Avoiding The Inevitable

Upon returning from Ohio, someone seems to have assessed that not too much time should be left to ponder over defeat and lost battles, something Serbs are prone to do, and something seems to have snapped quickly in Belgrade as well.

News agency Beta quotes an analyst of the Vienna-based Creditanstalt Investment bank Gabriel Dilascher: "A long journey awaits Serbia. It will need a lot of time to restore its former economic level". Independent economists assess that the suspension of the international sanctions is insufficient to revive the Yugoslav economy.

According to some press reports, cautious western investors are awaiting President Milosevic's signal that he is ready to rid the economy of corruption and controlled administration left over from the Communist period. By its economic administration, the personal union between the authorities and the top firm managers, Serbia is a kind of corporation. But, how big a corporation is it? Here is the quote from Vreme's first issue (29 October 1990): "The economic strength of the ex-Yugoslavia had then equalled that of General Motors, the economic strength of Serbia that of the London-Rotterdam company Univeler, and the economic potency of Montenegro that of Clark Equipment, a company in Buchanan, Michigan, which was then 259th on the list of leading U.S. corporations".

At the beginning of the Yugoslav crisis, the quasi-autonomy of firms in Serbia was crushed much more easily than local self-management before that.

Hectic preparations for the period "after the sanctions" were promnient during the "fourteen weeks long like fourteen years" of talks (Holbrooke). Last month, the talks about telecommunications with the French firm Alcatel and Siemens attracted a lot of publicity. The state news agency Tanjug quoted a Balkan expert in the German Federal Institute for East Europe. In a radio interview he said that French businessmen had already drawn several billion dollars worth of contracts in Belgrade and warned that Germans would soon have to silently watch French TGVs instead of the German inter-city trains speeding from the Hungarian border to Belgrade. Talks with Krupp might also soon take place in Belgrade.

Reporting from a gathering in Thessaloniki, Tanjug said that a Serbian Chamber of Commerce delegation, comprising the topmost fifty republican businessmen, would visit the Greek city in mid-December. Serbian Oil Industry (NIS) and some other major Serbian companies are co-financing the duty-free zone in Thessaloniki. Yugoslav Air Lines (JAT) General Director Zika Petrovic pledged the "revival of trans-continental air traffic and JAT's comeback in the USA, Canada, China, Australia, even South Africa" and a new Business Class for businessmen flying JAT.

The FRY Government and National Bank Governor Dragoslav Avramovic adopted a package of economic measures on 25 November, including the dinar's devaluation, which will require about one billion dollars deposited abroad and in gold, the liberalization of imports and export and the shutting down of firms which cannot withstand foreign competition despite the benefits secured them by the state.

At the round table discussion on "The Economic Policy Concept in 1996" organized by the Federation of Economists of Yugoslavia on 23 November, Federal Minister of Development, Science and Ecology Janko Radulovic said that there have been different opinions about the extent and dynamics of foreign trade liberalization and that some are of the opinion that the economy should be spared the shock after the sanctions that that the import barriers should be decreased gradually, along with the simultaneous employment of anti-dumping measures. "Can we count on the corrupt state apparatus in the gradual liberalization?" asked Ljubomir Madzar, a professor of the Belgrade College of Economy, and went on saying: "I believe that between the two evils, the full liberalization of foreign trade and the corrupted state apparatus, we should opt for the lesser - liberalization."

Governor Avramovic assessed that "our foreign policy problem is actually an internal political problem and that it boils down to the need for us to realize that we must manufacture very cheap, high-quality goods." He recalled that local economists were divided in two groups: the first believe that we should go back to the way we were, the second that we should opt for changes.

While Serbian President Slobodan Milosevic was in Dayton, Avramovic met with Yugoslav United Left (JUL) high officials. Avramovic' confronting with JUL leader Mirjana Markovic irritated the local opposition, particularly because Mirjana Markovic requested the definition of the political goals prior to privatization, which in a way represented the revival of revolutionary voluntarism. She also said that the left would in the future "be unpleasant" when that subject is brought up.

