% of GDP
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The Kingdom of Serbs, Croats, and Slovenes was formed in 1918; its name was changed to Yugoslavia in 1929. Occupation by Nazi Germany in 1941 was resisted by
various partisan bands that fought themselves as well as the invaders. The group headed by Marshal TITO took full control upon German expulsion in 1945.
Although communist in name, his new government successfully steered its own path between the Warsaw Pact nations and the West for the next four and a half
decades. In the early 1990s, post-TITO Yugoslavia began to unravel along ethnic lines: Slovenia, Croatia, and The Former Yugoslav Republic of Macedonia all
declared their independence in 1991; Bosnia and Herzegovina in 1992. The remaining republics of Serbia and Montenegro declared a new "Federal Republic of
Yugoslavia" in 1992 and, under President Slobodan MILOSEVIC, Serbia led various military intervention efforts to unite Serbs in neighboring republics into a
"Greater Serbia." All of these efforts were ultimately unsuccessful. In 1999, massive expulsions by Serbs of ethnic Albanians living in the autonomous
republic of Kosovo provoked an international response, including the NATO bombing of Serbia and the stationing of NATO and Russian peacekeepers in Kosovo.
Blatant attempts to manipulate presidential balloting in October of 2000 were followed by massive nationwide demonstrations and strikes that saw the election
winner, Vojislav KOSTUNICA, replace MILOSEVIC.
Update No: 060 - (18/04/02)
New state name and constitution
A very important development has occurred. Serbia is part of the Yugoslav Federation, consisting of itself and Montenegro. Milosevic was indeed its president,
not the president of Serbia, when he was finally ousted in October 2000.
Javier Solana, the EU foreign policy chief, has pulled off a spectacular coup. He has persuaded the two republics to remain together in a new union rather
than opt for independence. Montenegro is to be given more de facto independence for abjuring from taking de jure independence.
The agreement, reached after 12 hours of intense negotiations in Belgrade, strengthens the EU's role in "preventive" diplomacy, as it takes on more
responsibility for sustaining stability and security in the Balkans. The Yugoslav authorities have agreed on a looser federal structure.
A new constitution is to be put in place before the end of the year. Serbia and Montenegro, the new name, will be organised under one parliament, one
president, one council of ministers and court.
The council will be responsible for foreign affairs, defence, international economic relations and protection of human and minority rights. The economic
systems of both republics will eventually be harmonised within EU rules.
But all is not yet won. The deal has to be endorsed by the Montenegrins themselves in a referendum.
Adriatic energy discovery
They now have the opportunity of becoming an oil-rich state. Montenegro's ruling party, the Democratic Party of Socialists, had aimed to drive for full
independence, which would have broken the federation apart. Although ethnically close to the Serbs, the Montenegrins have a different Orthodox church and
Oil has been discovered in their sector of the Aegean. If the 660,000 Montenegrins have to share it with the Serbs then there will be less for them. Even
local Serbs can see the power of this argument. A compromise is likely whereby the bulk of the proceeds will be spent locally.
The drama in the Hague
As regards the spectacle in the Hague, people are opposed. Some Serbs are pleased at the turn events are taking. Milosevic has been on trial there since
February12th. They look forward to putting his henchmen and the whole previous regime on trial with him. This camp includes the Serbian government.
Others feel deeply offended. They regard a prosecution of Milosevic as a trial of the entire Serbian nation. Some of this kidney are in addition afraid of
their complicity in the regime's misdemeanours being exposed. President Kostunica is above suspicion in this respect, having an unusually austere life-style
for a leading Serb politician. But he opposed surrendering Milosevic to the Hague.
The ruling coalition are cooperating with the West up to a point. They did after all hand over Milosevic, but by no means all possible war criminals. General
Ratco Mladic, who is wanted by the Hague tribunal for crimes perpetrated in Bosnia in 1992-95, has been seen openly flaunting his presence in Belgrade.
Clearly he has high-up protection among the security forces - after all he is one of them.
Clearing the decks
The authorities are collecting evidence that huge sums were secreted abroad in Cyprus and Switzerland, London and Dublin. A key figure is Bogoljub Karic, a
billionaire banker and sidekick of the Milosevics, having published the memoirs of Mira, Milosevic' wife. He played a key role in laundering around US$20bn,
the 'theft of the century.' Other figures are being investigated too.
