Progress on refugee returns remains a key priority. Of the more than two million Bosnian refugees and displaced persons at the end of the war, slightly less than half (950,000) had returned to their homes by 2003. Most of those who returned have settled in areas where they represent the ethnic majority. Minority returns have been minimal, especially to the Republika Srpska. During the course of the NATO air operation against Yugoslavia in March–June 1999, Bosnia accepted 70,000 Kosovar refugees. Most have since returned, but many thousands may remain in Bosnia. Another issue of concern has been the status of the strategically located town of Brcko. It was claimed by the Serbs in 1992 but declared an autonomous neutral district by UN High Representative Carlos Westendorp in March 1999, a decision protested by Serbian officials, including the joint presidency chairman at that time, Zivko Radisic, who briefly resigned his position but later retracted his resignation.
In July 2000 the Constitutional Court of Bosnia ruled that all ethnic groups must be granted equal status regardless of their place of residence. Serbs must be granted equal status in the Bosnian Federation and Bosniaks and Croats must receive the same in the RS. It further ruled that the constitutions of each entity must be revised to provide these guarantees and, additionally, a quota of ethnic representation in each Parliament was imposed. The ruling faced immediate and vehement opposition in both entities, but particularly in the RS. After ignoring the order for two years, the UN High Representative summoned all parties to Sarajevo in 2002 to hold a conference on implementing compliance with Constitutional Court ruling.
On 27 March 2002, what became known as the Sarajevo Agreement was reached and signed by all sides. Once the agreement was taken up by the entities' Parliaments, however, resistance immediately emerged. The RS Parliament resisted the quota system, whereby a specific number of Bosniaks and Croats would by law be required to serve in the Parliament. Croat parliamentarians in the Federation also objected to segments of the agreement. Implementation of the Sarajevo Agreement is one of the last conditions set out by the Council of Europe prior to allowing Bosnia membership. By fall 2002, however, both entities had agreed to implement the quota system and in the elections held in October 2002, the Parliaments of both entities complied. According to the agreement, the government of the Republika Srpska is required to set aside eight of sixteen ministerial seats for non-Serbs. The Muslim-Croat Federation's government will be required to comprise seven Bosniaks, five Croats, and three Serbs. Having agreed to the quota system, Bosnia and Herzegovina became a member of the Council of Europe on 24 April 2002.
Continuing economic reforms, countering organized crime, and promoting economic growth represent other domestic priorities. Bosnia's economy experienced significant growth in the first postwar years, largely fueled by the inflow of massive international reconstruction aid amounting to US $14 billion by 2003. Much of this was wasted, however, or lost due to corruption and mismanagement. The country also was so poor, even rapid rates of growth had little impact. The massive corruption was a result of a relic of the Communist era whereby the state controlled all financial systems. Despite belabored efforts by the international community to have these abolished, it was not until 2001 that they were. Privatization of state-owned enterprises has been slow going as well. And even if the enterprises were put up for international investment, the fragmented state is not looked on favorably by investors. In an economic report published in 2001, Bosnia was ranked last—59th of the 59 countries studied—in terms of competitiveness, based on criteria such as infrastructure, government, finance, and civil institutions.
Domestic issues facing Bosnia as a result of the long war include the presence within its borders of indicted war criminals and the slow pace of refugee return (particularly in the RS). Muslims attempting to return to their homes in the RS in May 2001 were met by mobs that attacked a contingent attempting to rebuild historic mosques, resulting in several deaths. On Christmas Eve (24 December) 2002, three members of Croat family who had returned to their ancestral home in a Bosniak-dominated area were killed. The two most-wanted war criminals from the Bosnian wars— Radovan Karadzic and Ratko Mladic—are widely believed to be in hiding in RS, with the complicity of the government. NATO troops made attempts to capture the men in 2002 and 2003 but were unable to find them. It is widely believed that more covert attempts will be made to bring about their transference to the war crimes tribunal. In 2002, after the Yugoslav Parliament passed a law demanding the arrest and extradition of indicted war criminals in Yugoslavia (later renamed Serbia and Montenegro) and in the RS, several lesser-known criminals were apprehended or turned themselves in.
In 2003, the UN High Representative instituted two reforms of the entities to lessen suspicion and hostility within Bosnia-Herzegovina. The first measure eliminated the Supreme Defense Council of the Republika Srpska, a vigorously nationalistic committee that ran the military in the entity. Authority was moved to the republic's president on a temporary basis until the entity could come up with a permanent civilian structure. The UN High Representative also had the words "sovereignty" and "independence" removed from the Constitutions of both entities.