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Bosnia and Herzegovina

United Nations Development Programme

EARLY WARNING SYSTEM

Annual Report 2008

Although publication of this Report is supported by the UnitedNations Development Programme (UNDP) the opinions stated

herein do not necessarily reflect the official position of the

United Nations Development Programme (UNDP)

Assistant Resident Representative: Armin SIRO

Project Coordinator: Tarik ZAIMOVI; Mersiha URI

Review by: Peter van RUYSSEVELDT, Deputy Resident

Representative; Armin SIRO, Assistant Resident Representative

Editors: Tarik ZAIMOVI; Desmond MAURER

Authors: Dina DURAKOVI M.A.; Adnan EFENDI M.Sc.

Aleksandar DRAGANI M.A.; Ivan BARBALI M.A.

Fahrudin MEMI; Edin ABANOVI M.Sc.Translation: Desmond MAURER

Cover design: Tamara KOREN

DTP & Layout: Samira SALIHBEGOVI


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CONTENTS

FOREWORD..................................................................................................................................................................................5

Executive Summary ............................. ................................ ................................. ................ ............................. .................7

I POLITICAL STABILITY IN BIH ................................. ................................ ................................. ............... ................................. ..15

1. A year of political instability and profound institutional crisis ................................. .......................... .........................15

2. SAA signed, but lack of follow-up produces strong international criticism................................ .......................... ........16

3. Public pessimism prevails..............................................................................................................................................18

4. Support for European integration high ................................. ................................ ...................... ............................ .....18

5. Support for the SNSD down..........................................................................................................................................19

II INSTITUTIONAL STABILITY IN BiH............................................................................................................................................21

1. Gridlock at BiH and FBiH levels reflect pervasive political crisis ................................ ............................ ......................21

2. Ethnic groups differ significantly over government institutions .............................. ............................... .....................22

3. Support for OHR split on ethnic lines .............................. ................................ ......................... ............................... ....24

III ECONOMIC STABILITY IN BiH ............................ ................................ ................................. ................ ................................ ...27

1. Industrial production up ............................... ................................. ................................ ................ ..............................28

2. Unemployment still a major macro-economic problem ............................ ................................ ..................... .............28

3. Retail prices up significantly over year, as Central Bank of BiH reserves fall................................................................29

4. Trade deficit at worrying level ............................... ................................ .............................. ................................ .........30

5. The public see economy as doing poorly. ............................ ................................ ......................... ...............................30

6. BiH institutions are too costly and time-consuming and getting more so ............................. ......................... ............33

IV THE BUSINESS ENVIRONMENT IN BiH ............................ ................................ ................................. ................................. ....35

1. Economic situation worsens during 2008............................ ................................ ......................... ...............................35

2. Idle capacity in every second company.........................................................................................................................36

3. Financial indicators for Bosnian companies getting worse...........................................................................................364. Inefficient government, unfair practices, and the high tax burden hamper private sector operations ......................37

5. High direct and indirect costs of domestic institutions ............................... ................................ ...................... ...........38

V INCOMES AND SOCIAL WELFARE............................................................................................................................................41

1. Fewer households without income during 2008 ................................ ................................. ................... ......................43

2. Public expectations subject to various influences during 2008....................................................................................44

3. Purchasing power and living standards unchanged through 2008 ............................... ................................ ...............47

4. Social protection and minimum living standards largely unchanged ................................ ............................ ..............50

VI SOCIAL INCLUSION .............................. ................................. ................................ ............... ................................ ..................53

1. Some aspects of social inclusion ............................ ................................ ................................ ............................. .........53

2. Minority and majority samples share same views on the economy ................................ ............................... .............563. Pessimism over the political situation .................................. .................................. .................. ................................ ....58

4. Ethnic identity and citizenship in conflict for most ................................. ................................ ..................... ................59

VII ETHNIC RELATIONS ............................ ................................ ................................. .............. ................................. ..................61

1. The Ethnic Stability Index..............................................................................................................................................61

2. Exploitation of ethnic divisions in political life continues ............................... ................................. ............................62

3. Reported discrimination falls over year as a whole......................................................................................................63

4. Support for refugee return recovers ............................... ................................ .......................... ............................... ....63

5. Measures of social distance between ethnic groups improve......................................................................................64

6. Separatism and Nationalism ............................. ................................ ................................. ................ ..........................65

VIII PUBLIC AND PERSONAL SECURITY ................................ ................................. ............................. ............................... .........69

1. The Security Stability Index ............................... ................................. ................................ ............................ ..............69

2. Concern over public safety issues at beginning in the year fades as year goes on......................................................70

3. Rates fall for most crimes, for most categories of the population ............................... ............................ ...................71


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% I quarter II quarter III quarter IV quarter

Political stability indicators

Politically speaking, the situation in BiH is getting worse -14 -17 0.9 12.4

Would emigrate -3.4 -4 3.4 -1.2

View EU membership with hope 8.9 1.8 -7.4 -3.5

Think EU membership is important for political stability in BiH 1.8 -1.3 -1.8 0

Support the process of joining the EU 4.5 -2.7 -1.6 0.3

Institutional approval ratings

Confidence in Presidency 4.3 -3.1 0.2 1.9

Confidence in Council of Ministers 4.9 -4.3 1.4 2.9

Confidence in FBiH Parliament 5.9 -5.2 2 0.5

Confidence in FBiH Government 6.6 -5.6 1 2.8

Confidence in RS National Assembly -1.6 -4.7 1.3 2.4

Confidence in RS Government -2.4 -4.3 1 2.2

Confidence in OHR -0.3 -6.5 2.6 2.7

Confidence in EU -0.3 -3.5 0.6 5.5

Economic and fiscal stability indicators

Industrial production 6 6 7 8

Unemployment 2 2 8 3

Retail prices 6 7 8 8

Foreign reserves 30

Balance of trade 5 2 1

Incomes and social welfare indicators

Average wages 7 4 1 3

Consumer basket/average wage 1.5

Average pension 7 7 1 6

Minimum pension 15 2 2 2

Average pension/average wage 3

Would emigrate 10 10 10

Would protest over low income 5 7

Households with < 500 KM a month 7 10 15

Ethnic relations indicatorsHuman rights violations related to ethnicity (reported) -3.5 1.6 -0.1 0.7

Accept return by refugees and displaced 2.5 -1.5 -5 4.8

Willing to share country with other ethnic groups 0.5 1.5 -0.4

Strong pride in being citizen of BiH -3.9 -5.3 -2.8 0.6

Concern that war might break out again -5 -10 6.6 4.5

Public support for ethnic parties -1.2 3.9 8.3 -10

Security indicators

Illegal behaviour by police -3.9 1.8 -4.3 1

Level of crimes against property and person(reported by our sample) 1 3.9 -0.1 -1.4

Number of requests for police assistance -1.9 0.3 0.9 -0.8

Public satisfaction with police assistance -9.3 -30

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FOREWORD

As 2008 closes behind us and the Early Warning System project finishes its eight year of monitoring publicopinion in the key areas of politics, the economy, social security, ethnic relations, and public safety, we are

struck by the degree to which the situation has remained unchanged over the past several years. The list ofmost important current issues remains much the same, including as it does:

- the process of integration with Europe and the various associated reform processes,

- the continued failure to revise the post-Dayton settlement in a way that is acceptable to therepresentatives of all three constitutive peoples, while guaranteeing political stability and effectivegovernment,

- the establishment of local ownership of and responsibility for the political process.

One may, certainly, add to this list the worsening economic situation and the potential impact of the globalcrisis. In the foreword to last years annual report we pointed out the extent to which the political situationhere has benefited in recent years from an economic cushion. We warned that this could not be expected tobe the case for much longer. It is clearly no longer the case. As the economy shifts from a cushioning to anexacerbating role, we may expect the structural incapacity of the Bosnian political system agreed at Dayton tobecome increasingly clear. Dayton probably represented the best deal possible at the time and it did end a war.What is more, some of the compromises achieved at Dayton continue to be necessary. But some elements ofthe agreement have served their function and there is a need to move beyond them. Dayton must be builtupon in such a way that citizenship and not nationality becomes the structuring principle.

