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Paving the Way for Others in Bosnia-Herzegovina

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June 3, 2002—From 1991 to 1995, Bosnia-Herzegovina was rocked by a bitter war that resulted in tens of thousands of deaths and the displacement of more than one million people. A once ethnically mixed area of Croats, Serbs, and Bosniaks, the country endured ethnic cleansing on all sides. Infrastructure was destroyed and the banking system collapsed. The economy came to a standstill, with unemployment at about 65 percent. The Dayton Peace Accord, signed in December 1995, put a halt to the killing.

Along with the task of rebuilding came the challenge of addressing life-threatening kidney disease, so prevalent it even has its own name - Balkan Endemic Nephropathy. But with the country's faltering health care system in further disarray after the war, there was little hope that local citizens suffering from the disease would receive adequate treatment. That all changed in April 2001, when the International Dialysis Center BV (IDC) of the Netherlands injected several million dollars into a new, state-of-the-art dialysis facility in the city of Banja Luka. The investment marked the first infusion of foreign cash in the country's health sector. Treatment, and results, altered dramatically.

MIGA made the investment possible by issuing $1.3 million in guarantee coverage, made available through a special trust fund financed by the European Union. The insurance was key to the investment going ahead, removing the investor's concerns about the threat of renewed violence, lack of foreign exchange, and potential for laws not being enforced. This is just one of six projects supported by MIGA in Bosnia-Herzegovina since 1999, in cooperation with the EU trust fund: three in banking, one in manufacturing, and one in health, for a total of $56.5 million.

From conception to implementation, the investor faced a number of impediments to opening the clinic. Marijan Bilic, the clinic's general manager and a Belgrade native, set out in 1998 not just to open a private sector health clinic in a country where public sector is the rule, but to create a model and spread it throughout the region. The only problem was he didn't have a model to point to and had to convince everyone, from the Prime Minister to the Minister of Health, to take a chance on him. "They had to trust me," Bilic says.

The new clinic replaced an existing facility that had been ordered closed by the Ministry of Health because of its dilapidated condition. "It is very difficult to find words to explain how horrible the situation was," says Vlastimir Vlatkovic, MD, the clinic's medical director. "We were in a building that was supposed to be a temporary structure. We didn't have enough medical supplies and it was really hard to do our work."

It was also extremely unpleasant and dangerous for patients, who suffered serious medical consequences such as severe fatigue, cramps, headaches, back pain, hypertension, chest pain, and even malnutrition, caused by low levels of protein in the blood. "No one wants to go to a place like that every few days. They were left, understandably, with the strong impression that no one cared about them," Vlatkovic says.

IDC estimates that the quality of treatment has improved three-fold. "No one can believe the difference," says Vlatkovic. "After three months of proper treatment, patients no longer have complications. More than half can now work, compared with just 20 percent before. Our goal is for them to live as normal a life as possible."

The project negotiated a contract with the Ministry of Health to cover all patient expenses on a per-treatment basis. "This is the first time we are working with a private company," says Dragutin Ilic, MD, director of the republic's National Health Insurance Fund. "We don't have enough money to provide for all services, so we are supporting those who can provide them."

That demand is disproportionately high, particularly along the banks of the Sava River, where residents suffer from an unusually high incidence of renal disease. The illness develops slowly from childhood, with the kidneys eventually shrinking and unable to cleanse the blood. The end result is always the same: dialysis, a process that filters the blood to remove toxins.

Ljubimir Gajic, 39, started dialysis seven years ago. The father of two recently returned to Bijeljina after living outside of Sarajevo as a refugee, and is now building a new home with materials and land provided by the state. Since the new clinic opened in Banja Luka, he has chosen to make the 250-kilometer trek for treatment every other day.

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PHOTOS | From top to bottom: the devastating effects of the country's war illustrate the ongoing need for reconstruction, seven years after the war's end. MIGA's guarantees are helping businesses address the country's special needs. Above, the dialysis clinic in Banja Luka treats patients suffering from kidney disease, and General Manager Marijan Bilic points out area hit by disease. Bottom photo illustrates the reconstruction of windows, made possible through MIGA's guarantee to Hypo Bank.
CREDITS | Angela Gentile and Federica Dal Bono

"Treatment in Bijeljina [a city in eastern Bosnia] was awful," Gajic explains. "We were treated only twice a week, instead of every other day." Patients with hepatitis weren't separated from the others, treatment lasted for just two hours instead of the usual four, and the equipment was obsolete. "I couldn't walk after treatment. I didn't have enough strength. Now I feel good."

