Suspended Transition (1990-2000)

UNITED NATIONS DEVELOPMENT PROGRAMME

Federal Republic of Yugoslavia

Republic of Serbia

Vulnerability Trends and Perception

Suspended Transition (1990-2000)

Report no.0 (Serbia) of the Early Warning System for FRY August 2000

List of Contents

EXECUTIVE SUMMARY...... 4

A. SOCIO-ECONOMIC ...... 4 B. INTER-ETHNIC RELATIONS ...... 6 C. CRIME AND CORRUPTION...... 7 CHAPTER I: MACROECONOMIC AND FINANCIAL STABILITY...... 9

CHAPTER II: EMPLOYMENT AND LABOR MARKET...... 17

CHAPTER III: SOCIOECONOMIC STABILITY ...... 23

CHAPTER IV: INTERETHNIC STABILITY ...... 27

HUNGARIANS...... 28 MUSLIMS ...... 29 INTER-ETHNIC RELATIONS ...... 29 ONE OR MORE NATIONS...... 32 THE IMPORTANCE OF BELONGING...... 33 CHAPTER V: CRIME AND SOCIAL STABILITY...... 35

1. CONCEPTS, DEFINITIONS AND OCCURRENCES...... 35 2. CONTEXT AND SUBSTANCE OF ORGANIZED CRIME AND CORRUPTION IN SERBIA ...... 37

3 Executive Summary

A. Socio-Economic Unlike other regions and neighboring countries, Central Serbia and Vojvodina went through only a partial process of transition in the 1990s. The breakup of the former Yugoslavia, the wars in adjacent regions, the years of international sanctions and isolation, the huge influx of refugees and internally displaced persons, the NATO bombing, as well as the halfhearted reform course and numerous errors in economic policy, all had a major impact on the social and economic situations. These internal and external factors had a dramatic effect on economic and social indices in the 1990s. Although it is difficult precisely to determine how much each of these factors contributed to the economic collapse of the country, the direct costs caused by UN sanctions are estimated at US$ 36 billion and the losses caused by the NATO bombing at tens of billions. The characteristics of the economic environment in these regions in the 1990s were: sketchy functioning of the market, absence of a banking system and financial institutions, practically non-existent domestic savings, lack of capital, periodically very high inflation, major company insolvency, unsatisfactory economic structure, small proportion of privatized companies and the private sector in general, high taxes and contributions, extremely uncertain and variable conditions of economic activity, dominance of monopolies, and an ineffectual legal system. In such circumstances, the per capita GDP in Yugoslavia was more than halved from US $3000 in 1989 to approximately $1400 in 1994, to creep up to $1700 in 1998. In 1999, the per capita GDP was estimated to have decreased by an additional 20%. The participation of Central Serbia and Vojvodina in the Yugoslav GDP are reckoned at around 88%. A structural change occurred at the same time, with the share in the GDP of agriculture and commerce significantly increasing and that of industrial production, transport and construction decreasing. A particular problem for the functioning of the economy was the high foreign trade deficit, which averages around $2 billion a year. Because of the low hard currency reserves and no influx of foreign capital, this created a continuous pressure on the exchange rate. Since 1994 (after the hyperinflationary 1993) there have been two devaluations and multiple exchange rates are currently in use: the official rate which is four times below the unofficial rate, the unofficial rate, and the so-called “stimulative” rate, which is somewhat lower than the unofficial rate. A combination of stop-go and expansive monetary policy was pursued during the whole period, which resulted in the destabilization of the exchange rate and prices. The overt and covert inflation constitutes a permanent threat to the functioning of the economy. Overt inflation last year was close to 50%. Since the prices of over 50% of products are under direct or indirect control, it may be estimated that the covert inflation rate was extremely high. The country in addition has an exceedingly heavy foreign debt burden of over $13 billion, plus penalty interest amounting to over $800 million annually. The bulk of the debt may be ascribed to the economies of Central Serbia and Vojvodina. The sharp drop in employment and rise in unemployment was only natural in such conditions. Since the early 1990s the number of people holding jobs has declined from approximately 2.3 million to 1.96 million. It was the socially owned sector in which employment fell while the private sector, in spite of the economic difficulties, recorded a rise and now provides jobs for about 300,000 people. At the same time, the employment structure also changed in favor of services. Though the decrease in employment is significant, it is still less than it would be if the labor market was fully functional. Dismissals were curbed by numerous administrative and legal measures. The result is hidden unemployment, with workers increasingly shifting to the gray economy. Unemployment rose in the same period from approximately 467,000 to almost 690,000 people, with the unemployment rate approaching 26%. The worsening structural indices of unemployment and, in particular, more jobless women, are additional negative characteristics in these regions. Earlier researches brought out that over 2.3. million people worked full- or part- time in the gray economy. The majority are already employed and those who have some kind of regular income. Commerce, farming and crafts were highly represented in the gray economy, which accounted for over one-third of the GDP in 1997. These economic trends had a dramatic effect on the incomes and the standard of living of the population. The average real wage at present is about $50 and pensions are even lower. Though earnings in the gray economy help to bolster family budgets, two-thirds of households in Central Serbia and Vojvodina live on less than $80 per month. Under the minimum “consumer basket” criterion, the national standard for gauging poverty, 2.8 million people in Central Serbia and Vojvodina were below the poverty line in 1999. In comparison to the beginning of the decade, the urban population is now the dominant category among the poor, and the perennially threatened groups – families with several children, workers’ families have been joined by a large number of pensioners, primarily in households where pensions are the only income. The impoverishment of the population on the one hand and the decline in GDP on the other have imperiled the functioning of the social welfare system. All benefits have been cut down to the minimum and are in arrears (for instance, child benefits, which amount to less than $10 per month, have not been paid for almost two years; welfare benefits of less than $4 for close to 100,000 recipients were not paid at all in 1998 and only a few monthly payments were made in 1999). The medical care, education and other systems, which in earlier periods provided for a relatively high social standard, are now on the verge of collapse. The already formidable proportions of poverty in these regions are exacerbated by the presence in Central Serbia and Vojvodina of over 520,000 refugees and close to 220,000 internally displaced persons, a great many of whom live in dire circumstances and depend mainly on humanitarian aid. As a result of these trends, the middle classes have virtually disappeared in Central Serbia and Vojvodina. A very thin stratum of wealthy has emerged while the overwhelming majority of the population lives at the subsistence level and falls back on a variety of coping mechanisms in order to survive. The most important of these

