Bosnia faces loss of 1.2-billion-euro IMF deal

Jun 23, 2009, 10:10 GMT

Sarajevo - Bosnia-Herzegovina may lose a crucial standby credit it negotiated with the International Monetary Fund (IMF) after backtracking on a promise to cut spending, local media reported Tuesday.

The country agreed to IMF terms for a three-year, 1.2-billion-euro (1.6 billion dollar) stand-by credit in May. Terms included reduced welfare spending, particularly in the Federation of Bosnia- Herzegovina (FBH), the half of the country dominated by Muslims and Croats.

But, at a Monday meeting in Vienna, FBH officials said that, instead of unlocking the first tranche of the credit, they wanted to return to an old welfare spending plan and find savings elsewhere.

The turnaround came after Muslim war veterans, a powerful group that was to get the largest chunk of the money in the pre-IMF deal, protested in Sarajevo last week, briefly clashing with police and threatening more unrest.

'We failed to reach an agreement, they said the arrangement is possible only if we stick to what was said in the letter of intent,' FBH Finance Minister Vjekoslav Bevanda told reporters.

'They said it was unprofessional to change what was agreed after they sent the letter of intent to 160 IMF members-states,' local media quoted Bevanda as saying.

The IMF plan had called for the FBH to cut 250 million euros out of planned spending of 800 million for the current year.

After the collapse of the talks with IMF, there is 'no other plan,' said Bevanda, who recently warned that, without IMF funds, the FBH would face certain financial collapse.

Officials of the Serb Republic (RS) - the other of the two nearly sovereign parts of Bosnia set up in 1995 to end three years of ethnic war - said they met their part of the deal and wanted access to IMF funds.

That was, however, unlikely, local newspapers reported, quoting FBH deputy finance minister, Emir Silajdzic. He said the IMF arrangement was intended for 'all or none.'

The Serb 'entity' in Bosnia had met its requirement to cut only 74 million out of the 835 million euros on the spending side of the budget.

The central former Yugoslav republic remains in political and diplomatic paralysis due to the competing interests of its main ethnic groups.

Roughly 50 per cent of the 4 million Bosnian citizens are Muslim, one-third are ethnic Serbs and 15 per cent Croats.

Almost all Serbs live in the half of the country that is the RS, while the vast majority of the Muslims and Croats live in their respective parts of the Federation BH.