YUGOSLAVIA - United Nations

Nations in Transit

720

YUGOSLAVIA

KEY ANNUAL INDICATORS

FREEDOM IN THE WORLD RATINGS, 1989-2000

Polity:Economy:

Population:PPP (USD):

Capital:Ethnic Groups:

Size of private sector as % of GDP (1998):

Political RightsCivil Liberties

Status

1993 1994 1995 1996 1997 1998 1999

NATIONS IN TRANSIT SCORES

1997 1998 1999-2000Democratization

Rule of LawEconomic Liberalization

Presidential-parliamentaryMixed statist10,600,0002,300BelgradeSerbian (63 percent), Albanian (14 percent), Montenegrin (6 percent),Hungarian (4 percent), other (13 percent)40

1443.0 1484.0 1487.0 1018.0 1087.0 1123.0 911.0

-28.0 6.5 6.0 4.3 7.4 2.6 -19.3

na na 71.8 90.5 23.2 30.4 42.0

na 1500.0 1400.0 1800.0 2700.0 2900.0 1500.0

na 1900.0 2400.0 4100.0 4800.0 4800.0 3300.0

25.0 0.0 0.0 0.0 0.0 na na

24.0 23.9 24.7 26.1 25.6 27.2 na

72.6 72.6 72.6 na na 72.8 74.9

5 5 6 6 6 6 6 6 6 6 5

4 4 5 5 6 6 6 6 6 6 5

PF PF NF PF NF NF NF NF NF NF PF

.na 4.90 ââ5.50

.na .na 6.00

.na 4.83 ââ5.33

89-90 90-91 91-92 92-93 93-94 94-95 95-96 96-97 97-98 98-99 99-00

GDP per capita (USD)

Real GDP growth (% change on previous year)

Inflation rateExports (USD millions)

Imports (USD millions)

Foreign Direct Investment (USD millions)

Unemployment rateLife Expectancy (years)

yugoslavia

721

Introduction

Since Serbia and Montenegro proclaimed the for-mation of the Federal Republic of Yugoslavia(FRY) in April 1992, their common state has had

a precarious existence. Formed in the midst of the warsin the neighboring former Yugoslav republics of Croatiaand Bosnia-Herzegovina, and claiming to be the solelegal successor to the previous Socialist Federal Re-public of Yugoslavia (SFRY), the FRY since its cre-ation has been plagued by a host of problems. Inter-national economic sanctions, war in neighboring statesinvolving ethnic brethren, considerable domestic po-litical opposition to Slobodan Milosevic’s rule, disagree-ments between the two federal partners, and unrest inthe formerly autonomous Yugoslav province of Kosovohave all made the “third Yugoslavia” an inherently un-stable entity. The FRY has not held free and fair elec-tions since its establishment in 1992, and members ofindependent political parties face frequent harassmentby the authorities. The government limits various civilliberties, including freedoms of the press and religion,and the judiciary is largely controlled by Milosevic’sregime. In 1997, a new leader in Montenegro, MiloDjukanovic, emerged to provide the most significantchallenge to Milosevic’s rule in the country that hadyet emerged, and under Djukanovic, Montenegro hasslowly pursued a strategy of disassociating itself fromthe Milosevic regime, if not from the Yugoslav federa-tion itself. Meanwhile, in Kosovo, the Kosovo Libera-tion Army (KLA) began an uprising against Serbiancontrol in the province in 1997.

Economically, citizens of the FRY have experienceda precipitous drop in their living standards since thedisintegration of the former Yugoslavia; according tosome estimates, average per capita GDP in the FRY in1999 was one third of its 1989 level. Wars and interna-tional economic isolation have played a significant rolein the economic downturn, as has the Milosevicregime’s consistent refusal to engage in meaningfuleconomic reform. Much of the regime’s strategy formaintaining power in such unfavorable circumstanceshas revolved around distributing control over state-owned companies to political allies and allowing a largeblack market to flourish. NATO’s bombing campaignagainst Yugoslavia itself has been estimated to have

done some $30-40 billion worth of damage to the FRY’seconomic infrastructure.

International concern over the fighting in Kosovocontinued to grow throughout 1998, culminating in March1999 with NATO’s attacks on the FRY. The settlementthat ended the conflict in June 1999 effectively, in prac-tice if not in theory, removed Kosovo from Belgrade’slegal control. Although the agreement recognizedYugoslavia’s continuing territorial claim to sovereignty overKosovo, the practical day-to-day administration of the prov-ince was turned over to a UN-led civilian administration.In the immediate aftermath of the Yugoslav army’s with-drawal, Albanian attacks against Serbs, Roma, Turks, andother minorities in Kosovo led to a new round of forcedexpulsions of over 100,000 people. By mid-1999, the FRYhad effectively disintegrated into three distinct politicalentities: Kosovo, under NATO/UN control, Montenegro,where Djukanovic was maintaining a precarious peaceamongst rival elements in Montenegrin society, and Serbia(together with the FRY’s other “autonomous” province,Vojvodina), where Milosevic was fully in charge. Despitethe disastrous results of the Kosovo conflict, the Serbianopposition was unable to launch a serious campaignagainst the regime, partly due to infighting amongst itsleaders, and partly due to the fact that an impoverished,demoralized population was unable and/or unwilling torisk civil war in Serbia itself.

Democratization

POLITICAL PROCESS 5.50/7

1. When did national legislative elections occur?Were they free and fair? How were they judged bydomestic and international election monitoringorganizations? Who composes the government?In April 1992, Serbian and Montenegrin delegates inwhat was left of the Federal Assembly of the SocialistFederal Republic of Yugoslavia (SFRY) adopted a con-stitution for a new Federal Republic of Yugoslavia(FRY), composed of Serbia and her two autonomousprovinces, Kosovo and Vojvodina, and Montenegro. TheFRY was proclaimed on April 27, 1992, and in May1992 elections were held for a body to succeed theSFRY’s Federal Assembly. The new FRY constitution

Nations in Transit

722created a bicameral Federal Assembly. The upperhouse is the forty-member Chamber of Republics inwhich Montenegro and Serbia have equal representa-tion. The republican assemblies elect their respectivemembers to the federal Chamber of Republics. Del-egates to the 138-member Chamber of Citizens areelected according to a complex formula in which 108delegates are assigned to Serbia and thirty toMontenegro. In each case, some delegates are popu-larly elected (in Serbia, 54; in Montenegro, 24) whilethe remainder are elected according to constituencymajorities. Delegates in both chambers serve four-yearterms.

Elections for the Federal Assembly were held inNovember 1996. An alliance composed of the rulingSocijalisticka Partija Srbije (the Socialist Party of Serbia, orSPS), the Jugoslovenska Udruzena Levica (the YugoslavUnited Left, or YUL), and Nova Demokratija (New De-mocracy, or ND) won a plurality of 64 seats in the 138-member Chamber of Citizens. The SPS’s sister partyin Montenegro, the Democratic Party of Socialists ofMontenegro (Demokratska Partija Socijalista Crne Gore,DPSCG) won an additional 20 seats. The three mainopposition parties in the Zajedno (Together) coalition(the Democratic Party, the Serbian Renewal Movement,or SPO, and the Civic Alliance) won 22 seats, whilethe main right-wing nationalist opposition party, theSrpska Radikalna Stranka (the Serbian Radical Party, orSRS) won 16 seats.

The two republics each have popularly-elected, uni-cameral assemblies, with delegates serving four-yearterms. The Serbian Assembly (Skupstina Srbije) has 250seats. Delegates are elected according to a proportional-representation system, although the Serbian govern-ment was in 1999 considering the adoption of a first-past-the-poll system, which would favor Milosevic’sSPS. In the December 1993 elections for the SerbianSkupstina, the SPS won 123 seats; a multiparty oppo-sition movement, the Demokratski Pokret Srbije (the Demo-cratic Movement of Serbia, or DEPOS) won 45; theSRS won 39; the Democratic Party 29; the DemocraticParty of Serbia 7; the Democratic Community ofVojvodina Hungarians 5; and a Sandzak-Moslem-Kosovo Albanian coalition, the Party of DemocraticAction/Democratic Party of Albanians won 2.

Two leading opposition parties, Zoran Djindjic’sDemocratic Party and Vesna Pesic’s Civic Alliance, boy-cotted the latest elections for the Serbian Skupstina

in September 1997. Milosevic’s ruling left-wing coali-tion lost its governing majority, gaining only 110 seats.The SRS, on the other hand, significantly increasedits share of power, gaining 82 seats. Vuk Draskovic’sSPO also improved its standing, winning 45 seats inthe Skupstina. Other smaller parties, including onerepresenting Vojvodina Hungarians and another rep-resenting Sandzak Muslims, shared the remaining 13seats. Serbian politics took a turn to the nationalistright in March 1998, when the SRS president, VojislavSeselj, was named deputy prime minister in the newSerbian government. In January 1999, what couldloosely be called a government of national unity wasformed when Vuk Draskovic joined the federal gov-ernment as a deputy prime minister. Four of his fellowSPO members were also given ministerial positions.Draskovic’s tenure in government was cut short, how-ever, when he was purged in April 1999 after criticiz-ing Milosevic’s policies during the NATO interventionin the Kosovo conflict.

In the November 1996 elections for the 71-seatMontenegrin Assembly (Skupstina Crne Gore), the rulingDPSCG won 45 seats; the Liberal Alliance 19; the Partyof Democratic Action 3; the Democratic Alliance ofMontenegro, 2; and the Democratic Union of Albanians2. In 1997, the DPSCG split into two factions, one sup-porting the pro-Milosevic Montenegrin president,Momir Bulatovic, and the other supporting MiloDjukanovic, another leading DPSCG member who fa-vored greater autonomy for Montenegro within theYugoslav federation. In the most recent elections tothe Montenegrin Parliament, held in May 1998, theDjukanovic-led coalition “Za Bolji Zivot” (“For a BetterLife”) won 42 seats, Bulatovic’s Socialist People’s Partyof Montenegro won 29 seats, the Liberal Alliance ofMontenegro, 5, and the Democratic Union of Albanians,1 seat. In contrast to elections held in Serbia, the Or-ganization for Security and Cooperation in Europe(hereafter, the OSCE), has deemed elections held inMontenegro to be “free and fair.”

The Kosovo Albanian population consistently boy-cotted Serbian and Yugoslav elections from 1989 on.In 1990, Serbian authorities had promulgated a newrepublican constitution that rescinded the broad au-tonomy Serbia’s two provinces, Kosovo and Vojvodina,had enjoyed since 1974. Albanian delegates in theKosovo Assembly responded by declaring Kosovo aconstituent republic in Yugoslavia (but independent

yugoslavia

723of Serbia), to which Serbian authorities responded bydissolving the Kosovo Assembly. In May 1992, KosovoAlbanians held elections for a new assembly, andelected Ibrahim Rugova “president” of the self-de-clared “Republic of Kosovo.” Serbian authorities im-mediately declared the elections illegal. However, theKosovo Albanian’s state remained unrecognized by theinternational community. On March 22, 1998, KosovoAlbanians again held elections for their self-declaredparliament and presidency. Despite a boycott of theelections by several smaller Albanian parties, Rugovawas again overwhelmingly elected president.

2. When did presidential elections occur? Werethey free and fair?The Federal Assembly elects the Yugoslav president,who must obtain the approval of both Montenegrinand Serbian delegates. The Yugoslav president, in turn,nominates the federal prime minister. According to theFRY constitution, the federal president and the fed-eral prime minister cannot be from the same republic,and the federal president is limited to only one four-year term. The first FRY president was Dobrica Cosic,a well-known Serbian writer and dissident during theTitoist period. In June 1993 Cosic was ousted byMilosevic and replaced by Zoran Lilic, a Milosevicprotégé with no independent authority. Since Milosevichimself was constitutionally prohibited from serving athird consecutive term as Serbian president, he tookover Lilic’s position as Yugoslav president in July 1997.At the same time, Milosevic’s party also proposed con-stitutional changes so that the Yugoslav presidentwould henceforth be popularly elected. This was widelyseen as a precautionary move, given Milosevic’s increas-ing unpopularity in Montenegro.

According to the FRY Constitution, the Yugoslavpresidency is a largely ceremonial post. In reality, how-ever, Milosevic’s control over the SPS and various statesecurity organs makes him by far the most powerfulman in the country.

The president of Serbia is popularly elected.Slobodan Milosevic won the first multi-party electionsin December 1990, and was re-elected in December1992. In 1997, the SPS nominated Zoran Lilic (seeabove) as its candidate for the Serbian presidency. Af-ter failing to win in the first two rounds in Septemberand October, Lilic was replaced by Milan Milutinovicas the SPS candidate. The primary opponent to both

Lilic and Milutinovic was the SRS leader, Vojislav Seselj.In a fourth round of elections in December 1997,Milutinovic beat Seselj amidst widespread rumors ofballot stuffing to assure a 50 percent turnout. Littlecomplaint was heard from the international commu-nity, however, because Milutinovic was felt to be aninfinitely more acceptable figure than the more na-tionalist Seselj.

The President of Montenegro is also popularlyelected. Milo Djukanovic, the former Montenegrin PrimeMinister who broke with Milosevic and his Montenegrinloyalists during the Serbian opposition protests in thewinter of 96/97, was elected president of Montenegroin multi-party elections in October 1997. Djukanovic’svictory was disputed by his opponent and predeces-sor as president of Montenegro, Momir Bulatovic, whoaccused the Djukanovic camp of widespread vote fraud.Despite rumors that Bulatovic was planning a coupand that Milosevic wanted to impose a state of emer-gency in Montenegro, strong international support forDjukanovic helped keep him in office, and the con-frontation between Djukanovic and Milosevic, andbetween Montenegro and Serbia, continued.

None of the elections held in Yugoslavia over thepast several years, whether at the national, republi-can, or municipal levels, can be considered to havebeen “free and fair.” Regarding the several rounds ofpresidential and parliamentary elections in Serbia inthe latter half of 1997, for instance, an OSCE reportnoted that the “overall election process in the Re-public of Serbia is fundamentally flawed,” and theUS State Department has claimed that “in practicecitizens cannot exercise the right to change their gov-ernment.” Opposition parties are routinely deniedaccess to state-owned media (see below), and theMilosevic regime manipulates the electoral processin numerous ways.

