Cablegate: Bosnia: Social Benefits Reform Passes Federation

VZCZCXRO2829
OO RUEHIK
DE RUEHVJ #0181 0560822
ZNR UUUUU ZZH
O 250822Z FEB 10
FM AMEMBASSY SARAJEVO
TO RUEHC/SECSTATE WASHDC IMMEDIATE 1452
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE IMMEDIATE
RUEATRS/DEPT OF TREASURY WASHDC IMMEDIATE

UNCLAS SARAJEVO 000181

SENSITIVE
SIPDIS

STATE FOR EUR/SCE AND EEB/IFD
TREASURY FOR OASIA JEFF BAKER AND PETER MAIER

E.O. 12958: N/A
TAGS: PGOV EFIN ECON SOCI BK
SUBJECT: BOSNIA: SOCIAL BENEFITS REFORM PASSES FEDERATION
HOUSE OF REPRESENTATIVES

REF: SARAJEVO 171

1. (U) Summary: In an extraordinary session February 24, the
Federation House of Representatives speedily passed a set of
amendments to reform the system of social benefits. If also
passed in the House of Peoples, the legislation is expected
to fulfill requirements for release of budget-support funds
from the World Bank and IMF. It is unclear at this point
whether the legislation as passed will conform to World Bank
and IMF requirements, but expectations are high that a
financial and political crisis has been averted. End summary.

2. (U) Recognizing the urgency to pass the social benefits
reform, leaders of the four parties in the Federation
government coalition (Party of Democratic Action - SDA, Party
of Bosnia and Herzegovina - SBiH, Croat Democratic Union -
HDZ, and HDZ-1990) had hammered out an agreement with
veterans' organizations over the previous two days that
enabled passage of the legislation. As a concession to
veterans, the package included additional hastily-drafted
laws a) to accept pay cuts for members of Parliament and
appointed officials, and b) to apply an indexing system and
means-testing to other budget users, matching cuts for their
programs with any that the veterans have to undergo. A
handful of veterans' leaders attended the parliamentary
session, demonstrating their acceptance of the package, and
ensuring that the members of Parliament would swallow their
pay cuts. Members of the four parties all voted for the
package, while members of the opposition SDP voted against
it, but without significant comment. One additional piece of
legislation, which would have applied a 10 percent wage cut
to all Federation employees, was stricken from the agenda at
the outset, in response to massive trade union demonstrations
the previous day. The bill cutting only parliamentarians'
and executive appointees' wages took its place.

3. (SBU) The seven bills that make up the package are on the
agenda for an extraordinary session of the upper chamber, the
House of Peoples, on February 25. Given the solidarity of
the leading parties and the compliance of the veterans groups
in the House of Representatives, barring some surprise
development overnight, we do not expect problems. World Bank
and IMF officials have said that they will want to review the
additional legislation before drawing final conclusions.

4. (U) As another key provision of the package, the
legislation requires that no future legislation will be
considered without an analysis by the Federation government
of its budget impact. This will help prevent future cases of
unfunded programs that got the Federation into the fiscal
situation that it is now in.

5. (SBU) Comment: The session was unusual for its rare show
of unity among the four leading parties, and its speed. At
the eleventh hour, the Bosniak political parties SDA and SBiH
stepped back from the brink, faced with the stark consequence
of losing hundreds of millions of dollars of international
financial support if they continued to pander to their
constituencies of war veterans. While encouraging, it took a
long time and a lot of urging from the international
community for them to get there.
ENGLISH

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