5 are assistance from family, especially in provisions from relatives living in the country, work in the gray economy, production of food for households own consumption, sale of property, savings, inter-generation solidarity, international humanitarian aid and the like.

B. Inter-Ethnic Relations Given the historical heritage, the inter-ethnic links and the emergence of national- ism as the prime mover of social changes, the creation of new states of the region of the former Yugoslavia has not been able to come about without deterioration of ethnic relations in the new states. Alongside the creation of new states, there has also emerged the problem of so-called new minorities of Croats, Muslims and small numbers of Slovenes and Macedonians, whose mother country are the republics of former Yugoslavia. Yugoslavs represent a separate group as they live in a country called the Federal Republic of Yugoslavia but they do not have a separate language, cultural or ethnic origin but are members of one of the nationalities from the area of the former Yugoslavia or, as is more frequently the case, are people from “nationally mixed marriages”. The deterioration of the situation in Yugoslavia at the beginning of the 1990’s had the effect of consolidating national homogenization, which was also visible in the findings of empirical research into national awareness. Regarded from the beginning of the sixties to the end of the eighties, the strengthening of the influence of national, republican and provincial belonging has been noted in assessments, opinions, stands and value options. The trend of national homogenization that has been manifested through migration, the development of national economies and the statehood of republics and prov- inces – has become visible in the sphere of national awareness through the trend of more negative reaction towards others and more positive reaction towards one’s own nation, as well as the neutralization of the social aspect of awareness concerning inter-ethnic relations. To general questions of principle the citizens of Serbia mainly replied with socially suitable responses (socially acceptable, not irritating to other nationalities). This occurred even at the time when the great ethnic distance amongst them had been empirically established. Thus, approximately 66% of Serbs, 86% of Hungarians and 88% of Muslims, and that was at time of the war in Croatia and Bosnia and Herzegovina (in November 1993), considered that different nations can live together. At that time only 30% of Serbs, 13% of Hungarians and 9% of Muslims considered that it was better for a country to be comprised of members of only one nation. Empirical public opinion polls show that intolerance and national homogenization have been the essential characteristics of life in Serbia since 1989. The research has showed the powerful differentiation of Serbs from other ethnic groups that could endanger their national identity and national interest, while, on the other hand, Muslims and Hungarians, as members of national minorities, have, in fear of expressing themselves negatively, given more positive opinions of Serbs as the majority nation. However, answers to some other questions complete the picture that members of majorities have about Serbs and Serbia. For example, in the case of both Hungarians and Muslims the belonging to place of residence, that is local patriotism, has far greater importance than patriotism, that is belonging to Serbia and Yugoslavia.