Armin Siro

Assistant Resident Representative,

UNDP BiH


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EXECUTIVE SUMMARYAs we enter the new year, with the global economy in the throes of crisis, the promise of a new

geopolitical order on the horizon, and the American neo-conservative establishment that has dominatedUS and so World foreign policy over the past eight years set to be replaced by pragmatic idealism and

smart power, there are unfortunately signs, particularly for Bosnia-Herzegovina, that this maynonetheless be a case of Ring out the old, ring in more of the same.

Signs that this may be the case include continued political gridlock and continued use of radical andethnically divisive rhetoric, as the mandate of the Office of the High Representative was extended with allpowers intact and the European Union presented another critical progress report. There have beenreports that government finances are facing difficulties, particularly in the Federation. This is unlikely tobe helped by the removal of customs on EU goods. This does not provide a particularly favourable politicalenvironment for dealing with the economic crisis, whose impact will only be the worse, given the alreadyhigh (real) unemployment rate, the degree of unused capacity in the economy, and the role played ineconomic activity by casual or part-time or temporary labour. The prospect of public dissatisfactionincreasing as we enter the spring and finer weather seems realistic.

As the graph makes clear, there has been no major change in overall stability in Bosnia andHerzegovina over the year. In fact, it has improved, recovering fairly steadily from the low in November2007. The main Stability Index thus increased from 57 points at the end of 2007 to 59 in both the first two

quarters of 2008 and to 60 in both the third and fourth quarter. The individual indices are, as usual, mixed,but with the exception of the Ethnic Stability Index generally show an upward trend in the early part ofthe year and no change in the second half. It is worth noting that while the ethnic, economic, and socialstability indices suffered a low in November 2007, from which they have since been recovering, thePolitical Stability Index underwent its collapse in mid-2008. While it has recovered somewhat in the latterhalf of the year, that recovery is relatively weak.

This should not be taken to mean that the situation has been improving. Just that it has not beengetting even worse since these various lows. Our indices are indices of stability in the various areas, notof health. There was an objective boost to stability in all areas during the second two quarters of the year,following the signing of the Stabilization and Association Agreement with the EU. That the indicesstagnated in the latter half of the year is due to the fact that signing the SAA has been followed by little

if any further progress, and the EU and the international community more widely have becomeincreasingly impatient and explicit in their criticism of domestic politicians, on the one hand, whileincreased spending on public salaries and transfers has taken the edge off the significant inflation thatmarked the beginning of the year and the economic indicators suggest a time lag in the impact of the

BH Stability IndicesGraph 1

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global economic crisis, which has begun to affect business but has yet to impinge fully on the publicconsciousness, on the other.

As the following six graphs make clear, the current modest upward turn in the indices does not offersignificant grounds for optimism. The graphs show the trends in the indices (taken as annual averages) since

BiH Political Stability Index and trendlineGraph 3The BiH Stability Index and trendlineGraph 2

BiH Social Stability Index and trendlineGraph 5Trends in the Economic Stability Index

for BiH

Graph 4

BiH Ethnic Stability Index and trendlineGraph 7

BiH Security Stability Index and trendlineGraph 6

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2000. It is clear that only the Ethnic Stability Index follows an essentially positive pattern. The others for themost part improved considerably in the early years of the decade, then entered a decline in 2002 thatgathered pace in 2004-2005 as both the economic and political situation worsened. There was a modest rallyin 2006, after which the downward momentum was restored. The final upward turn in the BiH Stability Indexis clearly due to the relative health of the economic and social welfare indicators, which can hardly be

expected to continue. Given the intractability of the political situation and the impact of the global financialand economic crisis, it is difficult to see how the downward movement evident since 2001 will not continue.

Turning now to the individual sections of our report, 2008 was clearly a year of political instability andprofound institutional crisis. Our Political Stability Index fell to its lowest recorded level in the secondquarter (48 points) and, as the above graph shows, the average for the year was also the lowest yet, at 50.5points. This was in spite of the fact that the year saw an apparent culmination of two years of negotiationand political drama over the signing of the Stabilisation and Association Agreement the European Union.Legislation for police reform was finally passed and the country was able to proceed with finalising the SAA.It was, however, the last country in the region to do so. Moreover, the aftermath has proven anything butsmooth. Through most of the year politicians proved incapable or unwilling to move ahead with theobligations involved in signing, in particular moving forward on constitutional reform. Instead, nationalist

rhetoric was ramped up and divisions came increasingly to the fore both between and within the entities.The pattern of divisive rhetoric was maintained, not least because of the local elections held in

October. The results of these elections changed little in the balance of power, though it was clear thatboth the SNSD and the SBiH lost ground to more moderate partners. Nothing came, however, of talkabout restructuring the ruling coalitions at federal or state level.

The political atmosphere in the country was recognised with concern by members of the internationalcommunity previously active within Bosnia and Herzegovina and by relevant institutions of the EuropeanUnion and the wider international community, namely the European Commission, the PeaceImplementation Council, and the Council of Europe's Parliamentary Assembly. A number of resolutionswere passed condemning the failure to meet various conditions under various processes or to progresspast the signing of the SAA as well as any attempts to undermine the status of either the state of Bosnia

and Herzegovina or either of its constituent entities. The High Representative, however, did not translatethe concern of the international community into punitive action against any of those responsible for theunsettled political conditions in the country. In early November, the European Commission adopted aProgress Report on Bosnia and Herzegovina that made clear how little progress it saw as having been madeover the year and how much damage had been done by the irresponsible and reckless behaviour of leadingpoliticians within the country. Moreover, the country and its leading politicians were warned that, unlessthings changed considerably and soon, they had little to expect of the European Union. Finally, we maynote, that at the end of November the European Union foreign and defence ministers announced theirintention of strengthening EU involvement in the country, but without specifics.

Other important events during the year that further complicated an already complicated situationincluded the unilateral declaration of independence by Kosovo and, to a lesser extent, the arrest of

wartime Bosnian Serb leader Radovan Karadi in July.In the final quarter of the year, the leaders of three leading ethnic parties, Milorad Dodik, Sulejman

Tihi, and Dragan avi, agreed a series of compromises in Prud over the most important political issuesand those most directly related to European Union concerns, including constitutional reform, the statusof Brko district, the status of national property, etc. This agreement was warmly welcomed by theinternational community, rather less so by other domestic politicians, parties, and the public generally. Itremains to be seen what practical results it will have.

As a result of the political ferment over the year, it will come as no surprise to learn that both federaland state level were essentially subject to gridlock, with great difficulty passing legislation. Moreover, asthe international financial crisis began to bite, the fragility of the budgetary position of the Federation andto some extent the state-level became clearer. In fact, the Federal Minister for Finance has issued several

warnings that the Federation was facing possible bankruptcy.

The situation was certainly not helped by the constant talk of restructuring or dissolution of thecoalitions at state and federal level, nor by the fact that no restructuring took place. As a consequence,

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there could be little surprise that the Peace Implementation Council announced that the Office of theHigh Representative would not be closing in 2009. There has, moreover, been a growing consensus withinthe Federation and in some parts of the international community that the crisis of the last year or so hasmade clear that the Office of the High Representative has a crucial role to play in ensuring the stability ofthe country for some time to come. Given the relatively passive role played by the current incumbent,

however, it is not clear what that role will be precisely.Overall, our survey results are in line with the generally poor political conditions in the country over

the year. The very pessimistic public mood already evident in 2007 continued through 2008. At thebeginning of the year, nearly 80% of the Bosniak majority area sample and nearly 60% of both the Croatand Serb majority area samples were of the opinion that political life is headed in the wrong direction.This softened somewhat in the middle of the year, but hardened again towards the end, when again 80%of the Bosniak Sample and approximately 50% of both the Serb and Croat samples were of the view thatpolitically things were getting worse (see Tables I and II for political stability in annex). This is in spite ofthe signing of the SAA. This pessimism was also evident with regard to the economy (see below).

The public continue to see salvation in integration with Europe. More than 75% of the total samplesaid they supported the process through the year. Support was particularly high amongst Bosniaks

(around 90% from the year). The percentages for the Croat and Serb samples were in ranges from 65 to78% and from 56.9% to 67.1%, respectively. This, no doubt, reflects the fact that a certain percentage ofthese two groups see salvation in neighbouring countries rather than membership of a trans-nationalunion. It is worth noting that Serb sample support for integration with Europe dropped 10 points overthe year. The views of the ethnic samples as to how important EU membership is for political stabilityhere follow the same pattern. Even less welcome is the fact that fewer of the total sample now view theprocess of integration with Europe from the perspective of hope than previously: down from 73 to 64%.In fact, only 50% of the Serb sample viewed the process with hope, compared to 75% of the Bosniak and65% of the Croat samples. (See Tables VI, VII, and VIII for political stability section in annex).

