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Dodik’s Son Gets a Loan the Same Day, Towns Wait Months

How their citizens vote may determine how easily towns in the RS can borrow development funds from a government bank.
RS Prime Minister Milorad Dodik who heads up the board that decides who gets low-cost RS Development loans has said in campaign speeches that towns not run by his SNSD party will have a hard time getting government attention. Photo by RS Government

The Republika Srpska Investment and Development Bank has put off decisions on loan applications from several municipalities for months. Representatives of Foča, Pale and Istočno Novo (East New) Sarajevo municipalities say their borrowing from the Fund for the Development of Eastern Part of the RS has been slowed by the bank’s Stockholder Assembly Credit Board. RS Prime Minister Milorad Dodik presides over the board.

Dodik has in campaigns over the past two years urged citizens to vote for the candidates of his party, the Alliance of Independent Social-Democrats (SNSD). If they didn’t, he has said on occasion in a widely reported message, ‘They’d see who the real Milorad Dodik was’ and could not count on the collaboration with the RS government.

The government established the fund in 2007 and it received 200 million KM in privatization money. A part of the fund was to go to local governments and their development projects, as it offered more favorable terms than commercial banks. The towns are entitled to loans with interest rates between 5.4 and 5.9 percent, a grace period of six months and up to 10 years to repay.

Small Loans to the Opposition

The bank has two boards that decide on loans. A Credit Board, made up of bank representatives, decides on loans between 50,000 and 500,000 KM. For amounts between 500,000 KM and 3 million KM, the decision process includes the Stockholders’ Credit Board which is headed by the RS prime minister. The finance minister can stand in for him.

Reporters from the Center for Investigative Reporting in Sarajevo (CIN) looked at how long it took the bank to hand out loans to local communities, and found that municipalities headed by mayors from the SNSD party got loans faster than those headed by mayors from the opposition party. Also, loans of up to 2 million KM were given to the municipalities headed by SNSD, while municipalities controlled by Serb Democratic Party (SDS) received loans of up to 600,000 KM.

According to data published on the bank’s web page, 11 town governments submitted loan applications between May 2008 and Feb. 2010. The bank granted loans to eight towns worth about 5.85 million KM.

Loans database distributed by Fund for the Development of Eastern Parts of the RS

Milići, Sokolac, Trebinje, Čajniče and Osmaci where SNSD is in power received 4.65 million KM in total, while Berkovići, Lopare and Nevesinje where SDS is in power were granted 1.2 million KM.

The loan procedure lasted up to a month, though in the case of the Milići municipality a 2 million KM loan was approved one day after it submitted an application.

The municipalities of Pale, Foča and Istočno Novo Sarajevo have not received loans. Foča and Pale have been waiting for more than five months and Istočno Novo Sarajevo four. All three municipalities are under control of the opposition.

The municipalities of Foča and Pale collected all necessary documents and received approval from the RS Ministry of Finances to go ahead with taking RS Development Bank’s loan. In December 2009, the two municipalities submitted applications with the bank asking for 2.7 million KM and 3 million KM respectively. However, the Stockholders’ Credit Board has not acted on them yet.

The bank informed Pale and Foča officials that their applications has been postponed ‘in view of consideration of possible alternative sources of financing’ of their projects. The municipality of Istočno Novo Sarajevo, which submitted an application Feb.1, got the same response.

CIN received an answer from RS Development Bank in which it is plain that the bank has not spent all the money intended for crediting to the municipalities in 2009. The bank last year had around 14.5 million KM available in the Fund, of which only 3.4 million KM was spent. This means that 11 million KM the amount unused, is nearly double sum needed to make loans to Foča and Pale.

Miroslav Brčkalo, president of the Pale municipal council, shows off fields surrounding Serbia Elementary School that he’d like to landscape and improve if the town could get development money.

Foča officials planned to spent 2.7 million KM of the RS Development Bank loan to build two swimming pools, pave roads, build bridges and a parking lot near a hospital, to electrify a village, and to give agricultural incentives. Istočno Novo Sarajevo asked for 3 million KM to help build the city’s utility infrastructure and to resume work on the sport hall. The municipality of Pale planned on a 3 million KM loan to build a sport and commercial center and to fix the outside of the primary school Srbija.

CIN tried to get an answer from the bank on why loans to some municipalities were delayed. Comments were sought in vain from Dodik, RS Finance Minister Aleksandar Džombić, and the director of the Fund for the Development of Eastern Parts of the RS Branislav Subotić.

Pale and Foča officials are thinking of turning to commercial banks though their interest rates are 2 percent higher than those of the Development Bank. The RS Ministry of Finances gave its stamp of approval for taking higher-priced loans.

Zdravko Krsmanović, head of Foča municipality, says he will not give up on development of his area no matter whether the RS Bank ever gives it a loan with favorable terms.

Zdravko Krsmanović, the head of Foča municipality, said that the municipalities that had not received loans from the bank had the commercial banks’ loans as only recourse. If they take them then they will be criticized for overspending, and if they don’t then they will hamper development of their locales.

Pale municipality chose Raiffeisen Bank which offered a 3 million KM loan at an interest rate of 7.49 percent with seven years to pay. In this way, the municipality will pay the loan back faster, but at a monthly rate 10,749 KM higher than the bank might have provided

Foča municipality has also begun selecting the commercial bank with the best deal.

Loans From Another Fund

Apart from the Fund for the Development of Eastern Parts of the RS, the government also established the RS Development and Employment Fund.

Thirteen municipalities had asked by April for money from this fund. From August 2008 through the end of 2009, the bank had given loans totaling 21.6 million KM. Of all the municipalities that received loans from the fund, 12 are run by SNSD mayors and their coalition partners. Only one, Bijeljina, is run by SDS.

Loans database distributed by RS Development and Employment Fund

SNSD is in power in the Novi Grad municipality. It applied for a loan last Dec. 18 The municipality of Foča submitted a loan application with the Fund for the Development of Eastern Parts of the RS the same day.

In the case of Novi Grad, both boards convened within six days. The loan of 570,000 KM was approved and the municipality signed the loan agreement with the bank Dec. 29.

Bankers did not move so fast for Foča. The bank’s Credit Board convened 1.5 months after it first filed, on Feb. 9, 2010, while Stockholders’ Credit Board discussed the application Feb. 18. It then postponed a decision pending a search for alternative financing.

Žarko Ristić, a professor at Banja Luka University for Business Studies, said the bank’s postponement was a political not financial decision.

‘There is something known as the Balkans Phenomenon’ he said. Money is held in an account rather than lent out and grown. Political reasons outweigh economic reason. He said the usual banking rule in transition countries is that money, independently of economic principles, is given based on vague political priorities, through political connections and channels.

While the bank took months on loan applications submitted by some municipalities, it finished all the paperwork and gave a 3 million KM loan to Fruit Eco in Gradiška, with which the prime minister’s son Igor is involved in no time.

This company applied for a loan with the bank July 18, 2008. On the same day, bank’s Credit Board and Stockholders’ Credit Board convened. On July 21, 2008 Fruit Eco and the bank signed a contract.

Transparency International (TI) BiH filed a complaint against Dodik regarding this loan with the RS Commission on Conflict of Interest. TI argued that to hold a prime minister’s office and be a president of Stockholders’ Credit Board represents a conflict of interests.

The law on the prevention of the conflict of interests in the RS government agencies stipulates that, ‘There is a conflict of interests in situations when an elected representative, an office holder or an advisor, has a private interest of the nature that it can influence or seems that it can influence the objective and fair conduct of his or her offices.’

The commission dismissed TI’s complaint as groundless last fall.

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