** The National Bank of Yugoslavia reveals financial scams by private
and state-run companies since 1989
*** Financial Shock Waves
Companies and individuals who have to pay a new tax on Milosevic-era
extra profit are shocked and angry. The total taxable amount has reached
DM8.3 billion, of which DM4.5 billion has been identified. Commercial
banks have yet to provide data on the recipients of loans accounting for
the remaining DM3.8 billion
AIM Belgrade, July 20, 2001
National Bank of Yugoslavia governor Mladjan Dinkic's disclosure of the
names of companies that are obliged to pay a one-time tax on profit
acquired thanks to privileges they enjoyed during the former regime sent
shockwaves through Serbia. Journalists immediately began besieging the
companies in question, most of which had learned of the amounts they
would have to pay from the press. Their reaction is hard to describe in
simple words: some were outraged, others shocked and numb, while others
still hardly expected anything like that to happen to them; there were
even some harsh verbal exchanges. All this, however, is still
unconfirmed, because no one was willing to make official statements.
The crux of the matter is the following: a commission investigating
potential financial scams spent several months examining about a ton of
documents to determine what companies enjoyed privileges enabling them
to amass property and money in the period form 1989 to the day the tax
bill was passed. "Privileges" mean one of the five following things (or
a combination): obtaining loans from the primary issue of money (which
is legal, but very detrimental to the economy), and from the so-called
grey issue (which is both illegal and detrimental to the economy),
purchasing hard currency from the National Bank of Yugoslavia at an
official exchange rate several times lower than the real rate, payment
for fictitious imports that never entered the country (at least there is
no documentation that they did), and using funds from the Serbian
Economic Recovery Loan.
It turned out that the last item, contrary to widespread belief, made
very few people rich. Not including the primary issue, which everybody
is familiar with (the process of printing money and causing inflation),
the grey issue, which was occasionally resorted to ever since 1990, was
a phenomenon not recorded anywhere else in the world, as governor Dinkic
put it. In the period from September, 1990, to November, 1993 alone,
(when inflation rendered both the primary and grey money issue
completely senseless) money worth DM4.7 billion was put in circulation.
Of this, DM2.2 billion was paid back. The rest is now being registered
as extra profit.
This is how it worked: the Serbian payment authority, though there was
no money on its accounts, registered deposits to the accounts of banks
and companies, which were used to purchase hard currency from the
population, and create secret national foreign currency reserves.
Reserves amounting to DM570 million were created in this way, and via
five banks taken out of the country. Of this, DM199 million was
distributed to companies in the form of loans, but the fate of the
remaining DM375 million is entirely undocumented.
This was the period of Serbia's illegal tapping into the national
monetary system (Slovenia and Croatia did the same, though to a lesser
extent), which undermined the economic plans of then Yugoslav prime
minister Ante Markovic. This is how the former Yugoslavia's destruction
was financially prepared. The bill was footed by all citizens of Serbia,
through record inflation.
According to Dinkic, the total amount to be taxed is DM8.3 billion, of
which DM4.5 billion has been identified. Commercial banks have yet to
provide data on loans that account for the remaining DM3.8 billion.
Though officials were not specific, it can be assumed that the banks in
question will be "helped" to remember what they did with these funds.
The governor can play a role in that as well, giving him the opportunity
to score more political points.
Speaking of points, the governor's appearance didn't exactly thrill
senior state officials. The commission for investigating financial scams
had already delivered the list of companies to the Serbian government.
Finance Minister Bozidar Djelic said debtors had begun reporting in to
the Serbian Public Revenue Administration, and then Dinkic went public
with his entire file.
The first to respond was number one on Dinkic's list: the Naftna
Industrija Srbija (NIS) oil company, whose representatives said that
instead of having made any extra profit (NIS was listed as having about
DM165 million in taxable extra funds), it, in fact, had DM976 million in
losses. The losses exceeds the NIS's total capital, and measures have
been taken for its financial consolidation. The announcement recalled
that the company, otherwise state-run, "for the purpose of preserving
social stability," sold its products at extremely depreciated prices,
much below the market level, so that no profit, not to mention any extra
profit, was made. The company's losses are proof that it is indeed so.
Serbian Energy Minister Goran Novakovic reacted immediately by saying
that steps will be taken to determine how much NIS profited from
purchasing foreign currency from the National Bank of Yugoslavia at a
hefty discount.
It is beyond dispute that NIS, much like the Elektroprivreda power
company and other enterprises, mostly from the food processing sector,
were the chief allies that helped the former regime in its attempts to
prevent social unrest over the past decade. Because of that, they were
forced to drastically cut prices, which in turn led to their ruin. NIS
has gone public with how much this policy has cost it.
