Bosnia and Herzegovina declared sovereignty in October 1991 and independence from the former Yugoslavia on 3 March 1992 after a referendum boycotted by ethnic Serbs. The Bosnian Serbs - supported by neighboring Serbia and Montenegro - responded with armed resistance aimed at partitioning the republic along ethnic lines and joining Serb-held areas to form a "Greater Serbia." In March 1994, Bosniaks and Croats reduced the number of warring factions from three to two by signing an agreement creating a joint Bosniak-Croat Federation of Bosnia and Herzegovina. On 21 November 1995, in Dayton, Ohio, the warring parties initialed a peace agreement that ended three years of interethnic civil strife (the final agreement was signed in Paris on 14 December 1995).The Dayton Peace Accords retained Bosnia and Herzegovina's international boundaries and created a multiethnic and democratic government charged with conducting foreign, diplomatic, and fiscal policy. Also recognized was a second tier of government composed of two entities roughly equal in size: the predominantly Bosniak-Bosnian Croat Federation of Bosnia and Herzegovina and the predominantly Bosnian Serb-led Republika Srpska (RS). The Federation and RS governments are responsible for overseeing most government functions. Additionally, the Dayton Accords established the Office of the High Representative to oversee the implementation of the civilian aspects of the agreement. The Peace Implementation Council at its conference in Bonn in 1997 also gave the High Representative the authority to impose legislation and remove officials, the so-called "Bonn Powers." An original NATO-led international peacekeeping force (IFOR) of 60,000 troops assembled in 1995 was succeeded over time by a smaller, NATO-led Stabilization Force (SFOR). In 2004, European Union peacekeeping troops (EUFOR) replaced SFOR. Currently, EUFOR deploys around 600 troops in theater in a security assistance and training capacity.
Bosnia and Herzegovina has a transitional economy with limited market reforms. The economy relies heavily on the export of metals, energy, textiles, and furniture as well as on remittances and foreign aid. A highly decentralized government hampers economic policy coordination and reform, while excessive bureaucracy and a segmented market discourage foreign investment. Foreign banks, primarily from Austria and Italy, control much of the banking sector, though the largest bank in the Republika Srpska entity is a private domestic one. The konvertibilna marka (convertible mark) - the national currency introduced in 1998 - is pegged to the euro through a currency board arrangement, which has maintained confidence in the currency and has facilitated reliable trade links with European partners. In 2016, Bosnia began a three-year IMF loan program that requires Bosnia to meet economic reform benchmarks to receive future funding installments.Interethnic warfare in Bosnia and Herzegovina caused production to plummet by 80% from 1992 to 1995 and unemployment to soar, but the economy made progress until 2008, when the global economic crisis caused a downturn. Since 2013, Bosnia and Herzegovina has posted positive economic growth, though severe flooding hampered recovery in 2014. Bosnia and Herzegovina became a full member of the Central European Free Trade Agreement in September 2007.Bosnia and Herzegovina's private sector is growing slowly, but foreign investment has dropped sharply since 2007. High unemployment remains the most serious macroeconomic problem. Successful implementation of a value-added tax in 2006 provided a steady source of revenue for the government and helped rein in gray-market activity, though public perceptions of government corruption and misuse of taxpayer money has encouraged a large informal economy to persist. National-level statistics have improved over time, but a large share of economic activity remains unofficial and unrecorded.Bosnia and Herzegovina's top economic priorities are: acceleration of integration into the EU; strengthening the fiscal system; public administration reform; World Trade Organization membership; and securing economic growth by fostering a dynamic, competitive private sector.