http://www.chroniclesmagazine.org/News/Trifkovic/NewsST101602.html ChroniclesExtra, October 16, 2002 Exclusive: THE UNTOLD STORY OF PRIVATIZATION IN SERBIA by Srdja Trifkovic In two of my recent articles dealing with the presidential election in Serbia I have made passing references to Zoran Djindjic as "Serbia's kleptocratic prime minister," and to his "corrupt establishment" that "controls the economy and the media more stringently than Milosevic had ever done." While such designations would be considered unremarkable by an overwhelming majority of Serbia's impoverished and disheartened people, they raised an eyebrow or two among some foreign Yugoslavia-watchers who still subscribe to the view that Mr. Djindjic is a "pro-Western, reformist" politician whose program of privatization may prove painful at first, but eventually will lead Serbia to prosperity and free market system. One academic critic remarked that "there's nothing wrong with Djindjic and his team doing well personally if in the end everyone will be better off." Dr. Z. Papadopoulos from Germany suggested that "it is time to grasp the reality that Djindjic is the only man who can take Serbia into Europe." That, sadly, appears to be wishful thinking. Mr. Djindjic, his privatization minister Aleksandar ("Aca") Vlahovic and about a dozen members of their inner coterie, are in the process of turning Serbia's state industries into their private assets, by means that would be considered -- to put it mildly -- highly dubious in most Western countries. Undoubtedly, if it hopes to transform and revitalize the economy, Serbia needs to enlarge and strengthen the private sector; but the methods employed thus far by Djindjic's circle -- well illustrated by the attempted quasi-legal theft of Serbia's highly profitable cement works at Beocin a year ago -- are most discouraging. As Accuracy in Media noted at the time, "Workers also fear what the Serbian government may do, that is, whether privatization will be public or the government will succumb to pressure from foreign buyers to consider all contracts as business secrets." Because of widespread corruption in all secret deals, the report concluded, the people of Serbia are highly suspicious of Djindjic: "The mistrust has two origins: one is because the government embarked on reforms without previously making a social contract, and the other is that Privatization Minister Aleksandar Vlahovic used to work for Deloitte & Touche, which is now the chief consultant in the sale of the Beocin cement factory." Mr. Vlahovic was back in the news last week, and the alarm bells are on again, louder than ever before. This time his well-publicized appearance was in connection the forthcoming privatization of the ZASTAVA car factory in Kragujevac, Serbia's fourth largest city. The story opens with an innocuous-looking Reuters news wire from Belgrade on October 11: 'Serbia has agreed a joint venture with a US group to revive the country's sole carmaker Zastava pulling in investments of at least $150 million over three years, Privatisation Minister Aleksandar Vlahovic said on Friday. Zastava became well-known as producer of the cheap-and-cheerful Yugo hatchback in the 1980s but was crippled by international sanctions and bombed by NATO during the turmoil that engulfed the Balkans in the 1990s. Vlahovic said the joint venture with New Jersey based NUCARCO, backed by a group of investors headed by New York investment bank Kaupthing Securities Inc, would raise monthly production from 1,200 vehicles now to 10,000 over three years. "This investment will enable Zastava Vehicles to increase and modernise its production capacities and sell its models throughout the world," Vlahovic told a news conference. NUCARCO Inc. is headed by Malcolm Bricklin, who brought the Yugo to the U.S. market in the 1980s. Vlahovic said the joint venture would be called Zastava Motor Works ZMW. NUCARCO would own 80 percent, undertaking to invest a miniumum of $150 million over three years to upgrade technological standards and existing brands and to initiate development of new models. The Zastava Vehicles group would have a 20 percent stake but invest no cash. It would provide goods, land and know-how. The joint venture would market at least 75 percent of the vehicles it produces in the United States, the European Union and in developing countries, Vlahovic said. The number of employees would remain at 4,500 for now but would grow gradually to 9,000 over five years, he said. He also said the group hoped to reach annual production of 220,000 cars in five years -- a level not seen since Zastava was one of the industrial giants of the old communist Yugoslavia.' The questions connected with this story are not immediately apparent to an uninitiated eye; but for those of us who instinctively reach for their wallets when the name of Mr. Vlahovic is mentioned, they come naturally. The exact status of the heralded "joint venture with New Jersey based NUCARCO" is unclear, as according to the Department of Revenue in Trenton no company by such name is registered in the State of New Jersey. In a telephone interview Mr. Malcolm Bricklin stated that the company in fact does exist, as the umbrella group for Zastava Motor Works USA. Perhaps more worrying that the formality of NUCARCO's status and registration is the fact that Mr. Bricklin -- for all his upbeat talk of "returning job security and a sense of pride to Serbian workers" -- refused to disclose any details about the company's ownership and management structure, personnel, or present capitalization. The same air of mystery applies to "Zastava Motor Works USA" which has a shell of a website that displays silhouettes and pictures of Zastava cars with no accompanying text or functioning links. Mr. Bricklin says that the company does have a mission statement and a business plan, but refused to disclose any information saying that they are lodged with the Government of Serbia, which should be approached for all further details as he is not at liberty to discuss such issues withou prior approval from Belgrade. "New York investment bank, Kaupthing Securities Inc." is a securities trading