Milosevic relies on grey market to keep afloat - World - News - The Independent

Milosevic relies on grey market to keep afloat

Apart from the street demonstrations, the pressure of the international community, the growing divisions among his own supporters and the general embarrassment at being caught cheating at the ballot box, there is another reason why President Slobodan Milosevic needs to resolve the political crisis racking Serbia as quickly as possible: the country is running out of money.

The economy has lurched from disaster to disaster since the beginning of the Balkan wars in 1991, weathering hyper-inflation, international isolation and the establishment of a system which has concentrated wealth in the hands of the chosen few while leaving more than half the country on or below the poverty line.

For a long time the Serbian people seemed remarkably resilient to such hardships, but the new wave of anti-government feeling has made them far less tolerant. In the past few weeks, the government has dug deep into its pockets to catch up with pensions arrears, cut electricity prices and keep the riot police happy. These things require hard currency, and hard currency is one thing the Serbian leadership does not have - at least not officially.

The country's trade deficit for 1996 is estimated at $2.2bn (pounds 1.3bn), while official reserves deposited at the Yugoslav National Bank are no more than $300m. Nobody knows exactly how the country is making up the shortfall, but it is almost certainly via the semi-legal or illegal web of financial transactions, offshore banking ar- rangements and secret funding the government has built up over the past few years.

"It is impossible that the trade deficit is being financed by legal sources," says Mladjan Dinkic, an economics professor at Belgrade University and author of a critique of the Milosevic system, entitled The Eco- nomics of Destruction. One way the government manages to raise funds, he believes, is by squeezing it out of the people.

In the past few days, the Yugoslav dinar has yo-yoed dramatically in street trade, waver- ing from 3.8 to the German mark up to five and then down again to 4.2 - a sure sign, according to Professor Dinkic, of government manipulation.

In effect, the state-controlled commercial banks deny cash to their customers, forcing them to sell hard currency from their savings to street traders, who are also controlled by the state. The more they sell, the weaker the dinar becomes. Then, after a few days, the banks loosen their credit squeeze and the dinar strengthens. The dealers sell the hard currency they have bought and make a tidy profit, which they pass on to the government.

The process is illegal, Professor Dinkic says, because it is an issue of new money that entirely by-passes the central bank and requires an increase in the banks' debt exposure well beyond the established limit. But the government has used the tactic several times in the past two years, at the risk of reigniting the hyper inflation that raged through Serbia in 1992-93.

By now, such "grey issues" of new money are not enough to keep the ship afloat. Other covert sources of hard currency probably include profits from the black market in cigarettes, and company profits ploughed into Yugoslav-controlled offshore banks run by confidants of Mr Milosevic.

If Mr Milosevic stays in power and fails to change his policies radically, his resources are likely to dwindle fast. He can try to unfreeze Serbia and Montenegro's share of former Yugoslavia's assets held in Basle. But time is against him - exactly how much time, nobody knows.

News
John Travolta is a qualified airline captain and employed the pilot with his company, Alto
people'That was the lowest I’d ever felt'
Life and Style
healthIt isn’t greasy. It doesn’t smell. And moreover, it costs nothing
Arts and Entertainment
Emma Thompson and Bryn Terfel are bringing Sweeney Todd: The Demon Barber of Fleet Street to the London Coliseum
theatre

Returning to the stage after 20 years makes actress feel 'nauseous'

News
peopleThe Times of India said actress should treat it as a 'compliment'
PROMOTED VIDEO
Have you tried new the Independent Digital Edition apps?
News
ebooksAn unforgettable anthology of contemporary reportage
Property
Home body: Badger stays safe indoors
property
News
The programme sees four specialists creating what they believe are three perfect couples, based on scientific matchmaking. The couples will not meet until they walk down the aisle together
tvUK wedding show jilted
Arts and Entertainment
US pop diva Jennifer Lopez sang “Happy Birthday” to Gurbanguly Berdimuhamedow, president of Turkmenistan
musicCorporate gigs become key source of musicians' income
Arts and Entertainment
You've been framed: Henri Matisse's colourful cut-outs at Tate Modern
artWhat makes a smash-hit art show
Arts and Entertainment
While many films were released, few managed to match the success of James Bond blockbuster 'Skyfall'
filmsDaniel Craig believed to be donning skis as 007 for first time
Student
The Guildhall School of Music and Drama is to offer a BA degree in Performance and Creative Enterprise

Undergraduates will be able to study beatboxing and performance poetry at one of Europe’s leading conservatoires for the first time, after the Guildhall School of Music and Drama revealed plans for a “groundbreaking” degree course.

