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Balkan Report: July 10, 2001

10 July 2001, Volume 5, Number 47

SERBIA: VIDOVDAN AND THEREAFTER. The Serbian political landscape will be dominated by three important questions following the extradition of former President Slobodan Milosevic to The Hague. How these matters are dealt with could go far to determine the country's long-term as well as more immediate future.

Perhaps the most momentous date in Serbian history is 28 June, which is known as Vidovdan, or St. Vitus' day. Vidovdan 1389 witnessed the battle of Kosovo Polje, which ended Serbia's independence for nearly five centuries. In 1914 on that date, the Serbian student Gavrilo Princip assassinated the Habsburg Archduke Franz Ferdinand in Sarajevo, setting off the chain of events that led to World War I. The Yugoslav kingdom got its first constitution on 28 June 1921, which was subsequently known as the Vidovdan Constitution. In 1948, Stalin expelled Yugoslavia from the Soviet bloc on Vidovdan.

As of 28 June 2001, Vidovdan will have one additional meaning in Serbian history (see "RFE/RL Newsline," 29 June 2001). And it was not, moreover, just the first time any former head of state was sent to an international tribunal to be tried for war crimes, but the beginning of a process in which a single man will be tried for crimes that many of the victims have been prone to ascribe to the entire Serbian nation. One of the main purposes of the tribunal is precisely to establish individual guilt in place of collective guilt as a first step toward reconciliation and building a joint future in the region.

The speed at which the Serbian government decided in favor of extradition and sent Milosevic to The Hague reportedly came as a surprise to virtually all concerned, including the staff at the tribunal. Many details and questions remain unclear. But what is certain is that three issues have emerged to dominate the Serbian political landscape for the foreseeable future.

The first is the balance of political forces in Serbia. The governing Democratic Opposition of Serbia (DOS) coalition is very broad-based. It was united only by its desire to end Milosevic's dictatorship and replace it with a more democratic system. Since that goal was achieved at the end of 2000, many observers have predicted that the coalition's break-up is only a matter of time.

Such a prospect now seems more realistic than before. The DOS is clearly spit in its views over extradition, with the majority apparently siding with Serbian Prime Minister Zoran Djindjic against Yugoslav President Vojislav Kostunica. When the next elections take place -- and most observers agree that early elections are all but a foregone conclusion -- it is conceivable that Kostunica and Djindjic would be the main rivals.

Kostunica is far and above the most popular politician in Serbia and is likely to win additional votes from Milosevic supporters. But Djindjic and his allies represent a larger number of political parties than Kostunica does and they will have time to convince the voters that extradition was the right thing to do, especially if participants in the recent donors conference come through on their pledges. Djindjic and his friends will try to persuade the electorate that they are the most competent leaders and that Kostunica, as Djindjic has said, is a link to the past. If they succeed, Djindjic and his allies could be well on the way to remaking Serbia in a way more open to the West and to European norms than would Kostunica, who is more of a traditional nationalist with an attachment to Russia.

These issues lead to the second question that will dominate Serbian politics, namely the future of the Yugoslav federation, of which Kostunica is president. In deciding to extradite Milosevic, the Serbian government ruled that federal institutions had ceased to function. Many observers would argue, moreover, that the federation has long been limited to the government in Belgrade and its diplomatic contacts, since the Montenegrin government of President Milo Djukanovic does not recognize the federal government or even its currency.

The announcement on Vidovdan by the pro-Milosevic Montenegrin opposition Socialist People's Party (SNP) that it is leaving the coalition with DOS to protest the extradition could thus simply be the final nail in the federation's coffin. Even if the SNP returns to the federal government in a new coalition, it is clear that the federation cannot continue in its present form much longer. Djindjic said on 8 July that relations between Serbia and Montenegro must be clarified by the end of the year.

Some observers would add that Djindjic and Djukanovic probably agreed between themselves long ago to scuttle the federation and deprive Kostunica of a job. Rumors of such an agreement have never been conclusively proven or disproven. It should nonetheless be recalled that Djindjic fled from Milosevic's police in 1999 by going to Montenegro, where he had ample time to get to know the leadership and political conditions.

The third issue that will figure prominently in Serbian politics is that of the extradition or surrender of additional war criminals. Serbian President Milan Milutinovic is only the most prominent of many, including former Defense Minister General Dragoljub Ojdanic.

As Bosnian Serb Prime Minister Mladen Ivanic has said, moreover, the extradition of Milosevic opens a new chapter for the Republika Srpska, which has yet to turn over any indicted war criminal to The Hague and appears to be in no hurry to do so. Many commentators have already begun to ask whether the extradition of Bosnian Serb leader Radovan Karadzic or his commander, General Ratko Mladic, can be far off now that Milosevic is in The Hague.

