THE ECONOMY IN FEAR OF SANCTIONS

After a Successful Referendum in Serbia

The interest of foreigners for investing in Serbian economy has suddenly decreased so that, same as in 1993, the regime is trying to raise the interest of the Serbs in diaspora, but they demand greater legal security, proving that business cannot be developed on patriotic feelings. As a high-risk country, because of a possible conflict in Kosovo, and first country in the Balkans when it comes to corruption, Yugoslavia increasingly resembles an infected patient who should be placed under quarantine.

AIM, BELGRADE, April 29, 1998

In contrast to euphoric Radicals, whom their leader Vojislav Seselj sent to express their joy over the referendum results in front of the American and German Embassies, the sober part of the Serbian public remains concerned, aware that Serbia has not resolved a single one of its problems with the referendum. Public attention is turned more towards the reactions of the world than to the mood of Seselj's Radicals, whose leader has forgotten his function of the Vice Prime-Minister of the Serbian Government and that it is not befitting a high Government official to march the streets of Belgrade and promote populist policy.

To those who have once experienced the hell of sanctions, the next move of the Contact Group is more important than the referendum results. Indications that sanctions might include the freezing of the overall Yugoslav assets abroad and termination of trade relations with the world has caused concern of every individual citizen, irrespective of the fact that the chief regime banker Borka Vucic tried to comfort the public even before that saying that they should not fear sanctions because the Serbian banking business has already developed mechanisms for operating under sanctions. This statement did not sound convincing, especially because it was given by a person who spent the entire period of the first sanction in Cyprus and had no opportunity to see miles long queues of citizens waiting for a loaf of bread at the times of hyper-inflation.

The central bank is getting ready for the possible introduction of sanctions so that, as a matter of precaution, it decided to introduce an obligation for the business banks to keep their foreign exchange reserves in the country. Under this decision larger banks are obliged to keep 4 million USD and smaller ones 2 million USD, each. In this way some hundred million USD would be held in the country. The banks found it difficult to accept such a decision because that meant the withdrawal of all their assets from foreign banks where interests are higher than in Yugoslavia. Still, the fear of a possibility of sanctions, including the seizure of financial assets will, irrespective of the good "camouflage" to which Borka Vucic has pointed, force the banks and firms to put their foreign-exchange assets away.

The Serbian economy is waiting for the coming times, even without the sanctions, with a heavy heart. Several gatherings of economists and businessmen which have been held recently, drew attention to this fact. Their main message was that there would be no privatization because foreign businessmen who were supposed to be main investors in our national economy with their capital, have all of a sudden lost interest in buying Yugoslav firms. The sudden loss of interest on their part coincided with the election of the new Serbian government. At that same time, the Vice-President of the Yugoslav Government in charge of reforms, Danko Djunic, resigned realizing that he was entrusted with a rather vague task, i.e. that there was no real readiness of the ruling structures for essential social-economic changes.

According to a well-known economist Mladjan Kovacevic, there are at least 20 reasons why the Serbian economy is no longer interesting for the foreign business circles. The main reason is the risk factor, which is high because of the possible conflict that might erupt in Kosovo, but also the legal insecurity. According to him, among 135 countries Yugoslavia ranks 128 in regard to the security of investments. With the announced sanctions its position will deteriorate even further. Yugoslavia is the first country in the Balkans when it comes to corruption which also discourages businessmen from investing in it. Another important reason is the great poverty in which a broad stratum of population lives. Its purchasing power is reduced to the provision of only basic foodstuffs.

It is hard to find an economist in the world who would be prepared to invest capital in the production which, for its greater part, couldn't be sold on the market of the country in which it was made. According to the latest statistical data, an average monthly salary barely amounts to 150 DEM. Even if he wouldn't eat, or buy clothes, with such a salary a Yugoslav citizen would need at least two lives in order to be able to buy something of value.

Aware that under such circumstances foreign investors have are not motivated to invest in the Yugoslav economy, notwithstanding cheap labour, just like in 1993, the regime "suddenly remembered" successful Serbs living outside Yugoslavia. A three-day visit of several dozens of Serbs from diaspora, businessmen in their new countries, was used to induce them to do two things: to work more zealously in their new countries at reversing the unfavourable opinion about Serbia and to show their readiness to invest in their former homeland. It was obvious from their reactions that the first task would be much easier to carry out if the authorities made it clear what was expected of them. Thus, Michael Djordjevic, a Serbian-American, stated that he found it very hard to lobby for his former country when the Serbian regime didn't show its inclination to cooperate, so that he personally was in the dark when it came to explaining the situation in Serbia to the world. It was unclear both to him and the others what the Serbian regime really wanted so that they advised the politicians to show a greater sense for adapting to the developments in the world and to oppose it less.

As far as business cooperation was concerned, the hosts received an answer same as the one they got from other businessmen. They requested the introduction of legal security, elimination of arbitrary behaviour at the border, which was reflected in protracted customs procedures and hindering efficient business. They demanded the abolishment of customs duties on their goods, as well as other facilities, especially concerning taxes. Their behaviour was businesslike. This was another proof that there is no place for sentimentalism when it comes to economic activities even when it evokes patriotic feelings.

Thus, the Serbian economy was left in the lurch to shift for itself. Its losses are disastrously high, and illiquidity wide. About 26,000 firms, employing nearly 700 thousand people, are continuously illiquid. Technologically observed, in comparison to the highest world achievements, it is 40 years behind. In late eighties it lagged behind one decade in the technological sense. In the meantime, the economy became dependent also when it comes to personnel. Due to low wages and uncertain prospects, dozens of thousands of educated people, whose education, according to Jagos Zelenovic, Minister of Science, cost this society two billion USD, left the country in recent years.

The consequences of so degraded economy the local public feels through the drastic fall of its standards and therefore lives in fear of the announced sanctions as it is aware that it will have to face hardships at the time when it has not yet managed to remove the consequences of the previous ones. The regime is aware of this too. And while Seselj was celebrating the referendum results, Prof.Dr. Mira Markovic hurried to China to establish official ideological relations with the Communist Party of this country. The reason for her visit was also of economic nature, because China is the main oil supplier of Yugoslavia. However, the Yugoslav economy is unable to produce good wherewithal to pay for the Chinese oil.

The JUL delegation left with the intention of using the established ideological closeness for ensuring Chinese understanding for economic difficulties facing Yugoslavia. The guests from Yugoslavia were shown around China, which knows how to differentiate between ideological conceptions and ways of doing business, in which the Serbian regime is far behind it. For the Yugoslav authorities ideology comes first as they need it in order to keep their ruling positions, but the worries are becoming ever greater as the domestic sources of finance are running low and they can find no one in the world willing to pay.

Ratomir Petkovic

(AIM)