yugoslavia 655 YUGOSLAVIA -...

yugoslavia 655

YUGOSLAVIA

Polity: TransitionalEconomy: Transitional

Population: 10,655,000PPP: na

Ethnic Groups: Serb (67 percent), Kosovar (18 percent), Montenegrin (6 percent),Sanjak Muslim (3.2 percent), Roma, Albanian, others

Capital: Belgrade

Freedom in the World Ratings, 1989-1998

1989-90 1990-91 1991-92 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98

Political Rights 5 5 6 6 6 6 6 6 6

Status PF PF NF PF NF NF NF NF NF

Civil Liberties 4 4 5 5 6 6 6 6 6

Political Process 5.00/7

1. When did national legislative elections occur? Were they free and fair? How were theyjudged by domestic and international monitoring organizations? Who composed the govern-ment? In April 1992, Serbian and Montenegrin delegates in what remainded of the Federal As-sembly of the Socialist Federal Republic of Yugoslavia (SFRY) adopted a constitution for a newFederal Republic of Yugoslavia (FRY), composed of Montenegro and Serbia with its two autono-mous provinces, Kosovo and Vojvodina. The FRY was proclaimed on April 27, 1992, and in May1992 elections were held for a body to succeed the SFRY’s Federal Assembly. The new FRY con-stitution created a bicameral Federal Assembly. The upper house comprises a 40-member Chamberof Republics in which Montenegro and Serbia have equal representation. Members of the Chamberof Republics are elected by their respective republican assemblies. Delegates to the 138-memberChamber of Citizens are elected according to a complex formula in which 108 delegates are as-signed to Serbia and 30 to Montenegro. In each case, some delegates are popularly elected — 54 inSerbia, and 24 in Montenegro — while the remainder are elected according to constituency majorities.Delegates in both chambers serve four-year terms.

Elections for the Federal Assembly were held in November 1996. An alliance composed of theruling Socijalisticka Partija Srbije (the Socialist Party of Serbia, or SPS), the Jugoslovenska UdruzenaLevica (the Yugoslav United Left, or YUL), and Nova Demokratija (New Democracy, or ND) wona plurality of 64 seats in the 138-member Chamber of Citizens. The SPS’s sister party in Montenegro,the Democratic Party of Socialists of Montenegro (Demokratska Partija Socijalista Crne Gore,DPSCG) won an additional 20 seats. The three main opposition parties in the Zajedno (Together)coalition (the Democratic Party, the Serbian Renewal Movement, or SPO, and the Civic Alliance)won 22 seats, while the main right-wing nationalist opposition party, the Srpska Radikalna Stranka(the Serbian Radical Party, or SRS) won 16 seats.

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The two republics each have popularly-elected, unicameral assemblies, with delegates servingfour-year terms. The Serbian Assembly (Skupstina Srbije) has 250 seats. In the December 1993elections for the Serbian Skupstina, the SPS won 123 seats; a multiparty opposition movement, theDemokratski Pokret Srbije (the Democratic Movement of Serbia, or DEPOS) won 45; the SRS won39; the Democratic Party, 29; the Democratic Party of Serbia, 7; the Democratic Community ofVojvodina Hungarians, 5; and a Sandzak-Moslem Kosovo Albanian coalition, the Party of Demo-cratic Action/Democratic Party of Albanians won 2.

The latest elections for the Serbian Skupstina in September 1997 were boycotted by two lead-ing opposition parties: Zoran Djindjic’s Democratic Party and Vesna Pesic’s Civic Alliance of Serbia.Milosevic’s ruling left-wing coalition lost its governing majority, gaining only 110 seats. The SRS,on the other hand, significantly increased its share of power, gaining 82 seats. Vuk Draskovic’sSPO also improved its standing, winning 45 seats in the Skupstina. Other smaller parties, includingone representing Vojvodina Hungarians and another representing Sandzak Muslims, shared theremaining 13 seats. Serbian politics took a turn to the nationalist right in March 1998, when SRSpresident Vojislav Seselj was named Deputy Prime Minister in the new Serbian government.

In the November 1996 elections for the 71-seat Montenegrin Assembly (Skupstina Crne Gore),the ruling DPSCG won 45 seats; the Liberal Alliance, 19; the Party of Democratic Action, 3; theDemocratic Alliance of Montenegro, 2; and the Democratic Union of Albanians, 2. In 1997, theDPSCG broke into pro-Milosevic and pro-reform factions, and it is widely believed that new elec-tions for the Montenegrin Skupstina would have to be held sometime in 1998.

The Kosovo Albanian population has consistently boycotted Serbian and Yugoslav elections.In 1990, Serbian authorities had promulgated a new republican constitution that rescinded the broadautonomy Serbia’s two provinces, Kosovo and Vojvodina, had enjoyed since 1974. Albanian del-egates in the Kosovo Assembly responded by declaring Kosovo a constituent republic in Yugosla-via (but independent of Serbia), to which Serbian authorities responded by dissolving the KosovoAssembly. In May 1992, Kosovo Albanians held elections for a new assembly, and elected IbrahimRugova “president” of the self-declared “Republic of Kosovo.” Serbian authorities immediatelydeclared the elections illegal. As of March 1998, no one in the international community had recog-nized the Kosovo Albanians' self-declared state.

Since 1990, the Kosovo Albanians have proceeded to create their own parallel educational, health,and governmental institutions. Serbian authorities generally have not interfered with these efforts.Rugova, for instance, has been allowed to travel freely. In December 1996, however, Serbian secu-rity troops did crack down on unauthorized Albanian police forces. A few months earlier, in Sep-tember 1996, Milosevic and Rugova had reached an agreement providing for an end to the six-yearAlbanian boycott of state schools. The agreement, however, was never implemented, and the U.S.Department of State blamed both sides for intransigence. Conditions deteriorated in Kosovo during1997 as the Kosovo Albanian leadership continued to push for independence and the Milosevicregime continued with its repressive policies. At the same time, moderate Albanian leaders urginga policy of non-violence lost influence to more militant factions. During the concurrent anarchy inneighboring Albania in 1997, large stores of weaponry made their way from Albania to Kosovo.By late 1997, an organization called the “Kosovo Liberation Army” (KLA) began attacks on Serbiansecurity forces in Kosovo in which several Serbian policemen were killed. By February 1998, theKLA had claimed responsibility for the assassination of 50 people in the past year, including 20

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Albanians accused of being loyal to the Serbian government. The KLA was supported in part byIslamic terrorist organizations with ties to Iran and experience in Bosnia. In March 1998, Serbiansecurity forces responded to KLA attacks with a large-scale campaign to wipe out the KLA, and infact succeeded in killing one of its leaders. Scores of civilians were killed in the fighting, and theinternational community condemned the Milosevic government for responding to the KLA’s at-tacks with disproportionate force. The International Criminal Tribunal for the Former Yugoslaviaannounced that it would begin investigations into the actions of Serbian security forces in Kosovo.On March 9, 1998, the Contact Group imposed new punitive sanctions on Yugoslavia, includingdenying visas to senior Yugoslav officials believed to be responsible for the crackdown, and anarms embargo. On March 18, 1998, Serbian President Milan Milutinovic called for immediate andunconditional talks on Kosovo based on Serbia’s territorial integrity but allowing for “self-rule”for Kosovo. On March 22, 1998, Serbian officials allowed Kosovo Albanians to hold elections fortheir self-declared parliament and presidency. Despite a boycott of the elections by several smallerAlbanian parties, Rugova was again elected “president.”

2. When did presidential elections occur? Were they free and fair? The Yugoslav presidency isa largely ceremonial post. The Federal Assembly elects the Yugoslav president, who must obtainthe approval of both Montenegrin and Serbian delegates. The Yugoslav president, in turn, nomi-nates the federal prime minister. According to the FRY constitution, the federal president and thefederal prime minister cannot be from the same republic, and the federal president is limited to onlyone four-year term. The first FRY president was Dobrica Cosic, a well-known Serbian writer anddissident during the Titoist period. In June 1993, Cosic was ousted by Milosevic and replaced byZoran Lilic, a Milosevic protégé with no independent authority. Since Milosevic himself was con-stitutionally prohibited from serving a third consecutive term as Serbian president, he took overLilic’s position as Yugoslav president in July 1997. At the same time, Milosevic’s party also pro-posed constitutional changes so that the Yugoslav president would henceforth be popularly elected.This was widely seen as a precautionary move, given Milosevic’s increasing unpopularity inMontenegro.

The president of Serbia is popularly elected. In the first multi-party elections in December 1990,Milosevic won the position handily, and was re-elected in December 1992. In 1997, Milosevic’sSPS nominated Zoran Lilic (see above) as its candidate for the Serbian presidency. After failing towin in the first two rounds in September and October, Lilic was replaced by Milan Milutinovic asthe SPS candidate. The primary opponent to both Lilic and Milutinovic was the SRS leader, VojislavSeselj. In a fourth round of elections in December 1997, Milutinovic beat Seselj amidst widespreadrumors of ballot stuffing to assure a 50 percent turnout. Little complaint was heard from the inter-national community, however, because Milutinovic was felt to be an infinitely more acceptablefigure than the more nationalist Seselj.

