MUFFLED PRESSURE OF FOREIGN DEBTS

Financial blockade of the FRY

Does Yugoslav State debt amount to 3, 6 or 16.2 billion dollars

AIM, Belgade, May 15, 1995

The cloud of dust raised after the US "executive order" on blocking accounts and property of persons and firms from Yugoslavia was renewed, better than any academic discussion, turned the attention of the domestic public once again to the problem of "frozen" state foreign currency reserves in the USA, the frozen membership of the FRY in the International Monetary Fund and the Wold Bank in Washington, and just apparently frozen external and foreign currency debts.

It is interesting to note straight away that the Yugoslav public has never been accurately and officially informed how much state money in foreign currency is frozen on accounts abroad, and the FRY has never publicized how much of that money it considers to be its own. Just as it was never made public how much of the foreign debt, the FR of Yugoslavia actually admits.

The latest official statement about the amount of foreign currency assets National Bank of Yugoslavia frozen on its accounts abroad is almost a year old and it came from the first Vice-Governor, Zarko Trbojevic, who said that at the end of May 1992, almost 1.5 billion dollars of foreign currency reserves of our state were frozen, which were, naturally, on accounts of strong world banks, and of course, most of them are in the USA. The Americans publicized the sum of about 900 million dollars they had blocked as belonging to Serbia and Montenegro several days before UN Security Council sanctions were introduced. Recently a much more precise calculation of foreign currency reserves was made public by Dr Aleksandar Kovacevic of the First Yugoslav-Swiss Bank from Belgrade, in Novi Sad journal called "Financing" (with Dr Stanko Radmilovic as its Editor-in-Chief).

In his calculations, Dr Kovacevic starts from the fact that in July 1991, foreign currency reserves of the SFRY amounted to 3,801 million US dollars. Since these reserves melted quickly in the phase of dissolution of Yugoslavia, and a part of these reserves was at the disposal of Slovenia, Croatia, B&H and Macedonia, his data imply that at the moment of the financial blockade there was about 1,118 million dollars of foreign currency reserves. On December 14, 1992, desperately trying to save its membership in the IMF, Yugoslavia agreed that its assets and liabilities be divided so that Serbia and Montenegro get 36.5 per cent both of the claims and the commitments, and that is how a formula which might be applied to all financial accounts of the former SFRY was legalized. If this formula is applied to foreign currency reserves, it means that the FRY may count that 408 million dollars of its own were frozen. In case of lifting of the blockade on these reserves, should the IMF and the World Bank be the first on the list to square accounts with and collect the debts which are due but have not been paid, 80 plus 650 million dollars, one could conclude that Yugoslavia practically has no frozen foreign currency reserves. Unfortunately, though, there are many more debts than the mentioned outstanding debts to the leading world financial institutions.

Noone knows precisely how much we owe to the world creditors, which is not unusual because, in large financing business, the debtor "coordinates" all the time with the creditors. And the FR of Yugoslavia needs to coordinate with the former Yugoslav republics as well. Domestic experts evaluate the present amount of the external debt of the FRY quite differently. Dr Dragana Djuric assesses that it amounts to somewhere between 7.5 and 8 billion dollars. Dr Radovan Kovacevic believes that total FRY commitments abroad (the principal and accumulated) "exceed the amount of 8 billion dollars". According to the assessment of Dr Dejan Jovovic, out of the debt of the SFRY at the end of 1991, which amounted to the total of 14.5 billion dollars, about 5.5 billion belonged to the FRY, and with the increased interests in the meantime, this means a debt of about 9 billion dollars. According to the calculations of Srdjan Petrovic, M.A., in the end of 1995, the FRY will be indebted with the total of 11.42 billion dollars on account of credits from abroad.

If we go back to the calculations of the mentioned Dr Aleksandar Kovacevic, we can present a short review of his calculation of the total foreign currency commitments of the FRY - which he asesses to be about 16,262 million dollars. First of all, Dr Kovacevic starts from the fact that direct debts of Serbia and Montenegro, the medium-term and the long-term ones, are about 5.3 billion dollars. Their own debt of about 3.6 billion dollars is included in this sum, but also the part of the non-allocated debt of the former federation (total of 4.7 billion dollars). If the fact that an interest on arrears of about 26 per cent was calculated for these billions of dollars, the FRY owes 6.68 billion dollars. Since Yugoslav firms hurriedly imported considerable amounts of strategic commodities in the course of spring 1992, and for a big portion of these imports managed to get a short-term credit, by the time world sanctions were introduced on May 31 that same 1992, approximately another billion dollars accumulated of guaranteed but unpaid commitments to foreign countries. If it is presumed that interest rate of 26 per cent was calculated for these commitments too, it turns out that another 1.38 billion dollars should be added to the previous total of 6.68 billion, so that the final score mounts to 8.06 billion dollars.

Contrary to many officials, Dr Kovacevic stresses that it will be impossible to treat the old foreign currency savings otherwise than as debts to foreign creditors, so he believes that the total of foreign currency debts must be increased by additional 4 billion dollars. He thinks that the unpaid debts of Dafina, Jezda and other masters of "luck chains" must also be alloted to the state debt, so that the total is increased by about 200 million dollars more (according to his assessment). He also includes in the debts of the FRY the claims of the former republics of 710 million dollars from the foreign currency reserves. Therefore, according to this calculus, opposed to the Yugoslav free and frozen foreign currency reserves of less than 1.2 billion dollars, stand commitments of almost 13 billion dollars. When this final figure is increased by the expenses the Yugoslav state and Yugoslav banks will doubtlessly have, such as expenses of rescheduling, expenses of insolvency, expenses due to inability and others - Dr Kovacevic reaches the figure of 16.2 billion dollars of total foreign currency burden of debts which are inactive at the moment. And the total social product of Yugoslavia last year was estimated at about 14 billion dollars.

The author of the editorial in the "Financing", the journal the data was taken from, calculated that nowadays an 2.7 million dollars of interest for foreign debts ticks daily for Yugoslavia, while all Yugoslavs together make just 33 million of social product a day. In this context, he therefore warns that this fact should not be minimized and that the issue of reintegration into international economic relations is extremely significant and complex, because the burden of external commitments will be felt in their full extent once reintegration becomes topical.

If we proceed the calculation of this expert - theoretically, since interest is paid on interest too, in 3 to 4 years, everything we create would be used for paying interests only, so Yugoslavia would become absolutely economically dependent, and its inhabitants mere slaves of world creditors. Until the sanctions are lifted, however, the illusion of state independence and economic rehabilitation may continue.

Dimitrije Boarov (AIM)