Instability fuels Bosnia inflation

SARAJEVO – Political instability in Bosnia has triggered panic buying and driven up the prices of staples, fueling inflation and creating market «hysteria,» Bosnia’s central bank governor and independent analysts said yesterday. Bosnia has been without an effective government since Prime Minister Nikola Spiric, an ethnic Serb, resigned on November 1 in protest at the international peace envoy’s ruling to amend voting rules in the country’s central government. The dispute reflects deep divisions between the country’s two ethnic halves, the Serb Republic and Bosnian-Croat federation. The Bosnian Serbs see the ruling as a threat to their autonomy and have threatened to walk out of government. Analysts see it as the most serious crisis since the end of the 1992-95 war between Serbs, Muslims and Croats. Fearing political instability and rising prices, Bosnians have begun to stockpile food and many retail chains have run out of cooking oil, flour and sugar. Macroeconomic indicators have started to reflect the tension. Kemal Kozaric, the central bank governor, told Reuters that year-on-year inflation of 3.25 percent in October was just not justified by economic factors. «The hike of prices is unjustified and purely speculative,» Kozaric said in a telephone interview. «Global increases in wheat and oil prices are partially contributed to the latest hike but the political situation has had a major impact on the atmosphere on the market,» he added. «The messages that politicians are sending out have a powerful effect and have created market hysteria,» Kozaric said, appealing to businesses to refrain from making speculative profits. But he said the central bank will not give way to pressure and print money. Bosnia’s marka currency is pegged to the euro at a fixed exchange rate under a currency board system. Social unrest? Mesud Lakota, the head of Bosnia’s consumer association, said that last month a family needed to spend 1,300 marka ($665) per month to buy basic food, hygiene products and clothing, a 15 percent increase from last year. «I am afraid more and more Bosnians will go to bed hungry,» he said, warning of social unrest in a country where the average salary is 650 marka. He added that over the last three months, the price of butter had doubled, while cooking oil and bread were up to 50 percent more expensive. The Serb Republic trade union urged government to introduce a flat VAT rate for basic food products as well as effective control of the setting of prices and contingency measures for the most vulnerable citizens. «The situation is alarming,» trade union president Ranka Misic told a news conference yesterday, attributing it to political tensions. The government of the Muslim-Croat federation decided yesterday to take cooking oil from commodity reserves and put it on sale at lower prices. «The government will efficiently react to stabilize the situation,» said Social Affairs Minister Perica Jelecevic. Bosnia has also paid a political price for the dispute: It is last in the line of Balkan European Union hopefuls as its leaders have failed to agree on the required reforms.