The president of Montenegro is also popularly elected. Milo Djukanovic, the former Montenegrinprime minister who broke with Milosevic and his Montenegrin loyalists during the Serbian oppo-sition protests in the winter of 1996-1997, was elected president of Montenegro in multi-party elec-tions in October 1997. Djukanovic’s victory was disputed by his opponent and predecessor as presidentof Montenegro, Momir Bulatovic, who accused the Djukanovic camp of widespread vote fraud.


Despite rumors that Bulatovic was planning a coup and that Milosevic wanted to impose a state ofemergency in Montenegro, strong international support for Djukanovic helped keep him in officethrough March 1998.

None of the elections held in Yugoslavia over the past several years, whether at the national,republican, or municipal levels, can be considered to have been “free and fair.” Regarding the sev-eral rounds of presidential and parliamentary elections in Serbia in the latter half of 1997, for in-stance, an OSCE report noted that the “overall election process in the Republic of Serbia is funda-mentally flawed.” Opposition parties are routinely denied access to state-owned media (see be-low), and the Milosevic regime manipulates the electoral process itself in numerous ways.

3. Is the electoral system multi party-based? Are there at least two viable political partiesfunctioning at all levels of government? The FRY Constitution guarantees citizens freedom ofpolitical association (Article 41). At the federal Yugoslav, republican, and municipal levels, sev-eral parties compete in elections and participate in government. The actual power and influence ofthe various parties varies significantly. The SPS, for instance, by virtue of its control over the statesecurity forces, the most important mass media, and the most important segments of the economy,has a disproportionate share of power at all levels of government. Nevertheless, over the past fewyears, the SPS has lost its exclusive control of government institutions, and has been increasinglyforced to form coalitions with opposition parties.

4. How many parties have been legalized? Are any particular parties illegal? As of 1995, therewere approximately 200 parties functioning at the federal and republican levels. Many of these,however, were small parties with little or no infrastructure or coherent political platform. Article 42of the FRY constitution forbids any political parties/organizations that advocate the violent over-throw of the constitutional order.

5. What proportion of the population belongs to political parties? Exact figures on politicalparty membership are difficult to come by because many parties are reluctant to release such data.A good rule of thumb for understanding the Serbian electorate, however, is the rule of fourths pro-vided by Prof. Svetozar Stojanovic. Within Serbia itself, if one excludes the Kosovo Albanian populationwhich has been boycotting elections since 1990, and Hungarians in Vojvodina who vote for theirown ethnically-based parties, the Serbian electorate can be divided into four segments. The firstconsists of those who abstain from voting altogether. The second consists of SPS/YUL voters. Thethird consists of SRS supporters. The fourth segment votes for the rest of the opposition parties,such as the SPO, the DS, the GSS, etc.

The SPS claims a membership of approximately 600,000, making it by far the largest politicalparty in Yugoslavia. Nova Demokratija claims to have 40,000 members. In general terms, how-ever, support for a political party can be determined by analyzing voting results since 1990. Publicsupport for Milosevic’s SPS, for instance, has declined considerably over the past eight years; inthe 1990 elections, the SPS gained over 2.3 million votes, while in the 1997 elections, this numberfell to 1,200,000. Vuk Draskovic’s SPO has consistently won between 700,000 and one millionvotes over the past eight years. Support for Vojislav Seselj’s SRS also fluctuates considerably; in

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the elections between 1990 and 1997, the SRS has gained anywhere between 600,000 and 1,038,000.Reliable figures for Montenegrin political parties are also difficult to obtain. Of Montenegro’s

approximately 450,000 registered voters, however, it is generally assumed that most Montenegrinswho identify themselves more as Serbs, or favor close ties with Serbia, vote for Momir Bulatovic’swing of the DPS-CG. Milo Djukanovic’s recent electoral successes, on the other hand, are due tothe votes his faction of the DPS-CG has received from Albanians, Croats, and Muslims in Montenegro.

6. What has been the trend of voter turnout at the municipal, provincial, and national levelsin recent years? Voter turnout throughout the former Yugoslavia was traditionally high. In the1990 elections, well over 70 percent of the eligible electorate turned out. In more recent electionsthere have been signs of “voter fatigue.” Due to the boycott of the September 1997 Serbian elec-tions, for instance, many observers questioned the Republican Electoral Commission’s claim that62 percent of the electorate had turned out. In subsequent runoff elections for the Serbian presi-dency voter turnout hovered at or below the 50 percent level. In the October 1997 presidential elec-tions in Montenegro, voter turnout was approximately 73 percent.

1. How many nongovernmental organizations (NGOs) have come into existence since 1988?What is the number of charitable/nonprofit organizations? Are there locally led efforts to increasephilanthropy and volunteerism? What proportion of the population is active in private volun-tary activity (from polling data)? Hundreds of organizations have been formed since 1988, al-though the exact number and the size of their memberships are difficult to determine. NGOs in theFRY are still officially registered as “social organizations” or “associations of citizens” in accordwith the terms used during the socialist period. According to the Federal Statistics Office, in 1994there were 18,937 registered “social organizations” and 1,349 registered “associations of citizens.”All of these, however, had originated during the socialist period. Since 1991, observers believeanother 500 have been formed, the most numerous being ecological and humanitarian organiza-tions, followed by human rights-oriented NGOs.

In 1991, a Belgrade-based “Center for Anti-War Action” emerged, and a “Humanitarian LawCenter” was also founded. There are also Helsinki Committees active in Belgrade, Pristina, and theSandzak. The Helsinki Committees in Belgrade and Pristina often collaborate in monitoring thehuman rights situation in Kosovo. The Serbian Orthodox Church is active in providing charitableassistance to refugees and the poor. In Kosovo, a predominantly-Serbian organization of citizensknown as the “Serb Resistance Movement” has organized to protest the Milosevic regime’s poli-cies in that province. The Students' Club in Belgrade and the Independent Union of Students inKosovo have also played prominent roles over the past several years. Several environmental andwomen’s rights groups are also active, most notably, the Belgrade-based “Women in Black,” andthe Pristina-based “League of Albanian Women.”

2. What is the legal and regulatory environment for NGOs (i.e., ease of registration, legal rights,government regulation, taxation, procurement and access-to-information issues)? To whatextent is NGO activism focused on improving the legal and regulatory environment? In 1997,

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there was a mild improvement in the position of NGOs in Serbia proper, as some observers notedthat the Milosevic regime allowed more foreigners affiliated with international NGOs to enter thecountry. International monitoring groups claimed that in general they were free to conduct theiractivities. On the other hand, domestic NGOs have charged that the government was illegally ob-structing their activities. For instance, the Center for Free Elections and Democracy (CeSID), aBelgrade-based NGO which monitors elections claimed in November 1997 that the governmenthad denied them the right to monitor the presidential and parliamentary elections in Serbia in Sep-tember. In subsequent legal proceedings initiated by CeSID, the Serbian Supreme Court upheld thegovernment’s refusal to allow CeSID a role in election monitoring. The situation in Montenegro ismarkedly different, as the government there has for some time promoted more open and liberalpolicies.

3. What is the organizational capacity of NGOs? Do management structures clearly delineateauthority and responsibility? Is information available on NGO management issues in the nativelanguage? Is there a core of experienced practitioners/trainers to serve as consultants or mentorto less developed organizations? Information on this subject is not available.

4. Are NGOs financially viable? What is their tax status? Are they obliged to and do theytypically disclose revenue sources? Do government procurement opportunities exist for pri-vate, not-for-profit providers of services? Information on this subject is not available.

5. Are there free trade unions? How many workers belong to these unions? Is the number ofworkers belonging to trade unions growing or decreasing? What is the numerical/proportionalmembership of farmers’ groups, small business associations, etc.? Article 41 of the FRY con-stitution guarantees workers the right to form free trade unions. In addition to the government con-trolled “Alliance of Independent Labor Unions” with an estimated membership of one million, anindependent “United Branch of Independent Labor Unions” with some 157,000 members exists.Numerous smaller unions representing transportation workers, educational employees, journalists,retirees, and others are very active, at least judging by their proclivity to strike. Independent unionssuffer from regime attempts to suppress their activities; for instance, unions are often prohibitedfrom busing their members to strikes or demonstrations held in different parts of the country.

6. What forms of interest group participation in politics are legal? What types of interest groupsare active in the political and policy process? Articles 39 and 41 of the FRY constitution grantcitizens the freedom to form political parties and organizations, and freedom of assembly. Thereare numerous organized interest groups in the country, representing ethnic constituencies. Espe-cially prominent groups are those representing Albanians, Hungarians, Muslims, and Roma (gyp-sies), business interests, such as the Yugoslav Chamber of Commerce and Industry, and women’srights groups.

7. How is the not-for-profit/NGO sector perceived by the public and government officials?What is the nature of media coverage of NGOs? To what extent do government officials en-

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gage with NGOs? Government officials associated with the ruling regime generally view NGOs,especially those with international connections, as suspect. Often they are accused of being “trai-tors” or “foreign mercenaries.” NGOs also suffer from the fact that they are not a traditional formof social activism in these regions; consequently, the local population often views them as “merce-naries” working for foreign interests. Independent/alternative media treat NGOs more favorably.