3. Is the electoral system multiparty-based? Arethere at least two viable political parties function-ing at all levels of government?Yugoslavia’s system is multi-party based. The FRYConstitution guarantees citizens freedom of politi-cal association (Article 41). At the federal Yugoslav,republican, and municipal levels several parties com-pete in elections and participate in government. Theactual power and influence of the various parties var-ies significantly. The SPS, for instance, by virtue of

Nations in Transit

724its control over the state security forces, the most im-portant mass media, and the most important segmentsof the economy, has a disproportionate share of powerat all levels of government. Nevertheless, over thecourse of the past few years, the SPS has lost itsexclusive control of government institutions, and hasbeen increasingly forced to form coalitions with op-position parties.

4. How many parties have been legalized? Haveany parties been banned or declared illegal?As of 1995, there were approximately 200 partiesfunctioning at the federal and republican levels. Manyof these, however, were small parties with little orno infrastructure or coherent political platform. Ar-ticle 42 of the FRY constitution forbids any politicalparties/organizations that advocate the violent over-throw of the constitutional order. In the fall of 1997,Serbian officials prevented a party representingMuslims in the Sandzak, Sandzak-Dr. Lasim Ljajic,from forming an electoral coalition with the Kosovo-based Democratic Reform Party of Muslims.

5. What proportion of the population belongs topolitical parties? What proportion of party mem-bership is made up of women?Exact figures on political party membership are dif-ficult to come by because many parties are reluctantto release such data. Within Serbia itself, if one ex-cludes the Kosovo Albanian population (which hasbeen boycotting elections since 1990), and Hungar-ians in Vojvodina (who vote for their own ethnicallybased parties), the Serbian electorate can be dividedinto four segments. The first consists of those whoabstain from voting altogether. The second consistsof SPS/YUL voters. The third consists of SRS sup-porters. The fourth segment votes for the rest of theopposition parties, such as the SPO, the DS, the GSS,etc.

The SPS claims a membership of approximately600,000, making it by far the largest political party inYugoslavia. Nova Demokratija claims to have 40,000members. Official membership figures, however, donot generally reflect a party’s overall level of popularsupport. Such information is better determined byanalyzing voting results since 1990. Public supportfor Milosevic’s SPS, for instance, has declined con-siderably over the past eight years; in the 1990 elec-

tions, the SPS gained over 2,300,000 votes, while inthe 1997 elections, this number fell to 1,200,000.Vuk Draskovic’s SPO has consistently won between700,000 and one million votes over the past eightyears. Support for Vojislav Seselj’s SRS also fluctu-ates considerably; in the elections between 1990 and1997 the SRS gained anywhere between 600,000and 1,038,000.

Reliable figures for Montenegrin political partiesare also difficult to obtain. Of Montenegro’s approxi-mately 450,000 registered voters, however, it is gen-erally assumed that most Montenegrins who iden-tify themselves more as Serbs, or favor close ties withSerbia, vote for Momir Bulatovic’s wing of the DPS-CG. Milo Djukanovic’s recent electoral successes, onthe other hand, are due to the votes his faction ofthe DPS-CG has received from Albanians, Croats,and Muslims in Montenegro, along with that seg-ment of the Orthodox population that has tradition-ally favored Montenegrin independence.

No information is available for the percentage ofwomen registered in political parties. Legally, thereare no restrictions on women’s participation in poli-tics, and women are active in political organizations;nevertheless, they are underrepresented in party andgovernmental offices, holding by one estimate lessthan 10 percent of the ministerial level positions inthe Serbian and Federal governments.

6. What has been the trend of voter turnout at themunicipal, provincial, and national levels in recentyears? What are the data related to female voterparticipation?Voter turnout throughout the former Yugoslavia wastraditionally high. In the 1990 elections, well over 70percent of the eligible electorate turned out. In morerecent elections there have been signs of “voter fa-tigue.” Due to the boycott of the September 1997Serbian elections, for instance, many observers ques-tioned the Republican Electoral Commission’s claimthat 62 percent of the electorate had turned out. Insubsequent runoff elections for the Serbian presidencyvoter turnout hovered at or below the 50 percent level.In the October 1997 presidential elections inMontenegro, voter turnout was approximately 73 per-cent. Information regarding female voter turnout isunavailable.

yugoslavia

725CIVIL SOCIETY 5.25/7

1. How many nongovernmental organizations(NGOs) have come into existence since 1988? Whatis the number of charitable/nonprofit organiza-tions? Are there locally led efforts to increase phi-lanthropy and volunteerism? What proportion ofthe population is active in private voluntary activ-ity (from polling data)? What are some of the ma-jor women’s nongovernmental organizations andwhat is the size of their membership?Hundreds of organizations have been formed since1988, although the exact number and the size of theirmemberships are difficult to determine. NGOs in theFRY are still officially registered as “social organiza-tions” or “associations of citizens” in accord with theterms used during the socialist period. According tothe Federal Statistics Office, in 1994 there were 18,937registered “social organizations” and 1,349 registered“associations of citizens.” All of these, however, hadoriginated during the socialist period. Since 1991, ob-servers believe another 500 have been formed, the mostnumerous being ecological and humanitarian organi-zations, followed by human rights oriented NGOs.

In 1991, a very vocal Belgrade-based “Center for Anti-War Action” emerged, and a “Humanitarian Law Cen-ter” was also founded. There are also Helsinki Com-mittees active in Belgrade, Pristina, and the Sandzak.The Helsinki Committees in Belgrade and Pristina oftencollaborate in monitoring the human rights situationin Kosovo. The Serbian Orthodox Church is active inproviding charitable assistance to refugees and the poor.In Kosovo, a predominantly-Serbian organization ofcitizens known as the “Serb Resistance Movement” hasorganized to protest the Milosevic regime’s policies inthat province. The Students Club in Belgrade and theIndependent Union of Students in Kosovo have alsoplayed prominent roles over the past several years.Several environmental and women’s rights groups arealso active; among the latter, some prominent ones arethe Belgrade-based “Women in Black,” “Krajina andTara,” “Tera,” “Woman” (an association of single moth-ers), and the Pristina-based “League of AlbanianWomen” and “Mikya.”

An interesting development in early 1999 was therise of so-called “Citizens’ Parliaments” in various partsof Serbia. The organizational center of this movementwas in the town of Cacak. Spokespersons for the Citi-

zens’ Parliaments claimed that their primary goal wasthe protection of civil rights, but their spontaneousemergence was in part a reaction to what was widelyperceived to be an ineffectual, discredited opposition.Most of these movements, in fact, intentionally avoideddeveloping ties with existing opposition parties.

2. What is the legal and regulatory environmentfor NGOs (i.e. ease of registration, legal rights, gov-ernment regulation, taxation, procurement, andaccess-to-information issues)? To what extent isNGO activism focused on improving the legal andregulatory environment?Although legal provisions for registering NGOs arerelatively liberal at the Federal level, politically activeNGOs often have to confront various forms of govern-mental harassment. By virtue of being able to causeproblems for businesses, the government can discour-age corporate/business support for the NGO commu-nity. Humanitarian assistance is tax exempt, accordingto current tax laws, only if it is distributed through theRed Cross or the Office of the Serbian Refugee Com-missioner. Revenue used to support programs and coreadministrative costs are not subject to taxation. Lawson citizen’s associations at the republican and Federallevels have not been brought into conformity with therepublican and Federal constitutions, and there is nolegal framework for international NGOs; consequently,all find themselves in various forms of legal limbo.

The operating environment for NGOs in Yugoslaviafluctuates according to the international situation. In1997, there was a mild improvement in the position ofNGOs in Serbia proper, as some observers noted thatthe Milosevic regime allowed more foreigners affili-ated with international NGOs to enter the country. In-ternational monitoring groups claimed that in general,they were free to conduct their activities. On the otherhand, domestic NGOs have charged that the govern-ment was illegally obstructing their activities. For in-stance, a Belgrade-based NGO which monitors elec-tions (CeSID, the Center for Free Elections and De-mocracy) in November 1997 claimed that the govern-ment had denied them the right to monitor the presi-dential and parliamentary elections in Serbia in Sep-tember. In subsequent legal proceedings initiated byCeSID, the Serbian Supreme Court upheld thegovernment’s refusal to allow CeSID a role in elec-tions monitoring. International NGOs have also re-

Nations in Transit

726ported unacceptably long delays in getting visas for theirpersonnel. In Montenegro, the government has promotedmore open and liberal policies towards NGOs.

3. What is the organizational capacity of NGOs?Do management structures clearly delineate au-thority and responsibility? Is information availableon NGO management issues in the native lan-guage? Is there a core of experienced practitio-ners/trainers to serve as consultants or mentorsto less developed organizations?Despite the large number of NGOs and citizens’ asso-ciation that are on the books, only about a dozenBelgrade-based NGOs have well-defined missions,established reputations, loyal donors, and defined setsof activities. This core group consist primarily of hu-man rights, anti-war, and women’s NGOs. However, anew generation of NGOs has grown up in cities out-side of Belgrade. An NGO support center, the Belgrade-based Center for the Development of the Not-for-ProfitSector, provides some legal assistance to NGOs, con-sultation services, and issues a directory of NGOs inthe country. There is also a local cadre of activists whocan teach NGO management skills. Nevertheless, ob-servers believe that more specialized training is neededfor activists and members in NGO management, bud-geting, fundraising, etc. New NGOs also frequently lackoffice space and equipment (e.g., telephones, fax ma-chines, computers, e-mail and internet access, etc.).The availability of volunteers is not fully exploited.

4. Are NGOs financially viable? What is their taxstatus? Are they obliged to and do they typicallydisclose revenue sources? Do government procure-ment opportunities exist for private, not-for-profitproviders of services? Are NGOs able to earn in-come or collect cost-recovery fees?Most NGOs operate on shoestring budgets, and makedo from grant to grant. Most NGOs depend upon vol-unteer support. Activists generally lack fundraisingskills. The depressed state of the Yugoslav economymeans that most NGOs will remain dependent on theinternational donor community for some time to come.Some NGOs receive in-kind support (e.g., the use ofoffice space) from reform-minded municipal authori-ties in cities and towns run by the opposition. Anotherway for NGOs to raise funds is by charging for servicesand engaging in other revenue-raising activities.

5. Are there free trade unions? How many work-ers and what proportion of the workforce be-long to these unions? Is the number of workersbelonging to trade unions growing or decreas-ing? What is the numerical/proportional mem-bership of farmers’ groups, small business as-sociations, etc.?Article 41 of the FRY constitution guarantees work-ers the right to form free trade unions. All workersexcept military and police personnel are entitled tojoin or form unions. Out of a total estimated laborforce of 2.3 million, the government controlled “Alli-ance of Independent Labor Unions” has an estimatedmembership of 1,000,000. The independent “UnitedBranch of Independent Labor Unions” has about170,000 members. Other unions are smaller and moresector-specific; for instance, the Union of Bank Em-ployees claims some 12,000 members. Numeroussmaller unions representing transportation workers,educational employees, journalists, retirees, etc., arevery active, at least judging by their proclivity to strike.The independent unions, however, still have notreached the critical mass needed to organize success-ful, countrywide general strikes. Independent unionssuffer from regime attempts to suppress their activi-ties; for instance, unions are often prohibited frombusing their members to strikes or demonstrationsheld in different parts of the country.

6. What forms of interest group participation inpolitics are legal? What types of interest groupsare active in the political and policy process?Articles 39 and 41 of the FRY constitution grant citi-zens the freedom to form political parties and organi-zations, and freedom of assembly. There are numer-ous organized interest groups in the country, repre-senting ethnic constituencies (e.g., especially promi-nent are those representing Albanians, Hungarians,Muslims, and Roma (Gypsies), business interests, suchas the Yugoslav Chamber of Commerce and Industry,women’s rights groups, etc.

7. How is the not-for-profit/NGO sector perceivedby the public and government officials? What isthe nature of media coverage of NGOs? To whatextent do government officials engage withNGOs? Is the government receptive to NGO policyadvocacy?

yugoslavia

727Government officials associated with the ruling regimegenerally view NGOs (especially those with interna-tional connections) in suspect terms. Often they areaccused of being “traitors” or “foreign mercenaries.”NGOs also suffer from the fact that they are not a tradi-tional form of social activism in these regions; conse-quently, the local population often views them as “mer-cenaries” working for foreign interests. Moreover, thereis in general a certain ignorance about what functionsNGOs are supposed to perform in society. NGOs areusually viewed more favorably in towns and citieswhere the opposition has come to power. Indepen-dent/alternative media treat NGOs in more favorableterms, although the NGO community itself has fre-quently failed to understand the need of publicizingits activities through the local press.

Federal and republic-level organs of governmentare generally perceived to be uninterested and unre-sponsive to NGO policy advocacy. Little contact takesplace between NGOs and government bodies. Therehave also been reports of a certain amount of self-cen-sorship on the part of NGOs for fear of governmentalreprisals.

INDEPENDENT MEDIA 5.75/7

1. Are there legal protections for press freedom?Articles 36 and 38 of the FRY Constitution guaranteefreedom of the press and prohibit censorship, withone stipulation: press/media outlets enjoy these free-doms only if they are registered with the government.In practice independent/alternative media have fre-quently been subjected to numerous forms of legal-istic/bureaucratic harassment. By 1998/99, as opposi-tion to the Milosevic regime grew, this turned intooutright persecution. A new media law presented inFebruary 1998 on the allocation of frequencies for TVand radio stations, for instance, drew considerablecriticism from the independent media because of itsambiguity. The new regulation imposed undisclosedfees for the allocation of frequencies, leaving officialsfree to price independent media houses out of busi-ness. Another feature of the new regulation warnedthat applications for a frequency would not be pro-cessed if technical details (for instance, how far thesignal of a certain transmitter will carry) in the appli-

cation were incorrect. Since the methodologies fortesting such things varies, this left considerable scopefor arbitrary determinations that an application was“technically incorrect.”

