For 200 years, the Balkan states have been manipulated by the powers of “Old Europe” to slow and control the collapse of the Ottoman Empire.  They were created, enlarged, and shrunk as the need arose.  During the two world wars, the territories inhabited by southern Slavs were used as bargaining chips in constructing alliances, while their inhabitants’ ethnic loyalties and aspirations were never taken seriously.

The war in Bosnia-Herzegovina (1992-95) followed this trend.  It was the most destructive segment of the War of Yugoslav Dissolution that began when the republics of Slovenia and Croatia seceded in the summer of 1991.  The chief outcome of the war was a transformed NATO coupled with the renewal of American influence in Europe to an extent not seen since before the Vietnam War.

International intervention could not alter the underlying dynamics of Bosnia’s deeply divided communities, however.  Because of foreign involvement, the war lasted longer than it would have and the future of the Republika Srpska (R.S.) is perhaps more uncertain, but the settlement that followed Dayton was a plausible compromise that could have been reached in April 1992.

Over the last eight years, Bosnia has become the first major experiment of the “international community” in nation-building, demonstrating that international bureaucrats are no more virtuous or high-minded than the old rogues who governed nation-states.  Two years ago, I reported on the case of Thomas Miller, the former U.S. ambassador in Sarajevo, who is said to have conspired in the summer of 2000 with Milorad Dodik, then the R.S. prime minister, to divert $500,000 of an American aid package to the Gore-Lieberman presidential campaign.  My sources said that Miller was behind the scheme “because he is a committed Democrat, just like all other key U.S. officials in Bosnia: Jacques Klein, Ralph Johnson, and Robert Berry all rooted for Gore.”

The alleged diversion was neither the first nor the last impropriety involving foreign funds in post-Dayton Bosnia.  In the summer of 1999, the Office of the High Representative (OHR)—the U.N. proconsulate in Sarajevo that wields the real power in the hybrid country—confirmed that more than one billion dollars had been lost in postwar Bosnia through tax evasion, customs fraud, or embezzlement of public funds.  Much of that money was simply stolen from international aid projects, worth over five billion dollars in 1996-99 alone.  Another form of institutionalized corruption involved international officials who lobby on behalf of companies from their countries.  Lower down the scale, foreign bureaucrats—especially those from Eastern Europe and the Third World—were accused of involvement in the smuggling of American cigarettes from Montenegro to the European Union by way of Bosnia.

Things have become even worse since Paddy Ashdown, a failed British politician with a life peerage, replaced Wolfgang Petritsch at the OHR in May 2002.  A report published last summer by the European Stability Initiative claims that Ashdown displays a “bewildering conception of democratic politics,” and his exercise of absolute powers in Sarajevo is frustrating the establishment of a democracy.  It warned that the excessive powers vested in the “high representative” discourage local political initiative and reinforce a culture of international dependency.  The report singled out Ashdown’s alarming authoritarian tendencies: He imposes, on average, 14 decrees every month, compared with an average of four in 1999.  It concluded that there are no checks and balances on his powers and no accountability, whether local or international:

[The OHR can] dismiss presidents, prime ministers, judges, and mayors without having to submit its decisions for review.  It can veto candidates for ministerial positions without needing publicly to present any evidence. . . . The HR is not accountable to any elected institution at all.

Such arbitrariness and lack of accountability are having a negative effect on the Bosnian economy and the development of a free market—as a British company (for which I have provided consulting services in what I believe to be a just and worthy cause), Energy Financing Team, has learned the hard way over the past nine months.

EFT is an energy trading and investment group that was in the forefront of the development of a regional electricity market in the Balkans and in the refurbishment and expansion of the generation and transmission network in the war-ravaged former Yugoslavia.  Since 2000, it has provided the financing that links energy producers and users in Southeastern Europe and has absorbed risk in an area where the capital markets are still developing.  It has been successful in purchasing surplus power from the Republika Srpska and selling it to neighboring utilities that have shortages (notably, in Albania, Montenegro, and Croatia).  It has also provided financing for the purchase of goods and the completion of civil-engineering works in the Bosnian-Serb Republic, receiving repayment in the form of energy transfers.  The largest of these projects involves the completion of a reservoir tunnel in which EFT has invested almost $30 million.

EFT has single-handedly monetized electric energy in the region.  It effectively advances the cause of intercommunal harmony by operating across political and ethnic boundaries and facilitates the economic reintegration of former war zones.  It is creating jobs in Bosnia and bringing investment to an area still considered too risky by most other Western companies, thus reducing the need for British, American, and other Western taxpayers to continue to subsidize the region indefinitely.

Nonetheless, EFT was singled out for criticism by an OHR-approved auditor for its allegedly corrupt practices in obtaining contracts.  Apparently, the company has become collateral damage in Paddy Ashdown’s crusade for a more centralized, more tightly integrated Bosnia-Herzegovina, in which the entities would eventually lose all of the remaining attributes of independent statehood.

Ashdown believes that the leading political groups in the entities—especially the Serbian Democratic Party in the Republika Srpska—derive their power from the control of three public companies that generate substantial amounts of money: power, telecoms, and forestry.  Believing that these sectors exhibit widespread corruption, the OHR decided to audit the main state-owned companies running them.  In the case of the electrical utilities, Ashdown’s strategy had as a clear secondary goal the “softening up” of opposition to power-sector restructuring—i.e., the merging of the Serb, Croat, and Muslim utility companies into all-Bosnian conglomerates.

