Family of the Rich Left-wingers

Mladjan Dinkic, an assistant at the Economics Faculty in Belgrade, published "The Economy of Destruction - Great Robbery of the People" at the beginning of last year which became a best-seller. Last year, it went through three editions and these days, the fourth edition is underway, expanded by the considerations of the monetary coup and the affair around the replacement of the governor Avramovic. Dinkic's analysis on why those who have conducted the two-year hyperinflation and signed their names on the bank note of 500.000.000.000 dinars (whilst none of them considered to resign) could not stay long enough in the costumes of reformist saints.

Vreme: There were many controversial stories around the replacement of the governor Avramovic. What are your opinions of the main reasons for his replacement?

Dinkic: There are two main issues here: first, a year after he had been appointed governor, Avramovic finally realized that almost all monetary problems he encountered in the meantime were the natural reflection of the major defects in the economic system, and that without curing them, the long-term stability as the main precondition of economic development, could not be achieved. Monetary reform by itself is not sufficient. Economic reform above all meant the privatization and the liberalization of the imports. Those were the two major points of his economic program which he intended to conduct in the middle of 1995. It is interesting that at the beginning of his career as a governor, he criticized in public the previous advocating of the liberalization of imports of Ante Markovic, only to lean toward the same idea himself a year later. He was facing severe opposition within the ruling party.

In one section of your book you state that one entire family plotted against Avramovic. Why?

This time too, the reformer -without planning so- has struck on the man who got scared that the reform may imperil the very foundation of his power. I can not say that the ruling elite would not find privatization convenient. It just is not convenient to Milosevic and his wife. The reason is simple: mass privatization would cost them the loss of control over finances. Were they to lose control in that area, they would lose the foundation of their currently existing autocratic rule.

The most fierce opponent of the key segments of the governor's Program 2 was the President's wife Mirjana Markovic. Propagating smooth-sounding slogans as: "...the left wing is for peace, against criminals, that the people make their living based on work", Markovic has gathered around herself and JUL the very top of the economic and political establishment, the rich to the extreme, quasi-private businessmen that effortlessly obtained the import licenses from the state and had other privileges. The party was also joined by those who hoped to achieve appropriate wealth and social status without much work, but by mere joining the party, by means of political inclination as in the previous decades. That is why it was indeed hypocritical when the leaders of this party, whose core consists of the rich businessmen under firm political control, declared resolutely against privatization and foreign investments, for the "abundance of ownership forms" instead. The regime influenced media were flooded with negative reaction to the reformist ideas so it was clear that nothing would become of the implementation of the program.

These are just some of the reasons why the governor has arisen the President's anger and the anger of a segment of the political establishment. Avramovic gave the key contribution to his replacement, but also for clarifying the enigma observed so far, when he revealed that in 1992 and 1993, the government of SRY had spent $530 million to buy out the foreign debt of Slovenia and Croatia. Thus, amidst the war, the sanctions and the chaos caused by hyperinflation, the government "somehow" obtained hundreds of millions of dollars in cash and invested it in the above-mentioned speculative financial transactions. It was a big financial game. I believe that the real reason for the replacement of the governor was exactly due to the revealing in public the information discrediting to the government.

What was hiding behind the buy-out of the Slovene and Croat debt? Did it cause the insistence of the state continuity?

When the international community took the standpoint that neither of the former Yugoslav republics have right to inherit it, meaning also SRY, but that in the allocation of rights and obligations the principle of mutual succession must be followed, i.e. the principle of equal rights at inheritance, it seemed that the issue was settled. In spite of this, the authorities of SR Yugoslavia have not given up on the principle of continuity. And what in fact this continuity means and what would be the benefits to the new state -it was not clear almost to anyone. Only at the beginning of 1996 the governor Avramovic has suddenly, and absolutely by accident, started to disentangle this mysterious skein. Namely, he was in a hurry to renew the relations with the international financial institutions after the signing of the Dayton agreement. But at his first step he encountered the astonishingly severe resistance from the Federal government.

After he succeeded to set the date of the negotiations in Paris, he was dumbfound by the platform which he received from the Federal government. It contained the offer to pay off the debts towards the Fund, the World Bank, to buy out the debts of Slovenia, Croatia and Macedonia. All that, just to obtain the continuity. Avramovic talked about it later in the Assembly and kept repeating to the ministers and representatives "that the continuity is not something to feed on". The governor has formed a mistaken notion. The continuity was very "nutritious", but its taste could please only extremely limited number of persons.

As I have already said, the governor discovered that in 1992 and 1993 $530 million was spent on the buy out of the Slovene and Croat debt. He started investigating the issue because he did not clearly understand why their was an insistence on the continuity and why their was an offer to buy out the entire former Yugoslavia's debt in the name of continuity, which amounted to $16 billion. He was astonished to find out that the American and British lawyers were appointed to deliver charges against the London Club of Creditors without his knowledge, and were paid $500,000 for that.

What was the motive to buy out the debt?

