In January 2026, U.S. President Donald Trump signed an executive order withdrawing the United States from 66 international organizations, among them the Regional Cooperation Council for Southeastern Europe. The signal was clear: Washington would no longer extend unconditional support to multilateral bodies that failed to demonstrate results. Weeks later, in early February, Milorad Dodik—the political leader of Bosnian Serbs, recently removed from the U.S. sanctions list—attended President Trump’s National Prayer Breakfast in Washington. Taken together, these two events illuminate the wider direction of American foreign policy. International organizations must justify their existence, and the established hierarchy of blame in the Balkans is shifting.
On the other side of the Atlantic, one institution in Bosnia and Herzegovina (BiH) dating from the 1990s era of liberal interventionism continues to defy the realities of a changing international order. The Office of the High Representative (OHR) is an externally controlled, unelected body led by foreigners without democratic accountability or sovereign legitimacy. It imposes laws, removes elected officials, and heightens political tensions. This anti-democratic institution has not succeeded in making Bosnia and Herzegovina more liberal or business-friendly, yet it persists in its efforts to maintain supreme authority. Its practice is grounded in an old and biased framework in which Serbs and Republika Srpska are treated as the default source of obstruction—to be pressured, penalized, and overruled.
The consequences for business are severe. Bosnia and Herzegovina is the least attractive destination for foreign capital in the region, and the institutional context is one of the most important determinants of foreign direct investment. Prominent risk assessment firms, including the Economist Intelligence Unit, identify the deficit of democratic accountability as a primary political risk for business. Stable democratic institutions provide investors with predictability and legal certainty—precisely what the current arrangement undermines. The economic consequences are felt by ordinary citizens. According to a recent poll from February 2026, more than 60 percent of Bosnians perceive the economy as deteriorating. In the same survey, more than 40 percent of citizens consider the OHR to have a very or mostly negative impact on economic growth over the past two to three years, while only 13.1 percent consider its impact mostly or very positive.
This analysis makes the case that the OHR is a primary structural obstacle to foreign direct investment in Bosnia and Herzegovina. It documents the country’s genuine investment assets, examines the principles and practice of the OHR, and analyses 5 groups of decisions that have directly elevated legal and political risk for investors—including property-related measures estimated to have blocked more than $15 billion in potential investment. It concludes with concrete recommendations for reform.
Strong Assets, Weak Investment Returns
Bosnia and Herzegovina possesses many attributes that would, in a different institutional context, make it genuinely attractive to foreign investors. More than half of its territory is forested, and the country holds substantial mineral resources, including deposits of gold, silver, and lithium in its eastern regions. It maintains a stable currency and relatively low government debt, with a debt-to-GDP ratio of 39.9 percent in 2024 according to the IMF—well below the global average of 95.1 percent. Inflation is controlled, the banking sector is liquid, and the country maintains solid geopolitical relationships with a range of partners, including business-friendly free trade agreements with the EU, EFTA, CEFTA, and Turkey.
The fiscal burden for investors is comparatively low. Bosnia and Herzegovina has the lowest VAT rate in the Western Balkans at 17 percent, compared to 21 percent in Montenegro and 20 percent in Serbia and Albania. Taxes are generally lower in Republika Srpska than in the Federation of Bosnia and Herzegovina, with the Fiscal Council of Republika Srpska confirming that it has the lowest general income tax in the Western Balkans at just 8 percent. Republika Srpska was also the first jurisdiction in the region to implement a regulatory guillotine, eliminating more than 60 percent of unnecessary inspection requirements. Energy costs further enhance its competitiveness: industrial electricity prices stand at $86 per megawatt-hour, compared to more than $127 per megawatt-hour in Serbia and $173 per megawatt-hour in Croatia.
Recognition of this potential has come from credible external sources. The Financial Times’ “fDi Intelligence” magazine ranked Republika Srpska among the top 10 small regions of the future in both 2018 and 2023, and the town of Laktaši as the most desirable small town in Europe for investment. The World Bank’s “Doing Business” report ranked Banja Luka among the most desirable business destinations as early as 2011.
And yet investment in Bosnia and Herzegovina remains significantly below regional peers. According to World Bank data, the average FDI-to-GDP ratio in Bosnia and Herzegovina between 2020 and 2024 was approximately 3 percent, compared to approximately 7 percent or higher in comparable regional economies. A recent public opinion poll found that 41 percent of all citizens of Bosnia and Herzegovina perceive OHR decisions as making the country less attractive for foreign direct investment, with only 15.2 percent holding a positive view. In Republika Srpska, the critical figure rises to 53.9 percent. This analysis explains why that perception is grounded in fact, and why the OHR is a crucial negative factor in the country’s investment performance.
