New Bid to Resolve Yugoslav Assets Row

Friday, 5 January, 2001

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Gabriel Partos

After nine years of fruitless on-and-off negotiations on how to divide up the assets and liabilities of Tito's old Socialist Federal Republic of Yugoslavia, SFRY, the five successor-states have embarked on what could become the final lap in the marathon efforts to settle the long-running dispute.

The defeat of the Milosevic regime in the recent Yugoslav and Serbian elections has removed the key obstacle to an agreement on who should get what from the assets of the SFRY which broke up in 1991-92.

While Milosevic was in power, Belgrade insisted that the Federal Republic of Yugoslavia (the FRY, consisting of Serbia and Montenegro) was the sole legitimate successor to the SFRY and, as such, was the rightful heir to most of the property left behind by the defunct state that had once included six republics.

But Vojislav Kostunica, the FRY's new president, has accepted that the four other ex-Yugoslav republics, Bosnia-Herzegovina, Croatia, Macedonia and Slovenia, should also share the assets.

The change in Belgrade has created a sense of optimism about the prospects for a deal. Bozo Marendic, Croatia's chief negotiator, says, 'If I compare the Yugoslav approach under Milosevic with the new regime's, I think and I hope that in a certain period we will reach a settlement on the succession.'

Combined with the departure from public office of Milosevic - an indicted war crimes suspect and international pariah - Belgrade's acceptance of equal status for all the ex-Yugoslav republics led to a speedy resumption of talks which had broken up nearly two years earlier - before NATO's conflict with the FRY over Kosovo.

Within six weeks of President Kostunica taking office in early October, central bank governors from the five successor-states met in Sarajevo to discuss how to share the ex-Yugoslav accounts in foreign banks. Full-scale talks involving the five countries' chief negotiators resumed in Brussels on 18-19 December under the chairmanship of Sir Arthur Watts, a British expert on international law.

The Brussels round - convened to relaunch the negotiating process - was not about substantive issues but to establish or restate the position of each country. Matters of detail will be on the agenda of the next round, tentatively scheduled for Ljubljana in the second half of February.

Although Kostunica's election has signalled a sea-change in Belgrade's approach, serious differences over a whole range of matters will have to be overcome in the coming months.

One key problem that has so far set the FRY at odds with the other successor-countries is their different assessments of what exactly constitutes state property. Belgrade has been arguing over the years that all enterprises operating under Tito's unique system of self-management should be considered as part of state property. That calculation would value the assets of the SFRY at around $220 billion.

The other four countries believe only federal state property - government buildings, military installations and so on - should be included in the calculations. That brings down the value of the total assets to $90-100 billion.

When the SFRY broke up, each republic grabbed the property that happened to be located on its own territory. The FRY gained a very substantial share of this property portfolio because the previous federal administration had been based in Belgrade and because the FRY kept control of most of the armed forces.

To an even greater extent, Belgrade managed to seize SFRY property located abroad. All but a handful of embassies and other buildings in over 100 countries - with an estimated value of up to $500 million - remained in its hands.

Foreign assets also include the SFRY's reserves frozen by the Bank of International Settlements, BIS, in Basle. The 46 tonnes of gold and some foreign currency reserves in Basle are currently worth around $477 million - much less than 10 years ago because gold prices have dropped by nearly 50 per cent.

Other foreign assets cannot be valued with the same precision. The SFRY had hard currency accounts in foreign commercial banks worth close to $5 billion in 1990. Ten years later, intelligence estimates suggest that perhaps only as little as $1 billion is now left. But since the Belgrade authorities - who have kept control and have almost certainly spent most of those funds - have refused to divulge any details, the figures remain tentative.

The same uncertainty applies to foreign debt, originally worth around $5 billion, that was owed to Belgrade, principally by the former Soviet Union and Iraq. How much of that was repaid to the FRY in the form of Russian gas and Iraqi oil supplies is only known by a few members of the Milosevic administration.

Yet the difficulties surrounding these issues are dwarfed by the complexities involving the SFRY's domestic assets - including the fact that a substantial part of the property now in dispute was destroyed during the wars.

That has prompted some observers to suggest that it would be best to concentrate on sorting out the foreign assets, or at least that part of them that can be identified with a degree of certainty. As regards property on the territories of the successor-states, it would be easiest to write off the losses, forget about past claims and allow each of the five countries to keep what it has already seized.

While making it clear that it is for the five negotiating sides to reach an accord, Arthur Watts agrees this approach could work, "It may be possible to divide up the external assets in such a way that each of the five states will receive something from those assets - and that is a possibility - even if the solution for the internal assets is just to write them off, forget about it, turn over a new leaf."

One further complication, though, which applies to both internal and external assets is how to arrive at a calculation, acceptable to all sides, as to how big a slice of the original cake they should each be entitled to.

The most commonly-favoured formula, worked out in 1992 by the International Monetary Fund to apply in relation to IMF credits only, gave the FRY 36.52 per cent; Croatia 28.49 per cent; Slovenia 16.39 per cent; Bosnia 13.2 per cent; and Macedonia 5.4 per cent.

This 'IMF key' was based on each republic's contribution to the federal budget. It has not been popular with Bosnia and Macedonia, the two poorest republics, which argue that, in addition to strictly financial criteria, other matters, such as size of population, should also be included in the calculations.

In spite of the mountain of unresolved problems, officials close to the talks believe that if all sides are prepared to go for a speedy settlement, a deal could be reached within six months.

There are two strong reasons for pushing ahead with a quick fix. Each of the successor-states wants to get its hands on a share of the assets currently frozen at the BIS and in various foreign banks.

Besides, with Montenegro heading for a referendum by mid-2001 that could end its partnership with Serbia, the possibility of the FRY's collapse could introduce a further complicating factor. That, in turn, could seriously set back the timetable for a long-desired settlement.

Any fast-track negotiations would need to involve a drastically simplified arrangement. In practice, the successor-states would keep what they grabbed on their territories in the early 1990s; assets that were destroyed or spent over the years would be written off; and the share-out would include the remaining easily-identifiable foreign assets, worth perhaps no more than $2.5 billion.

The assets thus distributed would be a mere fraction of the SFRY's original legacy. But the alternative would be years of potentially pointless negotiations.

Gabriel Partos is the BBC World Service's South-east Europe Analyst