subsidiary of an Icelandic bank, Kaupthing, that in addition to corporate headquarters in Reyktavik also has offices in Copenhagen, Faroe Islans, Helsinki, Luxembourg, and Switzerland. According to the bank's statement for the first half of 2002, "The operations of overseas associate companies and subsidiaries returned a profit of less than ISK 1 million" (i.e., less than US $1,400 at the rate of 71.5 Icelandic Krone to a dollar). The firm's site and its newsletter make no mention of Kaupthing's participation in any deal concerning Zastava, NUCARCO, or, Serbia. In a telephone interview a representative for Kaupthing said that the company will be retained by NUCARCO, but neither he nor Mr. Bricklin wanted to disclose the intended strategy of raising very substantial liquidity, except to indicate that (a) there would be no IPA, for three years at least; and (b) that foreign providers of financial assistance to Serbia are expected to chip in. To a specific question Mr. Bricklin replied that the well-known international financial institutions based in Washington D.C. are not expected to be among the investors, because their conditions are too stringent. Perhaps most serious of all, company is people -- and Mr. Bricklin's name raises many eyebrows in the industry. An article in the Detroit News ("Bricklin redux: Another one of Malcolm's bright ideas") published on May 1, 2002, illustrates the problem: "Omigosh, Malcolm Bricklin is at it again . . . He's hooked up with his old pals at Serbian automaker Zastava, the former manufacturer of the late and largely unlamented Yugo, to bring another low-priced automobile from the region to lucky North American consumers. The piece instantly triggered several flashbacks, some amusing, some painful . . . Their reputation was such that one U.S. luxury-car dealer who was offering a free Yugo with every purchase reportedly had several customers who requested a 10-speed bike instead of the Yugo as their gift . . . So now Malcolm Bricklin, at the age of 63, wants to resurrect his automotive career . . . I can't help but wonder if he'd have better luck in trying to rebuild the Serbian film industry." First some history. When Bricklin dropped out of university in 1958 he established a building supplies business in Orlando and franchised Handyman hardware stores, which reached a peak of 18 stores. Then the lawsuits started; by the time he was 25 his name was on half a dozen of them. But in 1971 he made a fresh start and formed two car companies, General Vehicle Inc. and Bricklin Vehicle Corporation. By late 1972 he had a prototype inexpensive sports car with gull-wing doors -- just like DeLorean's -- and started looking for a plant to manufacture it, provided that someone else put up the money. After failed negotiations with the Government of Quebec he went to New Brunswick and his undoubtedly considerable promoting talents got him $20 million of Canadian taxpaer funds. As Bricklin's biographer Charlie Russell recalls, "The New Brunswick government had provided financing of $4.5 million for Bricklin's car. The money had been advanced on the assumption that Bricklin needed the initial financing to begin the production of cars. By the time the New Brunswick government discovered its error, it would have paid for the engineering and development of Bricklin's car. By that time, it would also be paying many of the costs, including salaries of keeping Bricklin's U.S. companies in operation." Over the three ensuing years only 2,854 Bricklins were produced, but when Bricklin Canada Ltd. and General Vehicles Ltd. filed for bankruptcy the companies owed a total of $34.6-million which makes Bricklins second only to DeLoreans in terms of cost-per-unit. At that time Mr. Bricklin also recorded a personal low: in 1976 he filed for bankruptcy with a United States District Court in Phoenix, declaring personal assets of $2,000 against debts of over $32 million. In the aftermath of the Canadian fiasco it was stated that "Malcolm Bricklin's flagrant nepotism alone would have been reason enough for a prudent business operator to call a halt": his mother was paid $30,000 a year as Vice President, and his father got $60,000 a year, being in charge of "cost reduction" (sic). He took care of his family, while New Brunswick's Premier Hatfield took care of him. . . and nobody took care of the interests of the taxpayers. The subsequent Yugo episode is remembered chiefly for cruel jokes. ("How do you double the value of a Yugo? Fill up the gas tank.") The fiasco Mr. Bricklin ascribes to poor quality and Yugoslavia's implosion, but the company went belly-up before the first shots were fired in anger in the Balkans. You'd think that would be it. . . not quite. In 1993, Malcolm Bricklin and two other entrepreneurs formed the Electric Bicycle Company and developed a battery powered moped called the EV Warrior. Unfortunately that company went bankrupt in 1997, just as interest in electrically powered mopeds seemed about to take off. You'd think four bankruptcies would be enough. Well not quite. Malcolm Bricklin got once again involved in a high risk automotive venture, this time with fuel cells. In 1998 Bricklin's EVX Inc. has signed an agreement with British fuel cell maker Zevco to open a pilot plant in New York City to replace internal combustion engines with Zevco fuel cell engines. Mr. Bricklin's record would be enough to warrant a painstaking and very open scrutiny of the proposed Zastava deal back in Belgrade. He may be an old dog that has learned some new trick, but any prudent investor would want to see some tangible evidence of such metamorphosis before plunging into any deal that is not at least evenly matched by Bricklin's personal funds. In conjunction with Messrs Djindjic, Vlahovic, et al. it spells big trouble, for Zastava's longsuffering workers, for Serbia's impoverished citizens whose taxes had built the factory in the first place, and for whatever entity proves rash enough to provide the liquidity. Both "Zastava" and Serbia need to get back on their feet, and can do so; but this is not the way. Serbian News Network - SNN [EMAIL PROTECTED] http://www.antic.org/
