A Wolf in a Cruel World

In the sea of efforts to rationalize the incomprehensible policies of delaying the normalization of relations between the FRY and IMF, one theory says that Milosevic does not like the fact that the arrangement (which would also regulate the division of the former Yugoslavia's 1.2 billion USD reserves in Switzerland and the division of its 4.4 billion USD foreign debt) would reveal the scandal over the purchase of the Slovenian debt.

On April 20-21, Nasa Borba quoted federal administration sources who said the letter the NBJ sent to the federal government asked what happened to the 53 million USD worth of the Slovenian foreign debt which the NBJ bought in 1993 and which were transferred to several individuals. That and other reports led to the assumption that Milosevic does not accept the agreement with the IMF out of fear that financial trickery will be revealed.

That hypothesis was developed by SPO leader Vuk Draskovic at an opposition rally in Novi Sad. He said the Slovenian debt bonds were worth 530 million USD (Nasa Borba later corrected its figure) which the NBJ bought in the hyperinflation and whose value has now grown creating an opportunity for the state to earn something. The bonds didn't go to the state or bank but to a private individual who took them to Cyprus and spread them out among several others. Draskovic said that is robbery and added that "there is no ideology there, no party, it's just thief after thief, defending the interests of thieves under the guise of national and state interests".

One indication that this is not just an assumption is the secretive reply by Governor Avramovic to a question at a meeting with Belgrade metal workers' union representatives on April 23. He said he'll be able to say something about the money in Cyprus if the union supports him within the next two months.

It's interesting that two years ago, the whole thing got almost no reception in official Belgrade although the debt was bought at a price of 24-26 cents on the dollar by leading para-state banks and even though a leaked report said the mediators (Beogradska Banka, Beobanka, Jugobanka, Vojvodjanska Banka) got huge percentages immediately and didn't use the swap method to get into the shareholding capital of Slovenia's creditors. Because of the silence of official FRY bodies and the bitter assessment of "patriot" economist Zarko Ristic who said at the time that Serb banks repaid their debts and didn't invest in old Yugoslav debts, anyone could have concluded then that the operation had advocates and opposition. No one ever revealed who ordered or pushed the buying of the foreign debts of the other Yugoslav republics. The deal was allegedly done under NBJ Governor Dusan Vlatkovic. Later, Milan Panic, under his short federal premiership, said he would unite the debts of the Yugoslav republics by buying up the entire debt.

Apart from that indication of a possible goal, old newspapers provide another clue. When a rebellion against privatization broke out in Matroz over a year ago, one of the arguments voiced by people who chased the private owners out of the paper production plant was that they bought the plant with old foreign debt bonds which they bought for a song. Theoretically at least, anyone who bought up bonds for 1.2 billion USD of the Serbian debt for just 300 million USD could have "privatized" half the Serbian economy.

The problem is that the foreign creditors pool (where the Serb debt holders haven't said anything yet) allowed Slovenia to reach a separate agreement. Will the "Cyprus debts" now lose their value? And why are they allegedly still in Cyprus when every lawyer or middle-man has to transfer all his profits to whoever issued his orders? Borka Vucic who has been in Cyprus for the past five years and has received visits from the Milosevic family occasionally (wife, son, daughter and Unkovic) has to know something about those papers. Since her personal honesty is the stuff of legends, we should expect a denial that she is "the private governor" of the Milosevic portfolio of state debts and that it's illogical to expect her to drop down to NBJ governor (which she has already denied).

There are other unresolved issues here. Is the NBJ looking for the debt bonds which could have cost just 133 million USD from its reserves or did they cost much more? What commissions were paid? Who in the NBJ should be arrested for doing nothing for years to get the bonds back? Who should get the political blame for the suffering of people amid a shortage of medication, power and everything else while someone was doing deals abroad?

Interest Rates

Yugoslav National Bank (NBJ) Governor Dragoslav Avramovic commented on the problem of high interest rates on the Yugoslav financial market in a statement to VREME:

"We now have a double danger. On the one hand, we don't know how long we'll hold out with the foreign currency reserves, and on the other, how fast we will get out of the syndrome of high interest rates which double every debt in six months (that is the main burden on agriculture). And they can't be lowered either by increasing the money mass, which many want and which leads to an explosion of inflation, and it would be even worse if we raised them to maximum levels; in that case the rates would leap even higher on the informal market, probably from 16% to 30% a month. Without an inflow of foreign capital we can't lower interest rates, they don't understand that.

So I say: without 500-600 million USD there is no solution. I need 200-300 million USD to consolidate the foreign currency reserves, do away with any doubt that the dinar will remain stable. I won't spend the money but I must have it, everyone has to know I have the Bank of England, Bundesbank etc. behind me, that I have swap arrangements with them. I also have to have about 400 million USD for agriculture, industry, tourism, to ease the credit situation. That will be spent on the domestic market, for domestic goods and services purchases but on condition of world market prices, that is if domestic prices are competitive. If they're not we'll import. We would gradually build a domestic economic regime with world prices and world interest rates."