When it comes to support for political parties, the main change was the declining support for theSNSD, which began the year with 45% support in the Republika Srpska and ended it with just 24%. As a

result it lost its position as the most popular party in the country to the SDP. The support leaked by theSNSD did not transfer to any other party, its former supporters preferring to declare as dont know ordeclining to answer questions in this regard. (See Table IX for political stability section in annex).

It may therefore not surprise that both the Serb and Bosniak samples were increasingly criticalregarding the parties in power over the year, with particularly few Bosniaks taking the view that the partiesin power were in any way successful in defining or implementing key reforms, capable of meeting theconditions required for progress to integration with Europe, or deserving to stay in power. The Croats wereless critical than in previous years, indicating a certain consolidation of Croat support behind the HDZ BIH.

This is reflected in the relatively low approval ratings of various government institutions through theyear: around 40% for the state level institutions, 38% for federal institutions, 39% for RS institutions, andaround 51% for the municipal level. The showing of the municipal level, relative to the others, is largely dueto a spike after the local elections. As previously, at least since the SNSD took power in the Republika Srpskaand to a large extent at state-level, the Serb sample showed the most confidence in all levels of government,including federal institutions, followed by the Croat sample, with the Bosniaks considerably behind. This isindicative of the extent to which the RS sample support the SNSD policy that less is more, when it comes tocentral government. International institutions fared a little better, with overall support ranging from 38% forthe United States to 46% for UNDP. Results were similar with regard to perceived corruption in governmentand international institutions. (Tables I and II and V on institutional stability in annex).

Finally, with regard to political and institutional stability, we note that attitudes towards the Office ofthe High Representative remained split on ethnic lines. While an average of 44% of the overall sampleexpressed approval of OHRs job performance, this was due to higher support amongst Bosniakscounterbalancing lower support amongst Serbs. Croats were somewhere in between. Even amongst

Bosniaks, the approval rating was only around 50%. (Table II on institutional stability in annex).

Much the same pattern is true of approval for the various OHR-led reform measures, with theBosniak approval ratings in and around 50%, compared to Serb ratings in and around 30%. The pattern

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regarding the powers of the High Representative is even clearer, with a considerable majority (about 70%)of the Serb sample in favour of reducing the powers of the office, compared to a considerable majority ofBosniak's in favour of increasing them or at least leaving them as they are. Croats again were to be foundsomewhere in between. (Tables VI and VII on institutional stability in annex).

When we come to economic stability in Bosnia and Herzegovina, we find at first glance a rather morepositive picture, as the Economic Stability Index recovered over the year from a low of 43 points inNovember 2007, spending the year in the range from 46-48 points. The improving or at least notdeteriorating Economic Stability Index is in part due to the relatively buoyant economic indicators for theyear and in part to the slowness of public opinion to react to the global economic crisis. For example:

Industrial production was up in both entities over the year, 8% in the Federation and 17% in theRepublika Srpska. The increase in the Republika Srpska was in large part due to an astonishingdoubling of production in December 2008 compared to December 2007. (Table I on economicstability in annex).

While unemployment remains a major macroeconomic problem, there was a near 10% reductionin official unemployment over the year, with 40,000 fewer unemployed people in November 2008that there had been in late 2007. Most of this reduction was in the Federation. (Table II oneconomic stability in annex).

The news regarding inflation was more mixed, with strong growth in prices during the first half ofthe year, particularly in response to international pressure on food and fuel prices. This affectedfood, utilities, and service industries most and was hardest on the poorest families. As in otherparts of the world, this pressure eased during the second half of the year. (Table III on economicstability in annex).

Central Bank reserves continued to rise over most of the year, beginning to fall only in the final quarter,when they lost some 500 million in total. By the end of the year, however, they had begun to climbagain, so the nature of the long-term trend is unclear. (Graph III on economic stability in annex).

The most worrying indicator is, as always, the trade deficit and the export-import ratio. The ratio

was as low as 41% and the country generated a more than 9.5 billion KM deficit for the year.Further liberalisation of trade is set to take place in early 2009, particularly with the removal ofcustoms on imports coming from the European Union, which already make up a very largeproportion of total imports and exports .This will hardly make things any easier, particularly withregard to the government's current fiscal problems. (Table V on economic stability in annex).

This situation is reflected in the moderate pessimism expressed by our sample in all surveysconducted through 2008. More than half took the view that there had been no major changes in theeconomy over the previous year, while a third or more described the economy as deteriorating. Althoughgenerally negative, public opinion regarding the economy was, however, subject to moderateimprovement (i.e. reducing pessimism) during the first three quarters. This was halted in the fourthquarter, as awareness of the likely consequences of the global crisis filtered through. The federal samplewas moderately more pessimistic than the Republika Srpska sample, with Bosniak majority areas the mostpessimistic, followed by Serb majority areas, and then Croat majority areas. (Table VI on economicstability in annex).

When it comes to expectations, the public was also generally pessimistic, but not increasingly so.Even at the end of the year, only 25% said they expect things actually to get worse economically speaking,while the majority, as usual, expects more of the same. Moreover, the sample became somewhat lessconcerned than it was about the possibility of rising prices, though 63% still expect them to rise. As manyas 20% even expect their income to improve. On the other hand, on average more than 80% of oursample expect not to be able to save over the coming year. (Tables VII-XII on economic stability in annex).

Our questions regarding the efficiency of institutions and their economic impact on the public alsoreveal a disturbing picture. In general, a majority of our sample think that institutions in Bosnia cost more

than they should, both in money and in the time required to carry out tasks. Asked to quantify this, theysaid they add somewhere between 10 and 30% to their living costs in direct costs and an additional 10 to30% in indirect costs. A not insignificant percentage of the population therefore said that governmentinstitutions add as much as 60% to their cost of living. This is after taxation and contributions. When it

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comes to the institutions responsible for fiscal and monetary policy, the Central Bank and the IndirectTaxation Authority were best ranked in terms of their job performance through the year. Worst rankedwere the Privatisation Agencies, the Employment Bureau, and the Foreign Investment Promotion Agency.This makes clear that the public see the benefit of the monetary and fiscal agencies responsible forproviding a stable framework for the economy, but not of those tasked with hands-on stimulation of the

business environment, and perhaps there is some justice in that view. (Tables XIII-XVIII on economicstability in annex).

Our survey of 150 top managers tended over the year to display a rather bleaker picture of thebusiness environment and economy in Bosnia and Herzegovina. By the end of the year as much as 70%of the business sample was describing the economic situation in the country as having deteriorated, whileonly 4% described it as better than last year. Business sector expectations for first six months of 2009 arehardly any more optimistic. 62% of the sample think things will deteriorate and only 3% expect them toimprove. (Tables I and II on business sector stability in annex).

This is reflected in the fact that there is increasing idle capacity in the economy, with 50% ofcompanies underutilising existing resources. Financial indicators are no better, with nearly 30% of thesample saying their results were worse than last year. 43% said they expect them to get even worse.

There has also been an increase in company debt, particularly in the RS. All together these indicatorscontribute to the fact that only 69% of the sample in December 2008 said they had made a profit. Thiscompares to around 80% in 2007. These indicators generally deteriorated over the year, suggestive of anongoing slump. (Tables IV, V, and VI on business sector stability in annex).

Companies put much of the blame for the situation on the various levels of government and the factthat they are more of a hindrance than a help to the conduct of business. The sample regularly find state-level least helpful and municipal level most helpful. When asked about specific barriers to business, againit seemed clear that most of the worst obstacles related to administration or government rather thangeneral economic conditions. In the polls of 2008, the focus tended to be on the courts as an obstacle tobusiness, followed by the tax burden, corruption, and in fourth place unfair business practices. These fourfactors have consistently been identified as the main obstacles, though there is some difference as to the

ranking from quarter to quarter. Moreover, they were consistently identified as such by more than 80%of the sample. (Tables VII, VIII and IX on business sector stability in annex).