Ten days later, Serbian Energy Minister Dragan Kostic copied Markovic's diary style, lyrically describing Moscow snow as somewhat warmer after the news of the suspension of the sanctions against Yugoslavia. Beware when an Energy Minister speaks of "warm snow"!

Dr. Milan Kovacevic reminded the round table participants that we had shifted from self-managing socialism, based on socially-owned property and self-management, which we had preferred to state socialism, to socialism with state-owned property. The so-called revaluation will result in reducing 50% of the privatization to 10%, the shares of 500,000 workers will be reduced to one-fourth, the banks are no longer joint-stock companies, they have become debtors' clubs...

Discussions on privatization were over the past month organized by the Serbian Renewal Movement, the Democratic Party of Serbia, the Democratic Party...

Attorney Radoje Prica (Democratic Center, DC) recalled that in 1896, the Kingdom of Serbia had a law on joint-stock companies and added that we have regressed to 1860, when the Serbian Prince passed the Trade Law. Croatia passed a modern law in 1993, while our law, adopted in 1994, anticipates that a foreign investor must be granted special approval for investing majority capital. "The goal is to make Yugoslavia overcome its wartime economy, said DC member Boran Karadjole.

The questions were raised whether the FRY knew what kind of relations it wanted with the European Union, whether it considered itself a developing country, a Mediterranean country, a south-east European country... As obviously no-one has a clear idea of how the FRY will reintegrate into world economy, the expression "economic twilight zone" is being increasingly used. The FRY is and is not recognized by the IMF and elsewhere. To this list of unknowns, Madzar adds the fact that President Milosevic had been handed over the fate of Serbs in another state, which Belgrade does not fully control.

According to Karadjole, the former Yugoslavia had 23,000 contracts with foreign firms, half of which were long-term. These contracts are now invalid and the FRY faces the difficult task of reviving the legal infrastructure for cooperation with foreign firms. "An import boom will hardly be possible without it", said Karadjole and recalled that ex-Yugoslavia and GATT had negotiated on former Yugoslavia's membership for five and a half years, that the former Yugoslavia had negotiated the1980 Agreement on Cooperation with the European Community for four years. Madzar views this problem philosophically: "We will be set conditions, no doubt about that. I expect we are going to lose a lot of our sovereignty. However, foreign influence on our economy has not been bad so far. We will experience foreign influence as burden, but it will result in enlightenment, expertise and it will considerably improve the quality of our economic policy." Madzar believes that Yugoslavia's foreign debts will be rescheduled. "You cannot unclothe a naked man", he says. He, however, recalls the "incredible ingenuity during the sanctions" and thinks that "people who have learned to make such truly miraculous arrangements may be good material, but that, due to the circumstances, they have grown accustomed to the collusion of business and the authorities bordering on the illegal; this cannot be overcome in the imminent future".

Director of the Center for the Development of Small and Medium-Sized Firms Pavle Popovic believes that this sector is very vital in Yugoslavia and has great chances of integrating in the world economy. One hundred of the 800 active small and medium-sized firms have been marketing their products abroad. One of them is the fifth largest manufacturer of dental machinery in the world; another will this year become Yugoslavia's top producer of aluminium profiles. This data has never been published. The priority is to at least include these firms in the official statistics and then to set up an institutional support network, including the backing of banks, which would follow and assist the expansion of the small private firms.

Economic Institute expert Danijel Cvijeticanin maintains that "in the defective economic system, the only consequence of a liberal policy is to emphasize the defects" and urges the changes of the defective economic system before the devaluation of the liberal policy effects. Cvijeticanin notes the dismal situation in the countries which ignored the value of contracts, and cites the example of South America.

