Everything Has Ground to a Halt

For the last few months private businessman (and former co-owner of Kredibel Bank) Branko Dragas has been travelling throughout Serbia “scanning” the domestic economy. He started off on his own initiative as a businessman interested in assessing where the best investments in the future lie, together with his foreign partner. The new Serbian Prime Minister Zoran Djindjic, while still in the status of “elect”, perceived that initiative and asked Dragas to carry out that same job for the government. That’s how Branko Dragas became the Prime Minister’s “on call” advisor.

VREME: How does the Serbian economy look today?

BRANKO DRAGAS: I accepted the Prime Minister’s suggestion to become his economic development advisor. I am not a member of any political party and am not prepared to become a professional politician. I have waited for October 5th for thirteen years, and I hope that on that day the rule of the socialists has collapsed. I directly saw how they ruled all those years while I was travelling throughout Serbia.

I will cite a few global facts on the state of Serbia’s economy. Its debts along with its accrued interest has reached 15 billion dollars, interests amount to 800 million dollars a year and they haven’t been paid in the last ten years. The overall debt of the foreign currency savings with the accrued interest amounts to 4.6 billion dollars. The overall debt towards the so-called pyramid banks, and the state is obliged to repay their debts as well since it had issued them with a working permit, is 500 million dollars. The pension fund alone has a loss of 1.17 billion marks, the social security fund has a loss of 325 million marks, and health insurance has a loss of 16 million marks per month. The overall loss of the Serbian economy up to Dec. 31, 2000 amounts to ten billion dollars, and the loss of the banks is 10.4 billion marks. In December 806.000 people were looking for a job, 853.000 people are on forced leave with the most minimal earnings, 200.000 of able working people were temporarily displaced from Kosovo and don’t have jobs. Somewhere around 2.2 million people should be reprogrammed for the new market. At the end of 1989, the average GDP per capita was 3250 dollars, and in 2000, it fell to 1300 dollars. On account of the former regime’s wrong policies in the 11 years of Milosevic’s rule, we have lost 216 billion dollars. Each pensioner has lost 57.260 marks during that period.

VREME: Those are the facts. How is this global catastrophe apparent on the “terrain”?

BRANKO DRAGAS: According to what I have seen, Serbian companies are using on average from 15 to 20 percent of their capacities. There are manufacturing plants whose work has ground to a total halt. The first Serbian sugar refinery, in the vicinity of Belgrade, worth 180 billion dollars, one of the most modern in Europe, has been looking for a key to its lock for three years while weed has been growing around it. Similar things are happening to other sugar refineries, while we are importing sugar. In the vicinity of Belgrade lies the base chemical industry plant Prva Iskra Baric, which has been hit by NATO bombs, but it was primarily hit by Serbian stupidity. Eighteen years have passed since the base chemical TDI plant was opened, it was only put into production twice and momentarily shut off and it is worth 99 billion dollars. In Sombor we have the Panonka complex, a socialist giant, made to butcher 500.000 pigs per year. For the last few years they have been butchering 3260 pigs. It’s a wasteland over there, and in that complex the 14 hectares surface has been covered with tiles. Everything has ground to a halt since there is no primary agricultural production. At a distance of some fifty kilometers, there is an exact same slaughterhouse – the 29th November compound from Subotica which was capable of slaughtering 1860 in a single shift, and in the last six months it has slaughtered around 3000 animals. Everything has ground to a halt. There are production lines which were imported 15 years ago and never put into production. The chemical industry Novi Sad has two plants which are capable of processing tens of thousands of tons of various chemicals, in 20 years not a single drop of liquid has been processed there. Nor was any attempt made to get things moving in the last 11 years.

There are many examples such as these and the list is endless. 

VREME: At one time those were expensive and modern production plants. How outdated is the equipment?

BRANKO DRAGAS: The equipment is between 25 and 30 years old and isn’t worth much now. If all the publicly-owned companies in Serbia were to be sold off now, not more than five billion dollars could be got. The  government’s overall dues abroad and towards its citizens, plus the losses, are seven times higher than the value of the publicly-owned property. This is what the citizens of Serbia should know.

This is what I found in Serbia. Serbia has completed the twentieth century at the level of development from 1896, when the GDP per capita was 400 gold dinars, which is equivalent to 1300 dollars today.

VREME: What are your suggestions to Prime Minister Djindjic?

BRANKO DRAGAS: The economy is extremely willing to set itself in motion. Without opening up production and employment and the arrival of foreign aid, we will face huge social problems in May. Which is why production which has a market needs to be launched as soon as possible. The first suggestion is to, within the time period of sixty days and without undue discussions, adopt 200 system laws which shall enable the economy to operate as it does in the European Union. That law should reduce the current 236 taxes, and some say there are 320, to five-six taxes. I also suggested that a revision law be passed which shall pertain to the period of Jan. 1 1990 – Dec. 31, 2000 by which all accumulated wealth will be investigated.  

At this moment, worker self-management reigns in Serbia, and I have suggested that the false stock companies be abolished by passing a law on transforming publicly-owned into state-owned property in order to accelerate privatization.