Finally we may note that business was as critical as the public of the high direct and indirect costsassociated with domestic institutions. A very high percentage of companies said such costs add anywherebetween 10 and 40% to their costs, seriously affecting their competitiveness under tougher globaleconomic conditions. The percentage was higher in the Federation than in the RS. It is perhaps no greatsurprise to find that the most efficient institutions, according to the business sample, were the CentralBank, the Indirect Taxation Authority, and the entity Tax Administrations, while the least effective werethe legal system, the Privatisation Agencies, and the Social Insurance Funds. Nor is it particularlysurprising to find that nearly 70% of companies admit to using informal connections and contacts to getthings done. In fact, they have been increasingly willing to admit to using such means over the year and

particularly since the third quarter. (Tables Xff on business sector stability in annex).Next we come to incomes and social welfare, where the situation through the year was at least

apparently stable. Like the Economic Stability Index, the Social Stability Index recovered early in the yearfrom a low in November 2007 and maintained its new position, higher than the low but still relativelyweak compared to its average in earlier years. This is not unrelated to the issue of household income, asthere was a reduction in the number of households without any income or with less than 500 KM permonth, as average salaries increased over the year, keeping pace with increasing living costs (Tables I andII on incomes and social welfare in annex). Moreover, pensions increased during the year, particularly thehighest pensions (Table XIIIa on incomes and social welfare in annex). We have already mentioned anumber of the other important factors, particularly the decline over the year in the percentage of thesample who expect the economic situation to deteriorate, down in Bosniak majority areas from 70.8% in

late 2007 to 39.7% in late 2008, and from 46.1% to 20.1% in Croat majority areas, while unchanged in Serbmajority areas at around 28% (Table V on incomes and social welfare in annex) This may, of course, berelated to a feeling that things have got as bad as they can. There may also be a certain admixture of reliefthat the rising prices of early 2008 seemed to be over and done with, as global fuel and food prices had

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begun to come down. On the other hand, there was a reduction in the percentage who expect their cashincome to fall, from 19.1% to 14.2% in the Federation and from 14.42% to 8.89% in the Republika Srpskabetween November 2007 and 2008, with a smaller but still significant increase in the percentage whoexpect household income to actually increase (Tables VI and VIII on incomes and social welfare in annex).Again this is no doubt related to the fact that incomes have been rising, even if largely thanks to increased

government spending rather than increased real employment or productivity. As government budgetscome under increasing strain in 2009, this expectation is likely to look increasingly unrealistic. Finally, theinitial bite of the economic crisis may be seen in the reduction in the already small percentage who expectto be able to save, as well as the increase in the percentage who think they might lose their job over thecoming three months (Tables IX and X on incomes and social welfare in annex).

Behind the relative complacency of the general population seems to be the increase in salaries,pensions, and benefit payments, and so overall incomes, through the year, so that price inflation did nothave the impact it might have. The average salary in October 2008 was approximately 780 KM in bothentities, an increase of 24.68% on the average salary in the RS a year before, though just 12% in theFederation (Table XIIIa). This increase in salaries is largely due to higher public-sector salaries and mayprove unsustainable even in the short term. The similar increase in pensions in both entities is already

proving difficult to finance.There are therefore reasons for believing that 2009 may be marked by significant difficulties in social

security and social welfare, as government resources prove inadequate to meet increased demands uponthe system. In this regard, it is worth pointing out that steps were taken during 2008 to create a NationalSocial Inclusion Strategy, but there is still no clear indication as to when the strategy will be completed oradopted. Moreover, the government has shown signs during 2008 of accepting the need for systematicsolutions to ensure a minimum standard of living and adequate social welfare and protection. The RSgovernment introduced regulations at the end of the year to increase the allocation for social welfare, butthe burden will be borne by the municipalities, who simply do not have the resources, particularly thesmaller municipalities. There is considerable ground for concern that the impact of the economic crisis maybe felt most by the worst off in 2009, as employment contracts, incomes fall, and government funds dry up.

In this respect it is worth stressing the findings of our social inclusion section which found significantand consistent differences on the basis of our surveys between the ethnic minority and majority sampleson the various ethnic majority areas in terms of their reported income and economic self-assessment,over and above the differences between the ethnic majority areas themselves. Perhaps the most concreteexample is the considerable gap between majority and minority samples when it comes to the possessionof consumer durables, like cars or mobile phones. This is compounded by the fact that rural householdsare clearly worse off than urban ones, while female headed household are worse off than male headedones. These economic differences are compounded by major differences in the degree to which membersof the minority and majority samples in the various areas respond to political life and in particular theextent to which they identify with their ethnic group and with the civic and political unit of which theyform a constituent part, namely Bosnia and Herzegovina. Nowhere is this clearer than between the

majority and the minority samples in the Serb majority areas. There are similar differences between theethnic majority and minority samples in terms of the approval ratings for the various levels ofgovernment, the courts and the police, and the Office of the High Representative.

This picture is confirmed by our section on ethnic relations. The Ethnic Stability Index was relativelyhigh through the year, peaking during mid-year, but still ending 5 points up on the low of 72 for November2007. As noted above, this is the only one of the indices to have maintained a generally positivemovement over the past 8 years, no doubt reflecting the gradual subsidence of ethnic passions caused bythe war. This was in spite of a year in which much of political life seemed to be designed primarily atcausing ethnic divisions and strife, from the reaction to the Kosovo declaration of independence, throughdisagreement over the census, and the RS Prime Ministers decision to withdraw from the state-levelelectricity distribution company and similar grandstanding related to and following the local election

campaign. It is therefore encouraging that our sample was less likely to report harassment on ethnicgrounds during 2008 than it had been in 2007 (Table I on ethnic stability in annex). Unfortunately thisdecrease relates primarily to Bosniak majority areas and there were in fact increases in Serb and Croatmajority areas, particularly with regard to the minority samples. There was a more general increase in

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support for at least the idea of minority return, with a jump in support in both Bosniak and Serb majorityareas, but no in Croat ones (Table II on ethnic stability in annex).

Less positively, when it comes to measures of social distance between the ethnic groups, we find thatCroats became less tolerant of Bosniaks and Serbs over the year, with considerably fewer finding itentirely or generally acceptable to have Bosniak or Serb neighbours, see their children go to schooltogether, have a Bosniak or Serb boss, etc. Bosniaks were also more intolerant than before of Serbs andCroats. By contrast, Serb acceptance of both Bosniaks and Croats was up in most of the areas asked about.Even with these changes, however, Bosniaks are considerably the most tolerant, followed some waybehind by Croats, and with Serbs in third place. There was a similar pattern to willingness to move townfor a better job to an area where one would not belong to the majority ethnicity, with both Bosniaks andCroats less willing than before to do so and Serbs expressing unchanged levels of readiness. Again, onemust take into account the fact that Serbs were in general the least willing (around 25%) to countenancesuch a move in any case, followed by Croats (between 30% and 36%), with Bosniaks much the most willing(around 40%) (Tables IV, V, and VI on ethnic stability in annex).

Pride in ethnicity declined over the year in all three ethnic majority areas, with regard to the majoritysamples. The minority samples all registered higher levels of ethnic pride in November 2008 than they had

in November 2007. The percentages of all groups expressing pride in ethnicity were close to or above 80%.This contrasts to the percentages expressing pride in being citizens of Bosnia and Herzegovina, which werecomparable only for Bosniaks, while for Croats and Serbs they were below 40% through the year. Theminority samples in both Serb and Croat majority areas expressed considerably higher levels of pride thanthe majority samples, rising over the year to reach the mid-70s. The country clearly remains very dividedalong ethnic lines, with Bosniaks, whether living as the local majority or a local minority, the only groupwith a large percentage willing to express a strong degree of identification. By comparison, relatively fewCroats and even fewer Serbs harbour positive feelings about the country they live in. (Tables VIII and IX onethnic stability in annex) In spite of this, it is encouraging to note that there was a significant reductionover the year in the percentages of most of our analytical categories who think that the withdrawal ofinternational forces from the country might lead to war except people living in the Republika Srpska, who

were more like to think so at the end of the year than they had been at the beginning. It is worth notingthat they were in any case the least likely to think war might break out and the increase was minimal, sothat overall the change was clearly positive (Table X on ethnic stability in annex)

Finally coming to public safety, we note that the Security Stability Index rose steadily from its low inMarch 2008 (85) to reach a reasonably high 88 by the end of the year, the same level as it had been inNovember 2007. The reason for this change was public reaction in the early part of the year to a juvenilekilling in Sarajevo and other events which created major public concern over public safety. As theauthorities in Sarajevo took concerted action, including a curfew for juveniles and stronger punitivemeasures related to parental responsibility, the public concern faded over the summer. This was reflectedthe fact that the percentages of our sample reporting having been victims of a crime were not muchchanged over the year, but there was a major increase in the percentages of the various samples

expressing dissatisfaction with police assistance received, particularly in Bosniak majority areas (Tables Iand III on public and personal safety in annex).