In October 1998, with the threat of NATO bombard-ment imminent, the Serbian government passed a de-cree on media conduct in a situation of immediate wardanger, which enabled it to close or impose punitivemeasures against any media of its choice. The decreeresulted in the closure of several independent papers,including Danas, Dnevni Telegraf, Evropljanin, and Nasa Borba.After the immediate crisis passed, many of the mea-sures were adopted as permanent legislation.

When the NATO bombing campaign began onMarch 24, 1999, a new set of decrees were passedwhich established a system of wartime censorship.Media houses were provided with suggested “lan-guage” for describing NATO, the KLA, etc., and jour-nalists were prohibited from reporting on military orcivilian casualties. In April, the publisher of DnevniTelegraf, Slavko Curuvija, was assassinated in Belgrade.His murderers were never found. Many independentjournalists were also taken into temporary custodyduring the war. In a very controversial act, Yugoslavmedia also came under attack from a different source—NATO itself, when cruise missiles destroyed thebuilding housing Radio-Televizija Srbije (RTS), killing 16reporters, editors, and technicians.

2. Are there legal penalties for libeling officials?Are there legal penalties for “irresponsible” jour-nalism? Have these laws been enforced to harassjournalists?There are laws on the books against slandering pri-vate individuals and government officials, but prior to1998 the Milosevic regime had rarely used such formsof harassment. The October 1998 decree on the mediaincluded provisions allowing media outlets to be finedfor publishing items of a personal nature without theconsent of the concerned individual. The decree alsoallowed private individuals or organizations to sue me-dia outlets for being “insufficiently patriotic” or for dis-seminating information that does not uphold “the ter-ritorial integrity, sovereignty and independence of thecountry.” Most often, the legal penalties for such ac-tions have been the imposition of exorbitant finesagainst the accused, with the intent of destroying theirfinancial viability.

Nations in Transit

7283. What proportion of media is privatized? Whatare the major private newspapers, television sta-tions, and radio stations?Yugoslavia has a plethora of both electronic and printmedia outlets. According to one estimate, in 1997 therewere 300 privately owned radio stations and 100 pri-vately owned TV stations in Yugoslavia. Belgrade nowhas 12 daily newspapers. In Yugoslavia as a whole, thereare 27 daily newspapers, 171 weeklies or biweeklies,and 188 monthlies.

The largest and most influential media in Yugosla-via, however, both electronic and print, are state-owned.The most important TV station is the only government-owned station RTS, with a signal covering most of thecountry. RTS’s editorial policy is strictly pro-govern-ment; during the 1997 electoral campaign, for instance,the Humanitarian Law Center in Belgrade claimed thatall of the opposition parties combined received onlyone-fourth of the airtime RTS devoted to the rulingSPS-coalition. A primary demand by the oppositionsince 1990 has been greater access to state-ownedmedia. The most memorable feature of the winter 1996/97 opposition protests was the sight of tens of thou-sands of demonstrators rattling pots and pans and blow-ing their car horns during the broadcast of RTS’s mainevening news program.

Montenegro and each of the provinces have theirown state television services as well. In 1997, after therelationship between Montenegro’s state-run televi-sion network (TV Crna Gora), and the Milosevic-con-trolled RTS soured, TV Crna Gora began broadcasting amore objective and open news-information program.Under TV Crna Gora’s new editorial leadership, opposi-tion political parties began to receive more coverage,and collaboration with independent news media inBelgrade, such as Radio B-92 or Belgrade’s Studio Btelevision station increased. By way of contrast, TV CrnaGora in 1997 stopped rebroadcasting RTS’s main nightlynews program. Among the most important print mediain Montenegro are Vijesti and Monitor.

In both Kosovo and Vojvodina, there are RTS broad-casts in Albanian or Magyar, respectively, although theeditorial slant is pro-Milosevic. Yugoslavia also hasnumerous print media for ethnic minorities publishedin their native languages, e.g., Novi Sad’s Magyar Szo, aHungarian-language daily (est. circulation: 26,000), orPristina’s Koha Ditore, an Albanian-languagenewsmagazine edited by a well-known Albanian activ-

ist, Veton Surroi. In 1998, a new Albanian languagedaily, Koha Sot, began publishing with a circulation of35,000, with an editorial line pursuing a middle linebetween the more militant Koha Ditore and the pro-Rugova elements in the Albanian population.

The largest print daily in Yugoslavia is the Belgrade-based Politika (estimated circulation: 200-300,000), againwith a pro-Milosevic editorial line. There are a varietyof opposition publications, and their popularity hasincreased in recent years. According to one report, in1997 the overall circulation of the independent presssurpassed that of the state media. The Belgrade-basednewsweeklies Vreme and NIN are strongly anti-regime.In recent years, tabloids such as Belgrade’s Blic havealso gained in popularity. In 1998, however, as part ofMilosevic’s overall crackdown, a number of print me-dia, such as Nasa Borba, Demokratija, Dnevni Telegraf, andNT Plus were closed, as well as the weekly Evropljanin.

Among the most important privately-owned elec-tronic media are Belgrade’s B-92 radio station and Stu-dio B independent television station. B-92 has longbeen noted for its strong anti-war stance, and duringthe winter 96/97 Belgrade demonstrations actuallygained many new listeners as people tuned in to getmore objective reporting as to what was going onaround the country. B-92 has also organized a networkof 24 opposition radio stations throughout Serbia,Vojvodina, and Montenegro. All told, the network’s pro-gram reaches 70 percent of Serbia’s population. Afterthe NATO bombing campaign began in March 1999,one of the regime’s first acts was to arrest B-92’s edi-tor-in-chief, Veran Matic. (Matic was subsequently re-leased, although B-92 was forced to operate under strictgovernmental supervision for the duration of the war.)

Over the past several years, Belgrade’s Studio Btelevision station provided opposition parties withmuch more coverage than they could receive on RTS.Studio B’s signal, however, only reaches limited partsof Belgrade, and over the past several years the gov-ernment has repeatedly refused to allow Studio B toobtain a stronger transmitter. Opposition cadres fromthe Zajedno coalition took charge of Studio B after theresults of the 1996 municipal elections were recog-nized, but in September 1996 squabbling among op-position parties led Vuk Draskovic’s SPO to purge thestation of Zoran Djindjic’s supporters. Opposition fig-ures subsequently claimed the Studio B had becomethe SPO equivalent of Milosevic’s RTS.

yugoslavia

729The most important privately owned television sta-

tion is BK Television, owned by three brothers whomade their fortune in banking. Although originally closeto Milosevic, their television station increasingly be-gan to criticize regime policies, and in March 1997 thestate temporarily suspended BK television’s broadcastsoutside of Belgrade to prevent Serbia’s wider popula-tion from learning about the extent of the oppositionmovement. More recently, BK television has againadopted a more pro-regime line.

4. Are the private media financially viable?Only a very few, such as BK Television. Many, such asVreme and Radio B-92, depend on foreign donations tosurvive. In March 1997, the Serbian government pro-posed new draft legislation requiring the various me-dia to disclose any funding they receive from abroad.Another feature of the legislation, prohibiting any ra-dio or television station from broadcasting to more than25 percent of the population, had to be dropped afterthe Zajedno coalition threatened to boycott the up-coming elections.

5. Are the media editorially independent? Are themedia’s news gathering functions affected by in-terference from government or private owners?State-owned media tow the government/party line.Private and independent media, on the other hand,have completely independent editorial policies. Manynewspapers, magazines, and radio stations are vehe-mently anti-regime. The Milosevic government toler-ates this state of affairs because these same media haverelatively little impact on public opinion. The limitedimpact independent media have is mainly the result oftwo factors. First, given the economic situation, mostpeople simply cannot afford to buy alternative/inde-pendent publications. Second, Yugoslavia’s rural popu-lation relies mainly on state-owned media for informa-tion. Nevertheless, on some occasions the regime de-cides not to take any chances; thus, in the run up tothe Serbian elections in the summer of 1997, theMilosevic government temporarily shut down 77 pri-vate radio and television stations around the country.

6. Is the distribution system for newspapers pri-vately or governmentally controlled?Newspapers and other print media are disseminatedthrough several well-established distribution chains,

most of which are government affiliated, e.g. the Politikapublishing house’s kiosk chain. In larger cities inde-pendent publications are easily obtained, even at state-owned kiosks. The terms under which government-owned chains distribute independent publications,however, are usually financially unfavorable. The gov-ernment-owned chains also frequently delay or post-pone payment to independent media outlets, which,given the level of inflation, means that newsstand earn-ings are usually worthless. A common form of govern-ment harassment has been to deny independent pub-lications newsprint, or to make the cost of newsprintprohibitively expensive.

One consequence of the NATO bombing campaignhas been to make it even more difficult for indepen-dent media outlets to distribute their publications.Damage to the telecommunications system has madeit more difficult to gather news and information, anddamage to bridges and roads has made it more diffi-cult to distribute papers.

7. What proportion of the population is connectedto the Internet? Are there any restrictions onInternet access to private citizens?Precise figures on the proportion of the populationconnected to the Internet are not available. There are4.95 internet hosts per 10,000 people in Yugoslavia.

Limited access to the Internet is more the result ofa lack of computers than of government restrictions.Although Yugoslav citizens had been in the first waveof Internet users in the early 1990’s, a permanent sat-ellite link to the Internet was only established in Feb-ruary 1996, courtesy of a Norwegian provider. In No-vember 1995, with help from the Soros Foundations,Belgrade’s Radio B-92 founded Opennet, which wasoriginally restricted only to Serbia’s academic network.According to one estimate, one Yugoslav citizen in onethousand is a regular Internet user. Early in 1998,Yugoslavia’s largest Internet services provider, EUNET,signed up its 20,000th subscriber. Many individuals haveaccess to the Internet through academic and govern-mental institutions, or through various business en-terprises; according to some informal estimates, the totalfigure stands at approximately 300,000 people. Belgradealso has “Cyber Cafés” where people can stop by andlog on.

The Internet quickly became an important battle-ground between the Milosevic regime and Serbian civil

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730society. In November 1996, after widespread protestserupted throughout Serbia to protest the Milosevicgovernment’s annulment of municipal election results,Radio B-92 began to broadcast reports on the protestsvia the Internet. The regime then tried to jam B-92’sradio signals, to which B-92 responded by using a com-puter program called RealAudio (which carries soundthrough the Internet) to relay its radio programs, al-lowing Internet users both in and outside of Yugosla-via to listen to B-92’s programs. The US manufacturerof RealAudio subsequently donated more powerfulequipment, which allowed more than 500 people tolisten to the Internet broadcasts simultaneously. Ru-mors (which were impossible to confirm) circulated atthe time that the regime had pressured Internet ser-vice providers into disconnecting Serbia from the WorldWide Web.

The cyber war between the Milosevic regime andRadio B-92 heated up again in October 1998, afterSerbia’s new media legislation was passed. TheSerbian government placed a filter on web brows-ers at the University of Belgrade, which blocked B-92’s site, and similar ones. B-92 responded by ask-ing contacts outside of Yugoslavia to copy theirwebsite and then distribute B-92’s reports by email.On December 28, 1998, the regime again had to ad-mit defeat and removed the filter. During the 1999NATO bombing campaign, B-92’s website was shutdown.

In Kosovo, the Albanian-language daily newspa-per Koha Ditore established Kosovo’s first email sys-tem Zananet, in 1994, as part of the ZaMir network.By March of 1999, there were four Internet serviceproviders in Kosovo: Pronet (owned and managedby Albanians), Eunet, Co.yu, and the PTT. Prior tothe NATO bombing campaign against Yugoslavia,Pronet’s staff frequently had to hide its equipmentfrom police raids. Pronet was estimated to be serv-ing several hundred users. Radio 21, and indepen-dent Albanian radio station based in Pristina, alsomanaged to broadcast its reports via the Web. In theaftermath of the Kosovo conflict, Anonymizer.com,an Internet gateway which has an anonymous emailservice, created the Kosovo Privacy Project, whichoffered anyone in Yugoslavia a dedicated gatewaythrough which they could send their email, withoutany possibility of being monitored by, for instance,Milosevic’s security forces.

8. What are the major press and journalists’ asso-ciations? What proportion of their membership ismade up of women?Among the more important professional journalisticorganizations in Yugoslavia are the Association of In-dependent Electronic Media (ANEM); LOCAL PRESS,an organization of independent local magazines inSerbia; and NUNS (National Union of IndependentJournalists). Information on the proportion of womenin their membership is not available.

9. What has been the trend in press freedom asmeasured by Freedom House’s Survey of PressFreedom ?Freedom House’s annual Survey of Press Freedom ratedYugoslavia “Not Free” from 1991 through 1999.

GOVERNANCE ANDPUBLIC ADMINISTRATION 5.50/7

1. Is the legislature the effective rule-makinginstitution?The trend in recent years, and especially in 1997, hasbeen for the SPS party leadership, and especiallyMilosevic himself, to determine the outlines of policy,which the SPS-dominated Federal Assembly thenrubberstamps. In 1997, the Federal Assembly con-vened only one time, and one report charged that “de-cisions are taken at one power center and then takethe shape of decrees, written or oral instructions, manyof which are not even published.” This state of affairshas become more pronounced as the Milosevic re-gime has slowly lost its exclusive monopoly on stateinstitutions and has had to allow opposition forcesinto government institutions. In Montenegro, for in-stance, the reformist victory in October 1997 forcedMilosevic loyalists out of office. In Serbia, the opposi-tion parties’ victory in the November 1996 municipalelections gave them a toehold on power at local lev-els, and the September 1997 Serbian parliamentaryelections gave non-SPS parties a majority in theSerbian Skupstina.

2. Is substantial power decentralized to subnationallevels of government? What specific authority dosubnational levels have?

yugoslavia

731According to the FRY constitution, the republics en-joy considerable autonomy, and the right to local self-government is guaranteed (Article 6). In practice, how-ever, while Milosevic’s Montenegrin protégé, MomirBulatovic, was president in Serbia’s federal partner,most decision-making was centralized. After October1997, the Djukanovic leadership began to reassert itsauthority and standing as an equal partner in the fed-eration. Within the republics, there is a high degree ofcentralization; for instance, the republican educationministries design school curricula, textbooks, etc.,which then have to be implemented throughout therepublic. Similarly, prices for various utilities are de-termined at the republic level, not at the municipalitylevel. Most importantly, the police forces in both re-publics are highly centralized. Most political partiesare highly centralized as well, largely because of thefact that the support they garner is more a function oftheir leader’s charisma than the party’s political pro-gram per se.

