Eleven Billion Dm Given Away as a Present to Topcider

The interview with Mladjan Dinkic, National Bank of Yugoslavia’s governor, was held on the very day (May 21) when he decided to publicly put a stop to surmises on whether he personally would take over and head the Serbian government Commission for Investigating Abuse in the Economic and Financial Spheres. He eliminated that option with a statement that he was preoccupied with the highly responsible governor tasks – and Dinkic answered our question as to who will replace Vuk Obradovic in that position with the assessment that it is most logical to expect that the Serbian government will opt for Mr. Radovic, head of the republic Department of Public Revenues, since he, by the very nature of his job, will use the evidence of the Commission while implementing the expected new law on taxing extra profit. Holding on to the “theme of the day”, we still start this conversation with Mladjan Dinkic with the question - what will happen to the Commission for Investigating Abuse after the Obradovic affair?

MLADJAN DINKIC: I think it is important to immediately select a new president and for the Commission to carry on with its work. In that Commission, I head six working groups with some fifty or so individuals, and we have already completed a part of that task. We have completed the investigation of the working of the pyramid banks and the analysis of the use of the funds collected by the well-known Loan for the Regeneration of Serbia, and beside the government of Serbia, the public has also been informed of this. What is left is to investigate privileged withdrawals from the old foreign currency savings accounts over 10.000 DM, followed by gray and primary money emissions, purchase of foreign currency from state reserves by the official, unrealistic exchange rate and the practice of fictive payments of imported goods which were never imported. Even in these issues, we have completed the investigation 95 percent, even though we had to process tremendous amounts of data and material – and the entire task will be completed by the end of June. 

However, we won’t publish any of those results for now (apart from what has already been published), until the law on the one-time-only extra profit tax is passed, which has already been sent to the Serbian parliament. (By the way, I think we have drawn up an excellent law.) And we don’t wish to publish our findings since the potential tax payers would then have time to organize their lobbies for forcing amendments to the law in order to avoid their obligations. I believe that during the summer that legal action should be commenced and completed, so that in autumn those people who will have to pay what they didn’t pay before, even though they held various monopolies – could continue with normal business operations. Naturally, if they haven’t violated the law and committed a criminal act.

VREME: Have you now decided to stop publishing the current findings because of the unpleasant denials which followed in the wake of some of your earlier statements (the denial of Tomic from Jugopetrol, the denial of Tomic from Vranje, Marjanovic’s charges raised against you etc)?

No. We stand behind all of our thus-far findings. You know, all of the people I have thus far, from December of last year, mentioned have given some sorts of denials. But look, one by one, all those who denied our findings are now behind bars, on charges which they deny. I don’t want to “counter-deny” each protest, but rather want to tell those who are offended to notice that the prosecutor’s office and courts are being more and more thorough in their work, something those who have previously denied my claims have already noticed. For example, Dragan Tomic denied that he has an account in a Swiss bank, and immediately after that, evidence surfaced that he does have that account and on top of that, he is listed as a car dealer. Or, the head of the Socialist Party of Serbia’s (SPS) parliamentary group Ivkovic attacked the Commission as an organ which was allegedly made in order to put political pressure on his party, and it now turns out that actually his own hide was in question, i.e. that it is a question of his abuse of position and means, which even Andjelkovic talks about etc. Many of the allegedly denied things still aren’t cleared up or are being slowly cleared up only because there is too much information and evidence which the police doesn’t have time to process and file. The range of criminal activities and corruption in the very top of the former regime was truly enormous, and we don’t have sufficient personnel to uncover it and put everything in order sooner.

