 COMPARATIVE ADVANTAGES OF BIH |
 A stable currency |
With the help of the OHR and of the World Bank as well as the one provided by some other international organizations, some really important steps forward have been made in the economy of the post-war Bosnia. The most encouraging successes have been reached in the monetary and banking sectors, which are always of utmost importance in emerging economies. The Central Bank of Bosnia, is still partly run by international experts, and pursues the so called currency board system which has provided Bosnia with the Convertible Mark (KM) that has become one of the most stable currencies in the region. All the money that is in circulation is covered with the appropriate amount of foreign convertible currencies, which makes Bosnia one of rare countries in the Balkans that does not face any problem of inflation.
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| Modern payment system |
A further step towards modern economy was the fact that at the end of 2000 Bosnia abandoned the so-called payment bureaus system related to business transactions. The country introduced a modern way of operations through the commercial banking system. It is worth mentioning that among all former socialist countries in the Balkans, Bosnia is the only one, which completely left these payment bureaus. Even the best developed republics of former Yugoslavia (including Croatia and Slovenia) are still operating their public payments through these old-fashion payment bureaus systems, which produces huge internal debts in those countries and makes the whole economy non-efficient. These payment bureaus used to be centralized and state-controlled institutions that were in charge of all financial transactions in the country.
As Mr. Wolfgang Petritsch, the High Representative says: "BiH must realize that with the massive support of the IC, it now has and is able to do what needs to be done. So, the reconstruction has been used as a tool to reform and to help the transition process. I will give you one example: BiH is the first country that got rid of the old communist payment system with the so-called payments bureaus. Now the commercial banking system is becoming very reliable, and this happened much faster than anybody would have imagined. That is an example of the fact that reforms, combined with a clear vision of what this country should become, can make things move forward. This, of course, has to be very carefully calibrated and planned."
Each and every so-called "orders" of payments taking place between companies were sent to the payment bureau. The payment bureaus were receiving payment orders even for those company who were broken and which were not able to execute the payments. This was triggering a huge chain of internal debts among the companies. At the same time, this system of payment was providing a large sum of money which was frozen in these payment bureaus and which was not sent to commercial banks so that it could be used for further investments and production of wealth. In addition, for every transaction a fee needed to be paid to payment bureaus
So, several problems were associated to these bureaus: the money was not circulating within the economy; companies needed to pay fees to payment bureaus for all transaction services provided by them; and, at the top of everything, this large sums of money that stayed immobile in the payment bureaus were frequently used by ruling political parties for pursuing payments and investments aimed at political goals (to pay pensions for example, and in that way easing up the social unrest, investing in companies that were politically important but economically unsustainable and at many other dubious purposes).
With the abandonment of these payment bureau system, the money that companies owned was transferred to commercial banks, which automatically has erased the problem of accumulating internal debts of bad entrepreneurs. At the same time, it changed the economic philosophy for healthy Bosnian businesses. While earlier companies needed to pay a fee for every transaction, they are now benefiting from the interests of the commercial banks for their money being put in those banks. That money is now circulating, the accounts are transparent; there is no way for making further internal debts and no way that political subject can interfere with the business transactions of commercial banks. This is a paramount change in the Bosnian economy, a change that further developed countries in the region have not yet achieved.
| | Presence of a respectful and reliable Bank network |
When reputable foreign banks got to learn this, they started opening their branch offices in Bosnia. The first ones to enter the country were the Austrian banks Raiffeisen Bank and Volks banks. Other banks joined soon afterwards (such as the Turkish Ziraat Bank, the Zagreb Bank and the Hypo Bank) and some even bigger European banks are planning to resume operations in Bosnia. The arrival of foreign respectful banks has caused many changes in the Bosnian economy. The shaken confidence that Bosnian citizens had regarding savings in the banks started to fade away. Almost all the pre-war savings of these people (according to estimations it represented a total amount of two billion KM or, at the time DEM) have never been repaid to Bosnians. In addition to bad experiences with banks at the time of the old socialist system, some Bosnian banks that were established during and after the war have failed to do their business properly and also mismanaged the private savings of their customers. Once bankrupted, the total savings of the citizens vanished. This practice has changed. The Bosnian government together with the international community have set up an agency for securing the deposits of people regarding private savings. The agency secures all savings in all the banks and guarantees the return of up to 5000 KM for each individual that had savings in a bank if that bank comes to bankruptcy. This was a real stimulus for additional savings. People have distributed their personal savings in different banks putting in each of them an amount that did not exceed these secured 5000 KM.
The arrival of foreign banks have created a favourable competition climate and set up new business standards for Bosnian banks as well. They now have to increase their capital, merge with other banks or find foreign strategic partnerships. Over a two-year period, the number of domestic banks has been dramatically reduced (form 63 to 35) and financial experts anticipate that the number of sustainable banks will soon be less than 10. Presently, foreign banks own about 50% of the market share.
At the same time, with the significant input of the cash that was previously aimed at payment bureaus and that is now transferred in commercial banks, a new problem has emerged - where to invest a mass of fresh money and more importantly, how to secure the return on that money? So, the fact is that the money is not the problem, and that indeed there is enough of it at disposals, but what is truly to be stimulated is the arrival of fresh business ideas and attractive business programs.
| Big insurance companies |
As Mr. Zoran Kalinic, General Manager of Krajina Kopaonik, says: "When we speak with managers about the reinsurance, they don't understand. Or, what's even worse, they say they would accept a deal if we agree upon reinsurance. And when we calculate the expenses of reinsurance they say they don't have the money for that. So, we have the situation where most of the industry is neither insured nor reinsured...I'm hardly waiting the EU to finish the survey in the insurance field and entity assemblies to propose new laws, to establish control offices and one main office on the level of the state that will have strict but fair rules. Associated with a foreign company we can make a good business, not only here but in the European market too. You see, Southeastern Europe has 50 millions people. That's a challenge."
Simultaneously with the arrival of important banks, the insurance and security businesses have developed as well. This is in most cases strategic joined partnerships with big international insurance companies. Slovenian Triglav, joined with BiH Osiguranje (BiH Insurance), Euroherz with Croatia Osiguranje, Kopaonik with a leading insurance companies from Yugoslavia. So, it can be said that with a post-war situation, Bosnia has a respected insurance network operating and providing potential investors with a reliable and safe environment for business. |