C. Crime and Corruption In the Yugoslav criminal legislation, appropriate definitions of organized crime and corruption are entirely absent. While a number of crimes that are conventionally subsumed under the headings of “organized crime” or “corruption” are indeed defined and sanctioned in the Serbian criminal law, no feasible conceptual context is provided within the law which would allow these crimes to be perceived as but manifestations of the broader phenomena of organized crime and corruption. Corruption, on the other hand, may or may not be a part of organized crime. It is definable in the broadest possible sense as any type of illegal activity that is conducted with a view of securing personal gain The existence of a criminal organization as an entity that this the proper subject of criminal activity, and with a view of whose benefit and goals the activity itself is conducted, whether by one or more individuals that belong to or are affiliated with that organization, is the key criterion for the definition of organized crime. The conditions for the flourishing of organized crime and particularly corruption in Serbia after the start of the socio-political transition in southeastern Europe have become relatively favorable. They are the same as the economic and social conditions for the flourishing of any branch of economy and include: (i) relative lack of serious competition; (ii) social and political circumstances that help to maintain commercial transac- tions within acceptable risk levels, opportunities for achieving high profits, and, most importantly, (iii) the existence of a large market. There is another sector in Southeastern European societies in which the problem of corruption is very pressing, and that is the judiciary. The judiciary is one of the most corrupt social sectors in former Yugoslavia. Through Parliamentary procedure, judges are, virtually speaking, appointed by the ruling party or block of parties. In short, the situation concerning corruption in Serbia is such that the country is slowly heading towards a situation where more or less everyone will be corrupt, in one way or another. Unofficial “prices” for various services in the public sector are a matter of public knowledge. The problems linked to the emergence and growth of organized crime and corruption in Serbia can be resolved with the influx of financial resources and expert know-how, that is by introducing systemic stability as the basic precondition for the introduction of effective mechanisms to control corruption. Such financial resources and expert know-how are vital in order to achieve regional stability in Southeastern Europe.

Chapter I: Macroeconomic and Financial Stability1 The eighties were years of stagnation for the economy of Central Serbia and Vo- jvodina (zero growth on average in the GDP per year), while we can call the nineties a lost decade. This development trend is the result of both internal and external factors. Mistakes in conducting economic policy in the eighties (stop-go policy, irrational expenditure of foreign resources, misbalances in the fiscal sector, etc.) and in the nineties (expansive monetary policy, enormous growth in public expenditure, the stifling of trade mechanisms, etc.) represent the most important internal causes. A large number of external factors (the break-up of Yugoslavia, UN sanctions and NATO air strikes) also contributed significantly to the huge losses this economy had in the nineties. Assuming that the break-up of the former state could not have caused a substan- tially greater decrease in the GDP than in other republics of the former SFRY, the rest of the decrease in the GDP can be ascribed to the impact of UN sanctions and hyperinflation.

On the basis of these assump- Figure 1: UN sanctions cost estimation tions, the direct costs (solely due to loss of GDP and the 110 break-up of inter-republican 90 trade) caused by UN sanctions $ 36.1 bill. could be roughly estimated at 70 UN Sanction approximately 36 billion US Monetary dollars (over a five-year time Reconstruction span). 50 Program Suspensions of UN Sanctions From the commencement of the 30 NATO air strikes, the costs are 80 82 84 86 88 90 92 94 96 estimated to be in excess of tens GDP EST of billions of US dollars. Aside Note: Both actual and estimated GDP are in base indexes with from civilian losses, to which no 1989 as a base year. price tag can be attached, the direct costs are related to the loss of GDP and national welfare (current and expected), physical destruction (bridges, factories, civilian facilities, etc.) and the loss of employment due to this destruction (direct loss for over 80,000 workers and the still as yet unascertained losses incurred by suppliers and others through the commercial process of interrelated companies. Indirect costs (also accumulated to a large extent before the NATO air strikes) are connected to humanitarian issues (huge numbers of refugees and displaced and disabled persons; war-affected psy- chological traumas with particularly negative consequences on younger genera- tions, etc.); deceleration of reforms and the democratic process; the loss of the tempo, quality and the dynamics of the development of the economy; poverty increase; mass brain drain; social costs (payment disbursement problems associated with pensions and salaries in the health service and education; family problems); the rise of a gray economy. There were further costs with long-term related nega-

1 The figures on the GDP, M1, prices, public incomes, foreign trade and the external debt refer to the Yugoslav economy, except in cases where it is explicitly stated that they refer to Central Serbia and Vojvodina.

