Private Enterprise Moves Slowly to Reshape Battered Bosnia

When Dzemil Ugarak, a Muslim businessman, drove around Bosnia after the recent war, he quickly saw where his opportunity lay.

"If you travel through Bosnia, you see many ruined houses - no windows, no doors," he says. "For 10 years we won't have as much glass as we need. I had a good feeling about this business."

Today, in this town about 20 miles northwest of Sarajevo, Mr. Ugarak runs one of the most successful small factories in Bosnia. Working in two shifts, men measure and cut glass, then encase it in plastic frames. The windows sell briskly throughout Bosnia and are exported to Germany, Croatia, and Malaysia.

"I can't make as many as I can sell," he says happily, sitting in his office overlooking the factory floor. "We have orders until New Year's."

Companies like this one point the way to Bosnia's future. Economists say only private enterprise can put Bosnians back to work after a 3-1/2 year war earlier this decade that destroyed the economy.

Unfortunately, there are still too few people like Ugarak. Most companies in Bosnia are state-owned and have struggled to work at even a small fraction of their capacity. Many are shut down. Despite adding sparks of vitality, the private sector is too small to take up the slack.

The result, economists say, is that two years after the Dayton peace agreement Bosnia is slumping into economic paralysis. Unemployment, which fell sharply just after the war, has not improved in the past year. Half the workers in the half of Bosnia run by the Muslim-Croat Federation are idle; in the other half, the Serb Republic, the number is 7 out of 10.

"There's really no economic growth," says Peter Hanney, head of private-business development for the Office of the High Representative, the international organization overseeing the peace in Bosnia. "There's no job creation." Bosnia faced a double challenge after the war. First, it had to rebuild what was damaged or destroyed. At the same time, it had to follow the rest of Eastern Europe in abandoning socialism and establishing a market economy.

Billions of dollars in foreign aid is rebuilding housing, bridges, and airports. But all this activity, while it has put people to work and laid the groundwork for prosperity, has masked Bosnia's delay in making the transition to private enterprise. Businessmen like Ugarak are still waiting for their day.

"They're changing the mentality of the people and the way of doing business," says Kemal Hrelja of the Sarajevo Institute of Economics in Bosnia's capital.

The obstacles to private business are many. Companies must cope with heavy taxes and a tangle of bureaucratic regulations. They also must please the intrusive and sometimes corrupt financial police.

A bigger obstacle is the lack of credit. Bosnian banks are small and often lend money at dizzying interest rates. What has really held back the private economy, however, is the failure of governments in both halves of Bosnia to privatize state-owned banks and enterprises, especially the vast conglomerates that once employed half the country's workers. Economists say privatization will attract foreign investors and lift the economy.

"There simply is the bottleneck of privatization hanging over the country," says Egbert Gerken, an economist in the Office of the High Representative.

Under heavy international pressure, the Muslim-Croat Federation parliament last month approved part of a package of privatization laws. But Bosnians will have to wait some time to see results. "To have a real effect on a large scale, we're looking at a year at least," Mr. Gerken says. "So one must be cautious."

[The World Bank and other international agencies have appealed to authorities in the Serb Republic to cancel plans to privatize more than 200 state-run firms next week, the Reuters news agency reported yesterday. The Bosnian-Serb government is preparing to sell off some 250 to 300 enterprises in a privatization program that international financial authorities say is seriously flawed.]

With its factories dormant, Bosnia imports almost everything it consumes, from milk and shampoo to socks and automobiles. Black-market traders traffic in cigarettes and alcohol, especially in the Serb-run half of Bosnia. Other entrepreneurs provide services like haircuts, car repairs, and tailoring. Cafes seem to multiply overnight.

A number of small and medium-sized companies have taken advantage of lending programs from the World Bank, the United States, and the European Bank for Reconstruction and Development.