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ECONOMY-BALKANS: ‘How Did We Become So Poor?’

BELGRADE, May 18 2010 (IPS) - Almost two decades after Yugoslavia fell apart, the majority of the defunct socialist country’s people are insecure and uncertain for their future with the booming economy and rapid development that capitalism promised remaining a pipe dream.

‘How did we become so poor?’ is the one question that is heard all over the region. Millions have slipped into poverty and perhaps two or three percent of the population is statistically recognised as rich.

Experts and analysts agree that the region, now comprising the newly independent nations or territories of Slovenia, Croatia, Bosnia-Herzegovina, Serbia, Kosovo, Macedonia and Montenegro, went through a “painful transition” into market economy.

It began more or less at the time when the 1991-95 wars of disintegration tore the country apart and ended a brand of relaxed socialism that had existed since the end of WW II.

Except for Slovenia, once the most developed part of former Yugoslavia and which became a member of the European Union (EU) in 2004, the economic performances of the rest are dismal when compared to 1989, a benchmark for the region.

Experts say that the processes of privatisation and transition to market economy here differed profoundly from what happened in the former East European nations after the Berlin wall fell in 1989 and that today’s poverty is not a sudden event caused by recent global downturn.

“We did not see former cunning communist managers or murky international businesses being engaged in privatisation,” economy analyst Misa Brkic told IPS in an interview.

“We had devastating wars, used by local elites to grab power and introduce people close to them into economy, where, as the time went by in the 90s and in this decade, they did not and could not play by market rules.”

The wars left more than 120,000 people dead and economic damage worth tens of billions of dollars in devastated factories, companies, state or privately owned real estate, and in production and export losses of the former common market that collapsed.

The devastation of industry and infrastructure in Serbia stood at more than 17 billion dollars during the NATO bombing in 1999, due to the regime of repression of former leader Slobodan Milosevic against ethnic Albanians in Kosovo.

According to Brkic, the overall situation discouraged big international business from wider investment in the region, and what has happened since 2008 and global recession “is only the inevitable outcome of the combination.”

Economic inactivity has become the trademark, with people wanting more and more financial help from the state. Unemployment has reached about 20 percent in Serbia and Croatia, with the grey economy in the former estimated at 40 percent of activity. In Bosnia-Herzegovina, unemployment stands at more than 45 percent.

“Old socialist mentality dies hard,” Brkic says. “That is why in Serbia people demand help from the state. Here, we have never adopted the credo that there’s a relationship between quantity of work and quality of life. That is why we have daily protests before the government buildings, with workers demanding salaries and work from the state.”

The older population relies on pensions, which have fallen to a few hundred dollars a month, as state funds dwindle due to inefficient taxation of stalled economies and little income from privatisation.

“Croatian industry and trade fell victim to the crazy idea of Franjo Tudjman [who led the country to independence] to create 200 wealthy tycoon families that would start up ‘successful’ economy,” prominent economy analyst Zarko Modric told IPS. “But only his aides could get funds for such privatisation. Once successful production and export companies were sold for small amounts to people who had no knowledge of how to run them.’’

Apart from that, Modric adds, the easiest solution for the state when the war ended in 1995 was to retire hundreds of thousands of veterans whose companies were destroyed either by artillery in war zones or by murky privatisation.

“That is why the number of pensioners is only a bit smaller than the number of employed people in Croatia. Pensions and other social categories eat the state budget. The state takes credits abroad, but under more and more severe conditions. So, the accumulated foreign debt of Croatia is now equal to its gross domestic product, 55 billion dollars. The state has fallen into debt bondage”.

Croatia and its 4.3 million people reached 69 percent of its 1989 GDP in 2003, while Serbia and its 7.3 million reached the same point only in 2009.

As for Bosnia-Herzegovina with an estimated population of 3.5 million, and its specific post-war construction of two entities, Republic of Srpska, the Serb entity, and Muslim-Croat Federation, things stand definitely worse.

The latest 2009 study by the United Nations Development Programme (UNDP), under the title ‘Privatisation of State Capital in Bosnia-Herzegovina’, named corruption, lack of rule of law, brain drain and ethnic divisions between Bosniak Muslims, Croats and Serbs, “entrenched in their entities” as the main reasons for nation’s economic impasse.

The long study describes in detail the process of reconstruction phase, after the war ended in 1995 until 2000, and then the privatisation and transition to market economy until 2009.

Much like Serbia or Croatia, Bosnia became “a hostage state”, as the UNDP says, where people in power enabled criminal or “mafia networks” to openly breach the laws, and make profits “through corruptive transactions with public officials and politicians in power’’.

In Bosnia, this also led to murky privatisation where companies were sold for nominal sums of a few euro and the new owners mostly did nothing with them.

“Such practice led to discrimination of foreign investors and resulted in complete lack of resulting funds in 2009,” the study says. The budget was deprived of privatisation income, thus further reducing the already meagre pensions and social care benefits for many.

“When people all over [former Yugoslavia] complain that they’ve never lived so poorly I’d say they cannot understand what happened although they witnessed it all,” Brkic says.

“Many still believe that we don’t have to work much in order to live well. But the reality is harsh and spares no one. Transition is painful, but it should be quick in order not to hurt much. However, people all over are living in it for almost 20 years and it’s for the political, intellectual and expert elite to reach consensus and speed up the process now,’’ Brkic said.