The Hunt for the Foreign Currency Bird

The present state of affairs is the following: a group of economics experts, headed by Mila Korugic-Milosevic, consultant with the Economics Institute, are at the time of this writing (Wednesday, May 14) completing a proposal for the resolution of the problem of the old foreign currency savings accounts, which will be submitted (perhaps by the time this issue of VREME comes out) to another group consisting of part experts, part politicians, headed by Danko Dunic and Vladan Kutlesic, Vice-Presidents of the Federal Government, and Bozidar Gazivoda, Federal Minister of Finance and already a year now the acting Governor of the National Bank of Yugoslavia. What will come out in the end only God knows. However, one thing is certain, that the deciding word will not be with the Montenegrin but with the Serbian political echelons.

In any case, the chances of getting out of the dead end street are higher this time around than the last ten times. And that is not because the government is concerned about the defrauded investors, or because events in Albania have produced fear, but rather because the institutional resolution of this question is a condition for Yugoslavia’s return into international financial institutions. This should in no way be understood as the government’s obligation to return money to the citizens. The question concerns more the obligation of the government to use laws in order to set the schedule of payment of this debt. Zarko Trbojevic, the Vice-Governor of the National Bank of Yugoslavia, has confirmed this, stating that international financial institutions expect from FRY to "foresee a way of solving the old foreign currency savings problem, in a given time frame that will work out with the balances". Therefore, FRY must do something concrete if it wishes to rejoin the International Monetary Fund, the World Bank and international financial markets, and that is, at the present, the only certain, good news for investors.

What is the extent of the government’s obligation to the citizens? Even though the expression "old foreign currency savings" has become current here, it is more correct to talk about foreign currency savings in general. "Old foreign currency savings" assumes only those foreign currency funds in accounts up to 1988 when the Federal Parliament, by abolishing the obligation of banks to deposit foreign currency savings of the population with the National Bank of Yugoslavia, had also abolished the federal backing of those funds. However, as experts engaged in the analysis of this problem claim, it is not possible to separate savings into "old" and "new" from the books of the commercial banks and of the National Bank of Yugoslavia. So it is expected that whatever kind of solution is arrived at, it will include all foreign currency funds in the bank accounts of the citizens, which amounts to approximately 6.7 billion DEM’s (4.2 billion American dollars).

VREME did not get confirmation that the proposal for unfreezing foreign currency accounts will include investors in "Dafiment Bank". On the contrary, according to certain information, their case will be dealt with separately, although Dragan Tomic, Vice-President of the Serbian Government, and Milan Beko, Minister for Property Transformation, have promised equal treatment for investors of Dafina as for other defrauded investors.

The greatest part of the foreign currency savings in dispute is in Serbia: 76.06% of the 6.7 billion DEM belongs to Serbia proper, 12.7% to Vojvodina, 7.6% to Kosovo. Foreign currency savings in Montenegro comprises only 3.5% of the total foreign currency savings in FRY.

Citizens would certainly prefer that banks and the government return cash. However, experts claim "definitely" that this country does not have four billion American dollars in cash on short notice. If FRY were a normal country, that certainly would not be a problem.

Such a problem is solved with relative ease in normal countries, explains Dr. Danijel Cvjeticanin, a consultant with the Economics Institute. "If total savings is 4 billion American dollars, the government simply issues foreign currency government bonds in that amount, selling them in domestic and foreign financial markets, where people with that kind of money exist. The money gathered in that way is then distributed to the investors, while the government services the debt in a given time frame, with a given interest", states Dr. Cvjeticanin. The problem, he explains, is that when FRY is in question, there probably do not exist people who will buy those government bonds. In fact, the existence of the state itself is in question, as Yugoslavia is outside the international financial markets. Therefore, standard ways of solving the problem are out of the question when it comes to us.

Whichever way we look at it, the only thing left to us is what here used to be called "falling back on our resources". That means the government and the properties at its disposal, and commercial banks and the properties at their disposal. However, right from the start there is a dispute between the government and the banks regarding who spent how much, and who has to pay back how much of the defrauded money. That whole story is fairly complicated for the average person and goes back as far as 1977, when because of the foreign currency bankruptcy of the banks the obligatory depositing of foreign currency with the National Bank of Yugoslavia was instituted, along with the federal backing of foreign currency savings investments. A very appropriate objection for the government is that it always meddled politically in the business decisions of the banks. During the past six years the government has demonstrated an incredible absence of good will toward even considering the question of old foreign currency savings, and toward using the properties at its disposal for this purpose.

The only realistic way of charging the debt is through property and property rights. This concerns commercial and residential space, land for farming and construction, movable property (cars, paintings and such) and the possibility of purchasing the stocks of public and commercial companies. Even though the government is in financial straits, it is precisely the property and the rights at its disposal that make it responsible for not having done anything to solve the question of old foreign currency savings. The experts also point to the fact that the resolution of the old foreign currency savings will not be possible without it being integral to the process of privatization of public property. In a statement for VREME, Milan Beko, Serbian Minister for Privatization, said that he is personally advocating that foreign currency investors get much fairer treatment in the Law of Property Transformation, by being first in line, instead of third. Such a solution is advocated by the entire team of experts working on this problem, while Dr. Miodrag Zec claims that it would only be natural that the government pay its foreign currency debt through privatization. Any other solution is for him irrational.

