The Economic Cost Of Mr. Milosevic

The war over, Kosovo effectively lost and Serbia devastated, Yugoslav President Slobodan Milosevic is telling Serbs that so long as they pull together they can rebuild their country.

On a visit to Serbia's second city of Novi Sad this week, Milosevic promised that the bridges across the Danube, which had been early casualties of the NATO bombing, would be rebuilt within 40 days. Wider reconstruction would follow and so too, Serbia's re-entry into the international community.

The message is exactly what Mr. Milosevic's long-suffering fellow countrymen want to hear. But it is also what he has been promising ever since he came to power more than a decade ago.

In many respects, the most costly aspect of the NATO bombing to Serbia is not the physical destruction--put at between $20 and $100 billion--but the fact that it failed to dislodge Mr. Milosevic. This is because the Yugoslav President stands as the primary obstacle to both the kind of reforms needed to put the economy right and allowing foreign investment back in eight years after sanctions were first imposed.

The peace agreement ending the war, which was ratified by the Serbian parliament on June 3, suggested that, under certain conditions, Yugoslavia would not be excluded from "comprehensive access to the economic development and the stabilisation of the crisis region".

The UN Security Council resolution of June 10 authorising international deployment in Kosovo was more specific and promised reconstruction assistance to the southern Serbian province. However, there was no mention of aid to the rest of the country, which, without fundamental political change,seems highly unlikely. Both Washington and London have made it clear that financial support to help with Serbia's reconstruction is fully conditional upon Milosevic's removal.

Given the terms of the peace agreement, any assessment of the economic cost of having Mr. Milosevic as president must factor in the loss of Kosovo. This involves writing off about 11 per cent of Yugoslavias territory, some 15 per cent of its population and five per cent of gross domestic product (GDP). Mr Milosevic's two-and-a-half month war with NATO is likely to cut this year's official prediction of Yugoslavia's GDP by up to a half.

At the official exchange rate, of just over 11 dinars to the US dollar, this would mean a GDP of $14.3 billion, compared with last year's figure of $18.5 billion--a drop of close to 30 per cent. Using the popular black market exchange rate, of about 18 dinars to the US dollar, this year's GDP could easily drop below $9 billion.

A decade ago, before the break-up of Yugoslavia, the combined GDP for Serbia and Montenegro was close to $25 billion in 1989. The bombing has therefore halved this year's productivity which is itself just one third of what it was at the beginning of Mr. Milosevic's rule.

Using last year's growth rate as an basis, Mladjen Dinkic of Group 17, a gathering of Serbia's independent economists, has calculated that Yugoslavia would need 16 years to reach the productivity level enjoyed prior to the launch of the NATO campaign and a generation to attain the level of 10 years ago.

Other economists are not so pessimistic. Former National Bank governor Dragoslav Avramovic, views the destruction caused by the bombing as an "opportunity". He believes that much of what has been destroyed, in particular the military industry, was not productive and served only as a drain on the rest of the economy.

Avramovic, nevertheless, fears the winter as a result of damage inflicted upon oil refineries and power plants as well as the oil and trade embargoes imposed against Yugoslavia.

The damage to the country's two oil refineries is so great that more than $100 million new investment is needed simply to process the 1 million tonnes of domestic crude oil it currently has. And with its foreign currency reserves exhausted, Yugoslavia can no longer afford to pay for these imports, even if the oil embargo were to be lifted.

The government has announced that the electricity-generating plants in Obrenovac, Kostolac and Drmno as well as the high-voltage power lines from the Djerdap hydro-electric power plant on the Danube have been destroyed. Moreover, since Serbia can no longer count on electricity from Kosovo, the country's capacity has been reduced by a third.

Of some 30 billion kilowatt hours of electrical energy produced each year, one third is consumed by industry, and two thirds by the public. It is more than likely that the short-fall this winter will fall on the public.

Dimitrije Boarov, an economics journalist based in Novi Sad, writes for the Belgrade weekly Vreme. Christopher Bennett is a senior editor with the Institute for War and Peace Reporting.