3. Are subnational officials chosen in free and fairelections?Subnational officials are not chosen in free and fairelections. As noted above, the ruling party has numer-ous ways to influence the outcome of elections. Forinstance, the OSCE’s special representative for Yugo-slavia, Felipe Gonzales, noted in his December 1996report after a fact-finding trip to Yugoslavia the exist-ence of “deficiencies (of a structural nature) in the elec-toral system that make it possible to falsify or circum-vent the sovereign will of the citizens.” Similarly, a re-cent analysis of the human rights situation in Yugosla-via noted that “in practice, citizens cannot exercise theirright to change their government.”

Since the first multi-party elections in 1990 at thebeginning of the post-communist era, opposition par-ties have consistently charged the regime with commit-ting outright vote fraud. The most notorious case of votefraud came after the November 1996 municipal elec-tions in Serbia. Opposition parties won power in mostof Serbia’s largest urban areas, including Belgrade, Nis,and Kragujevac. The Milosevic regime, however, refusedto acknowledge defeat and declared the elections in-valid. Wide-scale, massive protests then erupted through-out Serbia, developing into a three-month long protestmovement, with nightly marches and demonstrationsby opposition parties. In February 1997, under severe

international pressure, Milosevic was forced to backdown, and a “lex specialis” (i.e., a “special law”) was passedin the Serbian Skupstina accepting the opposition par-ties victory (the constitutionality of the law itself, how-ever, was questioned by most observers).

4. Do the executive and legislative bodies operateopenly and with transparency? Is draft legislationeasily accessible to the media and the public?Sessions of the Federal Yugoslav Assembly, or theSerbian or Montenegrin Skupstina’s are frequentlytelevised or otherwise covered by the press; however,much of the actual decision making takes place be-hind closed doors. Milosevic’s SPS often tries to actunilaterally. For a recent appearance of Yugoslav del-egates before the European Parliament, for instance,the SPS tried to send its own cadres, with their ownplatform, without including opposition members orMontenegrin officials.

5. Do municipal governments have sufficient rev-enues to carry out their duties? Do municipal gov-ernments have control of their own local budgets?Do they raise revenues autonomously or from thecentral state budget?Although municipal governments do raise some rev-enues autonomously (e.g., turnover taxes from the saleof property, issuing various types of personal identifi-cation, the sale of vehicle license plates, setting pricesof public transportation, etc.), most rely on supplemen-tal funding from the central government. One WorldBank specialist on Yugoslavia noted, “It is hard even tosay what local government is when all of the moneygoes to the central government.”

After losing the 1996 municipal elections in severalSerbian cities, Milosevic’s SPS cadres essentially emp-tied municipal coffers before the opposition could takepower. The Milosevic regime then resorted to “pun-ishing” municipalities that had voted for the opposi-tion by denying them funds from the republican bud-get. Central authorities have also begun a campaign toreduce local competencies; for instance, municipalgovernment’s recently lost the right to grant foreigncompanies concessions for communal utility services.

6. Do the elected local leaders and local civil ser-vants know how to manage municipal governmentseffectively?

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732Most local leaders and civil servants generally knowhow to manage municipal governments effectively. Afterthe opposition victory in the 1996 municipal elections,however, there were numerous reports of local mu-nicipal councils being deadlocked. It also becameapparent that, given the fact that many opposition mem-bers had never served in government, they had notdeveloped the necessary political or bureaucratic ex-pertise needed to run local governments effectively.Their situation was made even more difficult by theSPS’s concerted efforts to portray opposition leadersas incompetent bunglers. In early 1997, critics chargedthat the SPS-led Serbian government created a new“Ministry for Local Self-Government” to maintain theregime’s control over municipalities in which the op-position had won.

One of local government’s most important respon-sibilities is drawing up voter’s lists. With electionsplanned for various levels of government in 2000 and2001, in mid-1999 it was widely assumed that theMilosevic regime would attempt to remove this powerfrom municipal authorities in an effort to increase itsability to manipulate election results.

7. When did the constitutional/legislative changeson local power come into effect? Has there beenreform of the civil service code/system? Are localcivil servants employees of the local or central gov-ernment?The only major constitutional/legislative changes onlocal power to have been enacted, i.e., those rescind-ing the autonomy of Kosovo, came into force in 1989-90 and preceded the establishment of the FRY.

Local civil servants are the employees of local mu-nicipal governments. This allowed the opposition par-ties in the 1996 municipal elections to engage in asignificant purge of SPS officials at the local level inmany of Yugoslavia’s biggest cities. For instance, soonafter the opposition victory in Belgrade was recog-nized, the opposition quickly installed its own cad-res in Belgrade’s Studio B television station, whichis officially owned by Belgrade’s City Assembly. Therehas been no meaningful reform of the civil servicecode/system in the post-1992 period.

Rule of Law

CONSTITUTIONAL, LEGISLATIVE,AND JUDICIAL FRAMEWORK 5.75/7

1. Is there a post-Communist constitution? Howdoes the judicial system interpret and enforce theconstitution? Are there specific examples of judi-cial enforcement of the constitution in the last year?A new constitution was promulgated in April 1992;however, the Serbian and Montenegrin republicanconstitutions still have not been brought into agree-ment with the federal constitution. The election of MiloDjukanovic as Montenegrin President has significantlycomplicated the FRY’s constitutional system; for in-stance, in 1997 Montenegro adopted a law by which itno longer recognizes decisions by federal judicial or-gans. The judicial system is generally considered tobe controlled by the Milosevic regime (see below).

2. Does the constitutional framework provide forhuman rights? Do the human rights include busi-ness and property rights?The 1992 FRY constitution guarantees all Yugoslav citi-zens all human rights and civil liberties, regardless ofethnicity, race, gender, religion, or political creed, inaccordance with international practice. Citizens areguaranteed freedom of assembly, a free press, the rightto own property, etc., and national minorities are guar-anteed the right to use their own language in educa-tional institutions and in legal proceedings.

In practice, however, these rights have been diffi-cult to implement, most notably in the case of the KosovoAlbanians. After the beginning of the KLA armed re-bellion in Kosovo in late 1997, random abuse of hu-man rights and civil liberties increased significantly.In fact, the Milosevic regime’s dismal human rightsrecord affected all of Yugoslavia’s citizens, regardlessof ethnicity. There were, however, significant differencesbetween the human rights records in Serbia andMontenegro, as the latter’s security apparatus was foundto have “a relatively clean human rights record since1995.”

3. Has there been basic reform of the criminalcode/criminal law? Who authorizes searches and

yugoslavia

733issues warrants? Are suspects and prisoners beatenor abused? Are there excessive delays in the crimi-nal justice system?The former SFRY’s Federal Criminal Code remains inforce, although work on a new criminal code has beenongoing for the past several years. The FRY constitu-tion prohibits the use of torture against detainees orcriminal suspects, but human rights organizations havedocumented numerous cases of abuse and beatingsby security forces, especially in Kosovo and in Belgradeduring the winter 96/97 demonstrations. In theory, ju-dicial authorities authorize searches and issue warrants;in practice, however, the police often do these thingson their own. The criminal justice system is also ham-pered by the fact that it often takes months, or evenyears, for cases to reach the courts, and executive insti-tutions generally show little interest in enforcing judi-cial decisions.

4. Do most judges rule fairly and impartially? Domany remain from the Communist era?The majority of judges are leftovers from the commu-nist period. Most observers believe that judges do rulefairly and impartially on cases that do not concern poli-tics. Court proceedings are conducted in public, un-less there is a perceived need to protect governmentsecrets, public order, or public morality. There havebeen charges that in the early 1990s many non-Serbjudges were dismissed from their positions, particu-larly in Vojvodina.

Defense attorneys have frequently complainedthat they were denied access to detainees or haddifficulties acquiring copies of official indictments.Some judges were also found to be preventing de-fense attorneys from reading court files. The judi-cial system also seems more willing to support hu-man and civil rights in Serbia proper, whereas inKosovo and the Sandzak, judges frequently are seento be supporting the actions of the state securityapparatus.

On several occasions, judges have proven to befairly independent of the ruling party. For instance,in a 1998 case in Sremska Mitrovica, the Federal Min-istry for Telecommunications confiscated the trans-mitter and other equipment of a local independentradio station. The local judge, however, ruled in theradio station’s favor, and ordered the ministry to re-turn the equipment. In February 1998, judges in

Novi Sad and Vrsac refused to enforce the contro-versial “Decree on Measures of Financial Discipline”(see below).

5. Are the courts free of political control and in-fluence? Are the courts linked directly to the Min-istry of Justice or any other executive body?According to the FRY constitution, there is a strict sepa-ration of powers between the executive, legislative, andjudicial branches of government (Article 12), and jus-tices in the Federal Constitutional Court, the FederalCourt, and the Federal Public Prosecutor are not al-lowed to belong to political parties (Article 42). In prac-tice, however, on matters of political importance to theregime the judicial system often acts as an adjunct ofthe SPS. Since the tenure of judges and their salariesare not fixed, they are susceptible to regime pressurewhen deciding on cases with political implications. Theprime example of this came in the wake of the 1996municipal elections when the court system overturnedopposition victories in several cities throughout Serbia.Similarly, despite the fact that over sixty criminalcharges had been filed during 1997 in the Serbiancourt system against Belgrade policemen for using ex-cessive force against demonstrators during the winter96/97 demonstrations, as of November 1997, no onehad yet been held accountable for these abuses.

In another example of a judicial ruling having po-litical undertones, in December 1997, the federal stateprosecutor overturned a decision by the MontenegrinSupreme Court which declared the anti-Milosevic wingof the DPSCG to be the legitimate successor to theformerly united party. The OSCE’s Gonzales Reportnoted that reform of the judicial system with regard tothe election process was one of the most urgentlyneeded reforms for Yugoslavia. Similarly, in late 1998,the Federal Constitutional Court ruled against allow-ing the Montenegrin president to select all 20Montenegrin representatives to the Federal Assembly’sChamber of Republics, a move which reversed a 1994decision which allowed Milosevic’s ruling coalition todo the same while he was Serbian president.

Over the past several years, criminal investigationshave been used to intimidate and harass political op-ponents of the Milosevic regime. All of the major op-position leaders, including Vuk Draskovic, ZoranDjindjic and Vojislav Seselj in Serbia, Novak Kilibardain Montenegro, and Azem Vlasi in Kosovo, have been

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734charged with criminal wrongdoing for their activities.More recently, in February 1998, the former Montenegrinpresident, Momir Bulatovic, was also charged by aMontenegrin court with actions destabilizing the “con-stitutional order” (Article 114 of the Yugoslav CriminalCode) for allegedly organizing a protest demonstrationin Podgorica in which several people were hurt.

6. What proportion of lawyers is in private prac-tice? How does this compare with previous years?How many new lawyers are produced by thecountry’s system of higher education? What pro-portion of lawyers and judges are women?Unless a lawyer is working for the government, mostlawyers are in private practice. In Belgrade alone, thereare some 2,900 practicing lawyers. No information isavailable on the proportion of female lawyers and judges.

There are five law schools in the FRY, which in1998 had a total of 21,550 enrollees (12,582 of whichwere female). Over the past four years, about 1000 stu-dents have graduated annually, over fifty percent ofwhom were women.

In July 1998, the regime passed a new Act on Law-yers, which allows the regime to exercise more controlover the legal profession. The new legislation was at-tacked by several human rights monitoring groups asbeing an attack on lawyer’s independence and an in-fringement on the lawyer-client relationship.

7. Does the state provide public defenders?The state is obligated to provide a suspect/detaineewith a public defender if they cannot provide one forthemselves. The accused also has the right to have courtproceedings translated into his/her native language.

8. Are there effective anti-bias/discrimination laws,including protection of ethnic minority rights?Numerous anti-bias/discrimination laws exist; for in-stance, Articles 44-48 guarantee national minorities theright to education and information media in their na-tive language, the right to form educational and cul-tural institutions, and the right to foster relations withco-nationals outside the borders of the FRY. Article 50also makes incitement or encouragement of national,racial, or religious hatred or intolerance unconstitu-tional. With respect to the Kosovo Albanians and theMuslims in the Sandzak, however, these protectionshave frequently been violated.

9. Are judicial decisions effectively enforced?Enforcement of judicial decisions depends upon theconsent of executive bodies. Since the courts rarelyrule against the interests of the regime, law enforce-ment and security institutions do enforce rulings madeby the courts. This general rule has, however, becomecomplicated by the Djukanovic government’s continu-ing drive to increase Montenegro’s autonomy fromBelgrade. The federal constitution declares that it isup to the constituent republican authorities to enforcedecisions of the Federal Constitutional Court; however,since the Djukanovic government no longer recognizesthat court’s rulings, it has also refused to enforce anyof its decisions.

CORRUPTION 6.25/7

1. What is the magnitude of official corruption inthe civil service? Must an average citizen pay a bribeto a bureaucrat in order to receive a service? Whatservices are subject to bribe requests – for example,university entrance, hospital admission, telephoneinstallation, obtaining a license to operate a busi-ness, applying for a passport or other official docu-ments? What is the average salary of civil servantsat various levels?Corruption in Yugoslavia has grown over the past sev-eral years, partly as a result of the sanctions, and partlyas a result of internal corruption within the regimeitself. The extent and levels to which corruption in of-ficial circles has reached is indicated by the fact that in1997, several close associates of the Milosevic familywere gunned down, gangland style, on the streets ofBelgrade. No one has been held responsible for thesekillings.

