Serbia: Djindjic Versus Dinkic

Tuesday, 6 September, 2005

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Zeljko Cvijanovic

The Serbian premier announcement that he may replace the popular, reformist Yugoslav national bank governor Mladjan Dinkic, marks a definite break-up within the reform forces in Serbia.

Top officials in Zoran Djindjic's Democratic Party are daily preparing the Serbian public with announcements that Dinkic may not automatically become governor of the new National Bank of Serbia, NBS, once the new union of Serbia and Montenegro is proclaimed and the National Bank of Yugoslavia, NBJ, is dissolved as a federal central bank.

Last week on BK TV, Djindjic himself announced the possibility of replacing Dinkic, explaining that once the new union of Serbia and Montenegro is formed, incumbent federal officials will not automatically transfer to equivalent posts at republican level.

The announcement is seen as marking the final break-up of the reformist camp, which has already effectively split into two blocs, one surrounding the Serbian premier, which still cosies up to the old financial elite of Slobodan Milosevic's regime, and the other comprising reformist economists from the ranks of the G17 Plus party, who demand a radical break with the legacy of the former regime.

The conflict inside the reformist camp has been going on for two years but reached a climax at the end of 2002, when Miroljub Labus and Mladjan Dinkic, popular leaders of what was then an NGO, turned G 17 Plus into a fully-fledged political party.

The creation of the new party posed an immediate challenge to Djindjic's standing among the electorate and with the international community, which has consistently supported the reformist camp in Serbia.

Djindjic hopes to eliminate this danger with the speedy adoption of a constitutional charter for the new state of Serbia and Montenegro, as Labus, now Yugoslav deputy prime minister, in charge of international economic relations, will lose his post, while institutions like the NBJ will be transferred from federal to republican level.

Labus warned early in January that attempts to dismiss Dinkic would be seen as "a Serbian government attempt to seize absolute power" and insisted the central bank must remain an independent institution. "They want to replace a bank governor who has had great success in stabilising monetary policy while retaining ministers who are truly incompetent," Labus said.

A January survey conducted by the Belgrade pollster Strategic Marketing revealed that Dinkic, who is also the G-17 Plus deputy leader, was Serbia's most popular politician, with a far higher rating than the premier.

Dinkic got into conflict with Djindjic back in 2001, when he strongly opposed the Serbian government's political interventions in monetary and banking policy. Dinkic and G17 Plus have been credited with overall responsibility for these policies, which are widely seen as the most successful reforms in the Serbian economy.

Observers say the rift between the two reformist blocs erupted over radically different attitudes towards the legacy of the Milosevic regime and its powerful financial elite. G17 Plus wanted the authorities to distance themselves from this legacy.

But Djindjic continued to associate with the old guard.

This kind of behaviour by Djindjic and his team may explain why none of the major representatives of Milosevic's financial elite, or the wealthy barons of the underworld, have faced criminal prosecution over illegally obtaining assets during the Milosevic era.

The new authorities trumpeted that the Serbian budget would benefit to the tune of 350 to 500 million euro from excess profit taxes levied on Milosevic's privileged companies, but they have so far only managed to collect 50 million euro.

Dinkic was openly scornful of this timidity. "The prime minister does not realise just how much he loses in rotten compromises with compromised or corrupt people," he told Beta news agency on December 28.

The rift between the reformists deepened in the aftermath of Serbia's botched presidential elections in 2002. Djindjic publicly backed Labus's candidacy, but is suspected of underhand manoeuvres to ensure the vote failed, so that Labus's principal rival, Vojislav Kostunica, Yugoslav president and head of the Democratic Party of Serbia, would not be elected the republic's head of state.

The two blocs also clashed over economic reforms, when Djindjic, responding to pressure from exporters, publicly urged the devaluation of the dinar. On October 24, 2002, the premier said the government was carrying out a study to evaluate how a drop in the exchange rate could boost Serbian exports. "The exchange rate should facilitate economic development, not some abstract stability," he said.

But Dinkic was furious. After maintaining a stable exchange rate of 60 dinars to the euro since assuming his post in the NBJ in October 2000, he would not agree to such a change of course, even accusing Djindjic of financial incompetence.

The bank chief said the premier wanted two things simultaneously - devaluation of the dinar and a cut in inflation to 9 per cent per year - but a fall in the exchange rate would fuel an increase in inflation to 50 per cent.

The devaluation never occurred because Dinkic received crucial backing from the influential finance minister, Bozidar Djelic, a former G17 Plus member who has often mediated between the bank governor and the premier in their conflicts.

As matters stand, Dinkic's future hangs in the balance. Labus insists selection of a new bank governor for Serbia is out of the question. He claims that the new constitutional legislation stipulates that all institutions at federal level stand to become Serbian institutions after the changeover. "There will be no new selection procedure for a NBS governor - the current one stays," he said.

IWPR has also learned that Dinkic's dismissal may run into opposition from international financial organisations, such as the IMF, because of the reputation the incumbent governor enjoys in these circles.

Sources in the Serbian government have also said there is still a possibility for Dinkic to be appointed to the new seat.

But this will not be the end of Djindjic's efforts to marginalise his rivals among the reformists. Even if his campaign to replace Dinkic fails, analysts predict that the premier will bide his time, before getting parliament to issue a vote of no confidence in the governor in the course of 2003.

Zeljko Cvijanovic is the editor of Belgrade weekly Blic News.