On the other hand, on some issues there are problems in even collecting evidence. For example, some banks said that certain data had disappeared, and it later turned out that the data does exist after all. Interestingly enough, only a small part of the archives have been destroyed. You will see that I don’t say anything that hasn’t previously been well investigated. Therefore, when the groups inside the Commission which I am heading complete their work – we will send that report to the government, and publish it – so that the widest public has insight into our findings. The authorized bodies will be in charge of payment and the eventual later contentious issues on the Commission’s findings. That isn’t my job, i.e. that isn’t the job of the Commission on Abuse. When the analysis are completed, I will withdraw from it. By the way, while working in the Commission on Abuse, I have had insight into an enormous amount of material which would greatly enhance my earlier book The Economy of Destruction. My knowledge on that theme has deepened to such an extent that it has surpassed even my most fantastic expectations – the numbers are astounding. 

VREME: Can’t you give us some illustration, what is it that has surprised even you?

MLADJAN DINKIC: Well, for example, I didn’t know that from 1991 till today, 31 billion German marks of emissionary credits were issued, and only 20 billion marks were repaid. To put it more precisely, the theoretical basis for tax on extra profit only on that basis is 11.4 billion German marks. Naturally, a part of those credits which haven’t been repaid in the realistic amount went into energetics, agriculture, pensions etc. which is something that can be understood, but a lot of it went into the pockets of the privileged. However, I repeat, that such a large amount of money was “given” to Topcider, 11 billion marks – is a fascinating fact and it simply explains hyperinflation. That’s for history. 

VREME: You mentioned that you are satisfied with the one-time-only extra profit tax law. Is that the same law which Vuk Obradovic informed the public of in its broadest details?

MLADJAN DINKIC: It is. Beside that, I would like to remind you that G-17 has come out with this idea three years ago and that the basis for this action was drawn up by Nebojsa Medojevic then, a member of our group.

The law foresees that in case a tax payer is a publicly-owned company which isn’t capable of paying this tax, the state becomes a co-owner up to the amount of its fiscal obligations or a connection is established between the extra profit and its road to management, i.e. the private companies of the management structure or the private companies in the ownership of their cousins, even twice removed. Since, to put it descriptively, the essence of publicly-owned companies was that so-called public capital spilled over into private companies whose founders usually were not only the managers of the public companies, but members of the manager’s family, immediate and distant relations. 

On the other hand, in private companies which used dinar emissions, all is clearer than for example in Simpo – for which we know that the employees of that company aren’t responsible for manipulations with state-owned funds (nor even with the funds of Dafiment bank). We don’t intend to destroy publicly-owned companies whose managers extracted extra profit, but to see which part of that profit ended up in the hands of their families.

I recommend to all those who have amassed extra profit to make use of the legal possibility of a 35 percent reduction and to in this way definitely put a stop to public suspicion which is spreading towards their enterprises, which would enable them to carry on with their business dealings in an easier way. Because, what they pay in will be allocated for the benefit of the poorest citizens.

VREME: Let me make use of this situation and ask you about your assessment of other macro economic developments, i.e. the so-called reform process. The question of the Donor Conference in Brussels is unavoidable. What do you think, will the Americans attend?

MLADJAN DINKIC: Let me first say that the Donor Conference will definitely be held, since the World Bank has already dispatched invitations for the end of June. If the Americans don’t attend, I’ve already said this, the effect will immediately be reduced by 300-400 million dollars, there is no need for me to hypothetically speak of later consequences. Otherwise, we already now have support for that conference from all the other relevant countries, even those who were perceived as exclusive friends of the Milosevic regime. For example, we have China’s support, a country which otherwise didn’t take part in other similar gatherings on other occasions in the last decade, which is a great plus for us. However, just so there won’t be any confusion, it is very important for us that the Americans come to Brussels.

VREME: Their attitude seems ambivalent. On one side they are conditioning their attendance, and on the other international institutions where the American influence is decisive are organizing this donor conference – with or without the Americans?

MLADJAN DINKIC: The breakthrough towards increasingly better relations with Washington first started with the visit of Mr. Djindjic and Mr. Djelic before March 31. After that, we from the National Bank at the spring session of IMF and the World Bank continued to eliminate mistrust and misunderstanding. And finally, the greatest breakthrough in that sense was made by Mr. Kostunica, accompanied by Labus and Djelic, during their visit to the White House and meeting with the US president. The problem of circumstances has remained that Serbia doesn’t have a lobby in the US, that no one is working for us in Congress, for example. On that plan, we have to understand the rules of the game, and we are making steps in that direction now. Naturally, a lot needs to be done at home.

