An Interview with Adnan Terzic

Adnan Terzic is Chairman of the BH State Government (Council of Ministers), and BH World Bank Governor from 2002 to 2007 – the period which saw some of the biggest political and structural changes in the country.  

How has Bosnia and Herzegovina changed over the past four years? What are the changes you are most proud of?

I am proud of many developments that have taken place in the country over the last four years since my Council of Ministers received its mandate. BH today simply does not look like the country it was four years ago. A lot has been achieved with regard to strengthening and coordinating the state institutions, and this one (the state administration) is now a completely different institution. The Dayton Agreement has changed in many aspects: the BH market has been significantly unified, the VAT, as an international standard in tax policy, has been introduced, and the Customs Service has been unified since BH was the only country in the world with two customs administrations.

Other changes include the army and the BH Intelligence Service. The BH State has received its own single account, which means the State Government has its original revenues. And contrary to what was laid out in Dayton, all indirect taxes, customs, and excises today go to the State. The State budget is funded, and the money goes to entities, cantons, and municipalities. Furthermore, many structural reforms have been implemented, which, inter alia, partially improved the business environment, but also introduced a system in certain segments, which was once missing in BH. When investors come to BH to invest, they now have to obtain approval from the Competition Council, which is something that was unimaginable a few years ago. BH used to be a kind of El Dorado when it came to monopolies and how to combat these. All this illustrates the many things we did over the last four years, and I am really proud of all these achievements.

How do you see the current situation in BH, and what are the greatest challenges ahead?

Reforms are our biggest challenges. We have to admit that since March/April, when the Constitutional changes failed, the reform process has stopped, though work is still being done on implementing the laws, which have been adopted so far and which are important for society. But we did not do anything new, and between April of last year and today, the economic processes and the momentum which was created, were stopped. New energy and new ideas have to be found on how to restart this process. Everything comes down to accepting European standards in all segments of BH society in order to prepare ourselves to becoming a full member of the EU.

How do you see the current situation in BH? There are some opinions that BH is moving backwards?

I think that the passive position of the international community last year contributed to the situation where nationalistic spirits “left the bottle.” Separatist rhetoric dominated pre-election campaigns. Nobody talked about Europe, nobody spoke about reforms, and everybody tried to attract voters’ support based on that nationalistic speech. In such an environment, it would be extremely difficult to expect the new Council of Ministers to move forward quickly. I have to admit that I find the positions and presentation of the new Premier Mr. Nikola Spiric very good and encouraging. Yet, this agenda requires a positive political environment, and it is obvious that today in BH we do not have one, or just very little. Everything depends on political leaders and whether they focus on their pre-election discussion or the reform process. BH needs reforms; there are a number of indications, which determine in which segments we need reforms, such as Functional Reviews carried out by the EC together with BH government officials, NGOs, intellectuals and academics, who reviewed agriculture, health, education, public administration, etc. They provided reviews and recommended solutions with regard to the clear signals we have received from the EU about what it wants to see happening in BH in order to accept it as a serious partner.

What do you think was the biggest IDA contribution to BH’s reconstruction and development in the past decade?

IDA and the World Bank Group as a whole are certainly institutions which helped, and they have contributed incredibly much to the recovery and stabilization of the country. But we have to accept the fact that Bosnia and Herzegovina cannot base its development only upon its relation with the World Bank. There are other development institutions. IDA is an organization which played a great role in the country’s recovery. I think that BH is the country, which withdrew the highest amount of IDA credits per capita so far, and these funds have certainly contributed to creating a basis thanks to which today we have some rather high economic growth in BH. We estimate that for 2006, GDP growth would be 7%; two years ago it was 6%, and a year before that it was 5.5%. It is clear that despite a dramatic reduction in the international community’s aid flows, our economy is growing and is starting to show some forms of sustainability.

After four years of cooperation, what are the areas where you see potential or need for the World Bank Group to improve its services for countries, governments, and clients?

I was the World Bank Governor representing BH for four years. I have to admit that I am extremely proud of that function. When you are a Premier, you have many different coordination functions as well as other duties, and I handed them over with pleasure. The only one that I miss is the position of World Bank Governor. You see, thanks to IDA, the level of reconstruction and the efforts put into moving towards development and transition, BH is slowly approaching one problem. Especially after the VAT introduction, we are nearing the stage in which IDA credits are no longer as attractive to the BH authorities as they once were – not in respect of their terms, low interest rate and long repayment period, but in terms of amounts available. In my opinion, the available levels of IDA funding can no longer motivate the authorities to accept conditionalities, or accept IDA as an authority which makes them implement structural reforms and all the other obligations which accompany IDA.

I think that the World Bank Group and the BH authorities will soon reach the stage where they will have to discuss future forms of cooperation. I believe it would be a great luxury for BH to give up cooperation with the World Bank. The same is also true for the World Bank, since it has proven itself and has trained its staff in BH. BH remains a very interesting country for the Bank. I believe this continued cooperation would be a combination, which has both sides win, and a win-win situation proves to be the best. I think that maybe some other form of cooperation is now needed.

 What would be your advice to other countries that work with IDA, as well as the rest of the World Bank Group in terms of cooperation, coordination, and communication? What could be useful for other countries, according to your experiences?

My first advice would be to negotiate IDA conditionalities seriously and realistically, based on the country’s needs. BH is today in a situation where it does not need to accept everything that IDA offers in terms of conditionalities in order for some credit to become operational. In my opinion, real needs must be realistically considered at any given moment. Another important issue is that programmatic packages should be designed from the beginning until their end, rather than some projects which only initiate some structural reforms. You see, reforms are an extremely painful process and present big challenges to countries. Besides the political courage that is required by politicians to begin with the reforms in the first place, one must remember that at the outset, reforms bring many negative elements. These are mainly social problems and I think that IDA should more generously cover these social problems in its packages. In other words, if there is some structural reform which includes, say lay-offs, than the credit should contain more generous amounts to address these. To that end, we should strictly adhere to such earmarked resources and use them to address social problems, and then everything would make much more sense, have more authority, and it would be easier to implement.