BANKRUPTCY IS ALSO A REFORM

What Ownership Transformation?

Milosevic's announcement of privatization and large investments is not meaningless, but it is rather a sign of state poverty than a signal of a turning point in the ruling economic philosophy

AIM Belgrade, 8 January, 1997

The by now famous Slobodan Milosevic's New Year's greetiing to citizens of Serbia in which he announced that 1997 would be a year of reform and large ownership and structure changes", although interpreted as cynical - is not completely meaningless; indeed it is loaded with meaning. According to numerous other signals which appeared in the end of 1996, it can be concluded that Milosevic and his men are not at all preparing any true reform of the system in order to make it a system of economy of private ownership and free market, but it seems that ownership changes are indeed in preparation - in the attempt to provide capital for the socialist "superstructure" (i.e. for themselves) - either for prolongation of their rule or for their financially safe future opposition activity in the country or for their comfortable emigration abroad.

After 1996 which ended with trade deficit of 2.2 billion dollars and two barter arrangements uncovered by export (for about 2.5 billion ton of imported oil and about 2 billion cubic metres of gas), economic experts calculated that towards the end of February state foreign currency reserves of FRY would completely collapse and "refusal of obedience" would occur by commercial banks which on "Cyprus accounts", that is on bank accounts abroad, still have significant foreign currency resources. In fact, the Yugoslav state could make a trading deficit last year because importers were covered by commercial banks which had during the sanctions transferred more than half a billion dollars to accounts of their secret foreign firms or private foreign bank accounts of their managers (a banker claims that every one of the 50 major Yugoslav banks had on the average more than 10 million dollars abroad, on such secret accounts).

Milosevic does not seem to efficiently control these secret funds any more, because the mechanism of their allocation is not institutional, and fear of "mob's kiss" among managers who manage this money seems to be diminishing. That this is a fact is certified, for example, by the fact that the National Bank in the end of last year had to order banks "with wide authorizations" (those which are authorized for official international payment operations) to concentrate about 30 million dollars in the Anglo-Yugoslav Bank in London

• to enable it make certain state payments from there or issue certain guarantees.

Yugoslav banks, as it could be heard, are unwillingly carrying out this order, because there is no valid information in it about the interest rate for the money deposited or lent to Milosevic's London bank (Cyprus is not fashionable any more among Yugo-fananciers after the Slovenian appeal against the branch office of the Belgrade Bank over there). They know (or dare say) even less what they are collecting money for - so one can do nothing but speculate whether this money will be used for purchasing a new shipment of crude oil, as a "foundation" for some future privatization of the domestic telecommunication system (as domestic financial participation in a possible English concession for development of cordless telephone connections), or simply to be concentrated there as the future budget of a future refugee Socialist "London Government". There are also other presumptions.

For example, many domestic merchants who have founded their own firms in London and whose lobby is the most powerful one in Belgrade (more powerful even than the Moscow trading Yugo-lobby), are afraid that interest rates for that London capital will have to be paid by them, by some Serbian regulation that only firms covered by the Anglo-Yugoslav Bank can be engaged in the profitable import business deals. Nevertheless, as Milosevic's position is becoming more shaky, their suspicion is replaced by fears of other nature. For instance, they are afraid that the state will suddenly devaluate the dinar, and this would mean significant reduction of profit, because they got foreign currency credits from the National Bank and foreign banks, so that they will be forced to allocate much higher dinar resources from sales of imported goods - whose prices again (due to low purchasing power) cannot go up any more.

But, if we put aside all results of this kind of concentration of Yugoslav foreign currency capital transferred abroad, noting that in parallel with political weakening of the "head Serbian banker", President Milosevic, the fear of reprisal will diminish among executors of his financial orders, let us look into the ways in which outflow of capital from the already "insecure Serbia" still continues. Mechanisms for transfer of capital are highly diversified: from the simplest ones to take abroad the foreign currency bought in the streets for freshly issued dinars in suitcases, to the more complicated ones based on fictitious, permanent deterioration of "terms of trade" (fictitious rise of prices of imported goods), fictitious rise of prices of foreign credits or other commissions.

It is very difficult to find clear information whether it is really true that FRY is importing Chinese oil at 186 dollars a ton, although the high "world price" is about 150 dollars a ton of excellent brant oil, or that it pays a thousand cubic metres of imported gas about 95 dollars, although the usual price paid by neighbouring states is about 80 dollars. If the stories about expensive import of these two major imported power generating fuels are really true - it is easy to calculate that only by purchasing these two items almost 130 million dollars a year are lost. Is this perhaps a concealed commission for some important foreigners in prominent positions in their respective countries? Is this some kind of a concealed interest paid for deliveries which are partially made on credit? Or is it a concealed profit for directors-ministers who signed the contracts? Or is it a channel for transferring socially-owned capital to secret accounts abroad - which will provide manoeuvring space when time comes for privatization in this country? These are questions which are not put forward by anyone "in institutions of the system of Serbia", although they are obviously vital.

Concerning privatization in Serbia, everybody is stumbling on various secrets, so that Milosevic's announcement in this sense clarifies nothing. Despite generally known interruption of this process, selective privatization has been going on all the time behind the drawn curtains. Who knows, for example, that despite the famous laws on "revaluation" certain large socially-owned firms have become completely privately-owned - Vital from Vrbas (1,074 employees), Albus from Novi Sad (751 employees), Umka (739), Eterena from Kula (364), Pekabeta (2,041) etc. (see the New Year's issue of Ekonomska politika). Therefore, it may turn out any day now that the control package of shares of half of the Post, Telegraph and Telephone Company or the Electric Company of Serbia is in somebody's hands, and that this predominant owner may have a foreign address. This of course, might not necessarily mean that this somebody would be a real foreigner, that the national treasure would be "in foreign hands".

Maybe some domestic socialist black hand will privatize domestic economy, clad in a foreign glove, under a foreign flag and in the form of confidence of foreign investors in stability of the socialist regime. Who knows, maybe Milosevic had such privatization in view when he was uttering the New Year's greeting?

Dimitrije Boarov