VREME: Apart from theoretical discussion, privatization provokes anxiety even amongst the ordinary citizens. How should the Serbian economy be privatized?

BRANKO DRAGAS: My suggestion is – there is to be no sale of publicly-owned property. Companies shouldn’t be sold off now when their present capacity is 15 to 25 percent because their price is so low. Which is why I suggest we first start with additional, “loan” activities. That’s how production shall be raised to 35 - 50 percent. There are manufacturing plants in which all is set for production – the machines have been preserved, the workers are anxious to work, a market exists, but everything is blocked. When production has been raised up to 50 percent, additional capitalization is required. I believe we should move at that speed and that publicly-owned property shouldn’t be sold off because if we had a totally open market now, speculative capital would move in. It enters into a certain field of industry or certain company, it closes that field or industry, it lays off its workers, it closes everything and it places its goods and sells it on this market, i.e. it buys this market. Hungarians had this negative experience and that’s why 800.000 were left without a job there, Bulgarians and Rumanians as well. The Bulgarians are now in trouble because they find themselves stuck between IMF’s strong restrictive measures and speculative capital which didn’t boost production. We shouldn’t allow such capital to enter, what we need is direct foreign investors who will remain here permanently. That’s how Serbia will become a capitalist country.

VREME: Can the “loan” model be implemented on Zastava as well?

BRANKO DRAGAS: Zastava cannot remain as it now is. When such a huge system becomes state-owned, the next step is organizational restructuring. In Zastava, for example, an excellent blacksmith workshop exists which has buyers abroad and which only needs a small influx of capital. Our entire industry should exclusively produce series of certain parts for multinational companies. We cannot manufacture a Boeing, but our entire industry could produce doors for Boeing, and if we manage to strike a deal to produce windows as well, that’s great success. That’s the solution for our industry. I don’t believe we could produce and place new products on our own.

VREME: Does your concept suggest that manufacturing plants could be sold off for a single dollar?

BRANKO DRAGAS: I think manufacturing plants should be sold for one dollar which are truly worth that much and which aren’t of strategic interest to the state. A state doesn’t need 500 slaughterhouses, let the market regulate that. If the state realizes that investing into the start of production is a lot higher than the effect, and doesn’t have a strategic interest in it, why shouldn’t it sell such a company, there are 6000 state-owned companies which the state can sell immediately, and they’re doing fairly well. The problem in Serbia is the 600 companies of state interest, and together they make 90 percent of the overall losses.

VREME: Wouldn’t it be better to close down such companies?

BRANKO DRAGAS: Well not really, it’s easier to revitalize their production and then sell. We are under a mistaken notion that they can be shut down, live people and equipment are in there which are still capable of producing for a while, and once they recover and their price goes up, they can be sold through additional capitalization. I often hear “all is lost here”. I go to that company, it has its workers, it has its machines, it has a market. Its problems lie in the fact that for 11 years it was ousted from the market, but it can be revitalized. Those are the companies I am talking about, and those that don’t have a market should go under. The easiest thing to do now is to sell, but something of strategic interest cannot be sold, because if you do sell it you’ll have a lot of problems. The Hungarians sold them and they didn’t get anywhere.  

VREME: That’s not strictly true. The Hungarian Prime Minister Victor Orban announced a few days ago that last year was the best year from the beginning of the transition for their economy, a high GDP level was attained, high export rate, low inflation, low unemployment rate… The Hungarian experience is mostly mentioned in the negative context here while they are very pleased with the outcome of their transition.

BRANKO DRAGAS: But this is the eleventh transition year for the Hungarians. I hope we will be as good in our eleventh year of transition. I hope we will try to catch up with the Hungarians after our fifth year of transition.

VREME: That’s wishful thinking, while in reality it seems as though in the transition of Serbia’s economy everything is going very slowly?

BRANKO DRAGAS: All these postponements over the economic measures necessary to carry out reforms have brought us to the point where we are losing nine million dollars per day.
 

SUGAR

From sugar exporters we have become importers because Milosevic’s regime has totally destroyed primary production. With the people from this industry we have drawn up calculations on what can be done to turn us into exporters once again. In a 90-day long campaign, 120.000 sowed hectares could produce 5.1 million tons of beet sugar, of which 700.000 tons of sugar, 270.000 tons of molasses and 240.000 tons of beet pulp. We need around 300.000 tons for domestic use, which leaves 400.000 for export and that makes a profit of almost 100 million dollars. Potentially 500.000 people could be employed in the production of sugar beet.

PREPARED PROJECTS

At this moment we have already prepared profitable projects for all types of investments into small and medium sized private companies. The overall value of those projects is one billion 72 million marks, and the value of the investments per project range from 10.000 to 10 million marks. 270.000 to 320.000 people could find employment within those projects.

HOW MSK WAS REVITALIZED

We visited the Methanol-Vinegar manufacturing plant complex (MSK) in Kikinda which out of the 14 years of its existence has only operated for four years and three months. That factory is worth 100 million dollars and can export 100 million dollars worth of  goods. We found the manufacturing plant at a stand still, we looked it over, organized it so that all those who were interested in it united and in three days production will start. That’s my contribution.