Sell Offs Bolster Milosevic Cronies

Slobodan Milosevic's outgoing Socialist Party of Serbia, SPS, exploited its last months in office to sell off valuable state-owned enterprises to its own backers, Serbia's new leaders have discovered.

On the eve of December's Serbian parliamentary elections, senior SPS officials in the Ministry for Economic and Property Privatisation embarked on a hasty programme to shift over 100 profitable state-owned enterprises into private hands.

The flurry of activity marked a ten-fold increase in privatisation applications. In the last three-and-a-half years of the Milosevic government, only around 400 of the 7,500 state-owned companies were sold off.

The newly privatised companies are likely to fall into the hands of their State-appointed directors, all of whom are Milosevic loyalists.

The former Yugoslav president can therefore expect to retain significant influence over the economy, while the new government of Serbian Prime Minister Zoran Djindjic finds itself embarrassingly empty-handed.

The remaining state-owned sector looks set to be the domain of struggling and unprofitable businesses, which promise to be a drain on the country's finances.

After Milosevic's overthrow in October, a transitional government was set up to run things until Serbian elections could be held in December.

Each government ministry was placed in the hands of three ministers - one from the Democratic Opposition of Serbia, DOS, one from the SPS and one from Vuk Draskovic's Serbian Renewal Movement, SPO.

Owing to a gross oversight by DOS, the Ministry of Economic and Property Privatisation was left exclusively in the hands of the SPS. And unlike other ministries under the transitional government, the privatisation department proved to be a paragon of efficiency.

Between October 24 and January 12, 217 underwent privatisation, 52 per cent more than in the first ten months of last year. Shares are being assigned for 114 of them.

A fifth of the companies concerned are economic giants in Serbia. They include Simpo, Hemofarma, Hotel Metropol, Vital, Trudbenik and Bambi.

Their directors are senior officials in the SPS or the Party of the Yugoslav Left, run by Milosevic's wife Mirjana Markovic.

Serbia's relatively slow rate of privatisation during Milosevic's ten-year reign was due to the government's professed hostility to the whole concept.

Oscar Kovac, SPS Minister for Economic and Property Privatisation, told the party's economic council early last year that social property was the most efficient form of ownership.

State companies, run by directors loyal to Milosevic, were the basis of the former president's financial power. When Milosevic needed an urgent injection of cash to diffuse outbursts of social discontent, he dipped into the accounts of state-owned enterprises.

When companies were privatised they went to individuals directly linked to the regime.

By early November, Kovac appears to have changed his tune. When the dinar's exchange rate dropped from six to 30 to the German mark, he publicly called on company directors to speed up the privatization process. His call was heeded. Kovac's officials worked ten-hour days processing the applications.

Boris Begovic, an advisor to Federal Deputy Prime Minister Miroslav Labus, said, "It was clear to Milosevic's regime that it would definitely lose political power in the December elections. They decided to use the current law on privatisation in order to retain economic power before their defeat in the elections. It was an agreed decision by the party to preserve a share of power built up over the last ten years."

This latest round of privatisation has generated 542 million German marks worth of free shares, many going to employees. The directors of the privatised enterprises are expected to try and buy these back. "They could very quickly buy the shares from their workers, just as some did in past years," said Jovan Rankovic, a well-known economist and member of the economic committee advising Kostunica's Democratic Party.

And there isn't much the government can do. Rankovic says the authorities have no say over the appointment of directors to privately-owned companies.

DOS leaders did spot what was going on before the December elections but could not call a halt as the process was above-board. By the time the new government was finally former in January, the main phase of the process was already complete.

The new Minister of Economy and Privatisation, Aleksandar Vlahovic, was flabbergasted. "I didn't expect a transitional government to take such drastic steps," he said.

The new government is trying to repair what damage it can, but options are limited. It would be difficult to accept the current situation, but to annul the recent privatisations would be worse, as they were legal.

Revoking previous sell-offs would slow the whole process down and successful privatisation is crucial to Serbia's economic recovery.

Milan Kovacevic, an economist and consultant on foreign investment, believes such a move would appear arbitrary and against the rule of law. "If that happens it will be a big step back because such things do not happen in democratic states," he said.

The new government may therefore pursue a partial solution focusing on certain cases where there is evidence of abuse or fraud. Vlahovic said, "Not all these privatisations will be annulled. Only individual cases which are suspicious will be reviewed."

The speaker of the Vojvodina parliament Nenad Canak, known locally as 'Elliot Ness', has already set-up an investigation service to work out the real capital value at which individuals acquired shares in state-owned businesses.

Vesna Bjekic is an IWPR contributor.