The speed and thoroughness with which the authorities in Serbia (and the Republika Srpska) locate and extradite additional war criminals will go far to affirming the principle of individual guilt over collective guilt. And for the Serbian public itself, extradition marks the start of a long and painful break with a political culture that led to four lost wars and the acquisition of an unenviable reputation abroad. (Patrick Moore)

EUROLAND COMES TO KOSOVA... On 1 January 2002, citizens in Kosova -- along with 250 million people in the European Union's 12-member euro-zone -- will begin using euro notes and coins in their daily transactions. RFE/RL correspondent Mark Baker spoke recently with the head of Kosova's monetary authority, Mohamed Bouaouaja, about how the transformation will take place and whether any special rules apply. Here is his report.

Mohamed Bouaouaja is the managing director of the international community's Banking and Payment Authority of Kosova, known locally as the BPK.

The Prishtina-based BPK functions as Kosova's de facto central bank, performing all of the normal activities of a central bank -- with the notable exception of issuing money. In Kosova, the German mark is legal tender. And in January, when the 12 states of the European Union's euro-zone begin phasing out their national currencies -- including the mark -- and begin using the euro, Kosova will switch over along with them.

As managing director, Bouaouaja is overseeing the BPK's euro effort. He says that no one knows for sure how many German marks Kosova's nearly two million people are holding outside of the banking system -- and therefore no one can say what the demand for euros is likely to be. "No we don't [have any idea how many marks there are in circulation in Kosova]. There's no methodology for that. All tentative [estimates] made in other countries failed. And there's no recognition of any figure about currencies which are not issued by the central bank of the country itself. As the Deutsche Mark is not issued by the BPK, it's difficult -- maybe impossible -- to determine the amount of cash in circulation."

Estimates for Bosnia-Herzegovina and Macedonia have put the number of marks that are privately held in those countries at nearly a billion each. Even during Tito's lifetime, the mark functioned as the unofficial second currency of the former Yugoslavia, and huge quantities of German currency could always be found in that country and its successor states.

Bouaouaja says that to ensure enough euros are available to meet demand, the amount of marks a person can exchange without paying a fee will be limited. He says people will be able to bring up to 1,000 marks to the banks and exchange them without incurring commissions or fees. "[After the first 1,000 marks], up to 10,000 [marks] will be exchanged into euro, but a fee will be charged. Beyond that amount, there will be no exchange into cash. [Only deposits into bank accounts will be accepted.]"

Bouaouaja says that as with many countries in the euro-zone, citizens will be able to use either euros or German marks until 28 February, when all marks will be withdrawn from circulation. Unlike in the euro-zone, however, the BPK will not guarantee the exchange of marks for euros after February. In most euro-zone countries, central banks will continue to accept national currencies for several years to come.

Bouaouaja says that to avoid any confusion or problems at the start of next year, Kosovars should open German-mark bank accounts now. Bank accounts will be automatically converted to euros on 1 January. "In view of the changeover to the euro, it would be easier for [people wanting to exchange German marks] to open accounts now. To deposit their cash. In January and February, they will not need to go to the tellers in order to exchange their D-marks. If they need euros, they would just withdraw euros from their accounts, because all accounts on 1 January 2002 will be converted into euros."

Bouaouaja noted that awareness among the general public that the mark will be phased out is fairly high in Kosova. The BPK is planning to launch information campaigns later this year and the beginning of next year to instruct people what to do. "We started informing the public, and there will be a more extensive information campaign, which will be intensified starting in September. During the last four months of the year, and beginning [in] 2002, there will be a very intensive information campaign."

But he admits confidence in the banking system remains low -- a strong impediment to convincing people to trust banks with their life savings. He says one of the BPK's main tasks is to restore confidence. "It is a problem in Kosovo. People lost confidence in banks. But we are explaining to them that the new banks are different from the old ones. The new banks have been licensed by the BPK after a very comprehensive processing of their applications and investigations on the shareholders, the managers, the directors. Banks are also supervised by the BPK, so there is no reason why the population shouldn't deposit their cash in the banks."

Another impediment to getting people to surrender marks in some areas are requirements that citizens disclose the origin of the money when they exchange their marks or open bank accounts. Bouaouaja says that, generally, people will not have to say where the money came from when they bring their marks in to convert them.

"No [you won't have to declare the source of the cash. But when you open an account], you will have to disclose your identity. And of course if you make a deposit when you open an account, the bank needs to document this operation."

