VZCZCXYZ0000
PP RUEHWEB

DE RUEHVJ #0944/01 1181123
ZNY CCCCC ZZH
P 281123Z APR 06
FM AMEMBASSY SARAJEVO
TO RUEHC/SECSTATE WASHDC PRIORITY 3380
INFO RUEHBW/AMEMBASSY BELGRADE PRIORITY 0199
RUEHLJ/AMEMBASSY LJUBLJANA PRIORITY 0039
RUEHVB/AMEMBASSY ZAGREB PRIORITY 0188
RUEATRS/DEPT OF TREASURY WASHDC PRIORITY

C O N F I D E N T I A L SARAJEVO 000944 
 
SIPDIS 
 
SIPDIS 
 
DEPT FOR EUR/SCE (FOOKS/RIEHL), EUR/ACE (VISOCAN), AND 
EB/IFD/OMA (VOLK/YOUTH) 
TREASURY FOR GAERTNER 
STATE PLEASE PASS TO USAID 
 
E.O. 12958: DECL: 04/26/2016 
TAGS: ECON PGOV BK
SUBJECT: BOSNIA: DODIK RELEASES THE PRIVATIZATION HOUNDS. 
WHAT ARE THEY CHASING? 
 
 
Classified By: AMBASSADOR DOUGLAS L. MCELHANEY FOR REASON 1.5(B). 
 
¶1.  (C)  Summary.  Republika Srpska (RS) Prime Minister 
Milorad Dodik has launched a sweeping review of past 
privatizations as his first major economic policy initiative. 
 A new law will establish a government-appointed commission 
to hunt for "illegalities" in the privatization process, 
assign responsibility, and report to prosecutors. The RS 
government has given itself broad authority, including the 
ability to "temporarily" freeze shares acquired during 
privatization, in cases where the commission identifies 
regulatory lapses.  Although Dodik has touted the law as part 
of his commitment to clean government, others in the RS 
charge that it is merely a thinly disguised cover for a new 
 
asset grab.  The World Bank has voiced concerns that the 
uncertainty provoked by the new law sends a "negative signal" 
to investors.  The law has brought recent efforts to 
accelerate privatization in the RS, the major driver behind a 
tentative upturn in the RS economy, to a screeching halt. 
End Summary. 
 
Let the Privatization Witch Hunt Begin 
------------------------------------ 
 
¶2.  (SBU)  The RS National Assembly (RSNA) recently passed 
the "Law on Revision of Privatization of State-owned Capital 
in Enterprises and Banks", the first major economic 
initiative championed by the Dodik government.  The law 
establishes a new budget-funded "Commission for Revision" 
that is given a mandate to:  1)  Determine privatization 
illegalities; 2)  Prevent organized crime from establishing 
control over (state-owned) capital; 3)  Determine the 
liabilities and responsibilities of government employees in 
privatization matters and; 4)  Check contractual parties and 
those "they jointly acted with" in the course of 
privatization. 
 
¶3.  (SBU)  To accomplish its task, the Commission is given 
broad authority to obtain virtually any document it deems 
necessary, including from private sources.  It can instruct 
the RS Supreme Auditor to conduct financial or other audits. 
It may engage professional experts or others to support its 
work.  The Commission can undertake a review pursuant to a 
request from any one of twelve institutions or on its own 
initiative.  It is not limited to investigation of activities 
raised in a revision request and may broaden its scope as it 
deems necessary.  At a minimum, the revision should determine 
the initial balance sheet values of enterprises and analyze 
any significant changes to assets and liabilities.  It should 
also assess whether buyers of privatized assets have met 
their post-privatization obligations as defined by contract. 
 
¶4.  (SBU)  The Commission will report its findings to the 
government, the RSNA, the DfP, the applicant and prosecutors 
(if relevant).  It is required to list any non-compliance 
with laws or regulations and finger suspects.  It is also 
supposed to determine institutions and persons within them 
that had responsibility for preventing and reporting 
non-compliance but failed to do so.  The Commission will 
forward any evidence of criminal behavior to the relevant 
prosecutors.  The RS government will initiate legal 
proceedings on the basis of the Commission's work.  The 
government may also, "until the finalization of court 
proceedings, temporarily prohibit management of shares and 
stock acquired in privatization for which the Commission has 
documented actions that have resulted in breaches of 
regulations." 
 
Reaction 
-------- 
 
¶5.  (C)  Dodik maintains that the privatization review is 
part of his commitment to clean government.  Not 
surprisingly, the new law has provoked widespread unease 
among others.  Many suspect that, at a minimum, Dodik will 
use the Commission's far-reaching authority to embark on a 
pre-election fishing expedition for compromising material on 
his political opponents.  The Commission could also provide 
the basis for well-timed legal suits against the political 
competition.  The new law has had a sobering effect on the 
DfP, with staff leaving and morale at all-time low. 
 
¶6.  (C)  The international community, led by the World Bank, 
is also unnerved by the law.  World Bank Country Manager Dirk 
 
Reinermann registered his apprehension with the concept in an 
April 20 letter in which stressed the need for further 
privatization but noted, "We need to stress, however, that 
focusing on past privatizations may send a negative signal to 
investors and dissipate the energy of the new government." 
Of greatest concern are provisions allowing the government to 
interfere with the ownership rights of buyers of privatized 
firms. 
 
Comment 
------- 
 
¶7.  (C)  If the newly formed Commission puts the slightest 
effort into finding irregularities, it is sure to find them. 
However, ultimate responsibility for privatization failures 
rest with the RS government, as it formally approves all 
privatization tenders and other deals proposed by the DfP. 
Dodik's review may be a useful political tool, but it could 
also backfire if it discourages investment inflows 
investments to privatized firms that are motoring the 
tentative upturn in RS economic activity. 
MCELHANEY