The clinic is one of 11 serving the Republika Srpska's 1.5 million inhabitants. It treats 110 patients, who receive dialysis in three shifts running from 7 am to 9 pm. The clinic may not be able to treat everyone who needs help next year, because war refugees are still returning to their homes and among them will be new patients. But for now, demand is being met.

As the first private investor in the health sector in all of the Balkans, IDC is playing an important role in paving the way for others. IDC recently opened a center in Bijeljina, which is expected to serve 150 patients, and hopes to open centers in other locations.

"This is a story about changes," Vlatkovic says. "We have a rush on here, not just to cure patients but also to educate them and change their way of thinking. This is very important in a post-war country, where many people are afraid and have the impression that no one cares about them. Our patients feel safe here. We really hope this is a first step in changes we'll be seeing in our country."

Another important investment supported by MIGA is the Hypo Alpe-Adria-Bank of Austria, for which MIGA provided two guarantees in fiscal 2001, offering protection against the risks of transfer restriction, expropriation, war and civil disturbance. The European Investment Trust Fund is also providing coverage. The project aims to expand and diversify the bank's services throughout the Federation of Bosnia and Herzegovina and the Republika Srpska.

The bank currently has 25 branches throughout Bosnia-Herzegovina, the majority of which are in the Bosnian Federation, and offers a variety of services, including corporate and private banking, individual lending, and international deposits. New leasing and consulting branches are also being developed.

The war brought a complete collapse of the banking system, which continues to suffer the consequences today. Very few financial resources were available. And the insolvency and collapse of local banks, one after the other, led to the total loss of people's lifesavings and widespread distrust, making the operation of most banks completely
unviable.

"During the war and post-war period, all domestic banks went bankrupt, bringing down people's savings with them. Complete mistrust was the most dominant feeling of individuals and corporations towards domestic financial institutions," says Zelimir Markic, head of the Board's Secretary and External Relations Department. "Before, when there was less money to go around, it was not possible to meet all loan requests. Now, if you need a loan, you get it."

Today, thanks to a number of reforms, it is now easier for foreign institutions to get the required approvals from state authorities. International players are helping to spur the reforms and restoring faith in the sector. Local banks are trying to create joint ventures with foreign banks since they do not have access to capital and they are still struggling to survive.

Hypo Bank helped bring interest rates down, making reconstruction more affordable to everyday citizens and helping to restore the production base by offering lower-interest, longer-term capital to local investors. The bank's corporate clients are engaged in a variety of sectors, including the production of food, furniture, and construction materials. With most of Bosnia's production facilities destroyed in the war and almost all goods imported at a higher cost, these loans are critical to the country's economic reconstruction.

One of the corporate clients, FeAl, processes and produces aluminum profiles. These are beams used to construct window frames for residential and industrial use. This is a thriving market in a country still facing the daunting task of rebuilding houses and factories demolished by war, yet only about 12-15 percent of the profiles are produced in-country. "Due to the damage to housing caused by the war, the production of window profiles is essential to the post-war reconstruction efforts," says Mate Cujic, the company's director.

Hypo's loan helped FeAl buy raw materials and inventory, which freed up funds for the plant's modernization. Within two weeks of receiving the loan, nearly all the money was spent. A five-year loan was not available to Bosnian companies before foreign banks entered the market. "It is very important for companies to have enough liquidity to expand operations and to face the increase in demand; availability of credit is fundamental for the recovery of the local industry," says Cujic.

The company also stimulates the local economy by buying materials from six smaller local companies that provide wood, plastic, hinges, and other materials.

We have a rush on here, not just to cure patients but also to educate them and change their way of thinking. We really hope this is a first step in changes we'll be seeing in our country.

-Vlastimir Vlatkovic, MD

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