VREME: What is your stand on collaboration with The Hague tribunal?

MLADJAN DINKIC: Amongst Yugoslavia’s economists, I think there is no dilemma. In that sense, everyone believes that time shouldn’t be wasted. I think it is totally clear that Milosevic will end up in The Hague, and it isn’t logical to waste time and wait for him to appear there when politically and economically it will no longer be important.

VREME: You took part directly in negotiations with the IMF and the World Bank. In what direction did their suggestions go when our economic policies were being established?

MLADJAN DINKIC: We are the authors of our economic policies – and they accepted them. Our projection of strong monetary and fiscal policies was accepted practically without any remarks. They advised us to eliminate some unrealistic expectations, which we did. However, there were no problems, which is partially illustrated by the fact that negotiations lasted from February until April, meaning, a very short time. We expect that on June 6 or 9 IMF’s board will definitely approve a stand by arrangement which has already been worked out in detail.

VREME: Some believe that in that model which is already discerned, the anchor of the foreign currency exchange rate is still insufficiently backed by fiscal policies.

MLADJAN DINKIC: I don’t agree. You see, the difference between our program and the former programs of Ante Markovic and Dragoslav Avramovic lies in the fact that now we have a strong connection between the fiscal and monetary policies. I draw your attention to the fact that the republic government of Serbia in the first quarter not only hasn’t entered into a budget deficit but has also, after a long time, achieved a surplus – for the first time in the last ten years. Therefore, not only hasn’t Djelic taken out credit from the Central Bank, but he has also pumped in the couple billion dinars surplus into the central deposit – and that will now serve as a basis to purchase wheat, repair the power stations, as well as for other pressing social contributions in June. The exchange rate of the dinar, therefore, doesn’t have an anchor function, and it isn’t in principle fixed, but floating. And we have introduced one “innovation” into the monetary policies, that is we have liberalized the foreign currency market and set in motion stimulus for the entrance of money from the gray economy into legal flows. As a consequence we have the constant process of remonetization, and with 750 million marks, which was the amount of the realistic monetary (dinar) mass at the end of October of last year, we have today arrived at a monetary mass of around 1.3. billion marks. That process will in summer support the continuation of reform fiscal policies, as well as measures to clear up and establish the banking sector and measures for stimulating savings (a new system of insurance of saving deposits). We will commence the banking actions after June 30, which is the deadline when business banks should fulfill a capital census of five million dollars. 

VREME: There are a lot of grumblings about that census. What will happen in the banking sector on July 1 and later, will some banks survive and what will happen to the old management in the banks?

MLADJAN DINKIC: First of all we will have bank mergings and we will eliminate those which aren’t liquid. I think that from Sept. 1 we will have a far clearer situation, and next year I think we will normalize the situation in our banking system. Naturally, the deficit from that sector which amounts to around 3.5 percent of the country’s GDP will be covered with foreign help, and already this year we don’t have to service our outside loan. The Paris Club has already informed the IMF in writing that in the first year of our banking sector rehabilitation program they won’t demand payments of the outstanding annuities.

VREME: What do you know about the “debt settlement” program of the economy which minister Djelic has started talking about?

MLADJAN DINKIC: You should discuss that with him. Naturally, we are all for severing that chain of unsettled demands. That action, coupled with our operation of stabilizing the banking sector and with, or so I hope, the beginning of privatization – will bring us hot reform days this summer which should bring us to the position of a “new start”. Maybe we’ve waited a long time for this, but all that we’ve undertaken thus far was in the function of that new beginning.

VREME: Let’s not forget the bank directors?