Bouaouaja says authorities will honor international rules to restrict money laundering. He says all transactions above 30,000 German marks will be reported to the BPK. (Mark Baker)

...AND TO MONTENEGRO. As with neighboring Kosova, Montenegro will also have to abandon the German mark as its official currency once the European Union's 12-country euro-zone switches to the euro in January. Preparations in the EU for adopting the euro have been elaborate, including public-relations campaigns and a two-year test phase during which the euro has been used in company accounts and for financial transactions -- such as buying stocks -- that do not involve cash. But the story is different in the Balkans, where populations still deeply mistrust their banks and where for many the euro is still little more than a vague concept. Here is RFE/RL correspondent Mark Baker's report on the situation in Montenegro.

Changing currencies is nothing new for the 600,000 people who live in Montenegro. In 1999, Montenegrins switched to the German mark from the Yugoslav dinar as a way for the government to separate itself from the monetary policies of former Yugoslav President Slobodan Milosevic.

That switch worked relatively well. The mark helped to stabilize the monetary system and keep inflation in check at around 5 to 6 percent a year.

Our correspondent spoke recently with Ljubisa Krgovic, the chairman of the council of the Montenegrin Central Bank, about the problems Montenegrins will face in adopting the European common currency come 1 January 2002.

Krgovic says that the major difficulty will simply be for citizens and companies to familiarize themselves with the euro now that they've become used to using German marks: "We think that the [main] problem will be for the economy and for the population to get accustomed to the new currency. We see that as a problem. It will take time."

To help people adjust to the euro, the Central Bank will soon launch a public-awareness campaign. The campaign will start in July and will be aimed not only at the general public, but at private companies that must switch their accounts to euros and to employees of banks. "The central bank has prepared the overall [educational] plan for the replacement of German marks by euros, and that plan will start -- the implementation of that plan will start -- in July this year."

Part of the campaign no doubt will be to try to convince the general public to trust the banking system following the period of intense dinar hyperinflation in the 1990s, during which many people lost their savings. "After the period of hyperinflation of the dinar...we are now at the start of the process of trying to regain the trust of the population in the banking system."

Krgovic says that in the past two years -- following the introduction of the German mark -- trust in the system has started to return. "We believe, in any case, that the population will trust the banking system enough to bring their mark-denominated savings to be replaced into euros."

Krgovic admits, however, that more than half of the estimated total of 250 million German marks in circulation in the republic are still being held outside of the banking system. The lack of a firm figure for how many marks are in the country has made it difficult to plan for how many euros citizens will demand after January. "At this moment, according to our estimates, we have about 100 to 120 million marks in official channels -- in official circulation -- in the republic. Plus [we have] 100 million to 150 million German marks in homes, which is in cash and also in circulation."

He says that Montenegrin authorities have been in touch with the German central bank, the Bundesbank, to ensure that enough euros will be on hand for the conversion. Banks will begin receiving euros before the conversion date. "We think that we will need about 250 million marks to be converted to euros -- to be replaced by euros -- to implement the conversion successfully. We think that there will be enough from the current level of the social product [GDP] in the republic."

After the euro is introduced in January, citizens will be able to use both euros and marks in daily transactions until 28 February. After that, the mark will be officially withdrawn and the euro will be the only currency in circulation.

Citizens will have the option to physically convert their marks to euros at banks or to set up German-mark bank accounts before January. All checking and savings accounts will automatically be converted to euros on 1 January 2002.

Anyone forgetting to convert their marks to euros by the end of February will not lose money. It's not clear yet whether the Montenegrin Central Bank will continue to accept marks after the February deadline, but in any event the Bundesbank has said it will exchange marks for euros indefinitely. (Mark Baker)

QUOTATIONS OF THE WEEK. "The Serbian people are not on trial here. The history of Serbia is not under examination. It is Slobodan Milosevic as an individual who will now face trial on the charges brought against him for his actions." -- Hague chief prosecutor Carla Del Ponte, on 29 June. Quoted by RFE/RL.

"The transfer of Slobodan Milosevic marks the real beginning of cooperation of Yugoslavia and I would like, specifically, to thank [Serbian] Prime Minister Djindjic and the government of Serbia for the key role they played." -- Ibid.

"The government has made the only possible decision it objectively could [in agreeing to extradite two indicted men to The Hague].... A government based on the rule of law cannot and must not even consider not carrying out its international obligations.... It is known that there were war crimes on the Croatian side...during the war." -- President Stipe Mesic in an address on Croatian Television on 8 July.