Slobodan Vuckovic, Chairman of the DC International Cooperation Board, illustrates how Yugoslavia is not legally eligible for international trade. He cited the example of a Hamburg firm which had requested the confiscation of some goods in transit through Belgrade because of a firm's obligations towards another firm. The judges laughed - the Germans requested that the court order be executed within two days, but the procedure takes two years in these parts. Lacking confidence in the local legal system, foreigners drawing contracts with local firms demand foreign arbitration. "Litigations with foreign partners last a long time, and the acknowledgement of foreign arbitration represents a special problem; it sometimes takes three years, and another two for executing the decision," said Vuckovic. The general opinion is that the expansion of exports will not be possible without providing for the predictability, stability, safety, possibility of executing court decisions and the free transfer of profit.

Director of the Institute of Economic Sciences Tomislav Popovic assesses that Yugoslavia will not attain the 1989 level of former Yugoslavia's industrial production before 2005, on condition that world is lenient towards it. "I will believe Yugoslavia is a part of Europe when I see a Moslem and a Croat opening a bank or a firm in Belgrade, and vice-versa, when a Belgrader opens his firms in those republics," he says. Popovic describes the current situation as "the beginning of the end of war, the beginning of the beginning of peace". In the magazine Europe, Popovic published an article entitled "Bridge towards the East", in which he expounds his opinion that Europeanized Yugoslavia might become a focal economic area because of its enormous agricultural potentials, its power resources, manpower, etc. Serbia and Montenegro have boasted a market concept and organization since the seventies and, from the viewpoint of European market experiences and market structures, this area was 12-14 years ahead of Central and East European countries." He is of the opinion that although Russia, Byelorussia and the Ukraine have opened up towards the world, Yugoslavia's business network and business experience in these countries can serve as a bridge between them and the European Union.

Russian senior official charged with relations with the FRY Alex Ginsberg says that now the sanctions have been suspended, Russia expects its trade with the FRY, which stood at 7 billion dollars five years ago and is now decimated, may reach that level again in three to five years, but that this will not be easy.

Miodrag Savicevic, ex-Director of Geneks, quotes Milos Crnjanski "Belgrade forgets a lot, rapidly!". His current discussion on increasing exports reminds of a discussion in 1965; the subject has been on the agenda for thirty years. Savicevic believes the following: the disintegration of the Soviet Union and the CMEA, a huge market on which we enjoyed an extremely good position, and the direct appearance of the ex-Soviet bloc countries on the European market and vice-versa, has narrowed down our export opportunities; the Middle East, North Africa and the non-aligned countries, where a lot of Yugoslav construction, shipping and pharmaceutical firms worked, will be "politically limited" for a while; the disintegration of the former Yugoslav market is a serious blow... However, the onset of stabilization and a "relatively good" monetary policy give rise to optimism, Savicevic maintains. However, the list of necessary changes is long - Siemens' visits will not resolve everything, he believes.

The data quoted by Karadjole - that the European Union market had four years ago absorbed 52% of Serbia's and Montenegro's exports and covered 60% of the local import needs, was supplemented by Branka Alendar of the Economic Policy Institute. She quoted two significant facts - Yugoslavia had a rich variety of goods to offer, the diversity of our export structure was comparable to that of the USA; now, however, exports are dominated by O category goods - live stock, actually goods needing the lowest level of processing.

Boris Begovic of Ces Mekon illustrated how telecommunications (which cannot be financed by commodity credits but by investments of major corporations) restricted the development of business contacts with the world (in Yugoslavia, there are 19 telephone connections per 100 citizens, while in West Europe, the ratio is 50:100). With the aim of improving their telecommunication networks, Hungary was loaned 875 million dollars and the Czech Republic 1.7 billion dollars, including know-how transfer and offers of strategic alliance. The question however arises about commitment to upgrading telecommunications, the credibility of the regulators and the independence of the telecommunications system from inter-party struggles, as the development of telecommunications in Serbia is to cost 5.8 billion dollars. "Or, will society's ability to avoid the inevitable prevail?" wonders Begovic.