Corruption takes numerous forms in Yugoslavia. Alongtime Milosevic loyalist, for instance, is in charge ofthe federal customs agency, which allows Milosevic andthe SPS to control the flow of goods into and out ofthe country, and to impose arbitrary financial penaltiesand fees on individuals crossing the border. Althoughnot officially bribes, a common practice throughout theformer Yugoslavia was to provide doctors and nurseswith “gifts” as an inducement to provide patients withbetter care. This practice has become even more wide-spread since sanctions were imposed in 1992 and the

yugoslavia

735health system has broken down. There have also beencharges that some professors at Belgrade Universityare charging students bribes for passing grades. Pro-tection rackets have become common in larger cities,and municipal authorities often charge kiosk opera-tors considerable sums for the privilege of operatingon city property. Because of the overall economic de-pression, salaries for civil servants have declined con-siderably; instructors at Belgrade University, for in-stance, were reported to have refused to collect theirsalaries because they were insultingly low. The aver-age monthly salary of a government employee in 1996was 901 dinars (approximately $163 (US) according toDecember 1996 exchange rates).

2. Do top policy makers (the president, ministers,vice ministers, top court justices, and heads of agen-cies and commissions) have direct ties to busi-nesses? What are the legal and ethical standardsfor boundaries between public and private sectoractivity? Are they observed in practice?Many leading members of the Milosevic regime arethe directors of large state-owned enterprises. Direc-tors and top management of other leading economicenterprises also owe their positions to their supportfor the regime. These ties are especially important inseveral strategic sectors of the economy, notably thosethat involve the importation of products such as fuel orpharmaceuticals. Enterprises in these sectors have theright to draw hard currency from the National Bank ofYugoslavia (NBY) to pay for their imports at the officialexchange rate. They can then quickly sell the hard cur-rency on the black market for a hefty profit. Similarmonopolies exist for basic staples such as sugar, orhighly taxed items such as coffee and cigarettes. In1997, the Yugoslav government decided that hence-forth enterprises would only be able to draw hard cur-rency from the NBY for the import of pharmaceuticalproducts and fuel, indicating that they might be tryingto clamp down on widespread abuse of the system.

A typical example of the close ties between theMilosevic family, large businesses, and organized crimewas Zoran Todorovic, the director of a Belgrade oil com-pany, who was also the secretary-general of YUL, theleft-wing political movement founded by Milosevic’swife, Mira Markovic. Todorovic was assassinated inBelgrade in October 1997. Mirko Marjanovic, the pre-mier of the Serbian republican government, is also

the director of the “Progres” enterprise, which has ex-clusive control of the Yugoslav fuel trade market withRussia. The vice-president of the Serbian government,Slobodan Radulovic, is also the director of “S Markets”a chain of small grocery stores. Milorad Vucelic, thevice-president of the SPS, is the owner and director ofthe “Komuna” publishing conglomerate. Dragan Tomic,the speaker of the Serbian Skupstina, is also the di-rector of Jugopetrol, one of Yugoslavia’s largest oil com-panies. Legal and ethical standards boundaries be-tween private and public sector activity are seldom, ifever, practiced.

3. Do laws requiring financial disclosure and dis-allowing conflict of interest exist? Have publicizedanticorruption cases been pursued? To what con-clusion? Are there laws against racketeering? Doexecutive and legislative bodies operate underaudit and investigative rules?Currently, the FRY does not have laws requiring fi-nancial disclosure or disallowing conflict of interest.Although many prominent officials have been arrestedand tried for corruption recently, critics charge theywere arrested because they had fallen afoul of the re-gime politically rather than for their criminal activities.

4. Have there been public opinion surveys of per-ception of public sector corruption conducted withthe support of reputable monitoring organizations?What are the principal findings and year-to-yeartrends?A 1998 study by the UN Interregional Crime and JusticeResearch Institute (UNICRI) reported that 17 percent ofrespondents in Yugoslavia claimed they were the victimsof official corruption, as opposed to an 11 percent globalaverage. Longer-term data are not available.

5. What major anticorruption initiatives have beenimplemented? How often are anticorruption lawsand decrees adopted? Have leading governmentofficials at the national and local levels been in-vestigated and prosecuted in the past year? Havesuch prosecutions been conducted without preju-dice or have they targeted political opponents?Both government and opposition figures frequently callfor crackdowns on corruption; for instance, the SPScandidate for the Serbian presidency in 1997, MilanMilutinovic, made a drive against corruption one of the

Nations in Transit

736pillars of his electoral campaign. In October 1997,the federal government called on judicial authori-ties to make corruption trials a priority. But giventhe fact that the Milosevic regime is founded on wide-spread corruption, little ever comes of such calls.When individuals are publicly charged with corrup-tion, it is almost invariably because they have runafoul of the regime. In February 1998, NenadDjordjevic, the vice-president of YUL (and a closepolitical associate of Mira Markovic, SlobodanMilosevic’s wife) was arrested for embezzling mil-lions from the republic health insurance fund. Ru-mors circulating in Belgrade, which were impossibleto confirm, however, suggested that Djordjevic’s de-mise was the result of his close ties to the new, anti-Milosevic Montenegrin leadership. Numerous simi-lar such cases have been publicized as well.

The government has not implemented any seri-ous anticorruption initiatives as of yet. In Septem-ber 1997, however, a group of 35 prominent Yugoslaveconomists published a plan for radical economicreforms in the FRY. Among their proposals was acall to have all property illegally obtained by party/state/regime functionaries between 1991 and 1997confiscated.

6. Is there growing public intolerance of officialcorruption as measured in polls? Are there ef-fective anticorruption public education efforts?No anticorruption public education efforts have beeninitiated in recent years. Public intolerance of offi-cial corruption, however, is evident in the continu-ing secular decline in the popularity of those indi-viduals currently in power. This is most notable inthe case of Vuk Draskovic, the leader of the SPO,who is considered by much of the general public tohave sold out to Milosevic in exchange for gettingcontrol over Belgrade’s municipal government.

7. How do major corruption-ranking organiza-tions like Transparency International rate thiscountry?Yugoslavia was ranked 9th out of 99 countries sur-veyed in Transparency International’s 1999 Corrup-tion Perceptions Index, and received a score of 2.0(where 10 represents the least corrupt and 0 the mostcorrupt).

Economic Liberalization

PRIVATIZATION 5.00/7

1. What percentage of the GDP comes from pri-vate ownership? What percentage of the labor forceis employed in the private sector? How large is theinformal sector of the economy?The private sector accounts for approximately 40 per-cent of GDP. The vast majority of officially registeredbusinesses are in fact privately owned; according toone estimate, in 1995 this figure stood at 91 percent.Most of these are so-called micro-companies employ-ing less than ten people. All told, some 27 percent ofYugoslavia’s workforce is officially registered in theprivate sector; however, the actual figure is believed tobe much higher because many individuals are work-ing in the black or gray markets. The agricultural sec-tor of the FRY economy accounted for 77 percent ofprivate sector GDP in 1998. In 1994, the private sectoraccounted for 55.2 percent of all profits in the Yugoslaveconomy and 29.4 percent of total income, despite thefact that the private sector accounted for less than 3percent of the total fixed capital in the Yugoslaveconomy. The “shadow economy” is estimated to haveaccounted for almost 41 percent of GDP in 1995. Ac-cording to some estimates, between 30-40 percent ofaverage household income is tied to earnings fromshadow economy activities.

2. What major privatization legislation has beenpassed? What were its substantive features?The FRY Constitution explicitly states that the FRYwill have a market economy (Article 13). An initialprivatization campaign in 1991-1993 offered managersand workers the right to buy shares in their enterpriseson privileged terms, but the campaign went awry whenhyperinflation set in and it became difficult to estab-lish the true value of firms and assets. In 1994, theProperty Transformation Revaluation Act annulled theprivatization of 87 percent of the enterprises that hadpreviously been privatized—effectively, the bulk of theeconomy was returned to state control.

A new privatization law in Serbia, named the “Lawon Ownership Transformation,” was passed by theSerbian Skupstina on July 21, 1997, and came into

yugoslavia

737effect on November 1, 1997. All told, between 4.5 and5 million citizens were eligible to take part in thisprivatization program. According to the new law, 60percent of the shares in state-controlled and sociallyowned enterprises would be distributed free to work-ers and managers, as well as to public-sector employ-ees, pensioners, and farmers, in the form of coupons.The state pension fund was to be allocated 10 percentof the shares. The remaining shares were to be offeredat a discount to employees before being made avail-able to foreign investors. Critics pointed out, however,that the proposed legislation did not make privatizationof state-owned and socially owned enterprises man-datory, nor did it set deadlines according to whenprivatization had to occur. Moreover, since many of theenterprises up for privatization are unprofitable andperpetually in the red, the actual value of the shares’individuals will receive will be negligible. By March1998, no enterprises had been privatized according tothe new legislation.

Although 1999 had been heralded as the “Year ofSmall and Medium Sized Firms” by the Serbian gov-ernment, the NATO bombing campaign effectively puta halt to any economic reform programs for the year.

Privatization has progressed somewhat further inMontenegro, although a high-ranking U.S. governmentofficial recently stated that Montenegro’s privatizationprogram as of mid-1999 could only be awarded a“gentlemen’s C.” The republican Skupstina hadpassed a “Law on Ownership and Control Transfor-mation” in 1992, which allowed enterprises to beprivatized in various ways, such as the issuance andsales of shares under privileged conditions for em-ployees of enterprises to be privatized, debt-equityswapping, investment in an enterprise (i.e., raisingadditional capital), the sale of enterprises to their re-spective managements, etc.

According to one estimate, 95 percent of the enter-prises in Montenegro had undergone ownership trans-formation by September 1997. Fifty-six enterprises,with a net worth of 128 million DEM, had been com-pletely privatized, and the private sector was estimatedto account for 30-35 percent of Montenegro’s GDP. Onemajor enterprise, the Niksic brewery, was bought by aBelgian firm. After Milo Djukanovic was sworn in aspresident on January 15, 1998, the government prom-ised more radical moves towards privatization. West-ern firms such as Merrill Lynch and Coopers and

Lybrand have been involved in deals to privatize a va-riety of enterprises, including an aluminum combine,a health spa, a tobacco factory, and are bidding for con-cessions to build a hydro-electric plant.

3. What proportion of agriculture, housing andland, industry, and small business and services isin private hands?Agriculture: Over 75 percent of the arable land in Yugo-slavia is privately owned.

Housing: Yugoslavia’s housing stock at the end of 1995was estimated to comprise 3,123,000 units, of which687,000 (approximately 22 percent) were state/sociallyowned.

Industry, Small Business and Services: According to oneestimate, of the 219,763 enterprises registered in theindustrial sector of the economy in 1996, 143,774 (65.4percent) were privately owned. Medium-sized enter-prises are defined as those employing up to 500 people;small enterprises can mean a kiosk, a counter at a fleamarket, or a boutique. According to official statistics,some 200,000 people are employed in small-sizedenterprises, but the real figure is believed to be twicethat number. Altogether, small- and medium-sized firmslegally employ some 700,000 citizens.

Larger industrial enterprises, such as the steelworksin Smederevo or the Zastava automobile plant inKragujevac, remain state-owned, although prior to theNATO bombing campaign foreign investors had shownsome interest in acquiring these enterprises. In thecase of Zastava, for instance, exploratory talks had takenplace with Skoda. The NATO bombing attack on Yugo-slavia severely damaged both plants. Of the remainingstate-owned enterprises, privatization of small enter-prises (e.g., food processing plants) is expected to gothe quickest.

4. What has been the extent of insider (manage-ment, labor, and nomenklatura) participation in theprivatization process? What explicit and implicitpreferences have been awarded to insiders?Insiders have taken considerable advantage of the eco-nomic “reforms” enacted to date. Under the terms ofthe Property Transformation Revaluation Act (see above),ownership of many enterprises was turned over to theirlargest debt-holders, which generally tended to bestate-owned banks; thus, bank directors and managerswere installed on the managerial boards of most of the

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738largest enterprises in the country. Since the bank man-agers themselves, however, were generally SPS-loyal-ists, the Milosevic regime succeeded in actually in-creasing its control over the economy after 1994. Indi-viduals close to the regime are given a wide variety ofprivileges, such as easier access to credit and hardcurrency, tax waivers, or special permission to importscarce goods into the country.

5. How much public awareness of and support forprivatization has there been? What is the natureof support and opposition to privatization by ma-jor interest groups?Although most government officials claim to supporteconomic reform and restructuring, concrete action hasbeen slow in coming, partly due to the difficulties im-posed by the international sanctions, and partly becausecontrol of large state-owned enterprises is one of themain instruments the Milosevic regime uses to stay inpower. Many leading figures in Milosevic’s SPS are thedirectors of these state-owned enterprises, throughwhich they are able to obtain large loans from the NBYat low interest rates and then sell the funds on the blackmarket. Public support for privatization is also loweramong employees of large, unprofitable state ownedenterprises who stand to lose their jobs if those enter-prises were forced to operate according to market crite-ria. On the other hand, support for privatization has beenstrongest among people who own small businesses andfirms, primarily found among the younger, better-edu-cated, urban population. A leading reformer in the FRYgovernment, Danko Djunic, has also claimed that thereis a critical mass of people in the government itself whoare pressing for reform. In Montenegro there has beenmore widespread government and popular support forprivatization (see above). In the wake of the destructioncaused by the NATO bombing campaign, it was widelybelieved that the Milosevic government would have toengage in a large-scale sell-off of state-owned enter-prises to keep the regime afloat.

MACROECONOMIC POLICY 5.50/7

1. Has the taxation system been reformed? Whatareas have and have not been overhauled? To whatdegree are taxpayers complying? Is tax compliancedifficult to achieve? Has the level of revenues in-

creased? Is the revenue-collection body overbur-dened? What is the overall tax burden?In July 1996, a new federal tax law significantly modi-fied the previous tax system. The legislation providedfor a variety of new taxes, including a surtax on tradeand/or the import of various goods (with rates rang-ing from 5-70 percent, depending on the type of good),a commodity sales tax on all items sold to the endbuyer (with proportional rates ranging from 10-20percent), a services sales tax (with a 10 percent rate),a profit tax on enterprises (ranging from 20-30 per-cent, with the rate set by the republics), a progressiveincome tax (with rates from 20-40 percent), and a prop-erty tax (also with rates set by the republics). For the1998 fiscal year, the FRY government expected to raise40 percent of its revenue from sales taxes, and 31percent from customs duties.

