South Slavic: March 30, 2000

How Does Milosevic Survive Economically? Part I

In today's Radio Most (Bridge), we are going to discuss the economic basis of Milosevic's power in Serbia with two economists: Mladjan Dinkic from Belgrade and Nebojsa Medojevic from Podgorica. [Part II will appear on 6 April]

Economists have been predicting the economic collapse of the Serbian regime. But obviously, the regime has not yet reached the verge of bankruptcy in spite of the sanctions, the enormous debt, the unprecedented unemployment, and widespread poverty. It has even raised some money to start reconstruction after NATO's bombing campaign. Mr. Dinkic, how does Milosevic manage to do it?

Dinkic: All those who predicted the economic collapse of Serbia were right. Nevertheless, the economic collapse does not mean that the regime would come to an end. The living standard in North Korea or in Cuba is even lower than in Serbia and those regimes still survive.

However, that does not mean that those two countries have not economically collapsed. The same goes for Serbia. If you compare, for example, the production in January this year with that of January 1989, you will see that in those 11 years production fell by 708 percent. Is not that a collapse?

Anyway, as I have just said, economic collapse does not mean the end of the regime. There are shock-absorbers helping the regime survive. Two of them belong to the economy, the third one is of a political nature. The first shock-absorber is the hidden economy enabling the citizens to get by. More than 50 percent of the GNP in Serbia is made in the gray zone of the economy. The working class practically does not exist. Instead of working in their factories, workers are spending their time selling things in the flea markets. In any event, it is almost impossible to organize a big strike since real trade unions do not exist.

The second thing is that Serbia is an agricultural country and this is why people are not hungry. Regardless of its catastrophic agricultural policy, Serbia has enough food, thanks to the rich soil, especially in Vojvodina. People can survive, even if it means that some are forced to eat nothing but bread and milk.

And finally, the third thing that helps the regime is the media isolation. People are given false information and are consequently easily manipulated.

What is your opinion, Mr. Medojevic, How does Milosevic manage to survive economically?

Medojevic: Well, if you are talking about Milosevic and his family, it is very easy for them to do it since they belong to the top layer of the nomenklatura and are wallowing in money. That wealth was acquired by plundering the country over the last ten years.

If we are talking about the economy of Serbia, then it has collapsed. Mr. Milosevic has created a specific sort of political and economic system, isolated from the rest of the world, and therefore the citizens of Serbia cannot easily compare their standard of living with those of the neighboring countries. They cannot even quietly compare it with the one they had ten years ago because the regime constantly--almost every year--stages a new crisis, a new war, a new conflict.

Fearing that something even worse might happen, people do not show their discontent with the present situation. If we are talking about economic shock-absorbers, we should not forget that [nearly a decade ago,] Milosevic managed to pillage the hard-currency reserves of former Yugoslavia. Later on he used Dafina and Jezda to steal hard currency from the citizens of Serbia [through pyramid schemes disguised as banks].

The regime of Slobodan Milosevic organizes and controls the black market, especially the traffic in the most profitable taxable goods such as tobacco, liquor, coffee, and oil. This is where the big part of the revenues controlled by the Milosevic family comes from.

What I am saying is that Mr. Milosevic has a set of mechanisms to control the flow of money in Serbia. Taking into consideration that the country is isolated and that the regime keeps spreading fear, we can easily come to the conclusion that Slobodan Milosevic is actually creating a huge prison--and elections organized in a prison are always won by the warden.

Nevertheless, the biggest shock-absorber of Slobodan Milosevic's regime is the suffering that the Serbian people are ready to endure. Mr. Milosevic is counting on that, particularly when he is helped by often very unwise and counterproductive measures by the international community. This is what keeps him in power more than anything else at this moment.

Mr. Dinkic, Mr. Medojevic has just mentioned the hard-currency reserves sent abroad after [Milosevic pillaged the financial reserves] of former Yugoslavia. Is there an approximate estimate of the amount?

Dinkic: In August 1990, the hard-currency reserves of former Yugoslavia were almost $11 billion, while hardly a year later, in July 1991, when the disintegration of Yugoslavia was well underway, the reserves were $4.5 billion. No one really knows who actually took how much.

The biggest part of the reserves were taken by Serbia, Slovenia, and Croatia. I suppose that Serbia took the most of it, but that remains to be confirmed since there is no reliable information about it. Moreover, according to my estimates, during the 1992-1993 hyperinflation, some DM6 billion were taken abroad.