MLADJAN DINKIC: Those banks which, according to our diagnosis, belong to groups A and B, meaning to solid banks, can continue with the same teams. However, all those banks who find themselves under the authority of the Bank Rehabilitation Agency will also have to undergo thorough personnel changes. We have a gap between bankers who have forgotten what real banking in the previous period when banks were mere services of the ministry of finance is and the need that each bank has to start fighting for its survival. Many believe that nothing will really change, but they are very wrong. In July and August we will undergo radical changes in our banking system which haven’t occurred since 1945 till today. In September we will have a truly redesigned banking sector, and beside the three foreign banks, the Austrian Bank (with German ownership) and Commercial Greek Bank will most probably also appear. We will probably sell some banks to foreigners, I am thinking about Slavija Bank and the Economic Bank in Novi Sad. I repeat, everything commences after June 30, and we won’t abandon that deadline for fulfilling the capital census.

VREME: Finally we would like to ask you, as a man who has, since the time of the October democratic movement shown a lot of reform boldness, is the energy for reform within the Democratic Opposition of Serbia (DOS) dying down?

MLADJAN DINKIC: I am primarily worried about the relation of our people towards reforms. Everyone fought for changes, meaning for reform – and in essence hardly anyone is prepared to change himself and the institutions around him. Some even imagine changes as changes of the outside financiers towards us. Meaning, everything remains the same, only foreign donations fall from the sky. People shouldn’t wait for the state and foreigners to do something for them, they have to start working for themselves. Reforms can only help them to be more efficient. I am not minimizing resistance to reforms even inside DOS and in the now existing economic super structure, but the widest circle of people have to understand that no one can do the main job instead of them.

 “KARIC WILL BE A TAX PAYER FOR EXTRA PROFIT”

VREME: Obradovic hinted that certain representatives of “high capital”, to use a somewhat old fashioned expression, have put certain pressure on the Commission. Do you have similar feelings?

MLADJAN DINKIC: No one put any pressure on me personally, I don’t know about him. Apart from, naturally, the denials to all that I’ve claimed. An attempt at some kind of manipulation with the results of the Commission’s findings was apparent in the case of publishing the findings on the use of funds from the Loan for the Regeneration of Serbia. For example, the Karic brothers, on the basis of the findings that they don’t owe anything in connection to that Loan and Dafiment Bank hastened to announce that the Commission has ascertained that they don’t owe anything. However, they truly don’t owe anything on those two basis, but they do owe something on others. And that is the reason why everything should be published in a synchronized way.

VREME: You say the Karic brothers didn’t have anything to do with the Loan for Regeneration and with Dafina, yet, did they have any connections with the Central Bank?

MLADJAN DINKIC: Far from it that they had nothing to do with the primary emission. The amount is such that many will be surprised. It is a staggering amount. However, that job isn’t completed since there is a lot of material, a huge amount of data. Still, I can now say that Karic will be liable to pay tax for extra profit, but he isn’t the only one. There are hundreds of privileged people. The best thing would be if they themselves could explain to the public the circumstances which worked in their favor, to then pay what they owe the state, and to continue with their dealings – and in that case, no one will even have the moral rights to attack them. There are such examples in economic history and each society has accepted rational explanations and the subsequent settling of their debts, and those people were “socialized” in the full sense of that word.

VREME: Word has it that the Karic brothers should pay the one-time-only tax in the amount of a hundred million German marks. Do you think their property in the country can “cover” such a high obligation?

MLADJAN DINKIC: All the gentlemen who turn out to be liable tax payers have property not only in the country but throughout the world. The law foresees that all property is taxable, even the one abroad. We expect that the capital taken outside of the country will return, a part of it to cover tax, and they can invest the rest as they will.

VREME: If there is no cash, does that mean that Serbia could become an owner of some castles and villas in the UK, France etc?

MLADJAN DINKIC: Who knows. Our starting position is that the person who has to pay tax should pay it. It doesn’t matter from what property he will cover his dues nor where it lies. The most important thing is for that person to eliminate public suspicion from himself. Those who offer empty denials instead of paying off their debt to the state, in my opinion, don’t seem too intelligent.