It is definitely certain that the buy out of the Slovene and Croat debt was not financed from the official foreign currency reserves of SRY, as was claimed by the former republics. In fact, to this purpose was used part of the money that in the first place was "in the name of the state" drawn from the local population by means of gray issuing, becoming practically private property of the elite political establishment.

According to some information, that, of course, has to be taken with considerable reserves, the major part of the claims from the credits to Slovene and Croat debtors became, in fact, private ownership of a few, the major part to come from one of the top politicians of SRY. If the assertion of Avramovic that the purchase of the Slovene and the Croat debt cost $530 million in cash, and in the light of the fact that its price was at that time 35% to 36% of its nominal value (35 to 36 cents per one dollar of the debt), than the potential scope of the total transaction reached the amount of $1.5 billion. So, if the opportunity arises that the credit claims overtaken this way were ever to be collected at their nominal value, the "investors" would earn enormous amounts. But this needs the consent of the debtor country's central bank. If this consent was under the jurisdiction of the National Bank of Yugoslavia, as it was formally stipulated by the contract, the collecting of the debt would be the painful, but achievable process. However, the problem was in that SRY was not recognized the continuity of SFRY.

The act of the buy out represented no major financial danger for the Slovenes and the Croats, until the process of its forced collecting was initiated. It could be all the same to them who their creditor was, because it was of no significance from the point of view of the debtor towards the London Club, since according to the agreement they paid the fixed yearly interest installments. So it is all the same to them whether they pay it to some Englishman, the Japanese or a Serb. That which arouses frenzy was the possibility of prematurely collecting of the debt at its face value, and in theory it could be practically achieved through mutual action of the investors and the National Bank of Yugoslavia. Yet, it could not be achieved unless the continuity to SRY was recognized.

That is why the Slovenes have initiated the negotiations with the London Club of Creditors to achieve the separate agreement. The objective was to free themselves of the clause on solitary responsibility, and to be responsible only to their creditors in the future. After several rounds of negotiations with the London Club, Slovenia has succeeded to achieve this. The agreement was such that the "investors" from SRY must have seen red. The Central Bank of Slovenia gained the role of the super-guarantor. It issued bonds in the value of the overtaken debt. This way, the foreign creditors simply substituted their valid credit claims with the newly issued bonds. The key point in the agreement was that all foreign institutions for whom the Slovenes proved their connection with the SRY were to be excluded from this substitution. The Croats followed their steps, and in June and July of 1996 the agreements with Slovenia and Croatia were officially concluded. The "investors" from SRY were prevented to substitute their claims with the new Slovene and Croat bonds, which has annulled the effort they had invested, and probably jeopardized the entire investment.

Does that mean that the entire amount of $530 million has been wasted?

Before the Slovenes and the Croats succeeded to conclude the agreement with the London Club, SRY has tried to press charges to prevent that, to scare the creditors and make them refuse to consent. The mentioned amount of $500,000 was paid for that purpose. However, the charges were very mild for the sole reason because the basic argument could not be quoted. If it was to be stated that the real creditors were from Serbia and Montenegro, it would be the same as admitting that the two forbidden things were done: the buy out of one's own debts on which they did not have the right, and the violation of the sanctions. It would be virtually admitted that the foreign companies were acting on their part.

There are various legal interpretations of what will become of the deposit. The fact is that the clause on solitary responsibility will keep its validity for the rest of the members of the former SFRY. Since Macedonia will very soon conclude its own separate agreement with the London Club, it will come out that the investors from SRY became the owners of the claims towards the Serbian and Montenegrin companies, which was not the goal. Apart from that, they have spent 35 cents per one dollar of the debt, and the current price is 9 cents, so they could not profit even if they were to resell. Maybe we could speak of the possibility of the premature collecting under the condition that the economically ruined Serbian and Montenegrin companies and banks were able to finance it. Or the investors will become owners of the companies from Serbia and Montenegro.

The entire operation of the buy out of the debt has been connected with Cyprus and the famous COBU under the guardianship of Borka Vucic. What is her role in the events?

She was just the technical executor of the transfers and financial transactions to Cyprus and further. It is said that she did not charge commission. She worked only for her salary and that is why Milosevic appreciates her so much. Taking into account that she was the most exposed "foreign investor" and the confidential person of Milosevic, there is no doubt that the purchase of the Slovene and Croat debts had a political background. After all, there is no better way of political blackmailing the opponents than bringing them into economic dependence.

Your book has achieved a fourth edition. In respect to the subject it deals with, it could be expected that the experts close to the government would attack you, or pronounce you as the national betrayer. However, there was no criticism. What is your interpretation of that?

The book was completely ignored. One of the reasons is that they could not find appropriate arguments to strike back on the study, because the entire book is based on facts, and economy is very stubborn in that domain. They could, however, use fake arguments -but they did not. They estimated that the purchasing power of the population was low, that the majority of our people did not read books and that, therefore, no real danger exists, since the insignificant portion of the electorate would read the book (regardless of its fourth edition). That is why they have taken as better approach to ignore it than to fuss about it.