Tax compliance has been very difficult to enforce.Use of checks and credit cards over the past few yearshas been minimal, so individuals leave no paper trailof their financial activities. Most people now prefer tomake their transactions in cash using hard currencies.Widespread tax-avoidance, has, to some extent, beenaccepted by the regime for the past several years forthe sake of social peace; moreover, strictly imposingtax regulations would only worsen the Yugoslaveconomy’s liquidity problems. Adding to the overallproblem of tax compliance is the fact that regime sup-porters have frequently been granted tax waivers forvarious imported goods. For instance, it is estimatedthat only half of the revenue that should be raised fromthe sale of cigarettes is actually collected, because manyindividuals close to the Milosevic regime, or a part of it,control the cigarette trade in Yugoslavia.

In recent years, the government had given some in-dications that it was determined to begin enforcing taxcollection more seriously. In February 1998, the Serbiangovernment proposed a very controversial “Decree onMeasures of Financial Discipline.” According to thenew law, individuals wishing to sell their private prop-erty (such as apartments, houses, or automobiles) hadto go through local municipal officials, who would de-termine the property’s value, and payment had to bemade through domestic banks in dinars. Although os-tensibly intended to improve the state’s ability to col-lect turnover taxes on the sale of property, the decreeimmediately met with almost universal condemnation.

The private sector is bearing the brunt of propping

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739up the regime. Since state and socially owned enter-prises have been unprofitable for several years, the pri-vate sector has had to make up for the public sector’sweaknesses. This has resulted in a relatively high taxburden being placed on both individuals and enter-prises in the private sector. In February 1998, the fed-eral government began discussing measures to squeezemore money out of the gray economy, including the in-troduction of a VAT tax and of non-cash payment mecha-nisms to reduce the amount of cash in circulation.

In response to the growing crisis in Kosovo, on Oc-tober 5, 1998, the Yugoslav Federal Parliament passeda Law on Financing Extraordinary Costs of Defense ofthe Country, which levied a “war tax” of from 0.6 to 4percent on all goods to finance the defense budget.After the widespread damage caused by the NATObombing campaign, the FRY government adopted anew set of taxation policies in an effort stimulate re-construction and economic growth. All products andmaterials used for reconstruction or replacement ofdestroyed assets can now be obtained without payinga turnover tax. Replacements of destroyed equipmentand machinery can be imported without paying cus-toms duties if the equipment is not produced in Yugo-slavia. Humanitarian aid brought in by the Red Crossis exempt from sales tax, and if the aid is not producedin Yugoslavia, is exempt from customs duties as well.The same applies to environmental equipment. To fi-nance increased state defense costs, however, the gov-ernment introduced a variety of new sales taxes of vary-ing rates.

2. Does fiscal policy encourage private savings,investment, and earnings? Has there been any re-form/alteration of revenue and budget policies?How large are budget deficits and overall debt? Isthe financing of the social insurance/pension sys-tem sustainable? What proportion of the budgetis taken up by subsidies to firms and individuals?As a result of the regime’s decision to confiscatecitizen’s hard currency accounts in the early 1990s, thecollapse of pyramid lending schemes in 1993, and thehyperinflation of 1992-93, individuals have had littleincentive to invest or save. In 1997, for instance, it wasestimated that FRY citizens, on average, have less thantwenty dinars, i.e., less than $3 (US), on deposit inYugoslav banks. The government is estimated to owecitizens between $3.5—4 billion (US) in hard currency

confiscated from private bank accounts. Internal debtsto banks and between companies were estimated tobe approximately $4 billion (US) in 1996. The budgetdeficit for 1996 was estimated to be $1 billion (U.S.),or six percent of GDP. Added to these internal debtsare Yugoslavia’s external debts, estimated to be $11.2billion (US) in 1995. Altogether, the FRY’s debt as apercentage of GDP was estimated at some 75 percentin 1997.

In 1997, the situation worsened as the FRY pen-sion fund alone ran a deficit of some $1.26 billion(U.S.), and the payments that were made were onlypossible thanks to the sale of a large stake of the Serbiantelecommunications system to Italian and Greek in-vestors. Financing of the social insurance/pension sys-tem is not sustainable, as is evident by the fact thatpensions have been paid out on a very irregular basisover the past several years. According to one estimate,in 1998 the government owed 1.2 million pensionerssome 5,000 dinars (approximately $830 US) each inpension arrears. As of mid-1999, the government wasestimated to owe pensioners and state employees 18billion dinars in wage and pension arrears.

To make up for chronic budget deficits and helpfund the government, the Milosevic regime over thepast several years has devised several schemes to“squeeze” money out of the population and/or theshadow economy. One such scheme in the early 1990’sinvolved a well publicized campaign issuing govern-ment bonds for the reconstruction of Serbia; oncehyper-inflation set in, however, individuals who hadpurchased these bonds suffered net losses. Anotherscheme involved the pyramid lending scandals of1993, in which millions of citizens invested their hardcurrency savings in private banks which offeredmonthly interest rates equivalent to yearly interestrates in western countries. The owners of these bankshad close ties to the Milosevic regime. The entire sys-tem collapsed within months, however, as soon as thefirst withdrawals from these banks started a rush onthe entire system. Many of the street dealers who buyand sell hard currencies are controlled by Milosevic’ssecret police.

3. Has there been banking reform? Is the centralbank independent? What are its responsibilities?Is it effective in setting and/or implementing mon-etary policy? What is the actual state of the private

Nations in Transit

740banking sector? Does it conform to internationalstandards? Are depositors protected?Banking reform, as is true of economic reform in gen-eral, has been held up by a combination of domesticpolitical obstruction and the constraints imposed byYugoslavia’s diplomatic and economic isolation. InJanuary 1998, Danko Djunic, the leading reformer inthe federal government, claimed that bank restructur-ing was impossible without assistance from the IMFor the World Bank.

The man credited with developing the successfulanti-inflation program of 1994, former NBY GovernorDragoslav Avramovic, began openly criticizing theMilosevic regime in April 1996, but by May 1996,Avramovic had already been dismissed from his posi-tion. Since then, the NBY has lost much of its inde-pendence.

The private commercial banking sector is in a des-perate situation. Most banks suffer from severe liquid-ity problems. Many Yugoslav citizens lost faith in thebanking system (and their savings as well) with thecollapse of several pyramid lending schemes in 1993(see above). Total current holdings of the 100-odd pri-vate commercial banks were estimated to be about $15billion at the end of 1996. Talks with the London Clubof international banks to restructure Yugoslavia’s esti-mated $1.94 billion commercial debt broke off in Oc-tober 1997 without a settlement. The Yugoslav delega-tion had requested an 80 percent write-off of theirdebts’ value, and the remainder restructured as a 25-year loan with a nine-year grace period. Yugoslavia’stotal external debt is believed to be between $10-12billion.

As of mid-1999, commercial lending rates in Serbiaare restricted to 2.2 percent per month, while the aver-age inflation rate is considerably higher. Bank officialsalso complain that government regulations restrict bankcredit activity. An official for Jugobanka, for instance,claimed that only 10-15 percent of Jugobanka’s capitalwas available for commercial lending. Zoran Jeremic,the head of Valjevska Banka, claimed that 50 percent ofthe Serbian banking sector’s lending was “immobi-lized” in activities yielding no interest income, whileanother 30 percent was affected by central bank re-serve requirements, further reducing the income-rais-ing potential for the banking sector.

The Montenegrin government, for its part, has beensomewhat more successful in its forays into world fi-

nancial markets. Over the past few years, theMontenegrin government has assumed responsibilityfor $170 million in debts to international banks thatMontenegrin enterprises had run up; by so doing,however, it reduced Montenegro’s external debts byone third, bringing it down to an estimated $340 mil-lion.

Individual depositors in Yugoslavia have also suf-fered from the Milosevic government’s policies. In 1992,the regime froze $6.5 billion worth of private hardcurrency accounts held by Yugoslav depositors to helpfund the war effort. In late 1997, the federal govern-ment was working on ways to return those monies torestore some confidence in the banking system.

Current plans for bank reform envision a consoli-dation of the private banking system through a seriesof mergers among smaller banks. Balance sheets wouldthen be “cleaned up,” and non-performing loans trans-ferred into an envisioned “bad loan bank.” One aspectof this effort was a decree by the NBY that as of Janu-ary 1, 1998, illiquid banks could only allow depositorsto withdraw 300,000 dinars (approximately $50,000),regardless of how much the depositor had on account,unless the bank’s reserves could cover the transaction.The move was apparently designed to encourage de-positors to begin withdrawing their monies from illiq-uid banks and depositing them in more liquid banks.In early 1998, the FRY government was reviewing draftlegislation that would convert many short-term out-standing loans in agriculture, tourism, and the electri-cal energy and railway systems into long-term (15 year)credits, or transform current credits into public debtto be repaid in ten years. Other planned legislation for1999 included a new law intended to make the Na-tional Bank of Yugoslavia a completely independentinstitution, amendments to legislation on banks andpayment operations, and laws regulating the capitaland securities markets.

After the EU lifted sanctions on the FRY in 1996,banks in Austria, Germany, Switzerland, and severalother European countries expressed interest in invest-ing in Yugoslav banks. For instance, British, Dutch andAustrian banks (and, reportedly, some American in-vestment funds) have purchased shares in VojvodjanskaBanka, a Novi-Sad based bank, valued at several hun-dred million marks. Similarly, plans were underway toestablish the first Yugoslav-Chinese bank (in a dealbetween Beobanka and Chinese Bank, the largest bank

yugoslavia

741in the PRC). Yugoslav banks have also been active inRussia. Jugobanka is the majority shareholder in VeksimBank in Moscow. Veksim Bank reportedly has an an-nual turnover of $580 million. Veksim Bank is in chargeof servicing credits to the FRY approved by the Rus-sian government. The first foreign credits raised afterthe sanctions regime was lifted, from the Australian-New Zealand Investment Bank, was raised on the ba-sis of bonds issued by Beobanka Group.

In contrast to the situation obtaining in many otherspheres of social, political, and economic life, theYugoslav Banks’ Association membership in the Com-mission for Banking Technique and Practice (a branchof the International Trade Chamber in Paris) was notdiscontinued during the sanctions. All Yugoslav banksauthorized for operations abroad are members of theBrussels-based SWIFT system, which allows interna-tional payments transactions to be done electronically.

After the NATO bombing campaign began and astate of war was proclaimed, the NBY assumed controlover all business loans, and prohibited the closing ofexisting banks or the opening of new ones. Consolida-tion of the banking sector, which was already under-way, was postponed.

4. How sound is the national currency? Is the valueof the currency fixed or does it float? How con-vertible is the currency? How large are the hardcurrency reserves? Has exchange rate policy beenstable and predictable?In the late 1980s and early 1990s, the Yugoslav dinarlost much of its value. Inflation began spiraling up-ward in 1991, averaging 120 percent in that year, butby 1993 it had reached an unprecedented 116,540,000percent. In January 1994, the NBY, led by former Gov-ernor Dragoslav Avramovic, initiated an austerity andstabilization program introducing a new “super dinar”pegged at a fixed rate to the German Deutsche Mark.This succeeded in bringing inflation down to 3.3 per-cent in 1994, but by 1995 it had again risen to an aver-age annual rate of 120 percent. On November 25, 1995,the federal government passed a Foreign CurrencyTransactions Law pegging the dinar to the DeutscheMark at a rate of 3.3:1. To control the growth in themoney supply, the NBY in August 1996 increased themandatory reserve requirement for banks to 10 per-cent, and in November 1996 the mandatory reserve re-quirement was again increased to 15 percent.

In 1997, inflation was less than 10 percent accord-ing to official statistics, although some economists havechallenged these estimates. For most of 1997, the dinarwas fixed at a rate of 3.5:1 against the Deutsche Mark,but fluctuated on the black market anywhere between3.5 and 5. At the end of 1997, the federal governmentannounced plans to maintain a restrictive monetarypolicy, and pledged to keep growth in the money sup-ply below GDP growth for 1998. Nevertheless, infla-tionary pressures continued to mount, and in March1998, the government was forced to devalue the dinarby bringing the official exchange rate down to 6:1 tothe Deutsche Mark. After the Kosovo conflict, pres-sure mounted on the government to devalue the dinarto its new black market rate of 14 dinars to the DEM.Independent economists claimed inflation could ex-ceed 100 percent for 1999. Under the state of war de-clared in March 1999, prices of all vital goods and ser-vices (e.g., transportation of goods and passengers byair and rail, PTT services, public utility services, edu-cational and information services, etc.) are to be kept attheir levels as of March 23, 1999.

Central bank reserves in 1998 were estimated to bebelow $200 million – less than one month’s worth ofimports. By mid-1999, this figure had fallen to $150million. In addition to hard currency reserves, the FRYalso has 1.3 million troy ounces in its gold reserves.The Milosevic regime has also hidden significant sumsof money in secret bank accounts in Cyprus.

5. Is there a functioning capital market infrastruc-ture? Are there existing or planned commodities,bond, and stock markets? What are the mecha-nisms for investment and lending? What govern-ment bodies have authority to regulate capitalmarkets?The Belgrade Stock Exchange reopened in 1990 afterbeing closed for almost fifty years. Foreign countries,particularly Britain and Italy, partially financed its ac-tivities. The Podgorica (formerly Titograd) Stock Ex-change opened in 1996. Securities trading in both ex-changes is limited due to the fact that privatization hasjust begun, and the regulatory infrastructure for wide-spread stock and bond trading barely exists. Most ac-tivity involves trading short-term (30 day or less) com-mercial paper and government bonds, while the saleof stocks is practically non-existent. In 1997, both thenumber of transactions on the Belgrade Stock Exchange

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742and the value of those transactions fell. In the first threemonths of 1998, 1,808 transactions worth 1.6 billiondinars (approximately $267,650,000 million) were madeon the Belgrade Stock Exchange, which at the timelisted 39 different stocks. No stocks are being tradedon the Podgorica Stock Exchange as of yet, but that isexpected to change with the planned distribution ofprivatization vouchers to 450,000 Montenegrin citizens.

Investors are reluctant to participate in financial mar-kets, as is evident from the fact that less than one per-cent of financial transactions and deals go through es-tablished brokerage houses. Most deals take place di-rectly between buyers and sellers of bonds. Potentialinvestors are at a significant disadvantage because bro-kerage houses and the stock markets themselves can-not provide them with a good sense of the various risksand costs associated with particular investments. Thedocumentation various firms provide is not reliable,and accounting procedures are also poor.

