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December 11, 1995
. Vreme News Digest Agency No 219

Privatizing, But How?

by Zoran Jelicic

Radoman Bozovic, this time as professor a the Novi Sad University school of economics and long time researcher of property, opposed giving ownership to employees and other citizens and suggested the buying and selling of shares on the market as the main principle of change in ownership. Buying would also be allowed for through debts (from foreign to local foreign currency account holders) and his suggestions include corrections in the basic principles to motivate domestic demand by sharing out 20% of the nominal capital through bonds to employees, pensioners and cooperative farmers along with possible discounts of up to 30% to speed up privatization.

the firs step is an assessment of the value of all state and social capital in a relatively short period. Bozovic said identifying social capital does not mean "the right to turn it into state property on a massive scale but that it has to be drawn out of the transparent interests of the state". Those interests were not detailed. In any case, the overall assessed capital is divided into four funds (institutional investors). The fund for development (30% of shares of the unidentified social capital), the pensions fund (30%), employment fund (20%) and health fund (20%). One of the goals of that sharing of shares into funds which would market them is drawing closer to a developed capital market and enabling the funds to grow into institutional investors.

There is no sense in detailing Bozovic's model here. The important thing is that the author envisages a prominent role for the state in ownership changes, primarily in creating legal conditions whether in the form of new regulations or changes in existing regulations. Also, he notes the need to bear in mind the fact that all companies are not equally important to the national economy and suggests a division into five groups (public companies, large companies, medium sized, food producers and small companies) and a suitable role for the government and state agencies in the changes for each of the groups.

finally, Bozovic says the changes he suggests are suitable for everyone and that different interests can be held by "monopolists of social (no one's) property who privatize the effects of the monopoly and turn losses into social losses; part of the administrative apparatus that plays the role of re-distributing social property (credits, foreign currency, permits, contingents...); incompetent individuals and companies running from the risk of competition - markets (individuals who want the state to set everything right including housing, employment, health care, education, salaries..., companies that should be protected from competition by the state with credits provided that they aren't obliged to repay along with a market for non-competitive products); anyone whose success depends on privileged credits from the primary emission, foreign currency under market prices, permits and similar.

The debate on Bozovic's model featured advocates of almost all beliefs, i.e. all the privatization concepts proposed to date.

Pavle Petrovic said the proposal means a radical change in ownership which is needed to create macro-economic stability and secure a long term growth for the national economy. The existing structure does not allow for efficient monetary or overall stabilization policies since the economy always finds ways to create additional money (growth of losses through regular salary payments, growth of non-liquidity and pressure on the primary emission) and privatization is needed for attract foreign capital. Petrovic also noted that quick privatization (up to two years) lowers income but speeds up the need to reconstruct companies.

The primary goal of selling social capital, Branislav Soskic said, has to be the repaying of foreign and domestic debts, not covering budget deficits. Ljubomir Madzar also believes the clearing of those debts is of primary importance since the overall debt has reached the value of two years of the country's social product while international standards set the maximum value of the debt at 60% of the social product. Madzar opposed the handing of shares to employees because he believes a job is one of the greatest privileges. He also opposed the funds concept and anything similar which would allow state control of capital.

Veselin Vukotic also feels Bozovic's model smacks of state ownership since some 2/3 of the overall capital would become state owned and the remaining third would go to state owned funds. But Vukotic praised the author's efforts to reform the system and create a financial market but criticized the model for not allowing speedy privatization and being impractical because it envisages a huge state management apparatus up to the point of privatization and finally, he feels the model does not enable the needed spontaneity and growth of market institutions on that basis.

Danko Dunic said the concept is good but the proposed model does not allow its implementation since it is an effort to reconcile nationalization and privatization.

That was the only moment that the debate looked like a parliament session. Bozovic interrupted Djunic to say that he did not understand the model. Djunic said he might not have understood it and asked how the public was going to understand it. Bozovic replied that the interpretation of the model as a tool for more nationalization was wrong and asked if government company directors had given a better model in their efforts to share out capital according to where people were at the moment of privatization.

Bozovic did not go into more detail but it's clear that SImpo or Progres are more attractive than Zastava. It's normal to expect more debate to clear up the advantages and failings of the models but Bozovic's reaction drew the question: who's behind this model? Bozovic told NIN"s Vesna Kostic last week that he got the green light from the Serbian President to work on his project.

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