Sport
Mikel Arteta pictured during Borussia Dortmund vs Arsenal
champions league
Voices
Yes supporters gather outside the Usher Hall, which is hosting a Night for Scotland in Edinburgh
voicesBen Judah: Is there a third option for England and Scotland that keeps everyone happy?
Arts and Entertainment
Pulp-fiction lover: Jarvis Cocker
booksJarvis Cocker on Richard Brautigan
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs General

SEN Teaching Assistant Runcorn

£50 per day: Randstad Education Cheshire: SEN Teaching Assistant EBD , Septemb...

SEN Teaching Assistant

£50 per day: Randstad Education Cheshire: SEN Teaching Assistant We are curr...

HR Manager - Kent - £45,000

£40000 - £45000 per annum: Ashdown Group: HR Manager / Training Manager (L&D /...

Senior QA Engineer - Agile, SCRUM

£35000 - £50000 per annum + benefits: Ashdown Group: Senior QA Engineer (Agil...

Day In a Page

Mystery of the Ground Zero wedding photo

A shot in the dark

Mystery of the wedding photo from Ground Zero
His life, the universe and everything

His life, the universe and everything

New biography sheds light on comic genius of Douglas Adams
Save us from small screen superheroes

Save us from small screen superheroes

Shows like Agents of S.H.I.E.L.D are little more than marketing tools
Reach for the skies

Reach for the skies

From pools to football pitches, rooftop living is looking up
These are the 12 best hotel spas in the UK

12 best hotel spas in the UK

Some hotels go all out on facilities; others stand out for the sheer quality of treatments
These Iranian-controlled Shia militias used to specialise in killing American soldiers. Now they are fighting Isis, backed up by US airstrikes

Widespread fear of Isis is producing strange bedfellows

Iranian-controlled Shia militias that used to kill American soldiers are now fighting Isis, helped by US airstrikes
Topshop goes part Athena poster, part last spring Prada

Topshop goes part Athena poster, part last spring Prada

Shoppers don't come to Topshop for the unique
How to make a Lego masterpiece

How to make a Lego masterpiece

Toy breaks out of the nursery and heads for the gallery
Meet the ‘Endies’ – city dwellers who are too poor to have fun

Meet the ‘Endies’ – city dwellers who are too poor to have fun

Urbanites are cursed with an acronym pointing to Employed but No Disposable Income or Savings
Paisley’s decision to make peace with IRA enemies might remind the Arabs of Sadat

Ian Paisley’s decision to make peace with his IRA enemies

His Save Ulster from Sodomy campaign would surely have been supported by many a Sunni imam
'She was a singer, a superstar, an addict, but to me, her mother, she is simply Amy'

'She was a singer, a superstar, an addict, but to me, her mother, she is simply Amy'

Exclusive extract from Janis Winehouse's poignant new memoir
Is this the role to win Cumberbatch an Oscar?

Is this the role to win Cumberbatch an Oscar?

The Imitation Game, film review
England and Roy Hodgson take a joint step towards redemption in Basel

England and Hodgson take a joint step towards redemption

Welbeck double puts England on the road to Euro 2016
Relatives fight over Vivian Maier’s rare photos

Relatives fight over Vivian Maier’s rare photos

Pictures removed from public view as courts decide ownership
‘Fashion has to be fun. It’s a big business, not a cure for cancer’

‘Fashion has to be fun. It’s a big business, not a cure for cancer’

Donatella Versace at New York Fashion Week