If we assume that other state-run and socially-owned companies (or at
least, most of them) were granted loans from the primary issue, or money
from the grey issue, or hard currency at rock-bottom prices for the same
reason (to prevent social unrest), the question is what happened to the
private companies that emerged from the past decade with vast fortunes,
to say the least. Thus, for example, the Braca Karic company is second
on the list, with a taxable property of DM114 million. The head of the
company, Bogoljub Karic, has been publicly denying for some time that he
profited from his links to the former regime, and, particularly, the
Milosevic family. On several occasions Karic explained that not only was
he never close to the ruling family, but also suffered at its hands. He
stressed that this did not include the mental pain they inflicted on
him. After the list was made public, the Karic company did not react.
The Delta M company is also angry; executives declined any statements at
this point, and marketing director Milka Forcan said the company was
listed among the greatest debtors tendentiously, even though its taxable
extra profit was "only" DM4.3 million. And true, Delta M is ranked 128th
of a total of 246 companies. Some companies owe more than it, such as,
the IMT Machine and Tractors factory, ICN Galenika medicine factory,
Zastava car industry, Beopetrol oil company, Sartid metal industry,
Hemofarm medicine factory, Yuco, Zorka, EI Nis, and many others,
including Dafiment Banka, the notorious pyramid investment scheme.
But all of this begs the question -- if the Karic company, Delta, ICN,
Yuco, and other private enterprises have to, even unwillingly, pay the
extra profit tax, whatever the amount (the taxable sum will serve to
determine the tax payable in every individual case, based on a
progressive rate), what will the large state-run and socially-owned
companies do, given that they cannot even pay their employees' salaries.
To accuse them of making extra profit seems almost comical. And this is
where a legal problem arises -- if the law is to be applied, it should
be applied to all, says Danijel Cvjeticanin, from the Belgrade-based
Economics Institute: "The state-run and socially-owned companies which
used their privileged position and now cannot pay the tax will serve as
a good excuse for private companies that made a great deal of extra
profit to avoid paying the tax. This is why the effects of this law in
practice will be much lesser than expected," says Cvjeticanin. He
believes that in this way the state had, in fact, subsidized the
socially-owned and state-run companies, because it lacked real money.
Also it is a big question whether the private companies took all the
profit for themselves, or were obliged to set aside a portion to finance
some state operations of which we know nothing.
Governor Dinkic agrees that certain taxable sums are enormous, but says:
"The people have asked for that, the Serbian Legislature has acted on
their wishes, and the commission operated strictly in accordance with
the law." In the event a company cannot pay the tax, there are others
who can be held responsible -- guarantors, company directors, members of
the administrative boards, people who profited from the transactions now
subject to the tax, and the relatives of the debtors. Among those are
their children, adopted children and members of their families, parents
or adopted parents, brothers, sisters, and members of their families,
spouses, even former spouses, and twice remote in-laws, including
relatives of former spouses.
If the articles of the law are applied (namely Articles 6 and 7)
literally, that could mean one of two things. First, that would leave an
impression that the state is seriously bent on taxing everybody who took
advantage of the ordinary people in the past decade. That it won't allow
anyone to get away with robbery by claiming not to possess any property,
that their companies are insolvent, and that they don't know anything
"about any apartments; my wife used to buy them," as Yugoslav army Chief
of Staff Gen. Nebojsa Pavkovic once said.
On the other hand, to prevent another major injustice -- a mass
confiscation of property from innocent people -- it should be precisely
determined whether the relatives of the people involved indeed profited
in any way from their connections. And this will be a slow and enormous
job. Governor Dinkic came up with a rather original solution -- if, he
said, Karic could not pay, Delta M and Miroslav Miskovic will be asked
to pay instead, as in-laws (a son of one of the Karic brothers is
married to Miskovic's daughter). The Delta M marketing director
described this as a stance "unbecoming a national bank governor."
It is impossible to say how much money will ultimately be collected by
the extra profit tax, claims Slobodan Lalovic, secretary of the
commission investigating financial scams. This will be known once
detailed calculations have been made for each individual case. The
Serbian Public Revenue Administration is on the move, with which
companies have to file tax forms within the next 30 days. If their fail
to file personally, forced debt collection will follow, says Lalovic.
There is reason to believe that the real complications are yet to
follow.
# Biljana Stepanovic
(AIM)
Serbian News Network - SNN
[EMAIL PROTECTED]
http://www.antic.org/