Where did Milosevic get the money for the army and police forces and for pensions when his economy does not function at all? Is he using the money taken abroad, although a big part of that amount must have been spent by now?

Dinkic: You know, we are not talking only about that money. As Mr. Medojevic has just said, the state here organizes the black market. The street cigarette traffic brings in one billion German marks a year. That income is not registered anywhere and, obviously, a big part of it goes for the purposes you have just mentioned. The many black-market cigarettes must be a source of huge, unregistered income.

Medojevic: The black market is not the only source of additional income for Slobodan Milosevic's regime; there is also the transit across Serbia of many sorts of dangerous substances. Furthermore, according to my information, when the NATO intervention started, Mr. Milosevic simply forced most of the big players in Serbia and abroad--among those he controls--to sign a commitment that they would allow all their properties to be used for the defense of the country. [This enabled him to extend personal control to the key figures of the underworld.]

You have mentioned the transport of dangerous substances across Serbia. What do you mean by that?

Medojevic: I am talking about drugs, weapons, and some other sorts of so-called B-class substances such as some poisons and radioactive waste. This traffic was mostly going on during the war in Bosnia-Herzegovina, particularly during the romance with the Republika Srpska.

I would like to mention one more source of income of the regime: money transfers from abroad. Many citizens of Serbia used to work abroad and now they are receiving hard-currency pensions that arrive in Serbia. Furthermore, Milosevic's regime has managed to force many people to leave the country. Those people are earning nice amounts of money in Europe and elsewhere in the world and now they help their families back home by sending them money. Some 200 million German marks arrive in Serbia every month that way, and that is an amount that should not be forgotten.

Mr. Dinkic, are there indications that the regime is involved in money laundering?

Dinkic: There was money laundering back in 1992 and 1993. As far as I know, the "Dafiment Bank" [pyramid scheme] used to do it. One of the main sources of income of that bank and of Jugoskandik was money laundering. I do not know what is happening right now.

By the way, Mr. Medojevic is right when he says that companies that had made enormous profits thanks to the regime are now forced to pay certain amounts of money to the state. What is going on is that all those so-called businessmen are being called and told: you have to pay this much. If you refuse, we will publish your police record. It is a well-known way of doing these things.

Mr. Dinkic, how did Milosevic find money to reconstruct homes, roads, and bridges after the NATO bombing? Many people considered that the reconstruction would look like Potemkin villages, but something is being built there, something has already been reconstructed, there are certain results.

Dinkic: The sources of financing are well known. The state started printing money after the bombing. The reconstruction is financed with money printed without sufficient backing. The money supply was 12 billion dinars after the bombing and it rose to 16.4 billion by the end of the year. Therefore, some 4.4 billion dinars were printed without backing. That money financed many of the reconstruction projects.

Mr. Seselj, the deputy prime minister of the Serbian government, admitted it publicly. Nevertheless, I must say that we are talking here about reconstruction works of limited size. None of the big bridges has been rebuilt so far. The reconstruction of small bridges costs several hundred thousand German marks [per bridge]. Knowing that direct damage caused by the bombing was some $4 billion, it is obvious that we cannot talk about substantial reconstruction projects.

Mr. Dinkic, several times in the last few years, some well-known economists predicted the return of hyperinflation. It seems, though, that the regime has managed to avoid it.

Dinkic: I have never predicted it, although there were some who did. For example, Mr. [Dragoslav] Avramovic said at the end of last year that we were entering a dangerous phase. I think that there was a lot of overreacting.

Hyperinflation is a matter of a political decision. The one we had in 1992-1993 was not inevitable. It was a matter of a political decision because the political establishment in Serbia wanted it. [Editor's note: Avramovic helped end the wartime hyper-inflation in his capacity as director of the National Bank. He became known as "Super Grandpa" and remains something of a folk hero for that achievement. Although frail and elderly, he is widely tipped to head the first post-Milosevic government.]

Medojevic: The 1992-1993 hyperinflation was aimed at taking hard currency away from citizens and companies. The regime is well aware now that it could hardly survive a new wave of hyperinflation. That could be the last straw and might lead to a general uprising. I do not think that the regime would undertake such a risky operation.

On the other hand, there is almost no hard currency left in the citizens' pockets. The small amount of money they receive as their salaries cannot enter the hard-currency market since it is not enough for their basic needs. Therefore, the government has no reason to look for new ways of robbing its citizens. All the money--and I am talking about the hard currency belonging to the ordinary people--has already been taken away from them.