"Milosevic organised this baroque state," says Alexander Radovic, the director of Serbia's Public Revenue Agency, which is presiding over an investigation,
concerted with the Ministry of Finance and the national bank, into the commercial crimes of the old regime. "We want to prosecute them, and we want them all
A key figure in the process is the governor of the national bank, Mladjan Dinkic, who says: "Over the years millions of dollars flowed through the Astra
Bank." The Astra bank was owned by Karic. The investigation is expected to play an important part in the case against Milosevic in the Hague. What the new
reforming government is determined to avoid is the pattern of so many other countries in transition, which have sold off state assets to people of the old
regime who are little more than crooks. There can be an advantage in being a late-comer if one learns from others' mistakes.
A new generation of Yugoslav leaders, committed to the rule of law And democracy, wants the investigation to help rebuild Yugoslavia's shattered credibility
abroad. "Tycoons who enriched themselves on privileges during the Milosevic period are now trying to use their dirty money to set up regular businesses
here," says Mr Dinkic. "I think it is very important to avoid the scenario that most of Eastern Europe had after communism. We don't want dirty capital here
because with dirty capital come dirty people and they create other social problems. We don't want them."
The new course is already leading to large aid and credit flows. A key partner here for Serbia is of course the IMF. The latest tranche, US$63million, of a
stand-by credit facility of US$252million was extended in January, US$126 million of which has already been disbursed.
Serbia takes short, sharp route to economic reform
Oversized and ugly in the Socialist style, the branches of Serbia's big state-owned banks have long symbolised the sector's dominance by badly run, poorly
capitalised institutions with political connections, the Financial Times reported recently.
Yet the premises of the four biggest, deeply indebted banks - Beobanka, Beogradska Banka, Jugobanka and Investbanka - are now locked and empty. Their banking
licences were withdrawn in January after the Yugoslav National Bank decided against rescuing them.
It was the most dramatic move yet by the group of young, most western-trained men in charge of Serbia's economic reforms under Zoran Djindjic, the prime
minister. The group includes Mladjan Dinkic, the national bank governor, Miroljub Labus, the Yugoslav federal deputy prime minister, and Bozidar Djelic, the
Serbian finance minister.
Their aggressive approach contrasts sharply with the more gradualist approach of other former Yugoslav states such as Slovenia and Croatia. Those countries'
troubled banks were nursed expensively back to health.
"From all the different bad experiences (elsewhere), we decided it's too long, too expensive to rehabilitate the banks," says Radovan Jelasic, vice-governor
of the national bank, another member of the group. "Let's just do it the short, although bloodier, way."
Beyond the banking system, the phasing out of price controls, which once covered 70 per cent of goods, is expected to add 10 percentage points to this year's
inflation rate, after contributing about 30 percentage points to last year's 40 per cent figures. There are already complaints that some household utility
bills are higher than average salaries.
Unemployment may also rise from an already high 870,000, more than 25 percent of the workforce, as companies are restructured, privatised or put into
bankruptcy. Dusan Vyjovic, a senior World Bank economist, estimates Serbia has 540,000 hidden unemployed - those who are employed but do little real work.
These measures threaten to cause far more widespread hardship than bank closure - few ordinary Serbs trusted their money to the big banks.
Mr Vujovic and other supporters of the reformers insist, however, that only the present approach can turn Serbia's economy around effectively.
"It's easier to go through transition quickly and be efficient than to let it drag on ... for 10 years," Mr Vujovic says.
The task of the reformers is made more difficult by political opposition from Vojislav Kostunica, the populist federal president of Serbia and Montenegro who
regularly attacks Mr Djindjic and his allies. Tensions between the two sides have risen again recently, after Momcilo Perisic, the deputy prime minister was
arrested in March by military policy and accused of spying for the US.
Mr Djindjic has described the arrest as an attempt to discredit his government, while his party has accused the military's security department of being in the
service of staff from Mr Kostunica's office and his party.
Ordinary Serbs, however, seem more ready to accept economic reform. Protests by the 8,500 bank workers made redundant have virtually ceased.
Even radical groups of workers - such as the coal miners - have, reformers say, accepted pay freezes or job losses.