The special auditor—an American CPA with previous savings-and-loan experience and no known expertise in the energy sector—issued a report on the Bosnian-Serb electric utility company (EPRS) on February 25, 2003.  The report harshly condemned its operations and management, and, in immediate response, Ashdown ordered the dismissal of the R.S. energy minister and of the director-general of EPRS.  The special auditor severely criticized EFT’s alleged dominance in the tenders and its involvement in the reservoir-tunnel project.

The accusations were made without proper investigation, without standard audit practice and test procedures, and without warning.  Many claims were made on the basis of hearsay: “[W]e were told” more than once accompanies serious allegations.  The report is full of factual errors, claiming, for example, that EFT’s contracts specify certain favorable terms that would apply in the event that EPRS generation capacity was unavailable.  The contracts show the opposite: There are no favorable terms; on the contrary, EFT was committed to providing emergency energy supplies in case of reduced generating capacity.  At no time did the special auditor contact EFT.  The company’s first warning came when the report was leaked to the Nezavisne Novine newspaper in early 2003.

EFT responded immediately by instructing its London solicitors, Clyde & Co., to produce a ten-page rebuttal of the auditor’s comments and allegations.  At a subsequent meeting with Ashdown and his aides, EFT agreed to submit a detailed dossier defending its name and reputation, which the company produced in less than a week.  In addition, five reports by separate R.S. commissions have all concluded that EFT’s conduct had been entirely blameless.

Following the presentation of its dossier, EFT has sought redress from the Office of the High Representative with the support of the British Foreign Office.  It has asked for a statement from the OHR and/or the OSCE (the special auditor’s employers) indicating that the company has fully cooperated with the special auditor, that it has produced a substantial amount of data and documentation, and that all concerns raised by the report have been fully allayed.  Such assurances are essential if EFT is to continue normal operations.  The auditor’s allegations have already harmed EFT’s operations in countries as diverse as Switzerland and Hungary.

More than eight months after the report’s publication and five months after the company’s detailed dossier was presented to Ashdown, EFT is still waiting for a formal response from the “international community’s” proconsular team in Sarajevo.  So far, it has received only a terse reply from the auditor—a letter simply stating, “We disagree with your response.”

In a normal country, with political, legal, and moral checks and balances in operation, this behavior would not be possible.  In Lord Ashdown’s Balkan fiefdom, it is commonplace.  The immediate effect of the affair is a major reduction in the generation of electricity in the Republika Srpska, harming her budget and increasing the price of electricity for neighboring importers.  Its long-term consequence will be to make other foreign companies weary of operating in a market where ad hoc decisions by unelected and unaccountable foreigners can alter the rules of the game overnight.  Bosnia is in a shambles: Since the end of the war in 1995, she has received almost six billion dollars in reconstruction aid, but the beneficiaries were assorted crooks, international bureaucrats, and foreign contractors.  She is now ranked economically behind Albania; in Southeastern Europe, only Moldova is poorer.

This matter deserves urgent attention from Western political leaders and legislators, because their countries’ taxpayers have been underwriting Bosnia, Inc., for the past decade.  Indulging Ashdown, Deputy High Representative Donald Hays, and others by allowing them to continue running Bosnia like a feudal fiefdom is not only detrimental to peace and stability in the Balkans, it is expensive.

Furthermore, Ashdown and Hays directly undermine the “War on Terror” by continuing to support the Islamic side in Bosnia.  Both recently gave credence to the Muslims’ claim that 7,000 of their men were killed at Srebrenica in 1995 and helped to arrange Bill Clinton’s visit to unveil a monument there.  That figure has been repeatedly challenged—most recently by the International Strategic Studies Association—as “vastly inflated and unsupported by evidence.”  The ISSA warned that one-sided interventionist policies permitted Al Qaeda forces and radical Muslims to take root during the Bosnian war, clouding the future of the region, and added that the “memorialization” of false numbers in the monument perpetuates regional ethnic hatred and distrust.  ISSA President Gregory Copley accused Ambassador Hays of using the power of the Office of the High Representative to force Bosnian Serb elected officials to sign a fraudulent document accepting the official version of events in Srebrenica.  Copley added that, according to intelligence obtained from Islamic sources, the monument was intended to become a shrine for radical Muslims in Europe and a site for annual pilgrimages.  In his words, Hays and Ashdown seek “to vindicate Clinton Administration policies of support for the radical Islamists.”

Such behavior by Bosnia’s foreign administrators discredits the very term democracy by associating it with the voluntaristic whims of a small coterie of arrogant bureaucrats.  To them, democracy does not signify broad participation of informed citizens in the business of governance; it denotes the desirable social and political outcome of ostensibly popular decisions.  Accordingly, if the citizens of Bosnia-Herzegovina vote for nationalist political parties—as they did, overwhelmingly, a year ago—such “wrong” outcomes are not seen by Ashdown as an exercise of democracy but as violations thereof.

And yet, in spite of Ashdown’s efforts, eight years after Dayton, the international nation-builders’ goal of a “multiethnic” Bosnia remains as elusive as ever.  It is still unclear how Bosnia can democratically develop and sustain the dynamics of a viable polity.