- The Washington Times - Thursday, December 19, 2002

SARAJEVO, Bosnia-Herzegovina In a city still peppered by bullet holes and dilapidated buildings, authorities say the return of normalcy is best measured by the fact that excessive government regulation, not violence, now stands as the greatest obstacle to progress.
Hundreds of shops selling items such as imported shoes, computers and compact discs have opened on Marshall Tito Street, the city's broad central avenue, since the Bosnian war's end in 1995.
Much of that new activity has been driven underground by burdensome and expensive government rules, said Peter Nicholl, the New Zealander who serves as governor of the Central Bank.
More than 40 percent of Bosnia's economic activity belongs to a "gray economy" made up of businesses that do not pay their way through the bureaucratic quagmire required to register with authorities, Mr. Nicholl said in an interview. The result is untaxed labor and the sale of smuggled goods.
"Particularly small businesses," he said. "Once they don't register, then they don't report anything. … A lot of the companies have registered, but they underreport their income and their labor force."
Though the phenomenon provides jobs, it also promotes fraud and strips Bosnia of respectability in the eyes of European leaders who, in the coming years, either will welcome or bar the country's entrance into the European Union.
Sales-tax fraud and money laundering have reached "staggering proportions," said Paddy Ashdown, head of the international community's government body in Bosnia, whose task it is to oversee the implementation of the peace process.
But important economic successes are also evident, particularly in the construction of a postwar banking system that will help local officials overcome the gray economy.
Mr. Nicholl, named to lead the Central Bank by the International Monetary Fund in 1997, cites the establishment of confidence in Bosnia's own currency, the "convertible marka."
The marka achieved new heights last year when EU countries switched to the single common currency, the euro. Bosnians with savings in other currencies, such as the German mark, converted those savings back to the convertible marka, almost doubling its circulation.
Mr. Nicholl said banking is becoming increasingly "normal."
"When I came here in 1997, there was not one [automated teller] machine in Bosnia. Now, I'm losing count of how many I pass as I walk down the street," he said. "You couldn't use a credit card. Now credit cards are accepted in all the hotels, many restaurants and a lot of the shops."
The shift toward normalcy is visible particularly in Sarajevo. Still, many Bosnians worry that the city's reputation as a diverse jewel of Old World Eastern Europe and the host of the 1984 Winter Olympics has been tarnished irreparably by lingering images of the war.
Sarajevo was laid to waste when Bosnian Serbs besieged it from 1992 to 1995. The war killed an estimated 200,000 people and displaced half of Bosnia's 4 million people. The Olympic Stadium, near the front lines of fighting between Bosnian Muslims and Serbs, is surrounded by graveyards where thousands of war dead are buried.
Mr. Nicholl said a full economic recovery is hindered by rules and regulations left over from the socialist days of Yugoslavia.
He said Mr. Ashdown, a former leader of the Liberal Democratic Party in Britain, has introduced a "bulldozing committee," with the task of removing unneeded bureaucracy, such as the requirement that all companies be approved by the Ministry of Defense.
"My main concern is that a lot of the old rules and regulations don't seem to have been stripped away," Mr. Nicholl said. "If [local Bosnian officials] don't do that, then I think the path to Europe will be a very slow one.
"If they do, I think we may all be surprised how quickly they will move."

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