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1. A year of political instability and profound institutional crisis

According to our Political Stability Index, 2008 was politically the least stable year since we startedour surveys in May 2000. During the second quarter of 2008, it fell to its lowest recorded level (48 points).The average for the year is also the lowest yet, at 50.5. What is more, this means that for the second yearin a row the Political Stability Index was at a record low average value.1 In fact, as the above graph makesclear, the trend for the Political Stability Index has been clearly downward since its peak of 57 points in2001. There was a major drop of 5 points between 2003 and 2005, reflecting the very difficult politicalperiod when Lord Ashdown was High Representative, the SDP-led Alliance lost power, and the restorationof the politics of ethnic division produced deadlock in nearly every area of reform required by theEuropean Union for progress towards membership.

While there was a moderate recovery in 2006, political events during 2007 and 2008 have confirmedthe negative nature of the overall trend, particularly following the collapse of the initial constitutionalnegotiations, the subsequent general elections, and the stand-off they produced between the

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I POLITICAL STABILITY IN BIH1. A year of political instability and profound institutional crisis

2. SAA signed, but lack of follow-up produces strong international criticism

3. Public pessimism prevails

4. Support for European integration high

5. Support for the SNSD down

ANNUALREPORT

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1 The average value of the Political Stability Index for 2007 was 52.7, the lowest value up till that point.


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increasingly radical RS Prime Minister, Milorad Dodik, and the increasingly undiplomatic BiH PresidencyMember Haris Silajdi. 2008 proved a year of political instability and profound institutional crisis, inwhich positive events were few and far between, while difficulties came thick and fast. The long-awaitedsigning of the Stabilisation and Association Agreement with the European Union came in the middle ofthe year, but failed to energise political life or to produce any significant progress on the path towards

Europe. In fact, political life was overtaken by radical rhetoric, inability to agree on any political issue ofimportance, and the obviously dysfunctional coalitions at both state and federal levels. It was also a yearof municipal elections, whose results provided no surprises and brought no major change to the balanceof forces. Finally, 2008 confirmed the countrys susceptibility to influences and events in neighbouringcountries, which only served to further complicate an already complicated political environment.

2. SAA signed, but lack of follow-up produces stronginternational criticism

This year, 2008, finally saw the signing of the Stabilisation and Association Agreement with theEuropean Union, one of the few positive events of the year. After nearly 2 years of negotiations, the package

of legislation for police reform was passed by the state level parliament in April, under considerable pressurefrom the international community. While Bosnia and Herzegovina signed its SAA as a result of compromise,it was the last state in the region to do so. This event, certainly one of the most important of the year, wasnonetheless only the overture to a process which will require the country to pass a considerable amount oflegislation and to reach compromise on political and institutional issues of the highest significance.

Regardless of nearly unanimous declared support for the process of integration with Europe, therewas practically no further progress in this regard after the signing itself. Passage of the BiH Fiscal CouncilAct and the National Strategy for War Crimes Prosecution was practically the only legislative activity in theareas of reform which are a precondition to further progress. EU officials made clear that constitutionalreform, while not technically a condition, will be required for membership of the European Union. Giventhe political cloud that hung over local political life almost the whole year, consensus on constitutional

change seemed more remote than ever before.This was an election year. The holding of local elections on 5 October helped maintain the

polarisation of political life. Nationalist rhetoric was ramped up and divisions came increasingly to thefore. Calls for secession were made increasingly freely from the Republika Srpska, while representativesof Bosniak parties in the Federation called for the abolition of the entities, just as their colleagues fromthe so-called Croat block were appealing for the creation of a third entity. The result of the local electionsbrought no dramatic change. The SDA, SNSD, and the HDZ BiH fared best, while the relative losers werethe two junior partners in the coalition, the SBiH and the HDZ 1990.

Political crisis continued after the local elections. Radical rhetoric, inability to reach consensus onimportant issues, and dysfunctional institutions remained characteristic of the domestic political scenefor the rest of the year. The coalition at state level had never functioned properly, but in 2008 differences

in opinion between the ruling parties took on more dramatic dimensions, not infrequently producing acondition of continuous crisis in state level institutions. Particularly good examples are instances ofelected officials using official appearances abroad to present their own or their partys views, rather thanthose of the institutions they represent.2

Because of this constant political crisis, a number of different European institutions paid particularattention to the country during the year. These European institutions were unanimous in stressing theneed for the adoption of a new or changes to the existing constitution to create functional state-levelstructures. A meeting of the Peace Implementation Council (PIC) held in February agreed that if the Officeof the High Representative was to be transformed into an Office of a Special EU Representative certain

2 For examples, see the third-quarter report.

3 Five goals were set out: acceptable and sustainable solutions regarding the allocation of property between state and other levels of government,acceptable and sustainable solutions to the issue of military property, full implementation of the final arbitration agreement on Brko, fiscalsustainability, and reinforcement of the rule of law. The two conditions were: signing the SAA and favourable assessment of the situation in thecountry by the Steering Board, which would be based on thoroughgoing respect for the Dayton peace agreement. The text of the PICs declarationis available at HTTP://www.ohr.int/pic/default.asp?content_id=41354

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goals and conditions would have to be met in advance by the country. 3 All attempts at unilateral changeto the constitutional structure of the country were also condemned, as were any attempts to question itsterritorial integrity. This position regarding the status of the Office of the High Representative wasrepeated at a meeting of the PIC held in June, and again in November. It should be stressed that, contraryto expectations, the High Representatives own approach to local leaders and political circumstances

remained relatively passive. Negative trends and even quite extreme displays by politicians received littlemore than a warning, with no use of concrete measures or the Bonn authorities.

In September, the Council of Europes Parliamentary Assembly passed a Resolution on Bosnia andHerzegovina criticising the country for failing to meet its admission requirements and calling upon it tochange the discriminatory provisions in its Constitution, while condemning any type of obstruction to thework of the state level institutions or undermining the integrity of the state. The European Parliament alsopassed a Resolution on Bosnia and Herzegovina in October, stating that there was no place in theEuropean Union for Bosnia and Herzegovina as the country exists today radicalised, divided, andwithout political consensus over the path towards Europe. In early November, the European Commissionadopted a Progress Report on Bosnia and Herzegovina in which it made clear its view that there had beenat best partial progress over the political criteria and that most of that had been in the first half of the

year, while the lack of consensus over capacity building at state level, undermining of the Dayton peaceagreement, and inflammatory rhetoric had detracted from any progress previously made. At the end ofNovember, the European Union foreign and defence ministers discussed Bosnia and Herzegovina at oneof their regular meetings and announced their intention of strengthening EU involvement in the country,which has yet to materialise.

Certain events in the region also affected the political crisis in Bosnia and Herzegovina, the mostimportant being the unilateral declaration of independence by Kosovo on 17 February. It should be notedthat the mere expectation of this event had had a negative impact through 2007. Constant attempts bypoliticians from the RS to link the status of Kosovo with the status of their entity raised the politicaltemperature even before the declaration of independence, so the reaction following the event itself wasmuch as expected. The negative statements by RS politicians, the visit by the RS Prime Minister to attend

public demonstrations in Belgrade, demonstrations held in the main towns of the RS, and even the votingof a resolution by the RS National Assembly refusing to recognise the unilateral declaration ofindependence by Kosovo and Metohija offered little to surprise and brought little change to the politicalclimate.