1. Are there legal protections for press freedom? Articles 36 and 38 of the FRY constitutionguarantee freedom of the press and prohibit censorship, with one stipulation: press/media outletsenjoy these freedoms only if they are registered with the government. In practice, independent andalternative media are frequently subjected to numerous forms of legalistic and bureaucratic harass-ment. A new media law proposed in February 1998, on the allocation of frequencies for TV andradio stations, for example, drew considerable criticism from the independent media because of itsambiguity. The new regulation imposed undisclosed fees for the allocation of frequencies, leavingofficials free to price independent media houses out of business. Another feature of the new regu-lation warned that applications for a frequency would not be processed if technical details i.e., howfar the signal of a certain transmitter will carry, in the application were incorrect. Since the meth-odologies for testing such things vary, this left considerable scope for arbitrary determinations thatan application was “technically incorrect.”

2. Are there legal penalties for libeling officials? Are there legal penalties for “irresponsible”journalism? Have these laws been enforced to harass journalists? There are laws on the booksagainst slandering private individuals and government officials, but the Milosevic regime has rarelyused such forms of harassment. In 1997, there were no publicized cases of journalists being pros-ecuted for libel; however, the regime seemed intent on reining in the media with new draft legisla-tion circulated in late 1997 called the “Law on Public Information.” According to the draft legisla-tion, the new law included a vaguely-worded prohibition against journalists insulting the honor orreputation of individuals (Article 20); another prohibition against slander and quasi-slander (Ar-ticle 5) ostensibly intended to force journalists to be more “truthful” in their reporting. Other con-tentious provisions of the new law called for all print media to provide the republican public pros-ecutor with a copy of their publications which was interpreted by critics as an attempt to encouragejournalistic self-censorship, as well as a call to force all media to make public foreign sources offinancing (Articles 14, 16, and 17).

3. What proportion of media is privatized? What are the major private newspapers, televi-sion stations, and radio stations? Yugoslavia has a plethora of both electronic and print mediaoutlets. According to one estimate, in 1997 there were 300 privately owned radio stations and 100privately-owned TV stations in Yugoslavia. Belgrade now has 12 daily newspapers. The largestand most influential media in Yugoslavia, however, both electronic and print, are state-owned. Themost important TV station is the only government-owned station, Radio-Televizija Srbije (RTS),with a signal covering most of the country. RTS’s editorial policy is strictly pro-government. Dur-

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ing the 1997 electoral campaign, for instance, the Humanitarian Law Center in Belgrade claimedthat all of the opposition parties combined received only one-fourth of the airtime RTS devoted tothe ruling SPS coalition. A primary demand by the opposition since 1990 has been greater accessto state-owned media. The most memorable feature of the winter 1996-1997 opposition protestswas the sight of tens of thousands of demonstrators rattling pots and pans and blowing their carhorns during the broadcast of RTS’s main evening news program.

Montenegro and each of the provinces have their own state television services as well. In 1997,the relationship between Montenegro’s state-run television network, TV Crna Gora, and the Milosevic-controlled RTS soured, and TV Crna Gora is now broadcasting a much more objective and opennews information program. Under TV Crna Gora’s new editorial leadership, more coverage is de-voted to opposition political parties, and collaboration with independent news media in Belgrade,such as Radio B-92 or Belgrade’s Studio B television station, is being expanded. By way of con-trast, TV Crna Gora in 1997 stopped rebroadcasting RTS’s main nightly news program.

In both Kosovo and Vojvodina, there are RTS broadcasts in Albanian or Magyar, respectively,although the editorial slant is pro-Milosevic. Yugoslavia also has numerous print media for ethnicminorities published in their native languages, e.g., Novi Sad’s Magyar Szo, a Hungarian languagedaily with an estimated circulation of 26,000, or Pristina’s Koha Ditore, an Albanian languagenewsmagazine edited by a well-known Albanian activist, Veton Surroi.

The largest print daily in Yugoslavia is the Belgrade-based Politika with an estimated circula-tion of 200-300,000, again with a pro-Milosevic editorial line. There are a variety of oppositionpublications, and their popularity has increased in recent years. According to one report, the overallcirculation of the independent press surpassed that of the state media in 1997. Most important inthis category are Nasa Borba, a daily formed by the journalists and staff of Borba when the Milosevicregime took that paper over. The Belgrade-based newsweeklies Vreme and NIN are also stronglyanti-regime. In recent years, tabloids such as Belgrade’s Blic have also gained in popularity.

Among the most important privately-owned electronic media are Belgrade’s B-92 radio stationand Studio B independent television station. B-92 has long been noted for its strong anti-war stance,and during the winter of 1996-1997 Belgrade demonstrations actually gained many new listenersas people tuned in to get more objective reporting as to what was going on around the country. B-92 has also organized a network of 24 opposition radio stations throughout Serbia, Vojvodina, andMontenegro. All told, the network’s program reaches 70 percent of Serbia’s population.

Over the past several years, Studio B has provided opposition parties with much more coveragethan they could receive on RTS. Studio B’s signal, however, only reaches limited parts of Belgrade,and over the past several years the government has repeatedly refused to allow Studio B to obtaina stronger transmitter. Opposition cadres from the Zajedno coalition took charge of Studio B afterthe results of the 1996 municipal elections were recognized, but in September 1996, squabblingamong opposition parties led Vuk Draskovic’s SPO to purge the station of Zoran Djindjic’s sup-porters.

The most important privately-owned television station is BK Television, owned by three broth-ers who made their fortune in banking. Although originally close to Milosevic, their television sta-tion increasingly began to criticize regime policies, and in March 1997, the state temporarily sus-pended BK television’s broadcasts outside of Belgrade to prevent Serbia’s wider population from

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learning about the extent of the opposition movement.One interesting development in 1997 was the growing popularity of entertainment-oriented TV

and radio stations, and the corresponding decrease in the popularity of news and information-ori-ented media. For instance, according to some public opinion polls, Radio B-92, which in the imme-diate aftermath of the Belgrade demonstrations had been the most listened-to radio station in Belgrade,fell to fourth place by September 1997. Similarly, whereas news programs drew the most TV view-ers at the beginning of the year, by September 1997, foreign soap operas had become much morepopular. Most analysts attributed this turnaround to the electorates’ growing disenchantment withpolitics.

4. Are the private media financially viable? Only a very few, such as BK Television are finan-cially viable. Many, such as Vreme and Radio B-92, depend on foreign donations to survive. InMarch 1997, the Serbian government proposed new draft legislation requiring the various media todisclose any funding they receive from abroad. Another feature of the proposed legislation, prohib-iting any radio or television station from broadcasting to more than 25 percent of the population,had to be dropped after the Zajedno coalition threatened to boycott the upcoming elections.

5. Are the media editorially independent? Are the media’s news gathering functions affectedby interference from government or private owners? State-owned media tow the government/party line. Private and independent media, on the other hand, have completely independent edito-rial policies. Many newspapers, magazines, and radio stations are vehemently anti-regime. The Milosevicgovernment tolerates this state of affairs because these same media have relatively little impact onpublic opinion. The limited impact of independent media is mainly the result of two factors. First,given the economic situation, most people simply cannot afford to buy alternative/independentpublications. Second, Yugoslavia’s rural population relies mainly on state-owned media for infor-mation. Nevertheless, on some occasions the regime decides not to take any chances; thus, in therun-up to the Serbian elections in the summer of 1997, the Milosevic government temporarily shutdown 77 private radio and television stations around the country.

6. Is the distribution system for newspapers privately or governmentally controlled? Newspa-pers and other print media are disseminated through several well-established distribution chains,most of which are government affiliated, e.g., the Politika publishing house’s kiosk chain. In largercities, independent publications are easily obtained, even at state-owned kiosks. A more commonform of government harassment has been to deny independent publications newsprint, or to makethe cost of newsprint prohibitively expensive.

7. What proportion of the population is connected to the Internet? Are there any restrictionson Internet access to private citizens? Limited access to the Internet is more the result of a lackof computers than of government restrictions. Although Yugoslav citizens had been in the first waveof Internet users in the early 1990s, a permanent satellite link to the Internet was only establishedin February 1996, courtesy of a Norwegian provider. According to one estimate, one Yugoslavcitizen in one thousand is a regular Internet user. Early in 1998, Yugoslavia’s largest Internet ser-


vices provider, EUNET, signed up its 20,000th subscriber. Many individuals have access to the Internetthrough academic and governmental institutions, or through various business enterprises; accord-ing to some informal estimates, the total figure stands at approximately 300,000 people. Belgradealso has a cyber café where people can stop by and log on. When Radio B-92 was temporarilyclosed down by the regime in February 1997, its employees resorted to the Internet to publicizewhat was going on. Rumors, which were impossible to confirm, circulated at the time that the re-gime had pressured Internet service providers into disconnecting Serbia from the world wide web.

8. What has been the trend in press freedom as measured by Freedom House’s Survey of PressFreedom? Yugoslavia has been rated as "Not Free" from 1991-1998.

1. Is the legislature the effective rule-making institution? The trend in recent years, and espe-cially in 1997, has been for the SPS party leadership, and especially Milosevic himself, to deter-mine the outlines of policy, which the SPS-dominated Federal Assembly then rubberstamps. In1997, the Federal Assembly convened only one time, and one report charged that “decisions aretaken at one power center and then take the shape of decrees, written or oral instructions, many ofwhich are not even published.” This state of affairs has become more pronounced as the Milosevicregime has slowly lost its exclusive monopoly on state institutions and has had to allow oppositionforces into government institutions. In Montenegro, for instance, the reformist victory in October1997 forced Milosevic loyalists out of office. In Serbia, the opposition parties’ victory in the No-vember 1996 municipal elections gave them a toe-hold on power at local levels, and the September1997 Serbian parliamentary elections gave non-SPS parties a majority in the Serbian Skupstina.