Given their relative weakness, commercial banks donot play a large role in the capital markets; consequently,the NBY performs many of the functions commercialbanks would typically perform in the west. Foreignobservers and domestic critics charge that investmentfunds and bank credits are often allocated on the basisof political rather than market criteria.

In February 1998, the Yugoslav government signeda deal with West-Merchant Ltd., a London-based in-vestment bank, for long-term cooperation onprivatization and foreign investment. Among the mostattractive potential investments were Yugoslav Airlines(JAT), and a variety of breweries and publishing houses.Real privatization, however, will create a greater needfor the establishment of exchanges for stocks and in-vestment funds.

MICROECONOMIC POLICY 5.50/7

1. Are property rights guaranteed? Are there bothformal and de facto protections of private real es-tate and intellectual property? Is there a land reg-istry with the authority and capability to ensureaccurate recording of who owns what? What arethe procedures for expropriation, including mea-sures for compensation and challenge? Have anyseizures taken place?

Article 51 of the FRY constitution explicitly recognizesthe right to own property, and Article 53 guaranteesintellectual property rights. Yugoslavia is also a signa-tory to numerous international agreements and con-ventions protecting copyrights and patents; most re-cently, in February 1997 Yugoslavia became a memberof the Patent Cooperation Treaty (PCT), allowing for-eigners to apply for patents in Yugoslavia. Yugoslavia’sinternational isolation, however, has meant that thereis often little incentive to prosecute violations of inter-national intellectual property rights.

In February, 1999, the Serbian government an-nounced the takeover of the Belgrade plant of ICNPharmaceuticals Inc., owned by a prominent opponentof the regime, the Serbian-American businessmanMilan Panic. The takeover was believed to have beenmotivated partly out of political considerations, but alsoto avoid paying ICN $175 million owed to the com-pany for medicines provided to the Yugoslav state healthcare system. Serbian government officials charged thatICN Pharmaceuticals had not met its obligations un-der a contract signed in 1990. In 1998, the SerbianHealth Fund defaulted on $39 million in notes pay-able to ICN.

2. To what extent have prices been liberalized?What subsidies remain?The last SFRY government (led by Ante Markovic) hadliberalized prices on the vast majority of goods as earlyas 1990. During the wars in Croatia and Bosnia-Herzegovina, the Milosevic government tried to con-trol the price of basic staples, but the hyperinflation of1992-1993 made such efforts pointless. The govern-ment continues to control prices on approximately 500goods, ranging from machinery to paper products orfood, and producers of these goods must ask the Fed-eral Ministry of Trade for permission to raise prices.The government’s ability to control the importation ofvarious goods means that it can also informally setprices for imports by withholding supply wheneverprices drop for particular items. Similarly, by applyingpolitical pressure it can force producers to maintainthe prices of staples such as milk, bread, meat, sugar,and cooking oil; predictably, however, producers usu-ally respond by cutting back on production. Goods andservices for which prices are still set by the govern-ment include things such as inland railway traffic, themain postal and telephone services, medicines, and

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743electricity prices. The government also subsidizes vari-ous agricultural products such as livestock, edible oil,and other foodstuffs. During the NATO attack on Yu-goslavia, the FRY government froze prices on a widerange of goods and essentially resorted to a commandeconomy.

3. Is it possible to own and operate a business?Has there been legislation regarding the forma-tion, dissolution, and transfer of businesses, andis the law respected? Do there exist overly cum-bersome bureaucratic hurdles that effectivelyhinder the ability to own and dispose of a busi-ness? Are citizens given access to information oncommercial law? Is the law applied fairly? Do regu-lation or licensing requirements impose significantcosts on business and consumers? Do they createsignificant barriers to entry and seriously hampercompetition?Yugoslav citizens are constitutionally guaranteed theright to own their own businesses. Even during thecommunist era, Yugoslav citizens had the right to ownand operate small businesses that employed up to fivepeople, or, in the case of agriculture, to own up to tenhectares of land. The formation of businesses is astraightforward procedure, and tens of thousands ofYugoslav citizens have registered their own businessesover the past several years (see Privatization, above).There is a free flow of information on the various as-pects of commercial law, and changes are regularlypublished in the FRY’s Official Gazette (Sluzbeni Glasnik).Regulations or licensing requirements, in most cases,are only problematical where business activities candamage the regime’s interests (e.g., licensing a mediaenterprise), or where regime members/supporters havesignificant personal business interests, in which casethe bureaucracy can significantly hamper competition.

4. Are courts effective, transparent, efficient, andquick in reaching decisions on property and con-tract disputes? What alternative mechanisms foradjudicating disputes exist?The FRY’s legislation regarding investment disputesis generally considered to be in accord with interna-tional standards. The FRY accepts binding interna-tional arbitration for investment disputes between for-eign investors and the state. The main problems areinconsistent implementation and lack of enforcement

of judicial rulings both for foreign and domestic in-vestors. Foreign observers have also complained thatgovernment and judicial decisions often seem to beinfluenced by the ruling party. Although bureaucraticand regulatory procedures are neither transparent norefficient, prior to March 1999, the FRY governmentwas believed to be making legal, regulatory, and ac-counting systems more transparent in accordance withinternational standards.

5. Is business competition encouraged? Are mo-nopolistic practices limited in law and in practice?If so, how? To what degree is “insider” dealing ahindrance to open competition? Are governmentprocurement policies open and unbiased?The FRY constitution prohibits the creation of mo-nopolies, and explicitly states that “terms of businessshall be the same for all” (Article 74). In practice, how-ever, individuals and enterprises associated with theMilosevic regime have been granted import monopo-lies for a wide range of goods, including fuel, pharma-ceuticals, and cigarettes. There have also been numer-ous charges that government employees are frequentlyinstructed to buy goods/supplies from individuals andfirms with close ties to the regime.

6. To what extent has international trade beenliberalized? To what degree has there been sim-plification/overhaul of customs and tariff proce-dures, and are these applied fairly? What infor-mal trade barriers exist?Yugoslavia currently adheres to the “Customs Valua-tion Agreement” negotiated under GATT but now as-sumed by the World Trade Organization (WTO), whichprovides for fair, uniform, and neutral valuations ofimports and exports. Yugoslavia is also an adherent tothe Convention covering Anti-Dumping Duties ad-ministered by the WTO, and has signed the Conven-tion on Subsidies and Countervailing Duties, al-though acceptance is pending. Duty rates in 1997,most of which are ad valorem, were in the zero-40percent range, although most were in the 5-20 per-cent range. The exception to this is in food products,where, to protect domestic fruit and vegetable pro-ducers, duties were raised to as much as 200 percenton April 1, 1997. In addition to customs duties, im-ports to Yugoslavia are subject to a cumulative 16 per-cent import tax ad valorem.

Nations in Transit

744In late 1997, the federal government announced a

Foreign Trade Regime Liberalization Program that wassupposed to become effective in 1998. According tothe new proposals, 96 percent of the total monetaryvalue of exports and 90 percent of the total monetaryvalue of imports would be regime-free. In early 1998,amendments to the Customs Tariff Law were beingdiscussed to bring tariffs and duties in line with WorldTrade Organization regulations by 2002. According tothe proposed amendments, the average duty rate forimports is to fall from 16 percent to 13.45 percent. Theduty rate for consumer goods was scheduled to be inthe 30-40 percent range, for raw material and semi-finished goods, 1-3 percent. Duties on certain highlyprofitable commodities, however, continued to be main-tained at relatively high rates. As of mid-1999, for in-stance, the duty rate on cigarettes was 70 percent, whilethe rate on alcohol was 50 percent.

The easing of the sanctions regime in 1995 resultedin a small decline in Yugoslavia’s trade deficit; in 1996,exports were 44.9 percent of imports, while in 1997,they rose to 49.3 percent. The trade deficit for 1996was $2.26 billion, approximately 15 percent of GDP.Two thirds of FRY imports in 1996 consisted of rawmaterials and semi-finished goods, mainly industrialinputs. Capital goods accounted for 14 percent of im-ports, and consumer goods the remaining 19 percent.Most FRY exports consist of raw materials, semi-fin-ished goods, and food and chemical products. TheFRY’s main trading partners are Germany, Italy, Rus-sia, FYR Macedonia, and the Republika Srpska. In 1997,the trade deficit was again estimated to be around $2.2billion.

International trade to, through, and from Yugoslaviawas severely disrupted by the NATO attacks on thecountry. Three important bridges across the Danubeat Novi Sad were destroyed during the NATO bom-bardment, blocking the river to shipping between theBlack Sea and Central Europe. In 1998, 40 million tonsof freight was shipped via the Danube. FRY authori-ties insist that they will not open the Danube to inter-national shipping until NATO countries pay to rebuildthe bridges. Yugoslavia was also an important trans-portation route for goods being shipped from north-ern, western, and central Europe to the southeasternpart of the continent. The destruction of many bridgesand stretches of roadway along the Belgrade-Nis high-way disrupted these trade flows, however, significantly

increasing transportation costs for exporters and im-porters in the region. All together, some 50 roadbridges, 19 railway bridges, and 12 airports were se-verely damaged during the NATO bombing campaign.

Regulatory changes regarding foreign trade intro-duced during the state of war in 1999 included a quotaor permit system for all imports and exports, with theexception of pharmaceutical and oil derivatives, and aspecial customs duty of 250 percent above regular du-ties on imports of goods above the regular quota forthose goods.

7. To what extent has foreign investment and capi-tal flow been encouraged or constrained?Yugoslavia’s international trade and ability to attractforeign investment has been extremely limited becauseof the sanctions regime imposed on Yugoslavia by theUN Security Council in May 1992. After the signing ofthe Dayton Peace Agreement in December 1995, theUN Security Council suspended the original sanctionsregime and allowed Yugoslavia to resume trade withthe outside world. In October 1996, the UN SecurityCouncil lifted the original sanctions regime completely(Security Council Resolution 1022/1996). In April 1997,the EU granted the FRY preferential trade status, butthen revoked it in December after the Milosevic re-gime failed to make any progress towards democrati-zation as outlined in the Gonzales Report. In contrastto the Europeans, the US has consistently favored keep-ing the FRY economically isolated. The EU and theU.S. again imposed a wide range of sanctions in March1998, and in 1999, a flight ban was also introduced forYugoslav air carriers.

Officially, foreigners enjoy the right to own prop-erty and businesses on the basis of reciprocity, i.e., tothe same extent that Yugoslav citizens enjoy those rightsin the foreigner’s country. Foreigners also have the rightto seek arbitration in foreign courts in disputes. Thegovernment does reserve the right to expropriate prop-erty “in the public interest;” however, there were noreported cases of such actions in 1997, although inearlier cases compensation for expropriated propertyfell below market value. Expropriation and national-ization are prohibited in free zones. Repatriation ofcapital for foreigners is free of restrictions. However,there have been complaints that high tariffs and sur-charges have made it too expensive for foreign firms toimport the quantity of goods needed to launch opera-

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745tions on a larger scale. Foreign investment in Yugosla-via is not screened by any particular criteria, and nodiscriminatory or preferential export or import lawsaffect foreign investors. Although there is no formaldiscrimination against foreign investors, there havebeen charges that FRY law and institutions have beenmanipulated by domestic firms to give them an advan-tage over foreign firms.

An important first step in opening Yugoslavia’seconomy to foreign investment was made in 1989 withthe adoption of the Foreign Investment Law, whichallowed foreigners to invest in various sectors such astourism, insurance, and financial services. In 1994 theFRY government passed a “Law on Foreign Invest-ment.” A primary feature of the 1994 legislation set upfree economic zones in key import-export points, e.g.,airports, river and sea ports, and along major interna-tional highways. Both domestic and foreign investorsin these zones were given a wide variety of customsand tax incentives to stimulate their operations, suchas extended tax breaks of up to six years in Serbia andten years in Montenegro. Similar incentives exist forfirms operating outside of the free zones. In mid-1996privatization legislation was further liberalized by a“Law on Changes and Supplements to the Law onForeign Investment.” The 1996 legislation allowed for-eigners to obtain concessions in the fields of energyproduction, transportation, telecommunications, andthe forest and lumber industries. For instance, foreignfirms have obtained concessions to build a highwaybetween Nis and Dimitrovgrad, a bridge over the Drinariver, and parking lots in Belgrade. A French firm, SaurInternationale, is in negotiations to operate Belgrade’spublic waterworks system.

In the past two years, the government has made fur-ther efforts to encourage foreign investment, but crit-ics charge the government’s efforts reflect a need toobtain cash to keep the economy afloat rather than areal desire to restructure the economy. In June 1997,the Serbian government signed a major deal to priva-tize the Serbian telecommunications system by sell-ing a 49 percent share (worth 1.6 billion DEM) to twoforeign investors: Italy’s Stet and Greece’s OTE. Themoney, however, was used to cover back-payments toworkers and pensioners before the September 1997elections. The Greek conglomerate MITILINEOS hasalso invested in the Trepca mine complex near KosovskaMitrovica, a deal involving a five-year business arrange-

ment valued at $500 million, and Greek investors arealso reported to be interested in Yugoslavia’s bankingsector as well.

Montenegro, for its part, has been promoting itselfas a center for offshore business activities; in July 1996,for example, the Montenegrin Skupstina passed an“Offshore Companies Act” granting substantial tax ben-efits to foreign entities operating in Montenegro.Montenegro is also trying to attract foreign investorsfor its plan to privatize its tourist attractions.

Yugoslavia has considerable potential to attract for-eign investors; the Financial Times, for instance, called it“Europe’s last big untapped market.” Part of the attrac-tion is due to the fact that salable assets are signifi-cantly undervalued. Moreover, despite the “brain drain”of the 1990s, Yugoslavia still has a well-trained andcompetitively priced workforce. Potential foreign in-vestors, however, have been put off by the uncertainpolitical climate (e.g., the Kosovo conflict, political un-rest in Montenegro, the continuing problems in Bosnia-Herzegovina), the re-imposition of sanctions againstthe FRY, and the lack of transparency in thegovernment’s privatization program.

