ECONOMY-YUGOSLAVIA: New President Faces Daunting Task, Report

By IPS Correspondents Reprint | | Print |

Ramesh Jaura

BONN, Oct 10 2000 (IPS) - A new independent study underlines the gravity of problems inherited by Yugoslavia’s new president, Vojislav Kostunica from his predecessor, Slobodan Milosevic, who was defeated at the Sep 24 elections.

Authored by a Group of 17 (G17), comprising of 20 most distinguished Yugoslav economists, the report attributes the present situation, however, to the serious damage caused by the US-led NATO bombing campaign last year.

The G17 members are employed at Yugoslav universities, banks, consulting agencies and the International Monetary Fund and the World Bank.

Since its inception three years ago, G17 has been urging swift and comprehensive economic reforms and democratisation in Serbia and Montenegro, which form the federal republic of Yugoslavia.

It is led by two chief coordinators: Mladjan Dinkic of the University of Belgrade, the author of the economic bestseller “Economics of Destruction” and Veselin Vukotic, the chief architect of economic reforms in Montenegro.

Dinkic urged last week the need to form a transitional Serbian government comprising of experts, whose work will be limited to one year.

In its report posted on the Internet , the G17 estimates the direct damage inflicted by the NATO bombing at about 4.1 billion US dollars. Direct damage on the territory of Serbia without Kosovo is said to be about 3.8 billion US dollars.

Total economic damage – which includes human capital loss worth 2.3 billion US dollars and an indirect damage of 23.2 billion US dollars by way of the impact on the country’s Gross Domestic Product – is estimated at 30 billion US dollars.

Immediately after the end of bombing – between March 24 and June 9, 1999 – the Serbian government initiated the country’s reconstruction with the “self-reliance policy”.

This brought about a “mild recovery”. However, according to the G17, in the first four months of the year 2000, industrial production in Serbia was reduced by 74 percent compared with 1989 and by 21 percent in relation to the same period of 1998.

“In this way, the gloomy prognosis by G17 has been confirmed: with this pace economic recovery, Serbia will take at least 40 years to return the level of industrial production in 1989.”

The study is titled ‘Serbia 2000 – A Year After the NATO Bombing’. It examines the consequences of the bombing aimed at “punishing” the then president Milosevic for his crack down on ethnic Albanians in the Serb province of Kosovo.

The 15-nation European Union also imposed financial and economic sanctions. While the EU foreign ministers agreed Monday to lift the crippling oil embargo and end the flight ban, financial restrictions and a visa ban remain and would be eased slowly.

The G17 report points out that in the first four months of 2000, exports from Serbia (excluding Kosovo) were 60 percent lower than in the same period of 1989, and by 50 percent lower than it was in 1998.

“A rather poor situation with respect to external competitiveness of Serbian economy may be illustrated by the fact that the export value in the first four months this year was 12 percent lower compared even to the same period of the year before, at the time of bombing,” the G17 say.

They warn: “The lack of permanent foreign currency income will certainly jeopardise the macro economic stability and slow down the already mild pace of the country’s reconstruction.”

The economic situation is complicated by the fact that the value of this year’s import is 20 percent higher than the year before. This is an additional factor widening the foreign trade deficit.

In the first five months of this year, the foreign trade deficit amounted to around one billion US dollars.

Pointing to another aspect of economic life in Serbia, the G17 report says that in the first four months of 2000, real wages had dropped by 72 percent compared to those in 1989, or by 52 percent compared to 1998.

In the first four months of 2000, the real decline of wages accounted for 34 percent related to the same period in the year before.

“These figures prove that the reconstruction of the country has mostly been financed at the expense of wages of the employed. It is the essence of the self-reliance policy.

However, the problem is that employed citizens have not been financing the reconstruction by their own free will,” adds the report.

In April 1999, the government ordered that a part of the wages be set aside for solidarity. On the other hand, citizens’ personal incomes were additionally taxed.

The report highlights yet another aspect of the nature of huge tasks faced by Yugoslavia in the aftermath of North Atlantic Treaty Organisation, NATO, bombing.

Nearly 31 million US dollars have had to be spent on repairing bridges destroyed by the NATO bombing. A total of 40 million dollars have gone in for repairing power plants, 3.6 million dollars in reconstructing the radio and TV infrastructure and huge – though unspecified – amounts for putting industrial and housing facilities back in place.