2. Is substantial power decentralized to subnational levels of government? What specific authoritydo subnational levels have? According to the FRY constitution, the republics enjoy considerableautonomy, and the right to local self-government is guaranteed (Article 6). In practice, however,while Milosevic’s Montenegrin protégé, Momir Bulatovic, was president in Serbia’s federal part-ner, most decision-making was centralized. After October 1997, the Djukanovic leadership beganto reassert its authority and standing as an equal partner in the federation. Within the republics,there is a high degree of centralization. For instance, the republican education ministries play thedetermining role in developing school curricula, textbooks, etc., which then have to be implementedthroughout the republic. Similarly, prices for various utilities are determined at the republic level,not at the municipality level. Most importantly, the police forces in both republics are highly cen-tralized. Most political parties are highly centralized because of the fact that the support they garneris more a function of their leader’s charisma than the party’s political program per se.

3. Are subnational officials chosen in free and fair elections? As noted above, the ruling partyhas numerous ways to influence the outcome of elections. For instance, the OSCE’s special repre-sentative for Yugoslavia, Felipe Gonzalez, noted in his December 1996 report after a fact-findingtrip to Yugoslavia the existence of “deficiencies (of a structural nature) in the electoral system thatmake it possible to falsify or circumvent the sovereign will of the citizens.” Similarly, a recent analysis

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of the human rights situation in Yugoslavia noted that “in practice, citizens cannot exercise theirright to change their government.”

Since the first multi-party elections in 1990 at the beginning of the post-Communist era, oppo-sition parties have consistently charged the regime with committing outright vote fraud. The mostnotorious case of vote fraud came after the November 1996 municipal elections in Serbia. Opposi-tion parties won power in most of Serbia’s largest urban areas, including Belgrade, Nis, and Kragujevac.The Milosevic regime, however, refused to acknowledge defeat and declared the elections invalid.Wide-scale, massive protests then erupted throughout Serbia, developing into a three-month longprotest movement, with nightly marches and demonstrations by opposition parties. In February 1997,under severe international pressure, Milosevic was forced to back down, and a “lex specialis” i.e.,a “special law” was passed in the Serbian Skupstina accepting the opposition parties victory — theconstitutionality of the law itself, however, was questioned by most observers.

4. Do the executive and legislative bodies operate openly and with transparency? Is draft leg-islation easily accessible to the media and the public? Sessions of the Federal Yugoslav Assem-bly, or the Serbian or Montenegrin Skupstina’s, are frequently televised or otherwise covered bythe press; however, much of the actual decision making takes place behind closed doors. Milosevic’sSPS often tries to act unilaterally. For a recent appearance of Yugoslav delegates before the Euro-pean Parliament, for instance, the SPS tried to send its own cadres, with their own platform, withoutincluding opposition members or Montenegrin officials. Nevertheless, as the opposition has in-creased its representation in state institutions, the Milosevic regime has had less and less opportu-nity to write and implement legislation unilaterally.

5. Do municipal governments have sufficient revenues to carry out their duties? Do municipalgovernments have control of their own local budgets? Do they raise revenues autonomouslyor from the central state budget? Although municipal governments do raise some revenues au-tonomously (e.g., turnover taxes from the sale of property, issuing various types of personal iden-tification, the sale of vehicle license plates, setting prices of public transportation, etc.), most relyon supplemental funding from the central government. After losing the 1996 municipal elections inseveral Serbian cities, Milosevic’s SPS cadres essentially emptied municipal coffers before theopposition could take power. The Milosevic regime then resorted to punishing municipalities thathad voted for the opposition by denying them funds from the republican budget. Central authoritieshave also begun a campaign to reduce local competencies. For example, municipal governmentsrecently lost the right to grant foreign companies concessions for communal utility services.

6. Do the elected local leaders and local civil servants know how to manage municipal govern-ments effectively? Generally speaking, yes. After the opposition victory in the 1996 municipalelections, however, there were numerous reports of local municipal councils being deadlocked. Italso became apparent that, given the fact that many opposition members had never served in gov-ernment, they had not developed the necessary political or bureaucratic expertise needed to runlocal governments effectively. Their situation was made even more difficult by the SPS’s concertedefforts to portray opposition leaders as incompetent bunglers. In early 1997, the SPS-led Serbian


government created a new Ministry for Local Self-Government, which critics charged was intendedto maintain the regime’s control over municipalities in which the opposition had won.

7. When did the constitutional/legislative changes on local power come into effect? Has therebeen a reform of the civil service code/system? Are local civil servants employees of the localor central government? Local civil servants are the employees of local municipal governments.This allowed the opposition parties in the 1996 municipal elections to engage in a significant purgeof SPS officials at the local level in many of Yugoslavia’s biggest cities. For instance, soon after theopposition victory in Belgrade was recognized, the opposition quickly installed its own cadres inBelgrade’s Studio B television station, which is officially owned by Belgrade’s City Assembly.

1. Is there a post-Communist constitution? How does the judicial system interpret and en-force the constitution? Are there specific examples of judicial enforcement of the constitutionin the last year? A new constitution was promulgated in April 1992. As of March 1998, however,the Serbian republican constitution still had not been brought into agreement with the federal con-stitution.

The recent election of Milo Djukanovic as Montenegrin president has significantly complicatedthe FRY’s constitutional system; for instance, Montenegro has recently adopted a law by which itno longer recognizes decisions by federal judicial organs.

2. Does the constitutional framework provide for human rights? Do the human rights includebusiness and property rights? The 1992 FRY constitution guarantees Yugoslav citizens all hu-man rights and civil liberties, regardless of ethnicity, race, gender, religion, or political creed, inaccordance with international practice. Citizens are guaranteed freedom of assembly, a free press,the right to own property, and national minorities are guaranteed the right to use their own languagein educational institutions and in legal proceedings.

In practice, however, these rights have been difficult to uphold, most notably in the case of theKosovo Albanians. The U.S. State Department report on the human rights situation in Yugoslaviafor 1997 noted Yugoslavia had a “poor” record on this note. There were, however, significant dif-ferences between the human rights records in Serbia and Montenegro, as the latter’s security appa-ratus was found to have “a relatively clean human rights record since 1995.”

3. Has there been basic reform of the criminal code/criminal law? Who authorizes searchesand issues warrants? Are suspects and prisoners beaten or abused? Are there excessive delaysin the criminal justice system? The former SFRY’s Federal Criminal Code remains in force, al-though work on a new criminal code has been ongoing for the past several years. The FRY consti-tution prohibits the use of torture against detainees or criminal suspects, but human rights organi-zations have documented numerous cases of abuse and beatings by security forces, especially inKosovo and in Belgrade during the winter 1996-1997 demonstrations. In theory, searches are au-thorized and warrants are issued by judicial authorities; in practice, the police often do these ontheir own. The criminal justice system is also hampered by the fact that it often takes months, or

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even years, for cases to reach the courts, and executive institutions generally show little interest inenforcing judicial decisions.

4. Do most judges rule fairly and impartially? Do many remain from the Communist era?The majority of judges are holdovers from the Communist era. Most observers believe that judgesdo rule fairly and impartially on cases that do not concern politics. Court proceedings are con-ducted in public, unless there is a perceived need to protect government secrets, public order, orpublic morality. There have been charges that in the early 1990s many non-Serb judges were dis-missed from their positions, particularly in Vojvodina.

Throughout 1997, defense attorneys frequently complained that they were denied access todetainees or had difficulties acquiring copies of official indictments. Some judges were also foundto be preventing defense attorneys from reading court files. The judicial system also seems morewilling to support human and civil rights in Serbia proper, whereas in Kosovo and the Sandzak,judges frequently are seen to be supporting the actions of the state security apparatus.

On several occasions, judges have proven to be fairly independent of the ruling party. For in-stance, in a 1998 case in Sremska Mitrovica, the Federal Ministry for Telecommunications confis-cated the transmitter and other equipment of a local independent radio station. The local judge,however, ruled in the radio station’s favor and ordered the ministry to return the equipment. InFebruary 1998, judges in Novi Sad and Vrsac refused to enforce the controversial “Decree on Measuresof Financial Discipline” (see below).

5. Are the courts free of political control and influence? Are the courts linked directly to theMinistry of Justice or any other executive body? According to the FRY constitution, there is astrict separation of powers between the executive, legislative, and judicial branches of govern-ment (Article 12), and justices in the Federal Constitutional Court, the Federal Court, and the Fed-eral Public Prosecutor are not allowed to belong to political parties (Article 42). In practice, how-ever, on matters of political importance to the regime, the judicial system often acts as an adjunctof the SPS. Since the tenure of judges and their salaries are not fixed, they are susceptible to re-gime pressure when deciding on cases with political implications. The prime example of this camein the wake of the 1996 municipal elections when the court system overturned the opposition’svictories in several cities throughout Serbia. Similarly, despite the fact that over 60 criminal chargeswere filed in 1997 in the Serbian court system against Belgrade policemen for using excessiveforce against demonstrators during the winter 1996-1997 demonstrations, as of November 1997,no one had yet been held accountable for these abuses as of November 1997.