The Paradoxical Institutional Legacy of Liberal Interventionism
The OHR is a legacy of the liberal interventionist era. Its original mandate was to coordinate the implementation of the Dayton Peace Accords over a one-year period. As Ian Bremmer of the Eurasia Group has observed, international institutions are typically designed to address a single task—yet when they fail to do so, they tend to become self-perpetuating, defending their existence from within and searching for new justifications to continue. This dynamic was particularly pronounced during the 1990s, when the United States and its EU partners were willing to allocate substantial sums of public money to international institutions regardless of their effectiveness.
In line with the interventionist tendency, the OHR received not only an extension of its mandate but a significant expansion of its powers, fundamentally altering the role it was originally designed to play. Its redesigned form became inconsistent with the values it claims to uphold, undermining the core principles of liberal-democratic governance: legality, legitimacy, stability, efficiency, and the subsidiarity of authority. The OHR became a case study in how liberal interventionism can obstruct the transfer of political processes to local ownership—preserving its own institutional relevance while preventing genuine democratization and discouraging foreign investment.
The proclaimed source of authority for the OHR’s tutelary role lies in the so-called Bonn Powers, granted by the Peace Implementation Council in late 1997 through a broad and legally questionable interpretation of the Dayton Peace Accords. These powers include imposing legislation, removing democratically elected officials, and banning politically inconvenient individuals from public life. Numerous studies have demonstrated that these powers are legally indefensible—a conclusion once acknowledged by Matthew Parish, the OHR’s own legal counsel. The Parliamentary Assembly of the Council of Europe described the OHR’s capacity to make executive decisions without democratic accountability, right of appeal, or obligation to justify its actions as contrary to democratic values. The Venice Commission subsequently confirmed that the practice of the Bonn Powers does not align with democratic principles, underscoring the fundamental tension between external authority and legitimate governance.
Despite this, the OHR has maintained effective control over significant aspects of political life in Bosnia and Herzegovina, sustained in part by external legitimation from the United Nations. Since 1996, the appointment of each High Representative was routinely confirmed by the UN Security Council. The current High Representative, Christian Schmidt, has not received this confirmation—leaving him as the representative of only one segment of the international community. This sends a negative signal to non-EU investors, who have reasonable grounds to fear that their business interests could be politically jeopardized by a powerful foreign actor that represents primarily the interests of one part of the EU, above all Germany, and lacks broader international legitimacy.
The OHR’s record on stability is equally poor. The World Bank’s Political Stability and Absence of Violence/Terrorism Index shows that its activities frequently produced outcomes contrary to its stated intentions. Bosnia and Herzegovina’s score fell significantly—from the 46th to the 31st percentile—between 2004 and 2006, precisely when the OHR’s interventionist approach reached its peak, and continued declining until 2011, when it reached a low of 20th. As the OHR’s use of intrusive measures eased, the score recovered, reaching the 45th percentile by 2014. The most recent decline, to 28th in 2022, coincided with a new wave of interventionism. Bosnia and Herzegovina is the only state in the region that has never reached the upper tier of this index—above the 50th percentile—since 1996, a fact that reflects poorly on the OHR’s contribution to the conditions necessary for sustained investment.
The intentions behind the OHR’s approach were candidly described by its own legal counsel. Matthew Parish, writing in his book “Free City in the Balkans” about High Representative Paddy Ashdown (2002 to 2006), was direct: “Ashdown’s approach was simple: place both the monopoly on force and control of taxation in the hands of central government, and the Entities would wither away.” This objective contradicts not only the democratic principles and provisions of the Dayton Peace Accords but also the fundamental logic of investment attraction. Rather than devolving authority to lower levels of government and enabling locally tailored, business-friendly policies, the OHR worked systematically in the opposite direction—and to little effect. World Bank data indicates that Bosnia and Herzegovina’s government effectiveness score in the 2020s was roughly the same as in 2000. According to a 2024 analysis by the Republic of Serbia, 83 constitutional authorities were transferred from the entities to the state level, most of them through the Bonn Powers—a centralization that contradicted the EU’s own subsidiarity principle and the United States’ constitutional tradition of federal devolution alike.
Bad Principles, Worse Practice
The OHR has made many decisions that have undermined Bosnia and Herzegovina’s attractiveness to foreign investors. The very fact that it conducts legislative activity represents a political risk, given the complete absence of checks and balances. Even when the Constitutional Court ruled that certain OHR acts were unconstitutional, the High Representative blocked enforcement of that ruling, declaring that any legal proceeding challenging an OHR decision would be declared inadmissible without the High Representative’s prior consent. This problematic principle has been reflected in specific laws and decisions whose substance has further disrupted the inflow of foreign direct investment. The following sections examine five groups of OHR acts with particularly significant implications for investment.