Events related to the Hague Tribunal, both directly and indirectly, also affected the political scene inBosnia and Herzegovina. Positive events included the arrest of Stojan upljanin in June and that ofRadovan Karadi in July, though the latters trial has yet to start and will certainly represent one of themost important political events of the coming period. Political life was also shaken by the sentencing offormer Republic of Bosnia and Herzegovina Army General Rasim Deli, who was found guilty on groundsof command responsibility and sentenced to 3 years in prison for war crimes committed in central Bosnia.As expected, the sentence provoked an extremely negative reaction in the RS, because of the leniency of

the term imposed, which led to accusations of bias on the part of the court.At the end of the year, the leaders of the three leading ethnic parties in Bosnia and Herzegovina made

an attempt to reach agreement over the most important political issues, with a view to avoiding orovercoming the long-term crisis. The leaders of the SDA, SNSD, and the HDZ BiH reached agreement inprinciple on constitutional reform, the status of Brko district, and the status of national property, underthe so-called Prud agreement.4 The Prud agreement received a very warm welcome from representativesof the international community and the European Union, but was not particularly warmly received byother local political players, whether in the ruling coalition or opposition. As a result, it remains extremelyuncertain whether implementation of the agreement will be at all possible, and to what extent it reallyrepresents the first step out of the current crisis.

4 The agreement provides for the following: ammendments to the constitution to bring it into line with European norms, while improving theeffectiveness of state-level institutions and making clear territorial organization; a census in 2011, with the proviso that the 1991 census will remainthe basis for ethnic representation at all levels of government and administration until 2014; a deal on the division of government property, withthe state-level retaining ownership of such property as is necessary for state-level institutions to function and the remainder split between the entityand lower levels of government; a deal to sort out the legal status of Brko District by constitutional amendment.

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3. Public pessimism prevailsThe very pessimistic public mood already evident in 2007 continued through 2008. Already at the

beginning of the year, the sample showed considerable pessimism regarding the political situation in the

country, with as many as 78.8% of the Bosniak sample, 57.7% of the Croat sample, and 57.3% of the Serbsample taking the view that Bosnia and Herzegovina was moving in the wrong direction. Over thefollowing two quarters, Serb and Bosniak opinion softened, only to harden again by the end of the year.In the final quarter, 50.3% of the Serb sample, 52.9% of the Croat sample, and as much as 79.7% of theBosniak sample said they thought the country was headed in the wrong direction politically. On average,more than half the total sample expressed pessimism throughout the year, with the Bosniak sample mostpessimistic, and the Serb sample least so (Tables I and II in annex).

The Bosniak sample was also most negative during the year vis--vis the economic situation, with asmuch as 60% of the opinion through the year that the economic situation in Bosnia and Herzegovina wasbad, and a negligible number of the view that the economic situation could be described as good(between 1.4% at the beginning and 0.2% at the end of the year). The Croat sample were far less likely toexpress a negative assessment of the economic situation in the country, but this was largely because alarge majority of the sample through the year (more than 47%) refused to express a clear opinion on theissue. The Serb sample also showed a very high and steady level of pessimism regarding the economicsituation, which varied over the year between 61.4% and 17.9% (Table III in annex). The sample from theRS were also critical regarding the economic situation in that entity, with between 53.8% and 61.4% alsodescribing the economic situation there as poor (Table IIIa in annex).

The percentage of the sample who would emigrate if the opportunity arose was also high through2008, at between 38.2% and 42.2% of the total sample, yet another negative trend continued from theprevious year. As has become the norm, the 18 to 35 age group was most eager to emigrate, with more

than 60% expressing such a desire through the year (Table IV). The breakdown by ethnicity was fairlystable through the year (Table V in annex).

4. Support for European integration highSupport for the process of European integration was high through the year, higher even than it had

been in 2007. That means between 75.6% and 79.9% of the total sample said they supported the processthrough the year. The Bosniak sample was most likely to support or express approval (between 87.9% and94%), but support was also relatively high amongst both the other samples as well -- around 65% and78.3% for the Croat sample and between 56.9% and 67.1% for the Serb sample. There was, however, anoteworthy drop in support amongst the Serb sample over the year, ending the year 10 points down onthe first quarter (Table VIII in annex).

The view that becoming a member of the European Union is of particular importance to the politicalstability of the country also enjoyed considerable public support during the year, with between 77.2% and80.3% of the total sample supporting it: more than 87% of the Bosniak sample, 66% of the Croat sample,and 60% of the Serb sample through the year. As with the previous question, there was a gradual decline

Age Gender

All 18 - 35 36 - 50 51 + Male Female

2008 March June Sept Nov MarchJune Sept Nov March June Sept Nov March June Sept Nov March June Sept Nov March June Sept Nov

Yes 42.2 38.2 41.640.4 64.7 61.3 64.5 63. 3 51.1 46.1 45.6 39.4 18.6 14.9 17.4 17. 6 42.5 37.2 43.4 43.3 41. 9 39.2 39.9 37.6

No 47.5 50. 3 47.946.3 23.6 27.7 24.3 19.2 35. 9 39.7 41.6 48.9 73.7 76.3 73.9 72.2 45.8 49.7 46.3 45. 9 49.1 51. 0 49.3 46.7

DK/ NA 10.3 11.4 10.613.3 11.7 11.0 11.2 17. 5 13.0 14.3 12.7 11.7 7 .7 8.8 8 .7 10. 2 11.7 13.1 10.3 10.8 9 .0 9 .9 10.8 15.7

TOTAL 100.0100.0 100.0100.0100.0100.0 100.0100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

Source: Public opinion polls conducted for EWS by Prism Research

Would emigrate if they couldTable IV

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in support amongst the Serb sample over the year, with an approximate 10 point difference between thefirst and the last quarter (Table VII).

On the other hand, however, as the year wore on, the percentage of the sample viewed the processof integration with Europe from the perspective of hope reduced, while the number who expressedconcern increased. During the first quarter as many as 73% of the total sample said they viewed theprocess with hope, down to 63.9% by the last quarter. The trends for the Serb and Bosniak samples aresimilar. The percentage of the Serb sample viewing the process with hope declined from 62.1% in the first

quarter to 49.3% in the last quarter. The percentage of the Bosniak sample of the same opinion was muchhigher, but also in decline (from 85.8% at the beginning of the year to 75% by the end). Amongst the Croatsample, the percentage who took this position was more stable and averaged approximately 65% acrossthe year (Table VI in annex).

5. Support for the SNSD downIn 2007, the SNSD was by far the strongest party both in the RS and at state level. In 2008, the partys

dominant position was gradually eroded, as its support within its primary constituency, the RS, fell away.In the first quarter of the year, RS support for the party was at an enviable 45.1%. This had clearly fallenalready in the second and third quarters, to 32.7% and 35.3% respectively, to end the year at just 23.9%.This decline also meant losing its position as the most popular party in the country from 17.9% of thetotal sample in the first quarter, it fell to 9.7% by the end of the year. At the same time, there was noconcomitant increase in support for any other party in the RS, just a considerable increase in thepercentage of the sample who declared that no party represented a position which they considered closeto their own as well as in the percentage who refused to declare at all. The next party, in terms ofpopularity, in the RS was the SDS, whose support fluctuated between 8.2% and 13% (Table IX in annex).

Regardless of the steady fall in support for the SNSD, no other party experienced a particularly steeprise in approval during 2008. Over the year, the party which enjoyed most support in the Federation wasgenerally the SDP. This party's position remained between 12.4% and 17.2% over the year, the latter figurebeing for the final quarter and the partys strongest result during the year, when it became the leadingparty in the country (10.7% of the overall sample). SDA support averaged approximately 12%, whilesupport for the SBiH averaged 7%. The Croat party with the most support was the HDZ BiH (averaging 7%),considerably ahead of any other party from the so-called Croat block (Table IX in annex).

