Bosnia's Failed Privatizations Key Cause Of Unrest

Bosnian man Dzevad Hrustic drags a load found in the garbage close to the coal mine in Bosnian town of Tuzla, 140 kms north of Sarajevo on Wednesday, Feb. 12, 2014. The violence engulfing Bosnia in recent days, with scenes of burning government buildings and protesters pelting police with stones, has many root causes. One of them is the failed privatizations of state-owned companies.

SARAJEVO, BOSNIA-HERZOGOVINA (ASSOCIATED PRESS) — In the worst unrest since Bosnia's terrible civil war two decades ago, buildings have been set ablaze and the presidency has been put under siege. But the trouble this time is economic — not ethnic.

When Bosnia abandoned communism about two decades ago, officials devised a plan to privatize state-owned companies in a way they hoped would avoid mass layoffs for state workers. It was supposed to be a smooth transition after the 1992-1995 war that left 100,000 dead and devastated the country's infrastructure.

But it has been a disaster for people like Munevera Drugovac, a 58-year-old widow, who works for a company that was bought by a businessman in 2004. She hasn't been paid in 19 months. "Back then, I didn't have electricity and heating because of the war," she said. "Now, I don't have it because of unpaid bills."

More than 80 percent of privatizations have failed. Many well-connected tycoons have swept into these companies, stripping them of their assets, declaring bankruptcy and leaving thousands without jobs or with minimal pay.

Protests erupted Feb. 4 in the northern city of Tuzla, where thousands of factory workers burned government buildings and clashed with police over the sell-off of four state-owned companies that left them without jobs and earned salaries.

The violence spread to other cities, including the capital, Sarajevo, with grievances growing to include a 40-percent unemployment rate, widespread corruption and a widening gap between rich and poor.

After the breakup of socialist Yugoslavia, Bosnians knew little about capitalism and relied on Westerners for advice. "We entered the process of privatization with people who had no idea what a market economy was and without rule of law," economist Svetlana Cenic said. "That's a recipe for disaster."

The idea behind Bosnia's privatization program was for the new owners to invest money into state-owned companies, modernize them and maintain the workforce. Bosnia's privatizations are overseen by a government agency. If the new owner doesn't fulfill contractual obligations, the agency can sue him and a court decision can annul the deal. But court proceedings can take years, during which time many owners sell off the companies' assets and declare bankruptcy.

For years, Bosnian workers affected by failed privatizations have relied on this slow-moving court system for justice. Drugovac is one of them. She said she has worked for Sarajevo-based Feroelektro, the third-biggest trading company in the former Yugoslavia, since 1984 when it was state-owned. A tycoon, Goran Stanic, bought 60 percent of the company a decade ago for 1 million euros.

Drugovac, who has taken part in the protests, said he immediately cut salaries and put the company's 167 workers on minimum wages. For the past 19 months, Drugovac said she hasn't been paid her 130-euro ($180) monthly salary, but she keeps going to work while a court case is pending.

"My husband was killed during the war," Drugovac said. "I was killed by Goran Stanic in peace — without a bullet." The agreement Stanic signed with the government stipulated he would invest 11 million euros. Stanic told The Associated Press that six months into the deal he had invested 850,000 euros and was planning to fulfill his obligations when the government withdrew from the deal because another company had challenged the tender.

Stanic and the government ended up in court and the trial is still ongoing. "I had good intentions," Stanic said. "In return I got lies, lawsuits and humiliation." The company's manager, Djoko Okuka, said the privatizations agency notified Stanic he wasn't obliged to keep investing until a judgment is passed, but that he has to keep all the workers. He said it was true the employees hadn't received 19 months of salaries, but that beforehand they were paid salaries even though they didn't earn them.

"They couldn't earn them," he said. "The company made no profit and its accounts are blocked until the judgment is passed." Stanic moved his other private companies into the Feroelektro facilities without making them pay rent, but requiring Feroelectrio to pay the utility costs, Feroelektro union worker chief Senad Smajic said.

Stanic took out a 2.4 million-euro loan and offered Feroelekro's most valuable building in downtown Sarajevo as collateral. With the money, he built a private lime factory while making Feroelektro pay his loan back, Smajic explained.

"He treated our company like a parasite that sucks your soul out," Smajic said. The head of the government privatization agency, Suhret Fazlic, said before he took the post two years ago, everything at the agency was done according to a "mafia pattern that includes people in high positions and people in the judiciary."

Analysts and international officials blame Bosnia's political setup for the situation, saying the country must reform its constitution in order to start functioning properly. The 1995 Dayton Peace Agreement ended the vicious war between Bosnia's three ethnic groups — Bosniaks, Croats and Serbs. It divided the country into two autonomous regions, one for Serbs and the other shared by Bosniaks and Croats. The regions are linked by a weak central government, parliament and presidency.

The Bosniak-Croat Federation is further divided in 10 cantons, each with a similar set of institutions, meaning that nearly 4 million people are governed by more than 150 ministries on four different levels of government - an expensive and ineffective system that scares off foreign investors and is preventing the country from joining the European Union.

The monthly salaries of parliamentarians are the highest in the region — up to 3,500 euros ($4,750.55) — while average salaries don't exceed 350 euros. Corruption is widespread and high taxes for the country's bloated public sector eat away at residents' paychecks. Privatizations have decimated the middle class and sent the working class into poverty.

Some observers believe widespread corruption has been allowed to flourish, benefiting an elite group with political connections. "They have penetrated the state, turning the government itself into a facade," said Denisa Kostovicova, an associate professor of global politics at the London School of Economics. "What now appears as a dysfunctional state is in actual fact a very functional system that distributes the privileges, but only to the networked."