YUGOSLAV GOVERNMENT DECLARES WAR ON GREY ECONOMY

Illegal Business Endangers State

Whenever state budget remains penniless, state administration remembers that there is grey economy through illegal channels of which enormous sums of money flow; but it is often forgotten that it is the result of failure of the proclaimed economic policy or business of powerful individuals in power and "businessmen" in the field

AIM Belgrade, 3 September, 1997

The current economic period in Yugoslavia is characteristic for the pronounced offensive of the federal government aimed at curbing grey economy. Its minister of internal trade Milorad Miskovic warned that the value of business deals done through illegal channels, that is, out of control of the state, amounts to 40 per cent of the annual social product. The state budget is deprived of enormous sums of money due to which it is impossible to meet obligations towards its users regularly and in planned amounts.

Uncontrolled flow of almost half of the social product is a sign for sounding the alarm, although the current volume of grey economy is not a record in the absolute figure. Just before dissolution of former Yugoslavia, one third of the social product was in illegal channels. In view of the fact that the then social product was twice as big as the present one, much larger sums of money were in circulation than today, but nevertheless, there was no sounding of alarm as it is done today. There are at least two explanations for this. One is in the fact that once grey economy was a preoccupation of individuals who raised their own standard of living by means of it, while the state at the same time had at its disposal reliable sources for satisfying its needs. In cases when at the time these went dry, the state would resort to monetary issues and inflationary moves, and in this way it would to a certain extent neutralize negative effects of grey economy. Both parties were satisfied, financial "stabilization" of individuals did not threaten the state, and nobody from that category of the inhabitants had aspirations to set out to try to win power with the help of their capital.

In the meantime, things changed to such an extent that the number of participants in the grey economy broadened, so that individuals were joined not only by minor enterprises, but even by big companies who quickly grasped the recipe how to leave the state without money, especially because they enjoyed support of individuals in state administration. That is how it came about that only due to smuggling of cigarettes, the state budget ended up robbed of 1.26 billion dinars, the sum which is sufficient to meet needs of education. The state also failed to meet its obligations to health services, pensioners, children, mothers on maternity leave, the army and others. A very high percentage - 45 per cent - of the cash is in circulation which creates a possibility for enormous sums to "roll" uncontrolled. To make the absurdity even greater, even certain state agencies do not hesitate to get involved in "grey" business deals. The National Bank of Yugoslavia recently revealed the fact that the customs administration failed to pay to the budget customs dues collected in the course of a whole year. It is impossible to trace this money any more, just as it is impossible to trace money circulating in illegal channels of grey economy.

In the past years in Yugoslavia, there are two types of grey economy at work. The first is the one in which large masses of the people are engaged, for whom it is a way to survive after being sacked from their jobs or sent to the uncertain and allegedly paid leaves, and the other is the one manifested through the deals of the so-called "wholesalers", who are engaged in big deals. That is how it happened that smuggled goods entered the country in large shipments, practically in the open. Only cigarettes arrived each month, according to official declarations, in 180 trailer trucks which were "invisible" for the state officials.

When it became clear that underground channels were undermining the foundations of the state, the Serbian government declared "war" against grey economy, which at first hit only the "small fry" (read: paupers), which of course did not significantly improve the situation in the economy, because there was all sorts of goods on the market, but the factories remained closed. Monthly turnover of domestic cigarettes amounted to only 8 per cent, and the rest was covered by illegal import. Similar was the case with other attractive goods. At the same time, the average daily turnover in stores amounted to meagre 10 dinars per customer.

The federal government became aware that it was necessary for it to start to fill the loopholes and declared its own "war" against the grey economy. Minister Miskovic explains that the government would be satisfied if it could reduce the illegal flows from the current 40 to 20 per cent of the social product. In order to achieve that, two types of measures are planned. Ones are economic in nature and aimed at bringing back those engaged in illegal business to controlled economic activities by reduction of taxes and other burdens. With this in mind, taxes on domestic and foreign cigarettes were reduced, so that as a result sales of domestic cigarettes went up to 23 per cent, and importers figured out that in the new circumstances it was more profitable for them to legalize their business operation.

The other type of measures consists of increased control both at legal and illegal border crossings. At first ones, all customs dues will be paid on the spot, that is at the moment the goods enter the country, in order to prevent their "getting lost" after crossing the border. The army will be engaged in the control of illegal border crossings, but the so-called "depth" control on the entire territory of the country is also planned, so that goods without proof of legal origin can be confiscated anywhere. At first sight, there is nothing wrong with such practice, but danger exists of its abuse.

Although intentions of the federal government were presented as resolute and serious, the public is still not convinced that the struggle against grey economy could be won, not only because of its toughness, but because of delicate situations Kontic's cabinet will be faced along the way. One of the weaknesses are relations between the two federal units. For any reasonable efficiency in curbing illegal profit-making, cooperation with respective republican services is necessary, as well as establishment of equal economic conditions. The federal government has in that sense recommended the republican cabinets to introduce equal tax policies, but it is not difficult to anticipate the destiny of this recommendation when one knows that measures applied by the Serbian state administration are considered in Belgrade to be a form of control, and in Podgorica they are experienced as a blockade imposed on Montenegro.

It is uncertain what the approach of the measures will be towards the one and the other type of grey economy. If the measures will mostly be focused on the broad strata of the public who have become involved in it in order to survive, such action cannot count on success without an adequate social policy and re-start of economic activities. For the latter, foreign capital is lacking without which the domestic economy is incapable of moving its manufacturing facilities from the standstill, and monopolistic underground has reached proportions of a powerful mafia organization, so its firm resistance should be expected. It is interesting that the Swede Carl Bildt, while he was engaged in the matters of the Balkans, observed this phenomenon and suggested to the European Union to mitigate its stand towards Yugoslavia in order to prevent domination of the mob in the economy. Bildt's suggestion was accepted and the European market is gradually opening for Yugoslav economy, but this is not sufficient if doors fail to be opened for the flow of financial capital. In order to make this possible, it is necessary to meet certain political requirements, but in this sphere, like in establishing a single tax system, the federal government still does not have the necessary authorization of the republics. That is why it is uncertain to what extent it will succeed in disentangling the complicated knot of illegal economic conditions.

How vulnerable Yugoslav economy is is best illustrated by the example with eggs in 1995, when the value of the dinar was threatened by enormous import of eggs for Easter. According to the new law on customs tariff, import of eggs is now burdened by 23 per cent, and only for import of Macedonian eggs its is necessary to pay just 1 per cent of customs dues. With or without eggs, grey economy has endangered state operation and showed that, deeply rooted as it is, it has no intention to surrender so easily, because data show that the Yugoslav market has already been divided among certain groups which have connections with individuals in state agencies. Purchase of monopolistic positions in import of cigarettes, distribution of oil and other attractive goods is possible only with high commission rates. As a result, an absurd situation has been created in which there are all sorts of goods in the market, while domestic manufacturing facilities are mostly shut down.

Those well informed believe that it will be clear very soon to what extent intentions of the state are really serious, regardless of the involvement of the army in the operation, because if it fails to deal with some of its "own", the whole affair will end up like so many before: after the elections, it will be the same old story.

Ratomir Petkovic

(AIM)