Serbia: Bank Closures Threaten Social Upheaval
Government is forced to close debt-ridden banks to prevent the country's economic collapse.
Serbia: Bank Closures Threaten Social Upheaval
Government is forced to close debt-ridden banks to prevent the country's economic collapse.
Serbia's reformist government risks triggering the biggest social protest in the country's history by moving to close four of the biggest state-owned banks.
Beogradska Banka, Jugobanka, Investbanka and Beobanka have debts of more than four billion euros, which the authorities fear could jeopardise the economic reform programme.
A trio of experts from the reformist G17 Plus group took the decision on January 3. They are the Yugoslav deputy prime minister Miroljub Labus, Serbian finance minister Bozidar Djelic and the National Bank of Yugoslavia governor Mladjan Dinkic.
"Had we continued for another month, the budget could not have withstood it and we would not have been able to pay salaries and pensions," Djelic said.
The decision was reached against a background of protests by 8,500 bank workers and unrest among several hundred thousand employees in state enterprises linked to the banks. About two-thirds of Serbia's economy is dependent on them.
If companies reliant on the banks go to the wall, the government of prime minister Zoran Djindjic will struggle to find the money to fund social welfare benefits for their employees. Unless the international community comes up with the cash, there may well be massive social upheaval.
The decision to close the banks highlights the dire state of the economy and the fact that the government is clearly more worried about the prospect of economic collapse than of increasing social tension.
The G17 Plus experts did not receive direct support at the republican or federal level, both of which felt the pressure of the so called debtors' lobby.
A network of banks and enterprises established under Slobodan Milosevic, the lobby served as a tool for financial transactions while the country was under sanctions.
This system involved banks giving loans to insolvent enterprises to pay salaries. The loans were not repaid but this did not adversely affect the banks. Milosevic covered them by printing money, or the banks helped themselves to cash from their successful depositors to issue more loans to failing enterprises.
As years went by, fewer and fewer companies were successful, and hardly any were solvent by the end of Milosevic's rule.
Describing the ruinous state of the banking network, Vesna Kostic, public relations advisor for the World Bank in Yugoslavia, said, "No other country's banking system is in such a tough position as Serbia's."
Ironically, international sanctions helped Milosevic in one respect: the banks could default on payments towards the country's huge foreign debt. Now that the sanctions have gone, the creditors want their money back.
Miroljub Labus said court rulings, both national and international, ordering the four banks to pay their debts had already forced the Serbian government to set aside ten million euros from its tight budget in late December.
To convince the public of the gravity of the situation, Djelic explained that to repay the banks' debts, Serbia's entire workforce would have to give up their salaries for 18 months.
Pressure from the World Bank - which has made financial aid, in 2002 worth 250 million US dollars, conditional on banking reform and the closure of insolvent banks - helped the G17 Plus experts reach their decision. The World Bank confirmed its support for the banks' closure, praising "a very brave decision".
The reaction of the banks' employees was very different. They barricaded bank offices in several towns while their unions urged the authorities to stop the proceedings and find alternative ways to refloat the institutions.
Unsurprisingly, the country's two top politicians left this "hot potato" in the economists' hands. Neither Djindjic nor his rival, Yugoslav president Vojislav Kostunica, took any active part.
Kostunica's finance minister, Jovan Rankovic, opposed the declaration of bankruptcy and claimed the president would veto it.
Warning of a "domino effect" on companies owing the banks a total of 412 billion dinars (6.9 billion euros), he predicted the potential insolvency of several big loss-making concerns, such as Smederevo iron and steel works and the Kragujevac-based Zastava car plant, leaving several hundred thousand workers jobless and adding to the strain on the budget.
However, after Kostunica met bank staff together with Labus, Dinkic and Djelic, he declined to precipitate a new political crisis by disputing the decision.
The G17 Plus economists have insisted that the four banks cannot remain afloat. "We are aware of the risk, but a bigger risk was not to do anything," Labus said on January 3.
But other economic experts said that even if the banks were not closed, most of the loss-making state firms tied to them would fold anyway. The only difference is that they will be kept open for a few more months.
Zeljko Cvijanovic works for the Belgrade daily Blic and is a regular IWPR contributor.
