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May 7, 1996
. Vreme News Digest Agency No 239
Economy and Politics


by Milica Uvalic (author is a professor of economics in Peruggia and secretary of Governor Avramovic's working group on privatization.)

Why has he changed his opinion? Because he realized that what we have here is privatization by selection and that the social system is organized to not allow everyone an equal opportunity. The governor isn't less of a leftist than he was when he returned to Yugoslavia but he realized that the leftists here are less leftists than they want to appear. "I have lunch at a minister's house with a waiter in uniform serving us. Not even all Wall Street bankers can afford that," he said to illustrate the fact that the authorities have taken it all. That means the authorities want a dosed privatization, in appearance only, which will strengthen their position. By the time you read this, the governor's working group will have started two weeks of work on drafting a counter proposal to the government's idea of a seemingly non-obligatory, voluntary privatization. That will probably be the clash of all clashes since both sides, Avramovic and the ruling party, know that the authorities will fall or stay in power over that issue.

The Mother of All Clashes

Yugoslavia today cannot afford delay of system reforms. Up to 1989, Yugoslavia headed the Socialist countries in terms of reforms of the economic and political systems. Today's Yugoslavia, judging by the percentage of the private sector in the national product, ranks last among the east European countries along with the most underdeveloped former Soviet states

No doubt that the Yugoslav public is unanimous in agreement on the need for a new law on privatization. The federal economy ministry recently prepared a draft law on the basic changes of ownership of state capital which the federal parliament will probably debate in mid-May. The government draft allows companies to decide for themselves on selling social capital, i.e. it allows them to decide if, when and how much of that capital they wish to be privatized. That solution is certainly not ideal because it enables the survival of social property and postpones the resolving of some basic privatization issues. In all the other countries of the former Yugoslavia, including Montenegro, social property has become, or will soon become, a thing of the past precisely because of the prevailing opinion that social property is not efficient due to a number of problems caused by imprecise definitions, collective, untransferable and limited property rights.

If the law which is to be adopted by the Federal Parliament does not secure an effective privatization of Yugoslav companies, i.e. if it does not include the obligation of transforming property through a specific owner of social capital, the privatization process will slow down even more. Yugoslavia today does not have the time to delay that important element of system reforms. Up to 1989, Yugoslavia headed the Socialist countries in terms of reforms of the economic and political systems. Today's Yugoslavia, judging by the percentage of the private sector in the national product, ranks last among the east European countries along with the most underdeveloped former Soviet states. Delaying an effective privatization will cause a number of far reaching negative consequences in regard to the efficiency of Yugoslavia's economy and will mean a weakening, if not a loss of, international credibility for the fact that this country does have the determination to continue the transition towards a market economy.

It is of vital importance to regulate the ownership transformation issue in Yugoslavia as soon as possible since the resolving of other very important topical issues, including loans from the IMF, will depend on just that. The International Monetary Fund will certainly impose new conditions at a new round of talks and not only on the policies of macroeconomic stabilization but also in regard to qualitative transition indicators including the most important; the results of privatization and readiness to continue it. That has happened in the IMF talks with all other countries in transition and Yugoslavia certainly won't be the exception. Financial arrangements with the IMF will have the deciding effect on the inflow of funds from other international financial institutions, western governments, the EU, private investors. Although the loans Yugoslavia will get from the IMF won't be quantitatively significant at first, the lack of an arrangement with the IMF will prevent the inflow of large amounts of foreign capital (at least at first) since that arrangement is also a guarantee and important condition to get additional funds which we need so desperately today.

That is one of the key reasons why adequate regulations on privatization are an urgent need now. Yugoslavia needs a law on transforming ownership similar to ones adopted in other countries in transition and suited to the specific conditions in this country. We need to choose a solution which can contribute to the country joining in international financial and trade trends as quickly as possible regardless of some ideological determination. In most western countries, privatization has ceased to be a question of ideology and it is imposed solely because of the need to introduce a more efficient and rational operating of state companies, improve their management, lower the financial burden on the state and the state deficit and debts. At this moment in Yugoslavia, in accord with the overall trend in a number of developed market economies and countries in transition, there is an urgent need for privatization.

The time already lost can be quickly made up. There is no reason why Yugoslavia shouldn't draft a technically good solution which would enable an effective privatization and the removal of some key weaknesses from the existing economic system along with the introduction of the legislature needed for market oriented reforms. Yugoslavia now has an important advantage over other countries in transition because the years of experience with privatization, in Yugoslavia and abroad, offers some important lessons. The experience so far has clearly shown that no privatization method is ideal, that every method has good and bad sides and that can serve as a pointer for the strategy to pick. Delaying an effective privatization is the worst possible solution and we can't afford to loose another two or more years choosing the best model. Time, right now, is the most precious thing.

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