Such proposals, however, have many opponents. Primarily, there are the great insiders (simply put, the directors and ministers close to the government) who do not want competition in the market of real property values and property rights.

Consider, for instance, if some owner of large foreign currency accounts was to show up as a buyer of a house from which the Australian Ambassador had been recently evicted. That would completely screw up the calculations of some minister who was just considering how convenient it would be for him to move into that house, or to buy it for a pittance. The owner of the old foreign currency account of, let us say, several million DEM’s, certainly has good reason to purchase that house for that amount, even if he were to overpay it several times; but the minister has no interest in having the value of such a house inflated in such a way.

The same case is with directors who, let us suppose, have calculated how convenient it would be to become owners of public companies for mere pennies. If some "old investors" were suddenly to show up, their calculations would fall apart, as greater demand with equal supply would drive up the price.

In the event that the proposal for the possibility of purchasing property and property rights with the frozen savings were adopted, the market would be flooded with property in the neighborhood of three to four billion, if not more DEM’s (it could theoretically be the entire 6.7 billion DEM’s). The whole thing would practically take place with the exchange of savings accounts booklets for foreign currency government bonds which could later be used for purchasing property and property rights, or could be sold to a third party (this is called by experts selling in a secondary market). The newfangled millionaires would also join the game: they would buy up the bonds (that is the savings) of smaller investors at a discount, and when they gathered together enough paper (which replaces foreign currency) then they could purchase commercial space, houses, apartments, land for construction or farming, and companies.

As VREME learned, the team of experts is in favor of a solution where savings accounts booklets would be exchanged for two types of bonds. One kind of bond would allow immediate payment of smaller amounts (let us say, up to 100 DEM) and five year bonds with equal annual payments (let us say, up to 5,000 DEM). This completely satisfies the convictions of Dr. Goran Pitic, the Director of the Economics Institute, that the citizens "must get their hands on cash". The second kind of bond would be issued for larger savings investments (let us say, greater than 5,000 DEM), and would have a longer term of payment (let us say, only interest would be paid out for three years, after which for ten years the principal and the interest would be paid out). The interest on these bonds would be very low if the population were encouraged to deal with them in a secondary market, as it would be of more immediate value to sell them even at a discount (which itself would be determined by what could be purchased with those bonds) instead of waiting 13 years for the bonds to come to term.

Regardless of the final outcome of who will get what, and who will loose what, the offer of foreign currency bonds immediately exchangeable for property or property rights would still represent the best solution for the savings accounts holders, as it would allow them to unfreeze their property. Which only means that a bird in the hand is worth two in the bush. Wouldn’t you prefer having 49,000 DEM’s today, instead of 100,000 in 13 years from now? In any case, everyone prefers to keep their own accounts, and some do it better than others. That is how it goes in normal countries.

Vesna Kostic

Franchises

Far from the Public Eye

PTT of Serbia is ready for privatization, as the Republican Parliament at the beginning of last week adopted a Law of Franchises and amended the Law of Network Systems. Neither the seriousness of the proposition (privatization of infrastructures and exploitation of natural resources), nor the hasty adoption of the law (submitted to the members just before the session with the indication "urgent") caused the socialist members of parliament to consider the matter more deeply. Everything was concluded quickly and nearly without discussion. Perhaps the reason is the May 15 deadline, according to some statements, by which the Serbian Government must prepare the ground for the talks with foreign partners on the sale of parts of PTT.

Unfortunately, bluffing is the principal characteristic of the Law of Franchises, especially where it is more vital for a society — public openness and sharp competition. Even though Branislav Ivkovic, Minister for Construction, emphasized precisely those characteristics of the Law as the most critical, already with the adoption of the amendments to the Law of Network Systems it appeared that these characteristics are more likely to be the exception than the rule. Public openness and competition are above all ensured through the public participation of interested parties. That is how the best remuneration (price) is arrived at for giving up a franchise. Admittedly, from the start Article 13 of the Law of Franchises mentions public auctions, but immediately foresees exceptions, especially in instances of greatest size and value and with "activities of strategic significance for the Republic and for the building of infrastructures". In such cases the franchises are to be handed over far from the public eye in a mechanism called "the gathering of offers".

The exceptions, within hours, became principle concerns: in Article 7 of the amendment to the Law of Network Systems it is stated that the sale of parts of PTT will be conducted without a public call for registration and purchasing of stocks. This law could probably serve as an excuse for driving BK Company out of the mobile telephone market, as PTT is being "restructured" into a holding company, and in an incestuous way, at that, since the daughter companies are helping to form the mother company. According to Bogoljub Karic, the Serbian Government is actively working on this (things have gone as far as not permitting entrance into Yugoslavia to an American national who the Karics wished to appoint as the director of mobile telephones).

What concerns the citizens most are the prices. They will be arrived at with each franchise agreement which the Government of Serbia negotiates in the name of the state (its agreement is also necessary when the sale of resources in the hands of local authorities is in question, so that the opposition members throughout different communities will not be able to behave as "freelancers"). Opposition members demonstrated that in discussions with the Socialists there is but one outcome: whatever they say, even if they use the arguments near and dear to SPS, they will always be contradicted. In this case it was the clause about "selling public property". Until recently the Socialists were saying precisely that, while the members of the Opposition advocated unconditional and complete privatization.