In another example of a judicial ruling having political undertones, in December 1997, thefederal state prosecutor overturned a decision by the Montenegrin Supreme Court which declaredthe anti-Milosevic wing of the DPSCG to be the legitimate successor to the formerly united party.The OSCE’s Gonzalez Report noted that reform of the judicial system with regard to the electionprocess was one of the most urgently needed reforms for Yugoslavia.

Over the past several years, criminal investigations have been used to intimidate and harasspolitical opponents of the Milosevic regime. All of the major opposition leaders, including VukDraskovic, Zoran Djindjic, and Vojislav Seselj in Serbia, Novak Kilibarda in Montenegro, and


Azem Vlasi in Kosovo, have been charged with criminal wrongdoing for their activities. Morerecently, in February 1998, the former Montenegrin president, Momir Bulatovic, was also chargedwith actions destabilizing the “constitutional order” (Article 114 of the Yugoslav Criminal Code)for allegedly organizing a protest demonstration in Podgorica in which several people were hurt.

6. What proportion of lawyers is in private practice? How does this compare with the previ-ous year? Most lawyers are in private practice. In Belgrade alone, there are some 2,900 practicinglawyers.

7. Does the state provide public defenders? Yes. The state is obligated to provide the accusedwith a public defender if he/she cannot provide his/her own. The accused also has the right to havecourt proceedings translated into his/her native language.

8. Are there effective anti-bias/discrimination laws, including protection of ethnic minorityrights? Numerous anti-bias/discrimination laws exist; for instance, Articles 44-48 guarantee na-tional minorities the right to education and information media in their native language, the right toform educational and cultural institutions, and the right to foster relations with co-nationals out-side the borders of the FRY. Article 50 also makes incitement or encouragement of national, ra-cial, or religious hatred or intolerance unconstitutional. It has often proven difficult, however, toenforce these rights in practice.

1. What is the magnitude of official corruption in the civil service? Must an average citizenpay a bribe to a bureaucrat in order to receive a service? What services are subject to briberequests—for example, university entrance, hospital admission, telephone installation, ob-taining a license to operate a business, applying for a passport or other official documents?What is the average salary of civil servants at various levels?) Corruption in Yugoslavia hasgrown over the past several years, partly as a result of the sanctions, and partly as a result of inter-nal corruption within the regime itself. The extent to which corruption in official circles has pro-liferated is indicated by the fact that in 1997, several close associates of the Milosevic familywere gunned down, gangland style, on the streets of Belgrade. No one has been held responsiblefor these killings.

Corruption takes numerous forms in Yugoslavia. A longtime Milosevic loyalist, for instance,is in charge of the federal customs agency, which allows Milosevic and the SPS to control the flowof goods into and out of the country and to impose arbitrary financial penalties and fees on indi-viduals crossing the border. Although not officially bribes, a common practice throughout the formerYugoslavia was to provide doctors and nurses with “gifts” as an inducement to provide patientswith better care. This practice has become even more widespread since sanctions were imposed in1992 and the health system has broken down. There have also been charges that some professorsat Belgrade University are charging students bribes for passing grades. Protection rackets havebecome common in larger cities, and municipal authorities often charge kiosk operators consider-able sums for the privilege of operating on city property. Because of the overall economic depres-

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sion, salaries for civil servants have declined considerably. Instructors at Belgrade University, forinstance, were reported to have refused to collect their salaries because they were insultingly low.The average monthly salary of a government employee in 1996 was 901 dinars, or (approximately$163 according to December 1996 exchange rates).

2. Do top policy makers (the president, ministers, vice-ministers, top court justices, and headsof agencies and commissions) have direct ties to businesses? How strong are such connectionsand what kinds of businesses are these? Many leading members of the Milosevic regime are thedirectors of large state-owned enterprises. Directors and top management of other leading eco-nomic enterprises also owe their positions to their support for the regime. These ties are especiallyimportant in several strategic sectors of the economy, notably those that involve the import of productssuch as fuel or pharmaceuticals. Enterprises in these sectors have the right to draw hard currencyfrom the National Bank of Yugoslavia (NBY) to pay for their imports at the official exchange rate.They can then quickly sell the hard currency on the black market for a hefty profit. Similar mo-nopolies exist for basic staples such as sugar, or for highly taxed items such as coffee and ciga-rettes. In 1997, the Yugoslav government decided that henceforth enterprises would only be ableto draw hard currency from the NBY for the import of pharmaceutical products and fuel, indicat-ing that they might be trying to clamp down on widespread abuse of the system.

A typical example of the close ties between the Milosevic family, large businesses, and orga-nized crime was Zoran Todorovic, the director of a Belgrade oil company, who was also the sec-retary-general of YUL, the left-wing political movement founded by Milosevic’s wife, Mira Markovic.Todorovic was assassinated in Belgrade in October 1997. Mirko Marjanovic, the premier of theSerbian republican government, is also the director of the “Progres” enterprise, which has exclu-sive control of the Yugoslav fuel trade market with Russia. The vice-president of the Serbian gov-ernment, Slobodan Radulovic, is also the director of “S Markets,” a chain of small grocery stores.Milorad Vucelic, the vice-president of the SPS, is the owner and director of the “Komuna” pub-lishing conglomerate. Dragan Tomic, the speaker of the Serbian Skupstina, is also the director ofJugopetrol, one of Yugoslavia’s largest oil companies.

3. Do laws requiring financial disclosure and disallowing conflict of interest exist? Have publicizedanticorruption cases been pursued? To what conclusion? Many prominent officials have beenarrested and tried for corruption recently, although some critics charge they were arrested becausethey had fallen afoul of the regime politically rather than for their criminal activities. In February1998, for instance, Nenad Djordjevic, the vice-president of YUL and a close political associate ofMira Markovic, Slobodan Milosevic’s wife, was arrested for embezzling millions from the repub-lic health insurance fund. Rumors circulating in Belgrade, which were impossible to confirm, however,suggested that Djordjevic’s demise was the result of his close ties to the new, anti-MilosevicMontenegrin leadership. Numerous similar such cases have been publicized as well.

4. What major anticorruption initiatives have been implemented? How often are anticor-ruption laws and decrees adopted? Both government and opposition figures frequently call forcrackdowns on corruption. Milan Milutinovic, the SPS candidate for the Serbian presidency in


1997 made a drive against corruption one of the pillars of his electoral campaign. In October 1997,the federal government called on judicial authorities to make corruption trials a priority. However,given the fact that the Milosevic regime is founded on widespread corruption, little may ever comeof such calls. The government has not implemented any serious anti-corruption initiatives as ofyet. In September 1997, a group of 35 prominent Yugoslav economists published a plan for radicaleconomic reforms in the FRY. Among their proposals was to confiscate all property that was ille-gally obtained by party, state, and regime functionaries between 1991-1997.

5. How do major corruption-ranking organizations like Transparency International rate thiscountry? In a recent survey of corruption in Central and Eastern Europe by the Economist, cor-ruption in Yugoslavia was deemed to be the most severe of any of the former Yugoslav republics.

1. What percentage of GDP comes from private ownership? What percentage of the laborforce is employed in the private sector? How large is the informal sector of the economy? Theprivate sector accounts for approximately 40 percent of GDP. The vast majority of officially reg-istered businesses are in fact privately owned; according to one estimate, in 1995 this figure stoodat 91 percent. Most of these are so-called micro-companies employing less than ten people. Alltold, some 27 percent of Yugoslavia’s workforce is officially registered in the private sector, al-though, the actual figure is believed to be much higher because many individuals are working inthe black or gray markets. In 1994, the private sector accounted for 55.2 percent of all profits in theYugoslav economy and 29.4 percent of total income, despite the fact that the private sector ac-counted for less than 3 percent of the total fixed capital in the Yugoslav economy. The “shadoweconomy” is estimated to have accounted for almost 41 percent of GDP in 1995.

2. What major privatization legislation has been passed? What were its substantive features?The FRY constitution explicitly states that the FRY will have a market economy (Article 13). Aninitial privatization campaign in 1991-1993 offered managers and workers the right to buy sharesin their enterprises on privileged terms, but the campaign went awry when hyperinflation set inand it became difficult to establish the true value of firms and assets. In 1994, the Property Trans-formation Revaluation Act annulled the privatization of 87 percent of the enterprises that had pre-viously been privatized, effectively, returning the bulk of the economy back to state control.

A new privatization law in Serbia, the Law on Ownership Transformation, was passed by theSerbian Skupstina on July 21, 1997, and came into effect on November 1, 1997. Between 4.5 and5 million citizens were eligible to take part in this privatization program. According to the newlaw, 60 percent of the shares in state-controlled and socially-owned enterprises would be distrib-uted free to workers and managers, as well as to public-sector employees, pensioners, and farmers,in the form of coupons. The state pension fund was to be allocated 10 percent of the shares. Theremaining shares were to be offered at a discount to employees before being made available toforeign investors. Critics pointed out, however, that the proposed legislation did not make privatizationof state-owned and socially-owned enterprises mandatory, nor did it set deadlines according towhen privatization had to occur. Moreover, since many of the enterprises up for privatization are

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unprofitable and perpetually in the red, the actual value of the shares that individuals will receivewill be negligible. By March 1998, no enterprises had been privatized according to the new legis-lation.

