Bosnia and Herzegovina - Politics, government, and taxation

In 1990, Bosnia and Herzegovina seceded from Yugoslavia (which further dissolved into Slovenia, Croatia, Macedonia, and a new Federal Republic of Yugoslavia comprised of Serbia and Montenegro). The newly independent Bosnia and Herzegovina could not maintain cooperation between 3 of its ethnic groups: the Serbs wanted to unite with Serbia, the Croats wanted to unite with Croatia, and the Muslims wanted Bosnia and Herzegovina to unite as an independent state. The differing opinions sparked a bloody civil war.

Between 1992 and 1995, the 2 areas of Bosnia and Herzegovina were almost devastated by inter-ethnic carnage that stunned the world. International mediation efforts helped bring about the Dayton accord, which ended the civil war in 1995 by dividing the country into 2 ethnic entities: the Federation of Bosnia and Herzegovina and the Serb Republic. The government established has been labeled an "emerging democracy."

The country has a federal government and 2 administrative divisions: the Bosniak/Croat-led Federation of Bosnia and Herzegovina and the Bosnian Serb-led Serb Republic. (There is also a self-governing administrative unit called Brcko, which is under the authority of the sovereignty of Bosnia and Herzegovina but is not a part of the Federation or the Serb Republic.)

The presidency of Bosnia and Herzegovina is held by 3 officials (1 Bosnian Muslim, 1 Croat, and 1 Serb), who are elected to a 4-year term and rotate the chair-manship of the presidency every 8 months. Both the Federation and the Serb Republic elect presidents of their own administrative entities. The country is still establishing laws for voting and terms of the legislature, which has been created as a national bicameral Parliamentary Assembly. The Federation also has a bicameral legislature, and the Serb Republic is served by its own National Assembly. The judiciary system is similarly split between federal and administrative jurisdiction. There is a Constitutional Court heading the federal judiciary, and the entities have their own supreme courts and a number of lower courts. (In 2000, the Constitutional Court of Bosnia and Herzegovina ruled that the new governmental structure of Bosnia and Herzegovina had undermined the country's ethnic base and should be changed to reflect the multi-ethnic character of the country.)

Bosnia's political life is still highly fragmented and organized strictly along ethnic lines. These political parties include the Croatian Democratic Union; the New Croatian Initiative; the Party of Democratic Action; the Party for Bosnia and Herzegovina; the Social Democratic Party; the Democratic Socialist Party of Republika Srpska; the Party of Democratic Progress; the Party of Independent Social Democrats; the Serb Democratic Party; the Serbian People's Alliance; the Serbian Radical Party of Republika Srpska; and the Socialist Party of Republika Srpska. In 2000, the Muslim Party of Democratic Action, the Serb Democratic Party, and the Croatian Democratic Union again won the general election. These major parties were previously influential in leading major ethnic groups in the civil war.

The government plays a large role in the economy. Although 90 percent of businesses are private, the largest conglomerates remain state-owned. Corrupt leaders often arbitrarily apply taxes and regulations, and the black market is a significant economic factor. Privatization legislation exists, but disposing of state assets is slow and often receives much resistance. This situation is particularly prevalent in the utilities sector that is entirely controlled by party oligarchs. In mass privatization, free company vouchers or privatization funds shares are distributed to the public. Foreign investors are attracted to cash privatization because it generates fresh foreign currency inflows and brings western technology to important companies. However, due to lack of interest, results to this tender have been modest. Between May 1999 and September 2000, more than 1,000 small enterprises were listed for privatization; however, only 200 were sold during this time.

In 2002 a comprehensive tax administration reform is expected to create a more business-friendly environment and to attract foreign investment. But foreign investment relies on continued political stability. The implementation of democratic governments in neighboring nations is expected to improve privatization efforts within Bosnia and Herzegovina and to limit the risk of renewed political instability.