Yet none of that has reduced the urgency of the drive to bring foreign, job-creating investment to Serbia to revive the economy. The privatisation programme,
unlike some elsewhere, has been designed to attract foreign investors. Laws are being rewritten to make bureaucracy less burdensome.
"This country has not received serious investment for 20 years, therefore a lot of the machinery is out-dated," Bozidar Djelic, the Serbian finance minister,
says. "We have to be the most attractive place in south-east Europe for investment."
The task will be hard - the Serbian economy is just one-third of its size 10 years ago. For the moment, however, the reformers remain upbeat, pointing out
the excellent investment opportunities available. They include the chance to buy 200 large, empty bank branches.
Yugoslav figures show Russia as biggest foreign trade partner, Germany second
In January, the Federal Republic of Yugoslavia [FRY] exchanged most goods with Russia, amounting to US$92bn. However, this exchange was primarily based on
US$87m worth of imports, the data released by the [Yugoslav] Federal Bureau of Statistics have shown, FoNet News Agency has reported.
Yugoslavia's second largest foreign trade partner in January 2002 was Germany with total trade worth US$54m, with US$38m of imports and US$16m of exports.
The exchange with Italy amounted to US$50m, of which imports amounted to US$34m, and exports US$16m.
Among the Federal Republic of Yugoslavia's largest trading partners is Bosnia Herzegovina with exports of US$16m in favour of Yugoslavia and imports worth
US$7m. Yugoslavia exported US$14m worth of goods to Switzerland, and imported US$5m. Exports to Macedonia amounted to US$11m, and imports US$7m.
EBRD leads investors in support of Yugoslav bank
A group of international investors led by the European Bank for Reconstruction and Development has purchased €4.5m of new shares in local Yugoslav bank,
Eksimbanka, effectively doublings its capital bases. The capital increase will allow Eksimbanka to strengthen its core business of providing medium-term loans
and trade finance products to local small and medium-sized enterprises.
The EBRD's investment will be €1.3m, giving it a 14.4 per cent shareholding and reflects the Bank's confidence that banking sector reforms in Yugoslavia are
progressing. Other investors include the South-east Europe Equity Fund Ltd, a private equity fund managed by Soros Private Funds Management, which is
providing €1.1m; Deutsche Investitions-und Entwicklungsgesellschaft mbH, providing €1m and Futura Investment, €1.1m.
It is the first time a group of international investors has bought equity in a local Yugoslav bank in more than a decade, said Victor Pastor, the EBRD's
director for Bank Equity. Eksimbanka, he explained, is uniquely positioned to support small and medium-sized businesses and is in fact one of the few banks
offering competitive loans to local entrepreneurs. "It is a local bank for local businesses, but with international support," Mr Pastor said.
Currently operating from one main office and two small subsidiaries, Eksimbanka aims to open further offices across the country over the next year. It will
support SMEs through loans ranging between €150,000 and €250,000, Eksimbanka recently became the first Yugoslav bank to join a programme backed by the EBRD to
facilitate trade in the region through the provision of guarantees on imports and exports. It is also developing an institution-building programme for which
the EBRD is helping mobilise support from donors.
Eksimbanka was established in 1991 as a subsidiary of Investbanka a.d. Beograd. At that time the bank mostly served large state and socially owned companies -
the clients of Investbanka. Four years later Eksimbanka started operating independently and, after the lifting of sanctions in 1996, offered regular banking
services for corporate customers. The principal business focus has since shifted to serving private SMEs. The shareholder structure of the bank was reformed
in 1998, when SMEs became the dominating shareholder group of the bank, collectively owning 60 per cent.
For further information contact Jazz Sing, EBRD, tel: +44 207 338 7931; e-mail firstname.lastname@example.org.
European Agency for Reconstruction invests 134m euros in Kosovo
The European Agency for Reconstruction on 29th March started its programme in Kosovo, worth 134.4 million euros, HINA News Agency has reported.
The head of the programme, Michael Doyle, said the priority this year would be the building of institutions and the development of a market economy.
The majority of EU funds for projects within the programme called "Economic Reconstruction and Reforms," namely €55m, will be invested in the Kosovo Power
By the end of this year, €830 million in donations will be invested in Kosovo.
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