Privatization has progressed much further in Montenegro. In 1992, the republican Skupstinahad passed the Law on Ownership and Control Transformation, which allowed enterprises to beprivatized in various ways including by the issuance and sales of shares under privileged condi-tions for employees of enterprises to be privatized, debt-equity swapping, investment in an enter-prise i.e., raising additional capital, and the sale of enterprises to their respective managements,etc.

According to one estimate, 95 percent of the enterprises in Montenegro had undergone owner-ship transformation by September 1997. Fifty-six enterprises, with a net worth of 128 million DEM,had been completely privatized, and the private sector was estimated to account for 30-35 percentof Montenegro’s GDP. One major enterprise, the Niksic brewery, was bought by a Belgian firm.After Djukanovic was sworn in as president on January 15 1998, the government promised moreradical moves towards privatization. Western firms such as Merrill Lynch and Coopers and Lybrandare already involved in deals to privatize a variety of enterprises, including an aluminum combine,a health spa, and a tobacco factory, and to bid for concessions in building a hydro-electric plant.

3. What proportion of agriculture, housing and land, industry, and small business and ser-vices is in private hands? Agriculture: Over 75 percent of the arable land in Yugoslavia is pri-vately owned.

Industry, Small Business and Services: According to one estimate, of the 219,763 enterprisesregistered in the industrial sector of the economy in 1996, 143,774 or 65.4 percent, were privatelyowned. Larger industrial enterprises, such as the steelworks in Smederevo or the Zastava automo-bile plant in Kragujevac, remain state-owned, although foreign investors are showing some inter-est in acquiring these enterprises. Of the remaining enterprises that are state-owned, privatizationof small enterprises e.g., food processing plants is expected to go the quickest.

Housing: Yugoslavia’s housing stock at the end of 1995 was estimated to comprise 3,123,000units, of which 687,000 were state/socially owned.

4. What has been the extent of insider (management, labor, and nomenklatura) participa-tion in the privatization process? What explicit and implicit preferences have been awardedto insiders? Insiders have taken considerable advantage of the economic “reforms” enacted todate. Under the terms of the Property Transformation Revaluation Act, ownership of many enter-prises was turned over to their largest debt-holders, which generally tended to be state-owned banks,thus, bank directors and managers were installed on the managerial boards of most of the largestenterprises in the country. Since the bank managers themselves, however, were generally SPS loyalists,the Milosevic regime succeeded in actually increasing its control over the economy after 1994.Individuals close to the regime are given a wide variety of privileges, such as easier access to creditand hard currency, tax waivers, or special permission to import scarce goods into the country.

5. How much public awareness of and support for privatization has there been? What is the


nature of support and opposition to privatization by major interest groups? Although mostgovernment officials claim to support economic reform and restructuring, concrete action has beenslow in coming, partly due to the difficulties imposed by the international sanctions, and partlybecause control of large state-owned enterprises is one of the main instruments the Milosevic re-gime uses to stay in power. Many leading figures in Milosevic’s SPS are the directors of thesestate-owned enterprises, through which they are able to obtain large loans from the NBY at lowinterest rates and then sell the funds on the black market. Public support for privatization is alsolower among employees of large, unprofitable state owned enterprises who stand to lose their jobsif those enterprises were forced to operate according to market criteria. On the other hand, supportfor privatization has been strongest among people who own small businesses and firms, primarilyfound among the younger, better-educated, urban population. A leading reformer in the FRY gov-ernment, Danko Djunic, has also claimed that there is a critical mass of people in the governmentitself who are pressing for reform. In Montenegro there has been much more widespread govern-ment and popular support for privatization.

1. Has the taxation system been reformed? (What areas have and have not been overhauled?To what degree are taxpayers complying? Is tax compliance difficult to achieve? Has the levelof revenues increased? Is the revenue-collection body overburdened? What is the overall taxburden?) In July 1996, a new federal tax law significantly modified the previous tax system. Thelegislation provided for a variety of new taxes including: a surtax on trade and the import of vari-ous goods with rates ranging from 5-70 percent, depending on the type of good; a commodity salestax on all items sold to the end buyer with proportional rates ranging from 10-20 percent; a ser-vices sales tax of 10 percent; a profit tax on enterprises ranging from 20-30 percent, with the rateset by the republics; a progressive income tax with rates from 20-40 percent; and a property taxalso with rates set by the republics. For the 1998 fiscal year, the FRY government expected toraise 40 percent of its revenue from sales taxes, and 31 percent from customs duties.

Tax compliance has been very difficult to enforce given the fact that most people now preferto make their transactions in cash using hard currencies. Use of checks and credit cards over thepast few years has been minimal, thus, individuals leave no paper trail of their financial activities.Widespread tax avoidance has, to some extent, been accepted by the regime for the past severalyears for the sake of social peace; moreover, strictly imposing tax regulations would only worsenthe Yugoslav economy’s liquidity problems. Adding to the overall problem of tax compliance isthe fact that regime supporters have frequently been granted tax waivers for various imported goods.For instance, it is estimated that only half of the revenue that should be raised from the sale ofcigarettes is actually collected, because many individuals close to the Milosevic regime control thecigarette trade in Yugoslavia.

Recent moves indicate that the government is determined to begin enforcing tax collection moreseriously. In February 1998 the Serbian government proposed the very controversial Decree onMeasures of Financial Discipline. According to the new law, individuals wishing to sell their pri-vate property such as apartments, houses, or automobiles had to go through local municipal offi-cials, who would determine the property’s value, and payment had to be made through domestic

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banks in dinars. Although ostensibly intended to improve the state’s ability to collect turnovertaxes on the sale of property, the decree immediately met with almost universal condemnation. Asof this writing, the decree’s ultimate future remains unknown.

The private sector is bearing the brunt of propping up the regime. Since state and socially ownedenterprises have been unprofitable for several years, the private sector has had to make up for thepublic sector’s weaknesses. This has resulted in a relatively high tax burden being placed on bothindividuals and enterprises in the private sector. In February 1998, the federal government begandiscussing measures to squeeze more money out of the gray economy, including the introductionof a VAT and of non-cash payment mechanisms to reduce the amount of cash in circulation.

2. Does fiscal policy encourage private savings, investment and earnings? (Has there beenany reform/alteration of revenue and budget policies? How large are budget deficits and overalldebt? Is the financing of the social insurance/pension system sustainable? What proportionof the budget is taken up by subsidies to firms and individuals?) As a result of the regime’sdecision to confiscate citizens’ hard currency accounts in the early 1990s, the collapse of pyramidlending schemes in 1993, and the hyperinflation of 1992-93, individuals have had little incentiveto invest or save. In 1997, for instance, it was estimated that FRY citizens, on average, have lessthan 20 dinars, i.e., less than $3, on deposit in Yugoslav banks. The government is estimated toowe citizens between $3.5-4 billion in hard currency confiscated from private bank accounts. In-ternal debts to banks and between companies were estimated to be approximately $4 billion in1996. The budget deficit for 1996 was estimated to be $1 billion, or six percent of GDP. Added tothese internal debts are Yugoslavia’s external debts, estimated to be $11.2 billion in 1995. Alto-gether, the FRY’s debt as a percentage of GDP was estimated at some 75 percent in 1997.

In 1997, the situation worsened as the FRY pension fund alone ran a deficit of some $1.26billion, and the payments that were made were only possible due to the sale of a large stake of theSerbian telecommunications system to Italian and Greek investors. Financing of the social insur-ance system is not sustainable, as is evident by the fact that pensions have been paid out on a veryirregular basis over the past several years. According to one estimate, the government owes 1.2million pensioners some 5,000 dinars or approximately $830 each in pension arrears.

To make up for chronic budget deficits and help fund the government, over the past severalyears the Milosevic regime has devised several schemes to squeeze money out of the populationand/or the shadow economy. One such scheme in the early 1990s involved a well publicized cam-paign issuing government bonds for the reconstruction of Serbia. Once hyper-inflation set in, however,individuals who had purchased these bonds suffered net losses. Another scheme involved the pyramidlending scandals of 1993, in which millions of citizens invested their hard currency savings inprivate banks which offered monthly interest rates equivalent to yearly interest rates in westerncountries. The owners of these banks had close ties to the Milosevic regime. The entire systemcollapsed within months as soon as the first withdrawals from these banks started a rush on theentire system. Many of the street dealers who buy and sell hard currencies are also believed to becontrolled by Milosevic’s secret police.

3. Has there been banking reform? (Is the central bank independent? What are its responsi-


bilities? Is it effective in setting and/or implementing monetary policy? What is the actualstate of the private banking sector? Does it conform to international standards? Are deposi-tors protected?) Banking reform, as is true of economic reform in general, has been held up bya combination of domestic political obstruction and the constraints imposed by Yugoslavia’s dip-lomatic and economic isolation. In January 1998, Djunic claimed that bank restructuring was im-possible without assistance from the IMF or the World Bank.

The individual credited with developing the successful anti-inflation program of 1994, formerNBY governor Dragoslav Avramovic, began openly criticizing the Milosevic regime in April 1996,and by May 1996, Avramovic had already been dismissed from his position. Since then, the NBYhas lost much of its independence.

The private commercial banking sector is in a desperate situation. Most banks suffer from se-vere liquidity problems. Many Yugoslav citizens lost faith in the banking system with the collapseof several pyramid lending schemes in 1993. Total current holdings of the 100-odd private com-mercial banks were estimated to be about $15 billion at the end of 1996. Talks with the LondonClub of international banks to restructure Yugoslavia’s estimated $1.94 billion commercial debtbroke off in October 1997 without a settlement. The Yugoslav delegation had requested that 80percent of their debts’ value be written off, and the remainder restructured as a 25-year loan witha nine-year grace period. Yugoslavia’s total external debt is believed to be between $10-12 billion.