Both the Serb and Bosniak samples displayed increasingly critical attitudes towards the parties inpower. The traditionally critical Bosniak sample displayed even greater dissatisfaction, with more than

All Bosniak majority areas Croat majority areas Serb majority areas

2008 March June Sept Nov. March June Sept Nov. March June Sept Nov. March June Sept Nov.

% % % % % % % % % % % % % % % %

Very 57.8 52.6 45.2 48.8 80.6 77.9 60.9 73.9 45.5 43.8 51.5 36.4 35.0 25.9 26.5 21.7

Somewhat 22.5 26.4 32.0 28.4 11.7 9.5 28.1 15.2 21.3 32.9 22.7 43.9 35.2 43.5 37.8 39.0

Neither important

nor unimportant 11.1 11.4 13.8 12.9 3.6 3.6 7.6 6.7 19.1 16.2 20.9 14.6 17.4 19.3 18.9 20.5

Fairly unimportant 2.2 1.6 1.1 2.4 0.1 0.2 4.8 1.9 0.7 0.5 3.8 3.0 2 .6 5.9

Not at all important 2.5 2.5 3.9 3.9 0.4 0.4 2.0 1.4 1.2 1.2 5.1 5.9 9.3 9.1

DK/NA 4.0 5.4 3.9 3.6 3.6 8.7 3.5 3.8 7.4 3.8 3.0 3.5 3.6 2.5 4.9 3.8

Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

TOTAL IMPORTANT 80.3 79.0 77.3 77.2 92.3 87.4 88.9 89.1 66.7 76.7 74.2 80.3 70.2 69.3 64.4 60.7

Neither important

nor unimportant 11.1 11.4 13.8 12.9 3.6 3.6 7.6 6.7 19.1 16.2 20.9 14.6 17.4 19.3 18.9 20.5

TOTAL UNIMPORTANT 4.6 4.1 5.0 6.2 0.5 0.2 0.4 6.9 3.3 1.9 1.6 8.9 8.9 11.9 15.0

DK/NA 4.0 5.4 3.9 3.6 3.6 8.7 3.5 3.8 7.4 3.8 3.0 3.5 3.6 2.5 4.9 3.8Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0


How important do you think EU membership is for BiH?Table VII 19

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half of the opinion that the parties in power had not been even relatively successful in defining andimplementing key reforms, that they were not capable of meeting the conditions required for progresstowards integration with Europe on time, and that they did not deserve to stay in power. The Croatsample was less stable in its opinion over the year, with between 25 and 40% expressing negativeassessment of the parties in power (except during the second quarter when a considerably higher

percentage took a critical view). Nonetheless, we should mention that this represents a lower level ofcriticism than the previous year, largely due to the increased percentage of the sample unable or unwillingto express an opinion regarding the effectiveness of the ruling coalition, rather than an increase in thepercentage expressing actual approval (Table XI in annex).

The Serb sample also displayed a more critical attitude than the previous year, though they remainthe most positive overall with regard to the parties in power. Between 20 and 30% gave a criticalassessment of the parties in power, while approximately 30% of the sample refused to answer throughthe year. This leaves between 28.5% and 36.3% of the opinion that the parties in power deserve to remainin power (Table XI in annex).


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1. Gridlock at BiH and FBiH levels reflect pervasivepolitical crisis

The institutions of Bosnia and Herzegovina have always been faithful mirrors of any crisis present in

local politics, so that their (inability to) function is a good indicator of political stability in the country. Thiswas the case in 2008 -- profound crisis in political life was accompanied by equally profound institutionalcrisis. Problems in the performance of the ruling coalition at state level, evident from the very beginningof its mandate, deepened through the year. Profound political disagreements between the parties makingup the ruling coalition were reflected, as expected, in the performance of the state level institutions.More than ever before, these state institutions were a vision of ineffectiveness, inefficiency, party conflict,and the pursuit of party and not common interests.

After the signing of the Stabilisation and Association Agreement with the European Union, Bosniaand Herzegovina accepted a series of conditions related to membership, which will require not merelyhighly intensive legislative activity and involvement of institutions at all levels, but also a high degree ofconsensus between all political players regarding the path towards Europe. Unfortunately, since the

signing of the agreement, it has become clear that there is little if any commitment to and no practicalconsensus regarding meeting the obligations and priorities set by the EU. It is a demoralising indicatorthat only 13 of the over 30 short-term priorities put before the country by the European Union had beenmet by the end of September this year, whether in whole or in part, so that it is impossible to talk of acomprehensive reform process this year.

Instead of dealing with reforms and carrying out the tasks required for integration with Europe, thestate level institutions were preoccupied throughout 2008 with themselves. The decision-making processin the collective state level institutions was marred by outvoting and the absence of consensus. Alreadyat the beginning of the year, two decisions by the collegiate head of state, the Presidency of Bosnia andHerzegovina were found to be in violation of vital national/ethnic interests. This bodys inability to reachcompromise was confirmed after the Presidency failed to adopt a platform during the second quarter of

the year for participation in the UN General Assembly, so that the Chair of the Presidency, Haris Silajdi,gave a speech which was a reflection of his personal views. His speech to the Parliamentary assembly ofthe Council of Europe was a similar case in point. This certainly contributed to the deterioration of thepolitical climate, provoking the predictably negative reaction from politicians in the RS.

II INSTITUTIONAL STABILITY IN BiH1. Gridlock at BiH and FBiH levels reflect pervasive political crisis

2. Ethnic groups differ significantly over government institutions

3. Support for OHR split on ethnic lines

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On the other hand, a number of appearances by the RS Prime Minister, Milorad Dodik, and otherpoliticians from the RS, during which they questioned the territorial integrity of the country and the authoritiespooled by the entities at state level, also had a particularly negative impact on political stability and thefunctioning of state level institutions. The RS institutions went even further than mere verbal grandstanding. Inearly September, the RS government initiated the process of creating its own electricity transmission company

(parallel to the state company responsible for this area), after which it refused to deliver documentation to theBosnia and Herzegovina Prosecutor's Office relating to the tax declarations of two private companies, the RSgovernment and certain ministries, while during the year it proceeded to open its own representative officesabroad. These activities continued in the face of occasional warnings by representatives of the internationalcommunity and reaction by representatives of political parties based in the Federation.

Coming to the performance of the entity institutions, the SNSD maintained its dominant positionwithin the RS government through 2008, and while there was some quarrelling with the junior coalitionpartners, principally the PDP, this did not affect the performance of institutions within the entity. Thefederal institutions, on the other hand, staggered from crisis to crisis through the year, again largely as aresult of poor relations between the coalition partners at this level, particularly the SDA and the SBiH.After publication of the local election results, the SDA and HDZ BiH opened negotiations on restructuring

the government, and there were even hints about the possible dissolution of the coalition between theSDA and the SBiH. Once the SDP made clear, however, that it had no intention of joining the rulingcoalition, it became obvious that a new majority could not be formed without the SBiH (and HDZ 1990),so that all talk of restructuring was in the end abandoned. A clear indicator of the crisis within the federalinstitutions is the fact that the federal budget for next year is 240 million KM less than this year's budgetas a direct result of this years deficit. That the Federation is on the edge of bankruptcy was announcedmore than once during the year by the Minister of Finance of the Federation.

Under such conditions of political and institutional crisis, rather greater involvement was expectedfrom the international institutions, led by the Office of the High Representative. The energetic approachtaken by the new High Representative, Miroslav Lajak, in 2007, which suggested he might take an activerole in political process, underwent a transformation in 2008. His passivity, his reluctance to use his Bonn

authorities, and his self-imposed restriction to verbal warning made clear that there is no consensus on adefinite and determined course of action within the European Union or amongst the countries that makeup the Peace Implementation Council. Several times during the year, the High Representative himself,alongside representatives of the EU institutions, stressed that the responsibility for progress towardsintegration with Europe lies exclusively with domestic institutions and local political actors. Nor did localpoliticians show a united front with regard to the role of the Office of the High Representative. Whilepoliticians from the Federation (particularly those from the so-called Bosniak parties) advocated a greaterand clearer role for the international community in Bosnia and Herzegovina, those from the RS wereunanimous in their view that the Office of the High Representative should be closed. The decision of theinternational community was somewhere in between -- at the end of the year, the Peace ImplementationCouncil decided that the time had not yet come to close the Office of the High Representative or towithdraw the European security forces (EUFOR). On the other hand, it was also clear that any moresignificant involvement than that currently in place was not to be expected any time soon.

2. Ethnic groups differ significantly over governmentinstitutions

The overall approval ratings for various government institutions in 2008 were as follows: around 40%for state level institutions, 38% for federal institutions, 39% for RS institutions, and around 51% formunicipal level. There was not much fluctuation in the approval ratings during the year -- after a modestfall in the second and third quarters, the institutional approval ratings generally recovered to the level ofthe beginning of the year (Table I in annex). There remain, however, significant differences between thevarious ethnic groups.

