With civil war and political manoeuvring giving way to economic reconstruction, Bosnia and Herzegovina is facing up to the need to attract foreign investment and trade finance. An innovative World Bank political risks guarantee facility announced in March should prove a useful element in this process.
The guarantees are available to foreign companies providing credit and are designed to foster projects that will enable local industries to resume operation, and to provide foreign exchange for the purchase of critical imports. Supporting self-liquidating, short-term transactions, the guarantees will not burden Bosnian companies with long-term debt.
The assistance is a new step for the World Bank since it will not actually lend the money but will instead provide a guarantee against political risk for commercial creditors involved in short-term deals. The Investment Guarantee Agency (IGA), an independent corporation established by the Bosnia and Herzegovina government and headquartered in Sarajevo, will issue guarantees for the foreign firms and banks providing credit.
"The risks are so great that the choice of instrument was extremely logical," says Onno Rühl, guarantee specialist at the World Bank. "Short-term deals are an important way to get things going.