The Montenegrin government, for its part, has been somewhat more successful in its foraysinto world financial markets. Over the past few years, the Montenegrin government has assumedresponsibility for $170 million in debts to international banks that Montenegrin enterprises hadrun up; by so doing, however, it reduced Montenegro’s external debts by one third, bringing itdown to an estimated $340 million.

Individual depositors in Yugoslavia have also suffered from the Milosevic government’s poli-cies. In 1992, the regime froze $6.5 billion worth of private hard currency accounts held by Yugoslavdepositors to help fund the war effort. In late 1997, the federal government was working on waysto return those monies to restore some confidence in the banking system.

Current plans for bank reform envision a consolidation of the private banking system througha series of mergers among smaller banks. Balance sheets would then be “cleaned up,” and non-performing loans transferred into an envisioned “bad loan bank.” One aspect of this effort was adecree by the NBY that, as of January 1, 1998, illiquid banks could only allow depositors to with-draw 300,000 dinars or approximately $50,000 unless the bank’s reserves could cover the transac-tion. The move was apparently designed to encourage depositors to begin withdrawing their mon-ies from illiquid banks and depositing them in more liquid banks. In early 1998, the FRY govern-ment was reviewing draft legislation that would convert many short-term outstanding loans inagriculture, tourism, and the electrical energy and railway systems into long-term (15 year) cred-its, or transform current credits into public debt to be repaid in ten years.

4. How sound is the national currency? (Is the value of the currency fixed or does it float?How convertible is the currency? How large are the hard currency reserves? Has exchangerate policy been stable and predictable?) In the late 1980s and early 1990s, the Yugoslav dinarlost much of its value. Inflation began spiraling upward in 1991, averaging 120 percent in that

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year, but by 1993 it had reached an unprecedented 116,540,000 percent. In January 1994, the NBY,led by Avramovic, initiated an austerity and stabilization program by introducing a new “superdinar” pegged at a fixed rate to the German mark. This succeeded in bringing inflation down to 3.3percent in 1994, but by 1995 it had again risen to an average annual rate of 120 percent. On No-vember 25, 1995, the federal government passed a Foreign Currency Transactions Law peggingthe dinar to the mark at a rate of 3.3:1. To control the growth in the money supply, the NBY inAugust 1996 increased the mandatory reserve requirement for banks to 10 percent, and in Novem-ber 1996 the mandatory reserve requirement was again increased to 15 percent.

In 1997, inflation was less than 10 percent according to official statistics, although some economistshave challenged these estimates. For most of 1997, the dinar was fixed at a rate of 3.5:1 against themark but fluctuated on the black market anywhere between 3.5 and 5. At the end of 1997, thefederal government announced that it planned to maintain a restrictive monetary policy and pledgedthat it would keep growth in the money supply below GDP growth for 1998. Nevertheless, infla-tionary pressures continued to mount, and in March 1998, the government was forced to devaluethe dinar by bringing the official exchange rate down to 6:1.

Central bank reserves are estimated to be below $200 million — less than one month’s worthof imports. In addition to hard currency reserves, the FRY also has 1.3 million troy ounces in itsgold reserves. The Milosevic regime has also hidden significant sums of money in secret bankaccounts in Cyprus.

5. Is there a functioning capital market infrastructure? (Are there existing or planned com-modities, bond and stock markets? What are the mechanisms for investment and lending?What government bodies have authority to regulate capital markets?) The Belgrade StockExchange reopened in 1990 after being closed for almost 50 years. Foreign countries, particularlyBritain and Italy, are financing its activities. The Podgorica, formerly Titograd Stock Exchange,opened in 1996. Securities trading in both exchanges is limited due to the fact that privatizationhas just begun, and the regulatory infrastructure for widespread stock and bond trading barely exists.Most activity involves trading short-term (30 day or less) commercial paper and government bonds,while the sale of stocks is practically non-existent. In 1997, both the number of transactions on theBelgrade Stock Exchange and the value of those transactions fell. In the first three months of 1998,1,808 transactions worth 1.6 billion dinars or approximately $267 million, were made on the BelgradeStock Exchange, which currently lists 39 different stocks. No stocks are being traded on the PodgoricaStock Exchange as of yet but that is expected to change with the planned distribution of privatizationvouchers to 450,000 Montenegrin citizens.

Investors are reluctant to participate in financial markets, as is evident from the fact that lessthan one percent of financial transactions and deals go through established brokerage houses. Mostdeals take place directly between buyers and sellers of bonds. Potential investors are at a signifi-cant disadvantage because brokerage houses and the stock markets themselves cannot provide themwith a good sense of the various risks and costs associated with particular investments. The docu-mentation various firms provide is not reliable, and accounting procedures are also poor.

Given their relative weakness, commercial banks do not play a large role in the capital mar-kets. Consequently, the NBY performs many of the functions commercial banks would typically


perform in the West. Foreign observers and domestic critics charge that investment funds and bankcredits are often allocated on the basis of political rather than market criteria.

One sign that reform of the capital market infrastructure is underway is the fact that in Febru-ary 1998 the Yugoslav government signed a deal with a London-based investment bank for long-term cooperation on privatization and foreign investment. As the new privatization law passed inNovember 1997 takes effect, there will be a greater need to establish exchanges for stocks andinvestment funds.

1. Are property rights guaranteed? (Are there both formal and de facto protections of pri-vate real estate and intellectual property? Is there a land registry with the authority and capabilityto ensure accurate recording of who owns what? What are the procedures for expropriation,including measures for compensation and challenge? Have any seizures taken place?) Ar-ticle 51 of the FRY constitution explicitly recognizes the right to own property, and Article 53guarantees intellectual property rights. Yugoslavia is also a signatory to numerous internationalagreements and conventions protecting copyrights and patents. In February 1997, Yugoslavia becamea member of the Patent Cooperation Treaty, allowing foreigners to apply for patents in Yugosla-via. Yugoslavia’s international isolation, however, has meant that there is often little incentive toprosecute violations of international intellectual property rights.

2. To what extent have prices been liberalized? What subsidies remain? The last SFRY gov-ernment, led by Ante Markovic, had liberalized prices on the vast majority of goods as early as1990. During the war, the Milosevic government tried to control the price of basic staples, but thehyperinflation of 1992-1993 made such efforts pointless. The government continues to controlprices on approximately 500 goods, ranging from machinery to paper products to food, and pro-ducers of these goods must ask the Federal Ministry of Trade for permission to raise prices. Thegovernment’s ability to control the importation of various goods means that it can also informallyset prices for imports by withholding supply whenever prices drop for particular items. Other goodsand services for which prices are still set by the government include things such as inland railwaytraffic, the main postal and telephone services, medicines, and electricity prices. The governmentalso subsidizes various agricultural products such as livestock, edible oil, and other foodstuffs.

3. Is it possible to own and operate a business? (Has there been legislation regarding theformation, dissolution, and transfer of businesses, and is the law respected? Do there existoverly cumbersome bureaucratic hurdles that effectively hinder the ability to own and dis-pose of a business? Are citizens given access to information on commercial law? Is the lawapplied fairly? Does regulation (or licensing requirements) impose significant costs on busi-ness and consumers? Do they create significant barriers to entry and seriously hamper com-petition?) All Yugoslav citizens are constitutionally guaranteed the right to own their own busi-nesses. Even during the Communist era, Yugoslav citizens had the right to own and operate smallbusinesses that employed up to five people, or, in the case of agriculture, to own up to ten hectaresof land. The formation of businesses is a straightforward procedure, and tens of thousands of Yugoslav

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citizens have registered their own businesses over the past several years. There is a free flow ofinformation on the various aspects of commercial law, and changes are regularly published in theFRY’s Official Gazette (Sluzbeni Glasnik). Regulations or licensing requirements, in most cases,are only problematical where business activities can damage the regimes’s interests e.g., licensinga media enterprise, or where regime members and supporters have significant personal businessinterests, in which case the bureaucracy can significantly hamper competition.

4. Are courts effective, transparent, efficient, and quick in reaching decisions on propertyand contract disputes? What alternative mechanisms for adjudicating disputes exist? TheFRY’s legislation regarding investment disputes is generally considered to be in accord with inter-national standards. The FRY accepts binding international arbitration for investment disputes be-tween foreign investors and the state. The main problems are inconsistent implementation and lackof enforcement of judicial rulings both for foreign and domestic investors. Foreign observers havealso complained that government and judicial decisions often seem to be influenced by the rulingparty. Although bureaucratic and regulatory procedures are neither transparent nor efficient, theFRY government is believed to be making legal, regulatory, and accounting systems more trans-parent in accordance with international standards.

5. Is business competition encouraged? (Are monopolistic practices limited in law and inpractice? If so, how? To what degree is “insider” dealing a hindrance to open competition?Are government procurement policies open and unbiased?) The FRY constitution prohibitsthe creation of monopolies and explicitly states that “terms of business shall be the same for all”(Article 74). In practice, however, individuals and enterprises associated with the Milosevic re-gime have been granted import monopolies for a wide range of goods, including fuel, pharmaceu-ticals, and cigarettes. There have also been numerous charges that government employees are fre-quently instructed to buy goods from individuals and firms with close ties to the regime.

