THE KOSOVO ECONOMY AND ILLIQUID BANKS

Pristina Jul 25, 1997

AIM Belgrade, July 22, 1997

The cement factory "Sar" in Djeneral Jankovic, one of the biggest building material producers in Kosovo, has not even started production, although at the beginning of this year it collected a substantial amount of money from potential buyers undertaking to turn out 140 thousand tons of cement. The building season is all but over, but not a sign of the cement or the money.

On the other hand, the workers of "Feronikl" from Glogovac say that production in this metallurgy giant is flowing smoothly like in "the best of the good old days". Although only one technological line is operative, production continues. But, here also, the workers are confronted with a shortage of money. They received their February salaries only a few days ago, which are so meager that they cannot satisfy even a minimum for bare necessities. The inevitable question is where is the money? How to explain the fact that while the machines are running "Feronikl" does not have a single gramme of metal on stock and the workers have been waiting for their salaries for months.

The state has promised export promotion credits to larger producers in Kosovo. These are mostly non-ferrous metallurgy manufacturers - "Trepca" and "Feronikl", who prior to the disintegration of the former Yugoslavia and the introduction of provisional measures in these collectives were Kosovo's major exporters. To date only "Trepca" has entered into specific arrangements with Greece, albeit rather questionable, while "Feronikl" is still looking for its one-time customers. Seeking to gain foreign markets, a group of businessmen, among whom some Albanians, recently paid a visit to Germany, but not even there did they manage to secure a market for the products of Kosovo's metallurgy industry. They returned empty handed, not having signed a single contract.

Muharem Ismailji, ex President of "Kosovska banka", who remained out of a job after the introduction of provisional measures in the bank, after which this only bank in Kosovo went bankrupt, warns that the non-existence of a sound bank, as well as the failure to resolve the situation regarding the "Kosovska banka" will adversely affect the economy as a whole. Ismailji added that this was not the first time that the state was promising help to export-oriented manufacturers. Reacting to various public statements on the large credits granted to "Trepca", "Feronikl" or "Sar" and commenting on the actual situation in these enterprises, namely the shortage of funds, Ismailji said that there could be no exports where there was no production.

"Judging by the circumstances one may conclude that these credits might have been promised, but the money never arrived at its destination or was spent for other purposes, mostly to maintain social peace and fulfill political obligations which Serbia undertook some seven years ago vis-a-vis the Serbs and Montenegrins living in Kosovo". It seems that this economic expert has no intention of politicizing the situation in the economy; he nevertheless feels that the fact must not be disregarded that situation in the economy can be redressed only through the active functioning of Kosovo's banking community or, more specifically, "Kosovska banka" and the return of over 125 thousand Albanians expelled from their work places over the past seven years by the Serbian political leadership.

As far as the banking system is concerned, Kosovo is covered by the banking network. There is hardly a bank in Serbia or Montenegro that does not have an outlet or branch in this region. Statistical data show that as many as 43 banks are present here, of which only 5 with seats in the Kosovo region. At first glance, impressive the number of banks and their branches is, in fact, misleading because their actual possibilities in practice are modest. Thus, the clients of the "Privredna banka" in Pristina are dissatisfied, for even though the bank is seldom blocked, its lending potential falls far short of the needs of its members. It has no licence for major export and import deals and is hence compelled to use the service of other, mostly Belgrade banks. Private businessmen, Albanians, even though they have chosen this bank, are nevertheless bothered by its modest potential and impossibility to engage in foreign operations, even though the bank has been maintaining high dinar liquidity on a continuous basis.

Once the most popular and now in bankruptcy proceedings, "Kosovska banka" is still active to a certain extent. The receivers have rented out almost all the 27 thousand sqm of business space, while smaller portion of the property has been sold. To our knowledge all the proceeds of the rent are being directed through some banking channels to secure the money for the salaries of the employed and other expenses. However, some say, humorously, that irrespective of the fact that this is the seventh year of bankruptcy, the bank always has a surplus of money. In recent months some officials of the American Embassy in Belgrade, as well as the Harvard International Development Institute inquired about the fate of this bank, the latter sending a questionnaire in order to include this bank among the 2,300 banks from 30 participating countries in a project designed to present the banking situation in countries in transition.

"There is every indication that the receivership, followed by bankruptcy proceedings have for their objective the breaking of the spine of the economy of Kosovo", says Muharem Ismailji, explaining that all enterprises at the time, regardless of importance or size, have been linked with this bank. "The entire campaign against it was launched on the basis of data produced by the international auditing agency "COOPERS AND LYBRAND" with the intention of demonstrating the possibilities for rehabilitating the Yugoslav banking system. According to their estimates, the potential losses of "Kosovska banka" at the time were around USD 981.5 million. But they also said that "Jugobanka"'s losses were about USD 2.5 billion and those of "Beogradska banka" as much as USD 4 billion. But bankruptcy proceedings were instituted only in "Kosovska banka", and incidentally, this was the first and only case of the liquidation of a bank in socialist Yugoslavia", explained Ismailji. Other facts too prove that this decision had a political background. The bank's assets were larger than its liabilities, the balance reaching as much as USD 20 million.

Apart from that, the economic sector owes the bank almost USD 731 million, with the major debtors being precisely firms which are active and stand realistic chances of doing business on international market. "They include "Elektroprivreda Kosova" (the Electric-Power Authority of Kosovo) whose debt amounts to USD 186 million, the debt of "Feronikl" is 96.8 million, that of "Trepca" 68.6 million, "Balkan" from Suva Reka 31.3 million and "Progres" from Prizren USD 20.7 million. In the event the law on the liquidation of the bank is implemented these enterprises would be brought into a very difficult situation, possibly even to bankruptcy, for instituting bankruptcy proceedings would imply the settlement of all obligations towards the bank", says Ismailji. And it is common knowledge that all these giants currently have no money of that kind and would obviously, in the event of the bank's bankruptcy would have to sell their own property causing only graver consequences. It is plain to see why the entire bankruptcy procedure has been blocked in a way, until some more acceptable solutions are found.

The only official offer for resolving the problem of "Kosovska banka" has been given by the "Braca Karic" company. They were prepared to accept the situation in the bank as it was and to give the workers of "Kosovska banka" their jobs back. The offer was, however, turned down. "It is widely believed in Kosovo that the Karic's aimed at laying their hands on property worth several tens of millions of dollars, as well as at incorporating almost the whole of Kosovo's economy into their company via the bank," says Ismailji.

When all is said and done it is not the people who live in this region that will decide the fate of Kosovo's banking system. The only thing which is quite clear is that until the question of this risky region is solved numerous questions of vital importance for the Kosovo population will remain outstanding.

AIM Pristina

Ibrahim REXHEPI