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PP RUEHWEB

DE RUEHVJ #1126/01 1391304
ZNY CCCCC ZZH
P 191304Z MAY 06
FM AMEMBASSY SARAJEVO
TO RUEHC/SECSTATE WASHDC PRIORITY 3535
INFO RUEATRS/DEPT OF TREASURY WASHDC PRIORITY
RHEHNSC/NSC WASHDC PRIORITY

C O N F I D E N T I A L SARAJEVO 001126 
 
SIPDIS 
 
SIPDIS 
 
DEPT FOR EUR DICARLO AND EUR/SCE (ENGLISH/FOOKS/RIEHL) 
EUR/ACE FOR VISOCAN 
EB/IFD/OMA FOR VOLK/YOUTH 
STATE PLEASE PASS TO USAID 
TREASURY FOR GAERTNER 
 
E.O. 12958: DECL: 05/17/2016 
TAGS: ECON ECIN PREL BK
SUBJECT: HIGH REP ANNOUNCES MAJOR NEW ECONOMIC INITIATIVE 
 
 
Classified By: DCM TINA S. KAIDANOW FOR REASON 1.4(B). 
 
¶1.  (C)  Summary:  High Representative Christian 
Schwarz-Schilling (CSS) has decided to make small and medium 
enterprise (SME) development an OHR priority.  To this end, 
he has instructed that an "SME cell", staffed by both local 
hires and secondees, be established in OHR with the initial 
goal of strengthening business associations.  Reaction among 
donors, especially to CSS' announced intention to coordinate 
the international community's (IC) work on SME development, 
has been less than enthusiastic.  Strengthening the voice of 
business in the policy making process is desirable but 
unlikely in the short term, a fact cheerfully acknowledged by 
CSS.  This initiative, unlike other ill-considered OHR forays 
in fiscal and debt policy, will do no harm.  However, it does 
indicate that CSS is in no hurry to focus on the issues 
needed to close out OHR and transition to a European Union 
Special Representative (EUSR) and may be settling in for an 
extended stay as High Rep.  End Summary. 
 
The Rollout 
----------- 
 
¶2.  (C)  High Rep Christian Schwarz-Schilling unveiled his 
ideas for increased OHR engagement in the SME sector at a 
dinner on May 16 for major bilateral European donors, plus 
the European Commission (EC) and U.S.  The plan, while still 
vague, appears to consist of several elements.  First, the 
High Rep has directed that an SME unit, with a staff of 4-5 
people, be created within OHR.  CSS used the dinner to appeal 
to donors to second staff to the unit to augment the three 
local hires OHR plans to recruit.  The unit's initial work 
will focus on strengthening business associations, 
specifically by creating new associations in the metal and 
construction sectors.  The group will also work with a 
German-funded technical expert to increase the financial 
viability of business associations through the introduction 
of quality control standards.  A second element of CSS' 
strategy includes OHR-led coordination of other IC SME 
activities through regular meetings.  Finally, CSS envisions 
a robust public role for himself to promote SME-friendly 
reform. 
 
The Back Story 
-------------- 
 
¶3.  (C)  Herbert Pribitzer, head of OHR's Economic Section, 
paid a call on the Embassy on May 16 to preview the High 
Rep's points for the dinner.  Pribitzer confided that 
internal OHR discussions on the subject have been very 
difficult due to the High Rep's statist and interventionist 
views on the subject.  Pribitzer recounted that he had 
engaged in a major battle with CSS to dissuade the High Rep 
from reinstating mandatory membership fees in socialist-era 
chambers of commerce.  (Many of these institutions have been 
languishing since mandatory fees were abolished in response 
to business demands as part of the "Bulldozer Initiative.") 
Pribitzer disclosed that he has been instructed to hire three 
new staff to work on the issue, even as he has been tasked 
with drafting papers for the theoretical transfer of OHR to 
an EUSR.  He noted OHR has no technical expertise on SME 
development and that there are already numerous donor-funded 
projects underway.  Donors, Pribitzer contended, rightly saw 
no reason to cede OHR a larger role in this area.  He 
observed drily that the High Rep is all for local ownership, 
"except in the area of the economy." 
 
Reaction 
-------- 
 
¶4.  (C)  Donors reacted to the High Rep's proposals with a 
distinct lack of enthusiasm.  A number of donors described 
their hands-on programs to strengthen the SME sector, 
pointing out that such efforts take years to come to 
fruition.  CSS breezily agreed, but declared that OHR could 
at least make a start in the area, prompting a hasty reminder 
from the EC that European assistance is primarily aimed at EU 
accession (not SME development).  Other donors drew attention 
to the need for local ownership of such initiatives, an 
irony, given CSS' mantra-like use of the phrase, that 
appeared lost on the High Rep.  Many representatives stressed 
the limited utility of "bottom-up" SME strategies without 
reform of the overall business climate.  Donors were 
particularly keen to head off Schwarz-Schilling's call for 
monthly SME coordination meetings.  CSS' response:  To 
propose meetings every other month. 
 
Comment 
------- 
 
¶5.  (C)  There is little harm in trying to strengthen 
business associations.  While OHR is not likely to make much 
headway, a more active business role in policy making can 
only help BiH.  As such, this new focus is far less worrisome 
than ill-advised OHR forays into debt and fiscal policy. 
However, the High Rep appears determined to essentially 
double OHR's current economic staff -- a hiring blitz to take 
on a new tasks that are far removed from OHR's Mission 
Implementation Plan (MIP).  Rather than pursue the necessary 
activities for an effective OHR-EUSR transition, the High Rep 
still appears intent on making his mark in Bosnia, with the 
attendant implications for keeping OHR robust in size and 
mandate.  End Comment. 
MCELHANEY