In 2005, High Representative Ashdown enacted a law temporarily prohibiting the disposal and management of so-called state property—effectively freezing extensive assets including property from socialist Yugoslavia previously owned by the Yugoslav People’s Army and the former Socialist Republic of Bosnia and Herzegovina. This prevented their economic and investment use in the new market-oriented environment. It has been estimated that by blocking the market utilization of these assets, more than $15 billion in potential investment was effectively frozen—a sum approaching half of the country’s 2026 GDP.
The current High Representative, Schmidt, confirmed in his 2025 Report to the UN Secretary-General that this prohibition continues to impede development, noting that the unresolved state property issue “continues to represent a significant barrier to the economic development of Bosnia and Herzegovina, impacting development and investment projects in all key sectors such as transport and communication, renewable energy, mining and agriculture.” He further acknowledged that the legal situation had “led to serious legal uncertainty and even blockage of implementation of those projects at the level of entities, cantons and units of local self-governance.”
Republika Srpska has repeatedly sought to unfreeze this capital and assert management and ownership rights in the interest of its citizens, grounding its position in the Constitution of Bosnia and Herzegovina, which places property matters within the exclusive competence of the entities. Successive High Representatives have blocked each of these attempts. High Representative Valentin Inzko (2009 to 2021) went further, undermining the implementation of a political consensus reached among Serb, Bosniak, and Croat representatives in 2012 and 2013. Rather than supporting the compromise, he expressed skepticism and discouraged the parties from implementing it. This major asset base remains unavailable for investment and development in both entities.
The Constitutional Court of Bosnia and Herzegovina has compounded the deadlock through decisions holding that Republika Srpska does not have the right to assume control over state property within its territory, and through an expansive interpretation of “state ownership” that extends to public goods including forests, rivers, and agricultural and forest land. Ignoring the constitutional assignment of property authority to the entities, the Court awarded ownership to the state of Bosnia and Herzegovina pending the adoption of legislation by the parliamentary assembly. This disputed decision was not unanimous—the majority was achieved only through the votes of foreign judges from Germany, Albania, and Austria, raising serious questions about its legitimacy.
For foreign investors, the message is unambiguous: in Bosnia and Herzegovina, assets of significant economic value can be frozen by external administrative fiat, with no meaningful recourse and no certain timeline for resolution. The 2005 prohibition was damaging enough in isolation. What followed compounded it.
Building on the 2005 prohibition and the Constitutional Court decisions of 2020 and 2021, High Representative Schmidt in 2022 expanded the prohibition to include forests, agricultural and forest land in public ownership, and rivers—curtailing the possibility of new greenfield investments linked to these assets. Nearly 6 percent of the territory of Republika Srpska fell under restrictions of unprecedented scope. Constitutional Court decisions in 2024 subsequently annulled acts adopted in both entities that had granted portions of forest land to private investors from the United Kingdom and Bosnia and Herzegovina for use in local economic development projects. Together, these measures have further reinforced perceptions of structural uncertainty regarding property rights and long-term investment planning.
The decision drew criticism across all three constituent nations. Leading Croat politician Dragan Čović called in early 2026 for all actors to pressure “the one who has adopted it” to repeal the law, which he described as blocking investment inflow. Bosniak politician and Prime Minister of the Federation of Bosnia and Herzegovina, Nermin Nikšić, submitted an initiative to amend the law to provide exemptions enabling infrastructure projects of public interest. Confronted with this broad backlash, High Representative Schmidt acknowledged in his late 2025 Report to the UN Secretary-General that certain amendments “could arguably enable the implementation of numerous currently blocked projects and help mitigate negative economic consequences.” Despite this acknowledgement, he has not acted. His treatment of the issue also reflects a persistent pattern of unequal attention: the problems the law creates for the Federation of Bosnia and Herzegovina receive primary consideration, while the equivalent constraints on Republika Srpska are largely set aside.
This unequal treatment is a constant across all High Representatives—from Ashdown through Miroslav Lajčák (2007 to 2009) to Schmidt—and has unfortunately been mirrored in institutional practices within the Federation of Bosnia and Herzegovina, whose authorities have repeatedly sought to assume control over the private property of the Serbian Orthodox Church and Serbs. These acts further elevate property risk and reduce the attractiveness of investment across the country.
