Friday, 5 October, 2001, 16:06 GMT 17:06 UK Post-Milosevic boom fails to appear
Queuing for rations in Belgrade <http://news.bbc.co.uk/olmedia/1580000/images/_1581415_yugo300.jpg> The dream of overnight prosperity has been shattered http://news.bbc.co.uk/hi/english/business/newsid_1581000/1581415.stm By BBC News Online's James Arnold A year ago, Yugoslavs toppled the regime of Slobodan Milosevic in the hope of achieving freedom, peace and democracy. Key statistics, 2001 Population: 10.6m GDP per head: $3,085 Exchange rate: $1=65 dinars Inflation: 45% Foreign debt: $11.7bn Exports, 2000: $1.9bn Imports, 2000: $3.7bn After decades of communism, war and international sanctions, many were also praying for a little economic prosperity. The first three wishes have, by and large, come true. But Yugoslavia's economy, shattered by Mr Milosevic's mismanagement and the ravages of NATO bombing, remains in the doldrums - sparking increasing popular unrest. The government of President Vojislav Kostunica says it is doing its best to turn the economy around, but Yugoslav patience is starting to wear thin. The morning after Any hopes of a post-Milosevic boom have rapidly evaporated. The Yugoslav economy is likely to grow by only 4% this year, a far cry from the double-digit surge some had predicted - and needed to catch up for the lost years. <http://news.bbc.co.uk/furniture/startquote.gif> We have only had a year, after 12 years of Milosevic and 50 years of communist dicatorship. We can't do everything at once <http://news.bbc.co.uk/furniture/endquote.gif> Nebojsa Savic, Economics Institute Two-thirds of Yugoslavs still live below the poverty line, unemployment is a record 28%, and gross domestic product (GDP) per head is a meagre $3,000 even under the most forgiving method of calculation. At the same time, prices are surging: Annual inflation is likely to average over 80% this year, its highest level since 1996. In an effort to clamp down on inflation and comply with International Monetary Fund (IMF) requirements, the government has imposed a pay freeze on state workers. A crowd cheers Milosevic's ousting <http://news.bbc.co.uk/olmedia/1580000/images/_1581415_protest150.jpg> Many hopes have been dashed But that has only heightened resentment: Workers at the Kolubara coal mine - who played a key role in the unseating of Mr Milosevic a year ago - are currently on strike over their wages. In a recent survey conducted by the Mark Plan polling agency, 40.7% said their living standard was worse than a year ago, and only 10.6% said it had improved. Signs of hope There are bright spots. The government gets high marks from economists for a few of its key reforms. It has pushed through highly-regarded laws on privatisation and taxation. It has clamped down on smuggling - which ran rampant during the economic sanctions of the mid-1990s - and tightened up its budget. Most importantly, it has reined in the currency market, which long operated under a dual system, where the official exchange rate varied hugely from the rate available on the black market. This has resulted in a return of confidence about the Yugoslav dinar: The once pitifully weak currency has been strong all year, and the national bank says that Yugoslavs sold a total of 2.25bn Deutschmarks (�714m; $1bn) for dinars in the past 12 months. National Bank governor Mladjan Dinkic is one of the most respected members of the young, westernised economic policy team that Mr Kostunica has assembled. Industry idle But government effort can do little to combat Yugoslavia's underlying economic problems. Arguably the most pressing is the devastation of its industry, once the most productive in the communist bloc. Slobodan Milosevic <http://news.bbc.co.uk/olmedia/1580000/images/_1581415_milo150.jpg> Mr Milosevic ran industry into the ground Under the Milosevic regime, almost no money was invested in industry, and the privations of war and bombing damage have left most factories operating drastically below capacity. The years of isolation under sanctions also mean that few Yugoslav firms have experience of operating in the international marketplace, says Mike Taylor, Yugoslav analyst at the Economist Intelligence Unit. "Plants are working with older and older machinery; they are just not in a position to compete in the free market." As a result, Yugoslavia's formerly sophisticated economy is dependent on exporting low-value commodities such as wheat. Such is the plight of industry that one of the country's biggest export products is now frozen raspberries. Lenders hold back Without foreign money, Yugoslav industry has little chance of a revival. But international lenders, so eager to help a year ago, have stumped up little cash so far. A shattered bridge near Belgrade <http://news.bbc.co.uk/olmedia/1580000/images/_1581415_bridge150.jpg> Much Yugoslav infrastructure has been destroyed More pressing is the issue of state debt, which ballooned to enormous proportions when Mr Milosevic stopped paying interest during the 1990s. Now, Yugoslavia owes about $12bn - 150% of GDP - and has to pay $250m in interest every year. The government has been begging for a debt rescheduling deal for the past year, but the international community has dragged its feet over a deal. Government glitches Even once the bigger issues are hammered out, the Kostunica government faces a series of headaches at the micro level. Getting business working - and especially attracting foreign investment - is made tricky by its complex state structure, under which a federal government sits over state governments in Serbia and Montenegro. Companies investing in Montenegro, for example, cannot be sure whether they operate under state or federal law. Infighting among Mr Kostunica's government, which came close to falling apart in August, does not help matters. Although a few sensible laws have been passed, unravelling legal tangles is complicated by the court system, which is still regarded as dangerously inefficient. And the constructive attitude of high-level officials such as Mr Dinkic contrasts sharply with those further down the bureaucratic scale, most of whom are still Milosevic-era appointees. U-turn Give them a chance, says Nebojsa Savic, a senior research fellow at the Economics Institute in Belgrade who has close links to the Kostunica government. "Too many people think that the recovery should have been faster than it was," he says. "But we have only had a year, after 12 years of Milosevic and 50 years of communist dicatorship. "We can't do everything at once. But we have already made a complete U-turn." 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