6. To what extent has international trade been liberalized? To what degree has there beensimplification/overhaul of customs and tariffs procedures, and are these applied fairly? Whatinformal trade barriers exist? Yugoslavia currently adheres to the “Customs Valuation Agree-ment” negotiated under GATT but now assumed by the World Trade Organization (WTO), whichprovides for fair, uniform, and neutral valuations of imports and exports. Yugoslavia is also anadherent to the Convention Covering Anti-Dumping Duties administered by the WTO, and hassigned the Convention on Subsidies and Countervailing Duties, although acceptance is pending.Duty rates in 1997, most of which are ad valorem, were in the 0-40 percent range, although mostwere in the 5-20 percent range. The exception to this is in food products, where, to protect domes-tic fruit and vegetable producers, duties were raised to as much as 200 percent on April 1, 1997. Inaddition to customs duties, imports to Yugoslavia are subject to a cumulative 16 percent importtax ad valorem.

In late 1997, the federal government announced a Foreign Trade Regime Liberalization Pro-gram that was supposed to become effective in 1998. According to new proposals, 96% of the totalmonetary value of exports and 90 percent of the total monetary value of imports would be regime-


free. In early 1998, amendments to the customs tariff law were being discussed to bring tariffs andduties in line with WTO regulations by 2002. According to the proposed amendments, the averageduty rate for imports is to fall from 16 percent to 13.45 percent. The duty rate for consumer goodswas scheduled to be between 30-40 percent and for raw material and semi-finished goods, 1-3percent.

The easing of the sanctions regime in 1995 resulted in a small decline in Yugoslavia’s tradedeficit. In 1996, exports were only 44.9 percent of imports, while in 1997, exports were 49.3 per-cent of imports. The trade deficit for 1996 was $2.26 billion or approximately 15 percent of GDP.Two thirds of FRY imports in 1996 consisted of raw materials and semi-finished goods, mainlyindustrial inputs. Capital goods accounted for 14 percent of imports, and consumer goods the re-maining 19 percent. Most FRY exports consist of raw materials, semi-finished goods, and foodand chemical products. The FRY’s main trading partners are Germany, Italy, Russia, FYR Macedonia,and the Republika Srpska. In 1997, the trade deficit was again estimated to be around $2.2 billion.

7. To what extent has foreign investment and capital flow been encouraged or constrained?Yugoslavia’s international trade and ability to attract foreign investment has been extremely lim-ited because of the sanctions regime imposed on Yugoslavia by the UN Security Council in May1992. After the signing of the Dayton Peace Agreement in December 1995, the UN Security Coun-cil suspended the original sanctions regime and allowed Yugoslavia to resume trade with the out-side world. In October 1996, the UN Security Council lifted the original sanctions regime com-pletely (Security Council Resolution 1022/1996). In April 1997, the EU granted the FRY prefer-ential trade status, but then revoked it in December after the Milosevic regime failed to make anyprogress towards democratization as outlined in the Gonzales Report. In contrast to the Europe-ans, the United States has consistently favored keeping the FRY economically isolated.

Officially, foreigners enjoy the right to own property and businesses on the basis of reciproc-ity, i.e., to the same extent that Yugoslav citizens enjoy those rights in the foreigner’s country.Foreigners also have the right to seek arbitration in foreign courts in disputes. The governmentdoes reserve the right to expropriate property “in the public interest.” There were no reported casesof such actions in 1997, although in earlier cases compensation for expropriated property fell be-low market value. Expropriation and nationalization are prohibited in free zones. Repatriation ofcapital for foreigners is free of restrictions. There have been complaints, however, that high tariffsand surcharges have made it too expensive for foreign firms to import the quantity of goods neededto launch operations on a larger scale. Foreign investment in Yugoslavia is not screened by anyparticular criteria, and no discriminatory or preferential export or import laws affect foreign inves-tors. Although there is no formal discrimination against foreign investors, there have been chargesthat FRY law and institutions have been manipulated by domestic firms to give them an advantageover foreign firms.

An important first step in opening Yugoslavia’s economy to foreign investment was made in1989 with the adoption of the Foreign Investment Law, which allowed foreigners to invest in vari-ous sectors such as tourism, insurance, and financial services. In 1994, the FRY government passeda foreign investment law. A primary feature of the 1994 legislation set up free economic zones inkey import-export zones, such as airports, river and sea ports, and along major international high-

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ways. Both domestic and foreign investors in these zones were given a wide variety of customsand tax incentives to stimulate their operations, including extended tax breaks of up to six years inSerbia and ten years in Montenegro. Similar incentives exist for firms operating outside of the freezones. In mid-1996, privatization legislation was further liberalized by the Law on Changes andSupplements to the Law on Foreign Investment. The 1996 legislation allowed foreigners to obtainconcessions in the fields of energy production, transportation, telecommunications, and the forestand lumber industries. For example, foreign firms have obtained concessions to build a highwaybetween Nis and Dimitrovgrad, a bridge over the Drina river, and parking lots in Belgrade. A Frenchfirm, Saur Internationale, is in negotiations to operate Belgrade’s public waterworks system.

In the past two years, the government has made further efforts to encourage foreign invest-ment, but critics charge the government’s efforts reflect a need to obtain cash to keep the economyafloat rather than a real desire to restructure the economy. In June 1997, the Serbian governmentsigned a major deal to privatize the Serbian telecommunications system by selling a 49-percentshare worth 1.6 billion DEM to two foreign investors: Italy’s Stet and Greece’s OTE. The money,however, was used to cover back payments to workers and pensioners before the September 1997elections. Montenegro, for its part, has been promoting itself as a center for offshore business ac-tivities. In July 1996, the Montenegrin Skupstina passed the Offshore Companies Act grantingsubstantial tax benefits to foreign entities operating in Montenegro. Montenegro is also trying toattract foreign investors for its plan to privatize its tourist attractions.

Yugoslavia has considerable potential to attract foreign investors: the Financial Times calledYugoslavia “Europe’s last big untapped market.” Part of the attraction is due to the fact that sal-able assets are significantly undervalued. Moreover, despite the “brain drain” of the 1990s, Yugo-slavia still has a well-trained and competitively priced workforce. Potential foreign investors, however,have been put off by the uncertain political climate, most notably, ethnic unrest in Kosovo, politi-cal unrest in Montenegro, the continuing problems in Bosnia-Herzegovina, the constant threat ofa re-imposition of sanctions against the FRY, and the lack of transparency in the government’sprivatization program.

Foreign investment and capital flow have also been constrained by an “outer wall” of sanctionsthe U.S. imposed on Yugoslavia in 1996. After the UN Security Council lifted the original sanc-tions regime, Yugoslav critics charge that the U.S. “moved the goalposts” by announcing a new setof conditions that Yugoslavia had to fulfill to gain membership in the IMF and the World Bank.Yugoslav economists claim that the FRY has fulfilled all of the economic criteria for re-joining theIMF, but little progress has been made regarding the U.S.’s political conditions, which includehanding over war crimes suspects, real progress towards democratization, progress in resolvingthe Kosovo issue, and agreement with the other former Yugoslav republics on sharing the SFRY’sassets. In late 1997, the federal government was working on further legislation to liberalize foreigntrade.

8. Has there been reform of the energy sector? (To what degree has the energy sector beenrestructured? Is the energy sector more varied, and is it open to private competition? Is thecountry overly dependent on one or two other countries for energy [including whether ex-ported fuels must pass through one or more countries to reach markets?]) Production from


the FRY’s thermal power stations and hydroelectric power stations fulfill Yugoslavia’s electricityneeds — the two sectors provide 68 percent of total electricity generated and 32 percent, respec-tively. Both sectors are still state-owned. Reform of the rest of the energy industry has also beennegligible. The government controls who has the right to obtain import licenses for mineral fuels,and these licenses invariably go to individuals with close ties to the regime. During the sanctions,organized smuggling rings earned vast sums of money circumventing the blockade and importingfuel. Currently, Yugoslavia owes some $500 million to Russia for gas, and China for oil, but itcontinues to import fuel through barter arrangements with these countries. There are rumors thatYugoslavia may have to settle its energy debts to Russia and China by giving them shares of state-owned enterprises scheduled for privatization.

Overall, the energy sector is in desperate shape. Both the state oil company (NIS) and the stateelectrical company (EPS) in Serbia are running large deficits. In 1996, NIS had debts of approxi-mately 617 million dinars according to the exchange rate then in effect, over $127 million, includ-ing some 228 million dinars it owed the federal government in excise taxes. EPS had debts total-ing 582 million dinars ($120 million), while at the same time its customers owed EPS 766 milliondinars (approximately $158 million). Part of the reason for the deficits is the fact that, despiterecent price increases, Serbia still has the lowest electricity prices in Europe, and gasoline pricesin Yugoslavia are lower than in western Europe. Many experts believe that overall industrial growthand development will be impossible without significant reform and reconstruction of the energysector. According to recent estimates, the Yugoslav energy sector needs some $700 million ininvestments for infrastructure modernization and improvement.

Plans are being made to privatize state energy conglomerates and sell shares to foreign inves-tors, which should significantly restructure the energy sector. Plans are already underway to sellminority stakes in EPS and NIS, which also owns a large network of gas stations.

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