When nearly 6 percent of an entity’s territory can be placed under investment restriction through a single unilateral decision, the risk premium attached to any long-term investment in Bosnia and Herzegovina rises accordingly.
Despite having expressed formal skepticism about the use of the Bonn Powers and thereby distancing himself from his predecessors’ approach, the longest-serving High Representative, Valentin Inzko, ended his tenure in 2021 by unilaterally amending the Criminal Code of Bosnia and Herzegovina. The act triggered a political crisis and opened a pattern of frequent legislative interventions that has continued since. Frequent changes to laws by an institution of questionable legitimacy are themselves a negative signal for investors. Changes to the Criminal Code—the cornerstone of a legal system—are particularly damaging to the perception of a stable and business-friendly environment.
Christian Schmidt followed suit, adopting four legal acts amending the Criminal Codes of Bosnia and Herzegovina, Republika Srpska, and the Federation of Bosnia and Herzegovina in 2023. In February 2026, the Constitutional Commission of the House of Representatives of Bosnia and Herzegovina declared these changes unconstitutional, finding that the OHR lacked legal authority to enact them. The fact that this conclusion was shared by Croat representatives confirms that political figures from two of the three constituent nations regard the OHR’s legislative acts as illegitimate. Risk-averse foreign investors are likely to reach the same conclusion—yet the OHR has given no indication that it intends to align with this finding or to withdraw its unilateral actions.
The substance of these acts has itself deepened political instability. Inzko’s 2021 criminalization of public expression of the view that the events in Srebrenica cannot legally be classified as genocide provoked a sharp response from Republika Srpska, whose President, Milorad Dodik, described the decision as “the final nail in the coffin of Bosnia and Herzegovina.” Schmidt’s 2023 amendments introduced severe sanctions for non-compliance with OHR decisions, providing the legal basis for the 2025 court decision removing the elected President of Republika Srpska from office. Rather than stabilizing inter-ethnic relations, these interventions have fueled tensions.
The impact on governance indicators has been measurable. The World Bank’s Worldwide Governance Indicators recorded the lowest rule-of-law score for Bosnia and Herzegovina in 2023, the same year that saw the highest level of OHR legislative intervention. The WJP Rule of Law Index likewise recorded its historically lowest score for the country in 2023 at 0.51, compared to 0.56 when it was first included in 2015. The correlation with OHR’s legislative conduct is clear, and the consequences for the investment environment are direct. A legal environment in which the criminal code can be rewritten by an unelected external actor—and in which courts then apply those changes to remove elected officials—is, by any standard measure of institutional risk, an environment hostile to serious investment.
If the criminal code decisions destabilized the legal environment, the interventions in electoral law destabilized the political one.
Between 2022 and 2024, High Representative Schmidt adopted multiple amendments to the electoral laws of Bosnia and Herzegovina and the Federation, as well as to regulations on election financing. He amended the Constitution of the Federation in the domain of electoral norms in 2022, and in 2023 imposed a decision on the formation of the Federation government despite the required criteria not having been met. While prolonged inability to form a government is itself a signal of political fragility, bypassing legal requirements through unilateral external intervention does not confer legitimacy—and legitimacy is precisely what is required to create a sustainable and predictable environment for investors.
The reactions spanned all three constituent nations. Following the 2023 government formation decision, the largest Bosniak party, the SDA, accused the High Representative of coordinating with Croatia and denying the electoral will of Bosniaks. Borjana Krišto, then Prime Minister of Bosnia and Herzegovina and a senior figure in the leading Croat party HDZ BiH, wrote formally to EU officials protesting against the 114 legal changes imposed by the OHR in 2024, describing them as contrary to EU standards. The National Assembly of Republika Srpska adopted a resolution demanding the annulment of Schmidt’s March 2024 decision.
The pattern has produced a rare cross-national consensus among political representatives of all three constituent peoples in their criticism of the OHR’s conduct on electoral matters. Foreign investors appear to share that skepticism. When election rules are externally imposed rather than democratically agreed, long-term political stability is undermined and political risk for investors increases. The Freedom in the World Index from Freedom House consistently ranks Bosnia and Herzegovina poorly: the country scored in the 2023 Index just 1 out of 4 on the fairness of electoral laws and their impartial implementation—a direct reflection of a system in which core electoral rules are externally imposed rather than democratically agreed.
Investors who rely on electoral outcomes to assess political direction cannot do so reliably when the rules of electoral competition are subject to unilateral revision by an external authority.
Beyond laws and regulations, the OHR has exercised a power that no democratic institution should possess: the unilateral removal of elected officials from office.
