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South Slavic: April 6, 2000

6 April 2000, Volume 2, Number 13

How Does Milosevic Survive Economically? Part II

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 I appeared on 30 March.

What do you think, Mr. Dinkic, is this a policy of controlled inflation that the regime is conducting: first it prints some money, then it stops?

Dinkic: We had typical repressed inflation in Serbia last year. In essence, it is a situation where you do have inflation, but you cannot see it because of the administrative control over prices. The money is being printed, the exchange rate is raising, but the prices are frozen.

Nevertheless, sooner or later, the repressed inflation turns into an open one, and that is what is going to happen this year. What happens is that low prices cause a shortage of commodities. Such shortages already emerged at the end of last year in Serbia, when there was not enough bread, flour, oil, sugar, or gasoline.

In order to prevent shortages, when it starts being socially dangerous, the prices are unfrozen, which creates inflation. That has just happened with gasoline--premium has gone up in price 75 percent and diesel oil 115 percent. Now we can expect the prices of bread, milk, oil, and sugar to go up as well.

But I think that the government's approach will be tactical and that all those commodities will not be unfrozen at the same time. It will be conducted gradually, over several months. While, according to the official data, prices in the last year rose less than 50 percent, the exchange rate with the German mark rose 115 percent. It is obvious that prices must make up for the difference sooner or later, and I think it is going to happen this year.

Mr. Dinkic, do you think that main decisions about the economy are made by Milosevic himself, since he is said to be a good banking expert? Is he, for example, the one who says "now we should print this amount of money?" Is he giving the orders, or does he have economic advisors whose advice he accepts and on whom he can depend?

Dinkic: You know, a good banker would never suggest that money be printed, which does not mean that the idea does not come from Milosevic himself. The question is what sort of a banker he is. It is too difficult to pass judgment on his banking competence. Only those who used to work with him could talk about him as a banker.

Milosevic has an important role in decision making in everything that happens in this state, therefore in the economy as well. The former governor of the National Bank of Yugoslavia, Mr. Dragoslav Avramovic, told me once that he could not devaluate the dinar without Milosevic's approval. When Milosevic returned from Dayton [at the end of 1995], he allowed devaluation, and the dinar fell from 1 to 3.3 dinars per German mark.

I think that he is well informed about public and particularly about secret finances--the revenues coming from the gray and black economies. As far as his advisors are concerned, they are mostly old-fashioned economists who have advised him how to make moves that came to cost Serbia dearly. For many years his main advisor has been Kosta Mihajlovic, an academician and a man who used to advocate a socialist, command state economy. That is the man who argues in favor of the thesis that the biggest long-term strength of the Yugoslav economy is the determination of the people to endure all hardship. I cannot say whether he advises Milosevic in that direction, but Milosevic seems to follow this thesis. I do not know what other people advise him.

What he has done with Montenegro--this suspension of the traffic in commodities--demonstrates pure ignorance. An attempt to subdue a republic that one cannot control politically by banning the export of food--i.e. by suspending the traffic in commodities between the two republics--might be successful if only these two countries alone existed in the world: Serbia and Montenegro. But we live in an open economy, and meanwhile Montenegro was granted financial aid by Germany and the United States, and it will continue to receive it in the future. That is how Montenegro will get out of the crunch.

It is interesting to note that Milosevic has made this same mistake several times. The political goal--to bring under control the leadership against which the measures are aimed--was achieved neither in 1989--when the traffic in commodities with Slovenia was suspended--nor in 1994, when an economic blockade of the Republika Srpska was introduced.

Mr. Medojevic, do you think that Milosevic is the one and only creator of the economic policy of Serbia?

Medojevic: The entire concept is certainly worked out inside the [Milosevic] family, since they probably make the biggest profit from it. It is obvious that Milosevic and his wife have created the concept and make the most important decisions, but they have a team of "professionals" and "operatives." Those people have fine-tuned all the mechanisms of sanctions-busting, money laundering and transferring, racketeering, communicating with organized crime, black marketeering, etc.

It is a big apparatus that lives quite well thanks to its cohabitation with the regime. It is a pyramid with the family on top and below them the corrupt army and police leadership, the main players in organized crime, local dealers, and a big team of those who have become enormously rich by serving Slobodan Milosevic. I am talking about a hard-line and very firm coalition that is very aware that its survival depends on Slobodan Milosevic, therefore they are ready to fight to the last man in order to save the regime.

Mr. Dinkic, could the Serbian economy eventually collapse, could economic chaos bring about a bankruptcy of the state?

Dinkic: I do not think that such a thing as a total collapse exists. Going downhill can last very long, but there cannot be a total collapse in a state with a structure like the one in Serbia. After all, people in Serbia are already accustomed to a salary of 80 German marks, although an average salary in former Yugoslavia in 1990 was 600 German marks. I think that decline can continue without causing a total collapse.

Is there a bottom, can Serbia hit the lowest point?

Dinkic: The lowest point? The lowest point can never be reached. Salaries are couple of dozens of dollars in countries such as North Korea and Cuba, and the situation there is much worse than in Serbia. A society can hardly hit bottom, but individually speaking, many people have already done so.

Medojevic: As far as financial data are concerned, the Serbian economy has already gone bankrupt, and therefore the state as well. If its foreign debt is $13-14 billion and keeps growing at the pace of $900 million a year, it already exceeds the GNP. It is well known that a state should be seriously concerned when its foreign debt reaches 60 percent of the GNP. If the state also owes some $4 billion to short-term depositors, then it is clear that Serbian economy today looks devastated.

The regime is economically bankrupt and exhausted. The government that comes after Milosevic will be able to realize the huge extent of the catastrophe into which that man has taken Serbia and its people. According to the World Food Program's standards, a country is considered endangered if its daily consumption falls under $1 per family daily. Serbia has already fallen under that level. A country that is potentially a big food producer and exporter has therefore fallen under the minimum level according to the World Food Program.

Finally, what would be your forecast, can this economic downturn last forever?

Dinkic: It will certainly not last forever, but the question remains how to define forever. Is it 1000 years or one single year? Basically, this downturn can last very long. Let us take the example of Cuba. If you have seen the movie "Buena Vista," you could have noticed what a country looks like where nothing has been invested for several decades. Virtually nothing important has been put into Serbia for more than 20 years. Therefore, the downturn can go on and on. The more isolated a country, the longer its downturn lasts.

Medojevic: According to my analysis, any transition in Serbia cannot take place peacefully. The regime is obviously demonstrating its readiness to defend its position by all means. Those who belong to its nomenklatura are closely linked by their "common sin." As an old Jewish proverb goes, nothing makes links between people so strong as their common sin. Now, they will remain together until the end. The only question is whether the change will be caused by a movement in Serbia, or--as I fear--it will be brought about from abroad.

Serbia is a country in the heart of Europe. If it were in Africa, it would probably be not so important and what happens there would not be a matter of other countries' concern. But Serbia is very important for the stability of the region and Europe, and therefore, if all this all continues, one might well expect a foreign intervention.

Whether it will be a limited intervention or a big one that would eliminate the regime remains to be seen. If democratic forces in Serbia do not pool their efforts and do something, Europe and the world will certainly not stand by and watch calmly while such a regime becomes ever more entrenched in the heart of Europe. I am afraid that something may happen abroad aimed at eliminating Slobodan Milosevic simply because he has become too much of a nuisance.