The Serb sample showed most confidence in all levels of government over the year, with a noticeabledip in the third quarter. On average, some 50% of this group expressed support for state level institutions,65% for municipal institutions, and as much as 68% for RS institutions. A relatively high percentage even

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expressed support or approval for the work of the federal institutions -- around 48%. The Croat samplestarted the year with a fairly high percentage expressing confidence in the various levels of governmentand their performance, but there was a significant decline in the second quarter and the low-level wasmaintained pretty well to the end of the year. The average for the year was around 36% support for theperformance of the state level institutions, 35% for the federal level institutions, 40% for the municipal

authorities, and around 22% expressing satisfaction with how the RS institutions were doing their job.The Bosniak sample was the most critical group in 2008, though here too there was a moderateimprovement in the second half of the year. On average they gave the state level institutions an approvalrating of around 29%, federal level around 28%, RS institutions around 16%, with only the municipal leveldoing significantly better, at around 39% (Table II in annex).

The overall approval rating for international institutions present in Bosnia and Herzegovina was a littlehigher than the approval rating for government institutions and there was very little between the institutionsin question. Overall support (annual average) ranged from approximately 38% for the USA to 46% for UNDP(Table I in annex). There was also less difference between the various ethnic groups in this regard.

Bosniak majority areas Croat majority areas Serb majority areas

March 08. June 08. Sept 08. Nov 08. March 08. June 08. Sept 08. Nov 08. March 08. June 08. Sept 08. Nov 08.

% % % % % % % % % % % %

FBiH Parliament

Not at all 0.6 2.3 2.7 0.9 2.7 1.3 1.3 0.8 3.9 1.7 0.6 0.4

A little 8.0 7.0 11.1 7.8 18.3 11.0 15.7 12.2 20.5 17.4 28.4 18.3

Moderately 8.1 11.0 11.0 10.7 26.4 19.1 27.3 19.9 12.5 11.5 16.7 16.5

Fairly 25.6 16.7 17.4 21.1 26.4 47.3 28.4 33.5 29.3 24.8 22.3 29.8

Very 57.7 63.0 57.8 59.5 26.1 21.2 27.3 33.7 33.8 44.6 31.9 35.0

Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

FBiH Government

Not at all 0.6 2.0 2.5 0.9 2.5 2.1 1.4 1.2 4.9 1.9 0.6 0.7

A little 8.6 7.3 9.1 7.5 16.5 8.6 14.5 10.8 20.0 16.7 27.5 17.3

Moderately 7.9 10.2 11.3 11.1 26.9 19.1 28.0 22.3 12.3 12.0 17.3 17.4

Fairly 25.5 16.4 16.4 19.6 26.4 47.9 30.2 32.5 29.6 24.5 21.6 29.6

Very 57.4 64.1 60.8 60.9 27.7 22.3 25.9 33.2 33.2 44.9 33.0 35.0

Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

RS National Assembly

Not at all 0.6 2.5 2.3 0.5 2.4 1.0 1.4 0.8 5.7 2.3 3.0 2.2

A little 5.5 5.7 5.1 6.6 13.7 5.9 14.2 6.3 22.7 17.9 30.3 19.3

Moderately 6.7 9.9 11.6 9.9 24.5 17.5 21.8 16.5 14.5 14.2 14.9 17.5

Fairly 23.2 15.4 18.0 18.4 25.1 50.1 31.3 34.9 28.7 25.0 20.6 31.3

Very 64.1 66.5 63.0 64.6 34.3 25.6 31.4 41.5 28.4 40.6 31.3 29.7Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

RS Government

Not at all 0.6 2.5 1.9 0.5 2.3 0.5 1.4 0.8 5.5 2.9 3.3 1.5

A little 5.0 5.8 5.1 7.2 12.3 5.3 13.7 6.8 22.3 17.9 29.5 20.2

Moderately 6.5 9.6 9.1 9.6 24.3 20.7 23.9 15.1 16.1 13.2 13.7 16.8

Fairly 23.2 15.2 19.1 18.6 26.5 48.7 29.6 34.3 29.2 24.7 21.1 32.0

Very 64.6 66.9 64.8 64.1 34.6 24.8 31.4 43.0 26.9 41.3 32.5 29.5

Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

Municipal authorities

Not at all 0.6 2.4 3.5 1.0 2.8 0.8 2.2 0.4 3.3 1.8 2.3 1.8

A little 8.8 7.1 8.9 10.6 12.3 12.1 14.1 8.6 20.2 16.0 23.9 19.7

Moderately 13.3 11.6 13.3 16.4 29.0 26.4 23.5 21.8 19.0 16.9 17.6 16.6

Fairly 23.2 16.5 17.6 21.4 27.1 37.8 29.0 36.1 27.7 22.2 25.0 30.5Very 54.1 62.5 56.7 50.6 28.7 22.8 31.1 33.1 29.8 43.1 31.2 31.4

Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0


How widespread do you think corruption, understood as taking bribes and abuse of office forpersonal gain, is in the following institutions

Table V

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In contrast to the low-level of support they expressed for domestic institutions, the Bosniak sampleshowed a higher level of approval for the international institutions than the other two ethnic groups.There was a significant drop in support only in the second quarter, with support relatively high level in allother quarters. Taking the annual average, some 42% of this group expressed support for the US, with50% expressing support or approval for the Office of the High Representative. There was a significant

decline in the Croat sample support for international institutions during the third quarter, which did notrecover in the fourth. Nonetheless, the average annual value was somewhere between 40% and 43%depending on which international institution was in question. The Serb Sample recorded a relativelysteady approval rating for international institutions through the year, albeit one which was somewhatlower than either of the other two ethnic samples. As has become traditional, this group expressed leastsupport for the work of the United States (annual average around 30%), and most for the OSCE and UNDP(annual average of around 41%). See Table II in annex for more details.

Next comes the issue of corruption in government institutions, which our sample was very inclinedto believe was widespread through the year. On average approximately 43% of the sample in 2008 wasof the opinion that corruption is very widespread in government or state level institutions, 45% that it isvery widespread in federal level institutions, and around 46% that it is very common in RS institutions

(Table IV in annex). Once again, the Bosniak sample was considerably the most critical, with more than50% generally of the opinion that corruption is widespread in state level institutions, more than 60%saying it is common in federal institutions, and around 64% alleging it of RS institutions. The members ofthe other two ethnic groups were considerably less critical, with an average of 26% of Croats and 37% ofSerbs taking the view that corruption is very widespread in state level institutions. It is interesting to notethat in spite of the very high approval ratings given to the RS institutions by the Serb sample, on average32% still considered corruption to be very widespread in them (Table V in annex).

3. Support for OHR split on ethnic linesIn 2008, an average of 44% of the overall sample expressed support for the job being done by the

Office of the High Representative (Table I in annex). There continue to be clear differences between theethnic groups in their opinions and attitudes, but they are not as marked as they were in previous years.As usual, the Bosniak sample was the most supportive -- except for during the second quarter, when therewas a significant dip in support - with more than half of this group generally expressing approval of the

job being done by the Office of the High Representative, so that the annual average was 51%. Next wasthe Croat sample. The percentage of this group who expressed approval of the OHR fell significantly in thesecond quarter (down approximately 15 points) and remained at that level to the end of the year.Nonetheless, the average for this group was approximately 40%. The Serb group is the least supportiveof the three, averaging approximately 35%. There was little change in the level of support expressed bythis group through the year (Table II in annex).

When we look at the samples views regarding the various OHR-led reform measures, we find

declining confidence in public administration reform (average for the year around 42%), followed bypolitical reforms (41%), economic reforms (around 39%), and anticorruption measures (around 36%)(Table VI in annex). There was a clear reduction in confidence regarding all areas of reform through theyear.

Support for the measures being taken by the High Representative is still highest amongst Bosniaks,though even their support declined significantly during the first and third quarters, with a moderaterecovery at the end of the year. The Bosniak approval rating for political reform averaged around 56%,around 50% for economic performance, 46% for anti-corruption reforms, and 54% for publicadministration reforms. Serb and Croat ratings were considerably lower and their views were veryconsistent. Here too we saw a gradual decline in support over the year, so that it was considerably lowerin the last quarter than it had been in the first. On average, some 36% of the Croat sample expressed

support for political reforms, 34% for economic reforms, 28% for anticorruption measures, and 32% forpublic administration reforms. Around 26% of the Serb sample expressed support for political reforms onaverage, while 28% were in favour of the economic and anticorruption measures, and approximately 34%expressed support for public administration reforms (Table VII in annex).

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These three ethnic groups continue to show very different patterns of opinion regarding the powersof the High Representative. On the one hand, the Serb samples views through the year were clear, witha considerable majority (around 70%) i

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