Foreign investment and capital flow have also beenconstrained by an “outer wall” of sanctions the U.S.imposed on Yugoslavia in 1996. After the UN SecurityCouncil lifted the original sanctions regime, Yugoslavcritics charge that the U.S. “moved the goalposts” byannouncing a new set of conditions that Yugoslaviahad to fulfill to gain membership in the IMF and theWorld Bank. These new conditions include handingover war crimes suspects, real progress towards de-mocratization, and agreement with the other formerYugoslav republics on sharing the SFRY’s assets.Yugoslav economists claim that the FRY has fulfilledall of the economic criteria for re-joining the IMF, butthe U.S. government refuses to lift the sanctions or toallow aid for reconstruction to the FRY until SlobodanMilosevic is removed from office.

All told, the international sanctions have had verysevere long-term consequences for Yugoslavia’seconomy and society. Academician Branislav Soskic ofthe European Center for Peace and Development inBelgrade has claimed that overall losses attributable tothe sanctions in the period 1991-96 amount to $61.95billion. In the first two years of the sanctions, almostten percent of Yugoslavia’s workforce employed in sci-entific research and development left the country. Com-

Nations in Transit

746bined with the outflow of young, educated individualsfrom other segments of the economy, the loss of thisdemographic group – the natural backbone of opposi-tion to the Milosevic regime – has severely weakenedthe opposition movement in Serbia.

8. Has there been reform of the energy sector? Towhat degree has the energy sector been restruc-tured? Is the energy sector more varied, and is itopen to private competition? Is the country overlydependent on one or two other countries for en-ergy, including whether exported fuels must passthrough one or more countries to reach markets?Production from the FRY’s thermal power stations andhydroelectric power stations fulfill Yugoslavia’s elec-tricity needs (the two sectors provide 68 percent and32 percent, respectively, of total electricity generated).Both sectors are still state-owned. Reform of the restof the energy industry has also been negligible. Thegovernment controls who has the right to obtain im-port licenses for mineral fuels, and these licenses in-variably go to individuals with close ties to the regime.The sanctions regime in place in various ways since1992 has allowed organized smuggling rings to earnvast sums of money circumventing the blockade andimporting fuel. Currently, Yugoslavia owes some $500million to Russia (for gas), and China (for oil), but itcontinues to import fuel through barter arrangementswith these countries. According to one published re-port, in July 1999 Yugoslavia owed Russia’s Gazpromsome $260 million. Some reports have suggested thatYugoslavia may have to settle its energy debts to Rus-sia and China by giving them shares of state-ownedenterprises scheduled for privatization.

Overall, the energy sector is in desperate shape.Both the state oil company (NIS) and the state elec-trical company (EPS) in Serbia are running large defi-cits. In 1996, NIS had debts of approximately 617million dinars (according to the exchange rate thenin effect, over $127,000,000), including some 228million dinars it owed the federal government inexcise taxes. EPS had debts totaling 582 milliondinars ($120 million), while at the same time its cus-tomers owed EPS 766 million dinars (approximately$158 million). Part of the reason for the deficits isthe fact that, despite recent price increases, Serbiastill has the lowest electricity prices in Europe, andgasoline prices in Yugoslavia are lower than in West-

ern Europe. The price of gasoline in Belgrade (whenit could be found), however, doubled after the Kosovoconflict.

The NATO attacks on Yugoslavia did severe dam-age to the country’s energy-production capabilities.A third of Serbia’s power grid and its two largestcrude oil refineries were destroyed during the bomb-ing. In the aftermath of the NATO bombing, the UNestimated that Yugoslavia would only be able to pro-duce 50-70 percent of its electrical energy require-ments during the winter. This increased Yugoslavia’sdependence on Russian gas supplies, which effec-tively became almost the only source of fuel to heatindividual households and to keep industries run-ning through the winter. The Kosovo War also high-lighted Hungary’s importance to Yugoslavia, throughwhich Russian gas supplies transit. Hungary shutoff gas supplies to Yugoslavia in keeping with theWestern fuel embargo on the country. Afterwards,restoring the flow was hampered due to a debt of$20 million Yugoslavia owed Hungary for the transitof gas through Hungarian territory.

Overall industrial growth and development willbe impossible without significant reform and recon-struction of the energy sector. According to 1996 es-timates, the Yugoslav energy sector needed some$700 million in investments for infrastructure mod-ernization and improvement; this figure will be con-siderably higher given the destruction caused by theNATO bombing campaign.

Plans have been made to privatize state energyconglomerates and sell shares to foreign investors,which should significantly restructure the energysector. Plans are already underway to sell minoritystakes in EPS and NIS, which also owns a large net-work of gas stations.

Social Sector Indicators1. What is the size of the national workforce? Whatproportion of the workforce is employed on a fulltime basis? What are the labor force participationrates for adult non-retirement age women andmen? What is the overall official and unofficialunemployment rate and what is the unemployment

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747rate for men and women? Does the state provideunemployment compensation; if so, how is it cal-culated and how long is it paid? What proportionof the median wage does unemployment compen-sation constitute?The size of the Yugoslav workforce in 1998 was esti-mated to be five million. Women comprised some 42.7percent of this figure. The labor force participationratio of female to male citizens was 0.7.

As of mid-1999, there were an estimated 2 millionunemployed persons in Yugoslavia, more than half ofwhom are under 30 years old. (This figure includesboth officially unemployed individuals and those laid-off from their places of employment). Some 100,000individuals were employed in factories destroyed byNATO bombing; a further 500,000 workers were em-ployed in factories directly dependent upon those de-stroyed factories.

Unemployment benefits are roughly equivalent tothe minimum wage, which in 1998 varied from 250-500 dinars (approximately $20-40 US). The minimumwage, however, is not enough to cover minimal ex-penses for a worker and his/her family. In 1998, thecost of food and utilities for a family of four was esti-mated to be 2,150 dinars ($230 US).

Women are entitled to at least 270 days paid ma-ternity leave covering the period before and afterchildbirth, and hospital stays and maternity care arefree of charge.

2. Describe the national pension and retirementsystem. Describe public sector and private pen-sion systems. Provide data on government pensionbenefits and indicate the proportion of retireescovered by pensions. What is the retirement agefor men and women? What is the average monthlyretirement benefit and what proportion of themedian wage does it constitute? Is there a systemof specialized benefits for specific groups (for ex-ample, the disabled or certain groups likeChernobyl victims)?The FRY’s pension system has been in crisis for sev-eral years. Along with the other social welfare insur-ance programs, the pension system is largely financedby the high level of payroll taxes in the country. In1997, FRY pension fund alone ran a deficit of some$1.26 billion (U.S.), and the payments that were madewere only possible thanks to the sale of a large stake

of the Serbian telecommunications system to Italianand Greek investors. Pensions have been paid out ona very irregular basis over the past several years. Ac-cording to one estimate, in 1998 the government owed1.2 million pensioners some 5,000 dinars (approxi-mately $830 US) each in pension arrears. As of mid-1999, the government was estimated to owe pension-ers and state employees 18 billion dinars in wageand pension arrears.

In 1998, there were 1,333,300 individuals receivingpensions in the FRY. Of these, 81,906 were inMontenegro, and 1,251,394 in Serbia. Private sectoremployees, including agricultural workers, are requiredto pay a portion of their salaries into special funds pro-viding benefits to people not employed in the state/social sector.

Individuals can be eligible for old-age pensions, dis-ability pensions, or social-welfare pensions (a categoryfor individuals suffering either from a physical or men-tal handicap, or cases of destitution where the individualis not covered by unemployment benefits). Immediatefamily members of a deceased individual also have theright to obtain the deceased’s pension benefits.

Male adults in the FRY can retire after 60 years ofage, and women can retire at the age of 55, if they havecompleted 20 years of employment. Alternatively, a malecan retire after 40 years of employment at any age after50; women can retire after 35 years of employment atany age after 50. Pensions are based on average monthlyearnings for any ten year period in which the indi-vidual in question was enjoying their maximum salary(the pension basis). The formula for determining pen-sions depends on the number of years an individualwas employed. A male with 15 years of employment isentitled to 35 percent of their pension basis, and anadditional 2 percent for every additional year of em-ployment Females employed for 15 years are entitledto 40 percent of their pension basis; for each addi-tional year (up to 20 years of employment) they areeligible for an additional 3 percent of the pension ba-sis, and for each year of employment after 20 years, foran additional 2 percent. The maximum amount allowedfor old age pensions is 85 percent of the pension ba-sis. Similar formulas exist for determining disabilitypensions. What this system means in practice is thaton average, pensioners receive 85-87 percent of theaverage monthly earnings during their last five yearsof employment.

Nations in Transit

7483. What is the country’s average and medianmonthly income in local currency and dollar equiva-lents? What has been the trend in average andmedian monthly incomes since 1993? Are theremajor problems in wage arrearages? If yes, de-scribe their extent and scale, providing some de-tail related to the sectors of the economy in whicharrearages are most pronounced. Describe howpeople compensate for cash arrearages (for ex-ample, barter). What are the differences in pub-lic and private sector median wages and in me-dian wages among men and women?The average monthly salary in Yugoslavia in 1999was 1,304 dinars (81.5 DEM or $45.2 US at 1999levels). Since 1994, after factoring in inflation rates,Yugoslav citizens have experienced an almost con-tinual decline in their incomes. Average monthly sala-ries in 1994 were 102 DEM; in 1995, 93.5 DEM; in1996, 128.5 DEM; in 1997 (the year a 49 percent stakein the Serbian state telecommunications system wassold to foreign investors), 160.2 DEM; in 1998, 130DEM; and in 1999, 82 DEM.Wage arrearages are a major problem in the economy,especially for workers employed in the public sec-tor. Monthly wages are often several months behind.One of the ways in which the regime amelioratespublic dissatisfaction with such a situation is bybeing lax in the collection of utility payments. Barteris another significant way in which individuals makedo; often, in lieu of their salaries, individuals areallowed to have some of the products their firm pro-duces, which they are then free to sell on the gray orblack markets. Also, many individuals in the FRYstill have strong ties to the countryside, and are ableto obtain basic foodstuffs from relatives or friends intheir native villages.Private sector wages are generally somewhat higherthan private sector, but specific percentages are notavailable. Although women are officially entitled toequal pay for equal work, traditional patriarchal so-cietal attitudes often prevent women from reachinghigher levels of management.

4. What has been the annual size of the elemen-tary, secondary, and post-secondary educationschool population since 1993? What is the pro-portion of 8-18 year olds enrolled in the educa-tional system and what has been the trend since

1993? What is the national student-to-teacherratio? Provide basic data on public spending foreducation since 1993: what is the proportion ofGDP expended on education by the state, andhow has this proportion changed since 1993?In the 1997-1998 school year, there were 877,445students enrolled in elementary schools, 355,311 en-rolled in secondary schools, and 46,821 students en-rolled in institutions for higher education. The pro-portion of 8-18 year olds enrolled in the educationalsystem in 1995 was 72 percent. The national stu-dent to teacher ratio in 1998 was 18:1 in the elemen-tary school system. Total expenditure on educationas a percentage of GDP in 1990/91 was 4.5 percent.

The educational system in Kosovo has been es-pecially disrupted by the problems in the country.In 1990, the Milosevic regime closed Albanianschools in the province due to the unwillingness ofAlbanian instructors to offer a curriculum authorizedby the Republic of Serbia, including course inSerbian history and language. Subsequently, Alba-nians in the province created a parallel school sys-tem for primary, secondary, and post-secondary edu-cation. In 1996, symbolic progress was made in re-integrating Albanians into the official school systemwhen Milosevic met with Albanian leader IbrahimRugova, under the auspices of the Saint Egidio so-ciety, to bring Albanian students back into officialclassrooms. The effort, however, made little actualprogress.

5. Provide data on infant mortality, birth rates,life expectancy (both male and female), divorcerates, and suicide rates, and trends over recentyears in these spheres.The infant mortality rate in Yugoslavia in 1998 wasreported to be 13 per 1,000 live births. Life expect-ancy in 1998 was 72 years; for males, the figure was70 years, for females, 75. The crude birth rate in Yu-goslavia was listed at 11 per 1000 people. There were7,947 divorces recorded in 1997. In 1996, there were5.4 marriages per 1000 people in the FRY, and 0.7divorces. There is no recent information availableon suicide rates, but in 1997 there were 1,776 re-corded cases of suicide; of those, 1,216 suicides werecommitted by males, and 550 by females. The num-ber of divorces and suicides have both increasedincrementally in recent years.

yugoslavia

7496. Provide data on the ratio of doctors andnurses to the population. What is the trend inaverage and median monthly wages for doctors,nurses, and medics since 1993? Provide data onthe number of hospital beds and on the numberof hospital beds per capita. Provide statistics onthe percentage of GDP devoted to health care.Provide data on the proportion of GDP expendedby the public sector on health care.From 1990-1998, there were on average 2.0 physi-cians per 1000 members of the population in Yugo-slavia. The number of hospital beds per 1000 peopleequaled 5.3. Long-term data on average and medianwages for doctors, nurses, and medics is unavail-able; however, the average doctor in 1998 was mak-ing approximately 1,800 dinars per/month ($165),while a cardiologist earned approximately 3,500($320). Throughout the 1990s, total Yugoslav expen-diture on health care has been approximately 7 per-cent of GDP. In 1995, the average Yugoslav citizenspent $91 (US) on health care.

7. What are official and authoritative nongovern-mental data concerning the scale of poverty andpoverty rates? What is the poverty rate amongmales, females, and the elderly and pensioners?Provide trends in poverty rates since 1993.The Yugoslav population has experienced a continualdownward trend in its standard of living since 1990.Estimating overall poverty rates is difficult due to thesignificant disparities between the way in which pov-erty affects the urban and rural populations; how-ever, a 1999 study showed that according to officialstatistics, 30 percent of the population fell below thepoverty line. Some 100,000 people are believed tobe using soup-kitchens on a regular basis. An earlierstudy, tracing the years 1990-94, showed that some23.5 percent of the population was at or below thepoverty line. During this period, the percentage ofthe urban population at or below the poverty levelrose from 8 percent in 1990 to 30 percent in 1994;while for the rural population the respective figuresrose from 7.1 percent to 11 percent.