Beginning in 1998, the OHR established the practice of removing individuals from their posts, including elected officials, in some cases on the basis of nothing more than public statements that a High Representative found objectionable. High Representative Carlos Westendorp (1997 to 1999) removed Dragan Čavić from the Republika Srpska National Assembly for comments on the 1998 elections and the situation in Kosovo. His successor Wolfgang Petrich (1999 to 2002) continued the practice. These acts—depriving individuals of fundamental political rights without judicial process or right of appeal—became a routine instrument of the OHR.
The practice reached its peak under High Representative Ashdown. In 2004, he removed 59 legally elected or appointed officials from their posts in Republika Srpska, including the speaker of the National Assembly and the minister of the interior, barring them from party politics and from standing for office. The Venice Commission concluded in 2005 that it was unacceptable for decisions directly affecting individual rights to be taken by a political body without fair hearing or minimum due process. Though subsequent High Representatives applied the practice more sparingly, they did not renounce it—and its methods have since become less direct but no less consequential. The OHR now enacts laws authorizing severe sanctions against those who oppose its decisions, with punishment formally delegated to the courts, as in the 2025 decision removing the elected President of Republika Srpska from office.
No investor can plan with confidence around a government whose elected officials may be removed not by voters but by an unaccountable foreign institution—and that structural unpredictability is, ultimately, a cost that falls on Bosnia and Herzegovina’s entire investment environment.
Time for a Restart
The world is changing rapidly, and the foreign policy of the Trump administration is contributing substantially to the reshaping of the existing international order. The prescriptions of the 1990s are outdated and no longer align with a logic that is reasserting the value of local, sovereign ownership of economic and political affairs over dependence on supranational bodies. That logic will shape future capital flows, and Bosnia and Herzegovina must keep it in mind as it rethinks its approach to attracting investment.
These steps follow a logic of sequence: the first creates the conditions for the second, and the second for the third. Progress on any one of them in isolation will be partial at best.
The first step should be the removal of Christian Schmidt from his post as High Representative, followed by the appointment of a successor who receives confirmation from the UN Security Council. This would restore a basic measure of legitimacy to the institution, reduce political tensions, and lower political risks for investors. The case for such a change is supported by public opinion: an absolute majority of citizens of Bosnia and Herzegovina—50.2 percent—do not trust Schmidt, while only 3 percent trust him completely.
The second step should be a collective appeal to the OHR and the UN Security Council to renounce the Bonn Powers formally and to repeal the most investment-damaging decisions currently in force. This means, above all, the removal of the 2005 Law on the Temporary Prohibition of Disposal of State Property and its 2022 amendments.
The third step is a return to the constitutional division of authority as originally envisioned by the Dayton Peace Accords. There is no more solid foundation for a clear and stable legal system than the Constitution itself. Returning transferred authorities to the entities would represent a move toward more responsible, locally owned governance of economic affairs—precisely the kind of governance that investors can assess, engage with, and trust.
Finally, the OHR should formally disband or transition to a purely monitoring function, sending a clear and positive signal to investors about the direction of political development in Bosnia and Herzegovina and its entities.
As former U.S. President Ronald Reagan observed, bureaucracy is the nearest thing to eternal life we will ever see—and the OHR can be expected to protect its institutional interests accordingly. But there are reasonable grounds for optimism: Member States of the Peace Implementation Council and the UN Security Council may ultimately support closure, not least because it would save the millions of euros they allocate annually to sustaining an institution whose record speaks for itself. This would also be consistent with the broader direction of the Trump administration’s foreign policy.
In parallel, other improvements should be pursued. Fighting corruption and strengthening the rule of law must remain high priorities, alongside public investment in infrastructure. Procedures should be further simplified and taxes reduced for investors, particularly in the Federation of Bosnia and Herzegovina. Strategic partnerships with a range of states should be deepened, with Republika Srpska’s established cooperation with Israel and Hungary serving as one model. And reaching a durable compromise on the remaining open questions between entity and constituent nation representatives would send a powerful signal to international investors.
None of these steps, however, can fully succeed in the presence of the OHR. The principles on which it operates undermine democratic accountability and, with it, the investment environment. Its centralizing bias damages the business climate. Its legislative and executive acts have proven ineffective and often counterproductive. The world that created the OHR no longer exists. The United States is withdrawing from ineffective multilateral institutions; the legitimacy of external governance over sovereign peoples is increasingly contested; and the investment logic that Bosnia and Herzegovina needs to embrace is one of stability, predictability, and local accountability. On the evidence presented here, the case for the OHR’s removal is both principled and practical—and the cost of inaction is borne, above all, by the citizens and investors of Bosnia and Herzegovina.
