production in the federation rose by 25.6 percent during January-September 1998, compared with the same period in 1997.
This figure is less impressive when one takes into consideration the extent of the country's economic collapse in the early 1990s and the fact that such production grew by 341 percent in 1995 and 30 percent in 1997. Industrial production in the Republika Srpska grew by 26.3 percent during January-September compared with the same period in 1997, down from 34 percent in all 1997. However, Republika Srpska has not experienced as rapid an industrial recovery as the federation.
In 1994, the monetary authorities in both entities agreed to avoid using central bank credit to finance budget imbalances. This policy, along with the successful pegging of the federation's former currency, the Bosnia-Herzegovina dinar (since replaced by the KM), to the Deutsche mark and increased imports of consumer goods financed by foreign credits, have brought inflation down, especially in the Federation.
Inflation is running faster in the Republika Srpska than in the Federation. Retail prices in January-September 1998 were 5.9 percent higher in the Federation than on average in 1997, compared with 13.4 percent in 1997 (December-to- December). The equivalent figures for the Republika Srpska were 26.1 percent for January-September 1998 and 12.8 for 1997, so inflation is accelerating there, in keeping with developments in the Federal Yugoslavia, whose currency is still used heavily in the Republika Srpska.
The labor market is more depressed in the Republika Srpska than in the Federation, where employment has risen from 244,488 in December 1996 to 289,922 in September 1998. The numbers "waiting," that is, workers who are not working but for whom social contributions are made, have fallen over this period from 94,168 to 71,598. Fully 246,341 individuals were seeking work in September, although the IMF estimates that the unemployment rate has fallen from 70-80 percent to 30-40 percent since the end of hostilities. The unemployment rate is higher in Republika Srpska.
Net monthly wages are larger in the Federation, although they are rising faster in the Republika Srpska. Those wages came to DM 339 ($200) in the Federation in September 1998, compared with DM 206 a year earlier and DM 14 in November 1994. The equivalent figures for the Republika Srpska are DM 180 in September 1998, DM 64 in September 1997 and DM 49 in November 1994.
Foreign trade has been highly unbalanced, with trade and current account deficits financed by multilateral and bilateral inflows. Inflows have been large enough that the Central Bank's foreign reserves have been growing, reaching DM 280 million on 15 January, up from DM 144 million at the end of 1997.
During January-September 1998, the Federation exported goods worth just $73 million (up from $63 million in the same period of 1997), while its imports came to $674 million (down from $1.1 billion). Thus, the trade deficit last year was likely far smaller than the $1.2 billion racked up in both 1996 and 1997, but this is hardly good news, since it results almost entirely from an import collapse.
Imports and exports were down by about the same amount in the Republika Srpska during January-September 1998 compared with a year earlier, yielding deficits of about $280 million during each period. This suggests that the entity's international borrowing ability is constrained to a relatively small fixed amount each year. While economic growth rates may remain impressive by the usual standards in both entities, genuine recovery must await economic reintegration between the two entities and with at least some other parts of the former Yugoslavia as well.
The author is a research scholar at the International Institute for Applied Systems Analysis in Laxenburg, Austria.