Economic Collapse and Financial Bankruptcy

LIFE UNDER RESTRICTIONS

In an attempt to alleviate the disastrous consequences caused by the international isolation of Serbia, the authorities have decided to introduce a number of restrictions, both as for those doing business with foreign countries, as well as for producers' disposing with their own goods. Concerned about these restrictions imposed on the population, Dragoljub Micunovic, President of the Democratic Forum, demanded the adoption of a law which would protect citizens from the wilful behaviour of the regime.

AIM, BELGRADE, July 16, 1998

Today Serbia is, for the first time after hyper-inflationary 1993, faced with the hardest economic situation which will, according to economists' projections, deteriorate further in the coming months. The main reason is a stagnation of the planned economic development and significant deviation from the adopted this year's economic policy. The Serbian economy did not receive the expected financial support from abroad, which it counted on, and also does not have sufficient funds of its own to pay at least pensions and other social benefits.

The Serbian economy found itself in such dire straits because of the introduced sanctions, which mean the prohibition of foreign investments in Serbian development. The Federal Government, which officially promotes economic policy, but which is practically the creation of the Government of Serbia, counted on 2 billion USD in foreign capital. Instead, economic conditions have deteriorated and the European Union has revoked export preferentials for the Yugoslav economy. Actually, the economy is paying the bill because the official policy has not been adjusted in line with the demands of the international community. At one time the economy sent loud warnings that some political options would have to be abandoned, but the regime turned a deaf ear.

Consequences of such state of the economy are manifested in disastrous lagging behind of the monthly payments to workers in all spheres, from the economy to education and health, including pensioners. In the first seven months, until mid July 1998, the latter have received only 3.5 pensions, and teachers and health workers four wages. Situation is even worse in the economy. Pensions have been paid from development funds which means that the future is being spent in order to meet the present needs.

The well-known economist Zoran Popov thinks that until the end of the year pensioners can count with only six monthly payments. The reason is insufficient inflow of assets to the pension fund, whose resources have been used for unprofitable investments. The Government of Serbia has taken charge of the care of pensioners, as well as many other categories of population. This "care" is best manifested in the demand of Dragoljub Micunovic, President of the Democratic Forum, for the adoption of a law which would protect the citizens from the authorities.

Short of development and production funds, the state authorities have resorted to a strategy of restrictions and additional taxes. Thus, imports have been restricted on account of unfavourable foreign trade, which has recorded a 1 billion DEM worth deficit. The Federal Government introduced customs duties on import of fruits and vegetables which can be imported only through state commodity reserves. With a view to discouraging imports, the importers are now under the obligation to deposit for one month with the central bank foreign currency worth half the value of their imported goods and after they realize the import, to offer best conditions at a tender in order to get the goods they have already paid for. With enormous taxes, the regime has attacked second hand shops, in which at least one half of Serbia's citizens get a chance to "renew" their wardrobe.

Commercial banks are in a similar position, as they are now under the obligation to deposit an increased amount of foreign currency in the central bank if they want to get broader authority for foreign transactions. In this way some measly 40 million dollars have been collected. Under such aggravated conditions for foreign transactions, Borisa Vukovic, federal Foreign Trade Minister said that the most important thing for Yugoslavia was to become a member of the World Trade Organization. The trouble is that this organization thinks that Yugoslavia has not yet met the necessary requirements in order to become a member, same as it is refused membership in the International Monetary Fund and the World Bank.

Faced with dinar and foreign exchange shortage, the Federal Government has sent its delegation to negotiate with the London Club, which is representing the commercial banks, proposing a 80% write-off of its external debt, which is estimated at 2.4 billion USD, and the postponing of the repayment of its remaining part. Due to the unfavourable economic conditions, the value of the Yugoslav debt has decreased, as has the interest of foreign investors to engage in the privatization of the Serbian economy. At this moment such investments are even prohibited by the EU sanctions.

Last year Serbia was in similar troubles, but the way out was found in the sale of 49 percent of the Yugoslav telecommunication system. These funds were used to finance presidential elections in Yugoslavia and parliamentary elections in Serbia. This time, on account of the sanctions, Serbia is unable to sell a single one of its factories.

Vojislav Seselj, Vice-President of the Serbian Government, who is the most ardent opponent of negotiations with the international factors, is also an advocate of restrictions. With the arrival of his Radicals to the coalition government, champions of reform have abandoned their positions because they realized that instead of changes in the economy the times of even greater isolation of the country from the world has come.

The latest restrictions have been introduced in the wheat purchase system. According to the Decree of the Government of Serbia, wheat can be sold only to the state commodity reserves at the price of 1.20 dinars per kilo. The problem is that the state does not have enough money to purchase this year's yield. On the other hand, it doesn't allow the producers to sell their crops to those who have it. In view of the economists, this measure, which has not been implemented since the time of the compulsory appropriation system after the Second World War, will have disastrous consequences for the autumn sowing. Farmers will have nothing to sow because they will not get their money for wheat. It is therefore anticipated that in the next year Serbia will have to face a realistic danger of hunger.

Due to the low purchasing power of the population, the farmers sell vegetables at low prices which prevents them to start a new production cycle. Thus, the agriculture, which resisted the longest, has to face the consequences of a difficult economic situation and rigorous measures of the Government of Serbia. Its authority is so great that it can literally overnight, bring anyone, even the most successful businessmen, on the verge of bankruptcy. On the other side, it has no incentives for stimulating production. The hitherto investments in metal complex, which used to be the pride of the Serbian economy, have been mostly used up for wages. The state television publicly accused IMT, ZMAJ and some other factories from that complex, for misusing the funds allocated for production. That is why Serbia has no money to pay for the imported oil and gas. All the blame for this has been laid on the management of these factories. However, the production has not been realized because the highly qualified professional men left as they were unable to support their families with the wages they were paid.

On the other hand, the Government of Serbia is unable to cut numerous speculation chains which even Vojislav Seselj admitted citing the example of cement and other items which are in short supply. Government's inability is a result of many lobbies, some of which are very highly placed. The restrictions are therefore directed to the broadest population strata, i.e. those at the tail of production (e.g. farmers) and trade chains.

The regime is attempting to "cover" the financial collapse of the economy by heightening discipline in all sectors. A wide spectrum of prohibitions imposed on the population can provoke its reaction, which is why the coming months are expected with anxiety and uncertainty.

Ratomir Petkovic

(AIM)