9 tive consequences on the countries of the region: expenses related to refugees and displaced persons, to ecological catastrophes, to damaged transportation infrastructure, particularly, pertaining to traffic on the Danube and regional highways, etc. The fact is that the conflict also had a significant negative economic impact on all the countries in Southeastern Europe, most of which were already in a precarious state. The break-up of former Yugoslavia in 1991 was the first non-economic shock that accelerated the decrease in the GDP. In that year the GDP fell by 11.6%, and in 1992 UN sanctions contributed to a further decrease, with the GDP falling by 27.9%. Finally, the hyperinflation during 1992-93, which culminated in total monetary collapse, gave a strong additional impact to the decrease in the GDP. In 1993, the GDP fell by 30.8%, when it was just 40% of its level in 1989. A stabilization program was launched on 24 January 1994, the immediate result of which was price stabilization. Furthermore, from 1994, the real GDP showed recovery until 1999 (Figure 2), although no restructuring occurred in the real sector (the rate of growth in 1994 was 5.5%, in 1995 – 6.1%, in 1996 – 5.9%, in 1997 – 7.5% and in 1998 – 2.6%).2 In 1999, the GDP fell by an estimated 20% due to the effect of NATO air strikes. The per capita GDP of over 3,000 dollars in 1989 had been reduced by over half in 1994 to reach nearly 1,400 dollars, and reached the level of some 1,700 dollars in 1998 (according to newly applied SNA methodology in the Federal Institute of Statistics).3

Figure 2: GDP

1989 = 100 120 Domestic Market Contraction 100 EU Sanctions UN Sanctions 80 Monetary Reconstruction Suspension of Program UN Sanctions 60

40 Hyperinflation GDP per capita GDP per capita GDP per capita 20 3420 $ GDP per capita 1600 $ 1300 $ 1390 $ 0 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 Industry GDP

Major changes occurred in the structure of the GDP in this period. At the end of the eighties, industry accounted for 43% in the generation of the social product, while that figure had decreased to 39% in 1998. The participation of agriculture increased from 10% to 20% in that period, and that of transport decreased from 16.7% to 9.1% (Figure 3).

2 In 1997, 49% of the shares in Telecom were sold to foreign partners (STET of Italy and OTE of Greece) for approximately one billion dollars. That capital contributed to the GDP increasing by 7.5% in that year, alongside a one-figure price increase. The greater part of the capital was spent to non-productive ends. 3 The participation of Central Serbia and Vojvodina in the GDP has not changed with respect to 1989 and amounts to approximately 59% and 29% respectively. CHAPTER I: MACROECONOMIC AND FINANCIAL STABIITY

Figure 3: Structure of GDP

100% 10,15 11,8711,87 12,05 16,1916,19 80% 7,8 5,265,26 Other 16,75 9,9,1212 Trade 60% Construction 10,11 18,34 10,11 18,34 Transport 40% Agriculture Industry 43,14 39,22 43,14 39,22 20%

0% 1989 1998 The fact that the economy of Central Serbia and Vojvodina is cut off from world commodity and capital markets represents a particular problem due to its high level of dependence on imports. The need for imports, on the one hand, and the limited possibilities for the export of Yugoslav products (both due to political restrictions and price and non-price factors of competitiveness), on the other hand, have created a major problem concerning the securing of resources to cover the deficit in the current balance of payments (the annual foreign trade deficit is, on average, some two billion dollars, Figure 4).

Figure 4: Exports and Imports 4.5 4.4 4.5

4 2.9 3.5 2.6 2.8 2.9

3 billion USD 2.5 2.2 2.5

1.4 2 1.8 1.8 1.5 1.5 1.5 1.0 0.7 1 0.5 0.7 0.8 Serbia - Total 0.4 0 Central Serbia 1999 1998 1997 Vojvodina 1999 1998 Import 1997 Export

Bearing in mind the country’s low level of foreign currency reserves (official estimates put them on the level of one month’s imports), on the one hand, and the high deficit in the current balance of payments and the considerably limited possibilities for the influx of foreign capital, on the other hand, there is huge continuous pres-

11 sure on the level on the foreign currency rate of exchange. Two devaluations have taken place since the Monetary Reconstruction Program (November 1995 to 3.3 dinars to the Deutschmark, and 1 April 1998 to 6 dinars to the Deutschmark). Mul- tiple foreign currency exchange courses are in force at present (official, black market, customs, bank…), whereby the rate of exchange on the black foreign currency market is four times higher than the official rate of exchange (Figure 5)

Figure 5: Rate of Exchange 25.00

20.00

Black market exchange rate 15.00

Devaluation April, 1998 1 DEM = 6.00 YUD

YUD / DEM 10.00 Devaluation November, 1995 1 DEM = 3.30 YUD

5.00

Official exchange rate 0.00 1994 1995 1996 1997 1998 1999 2000 The creators of economic policy every year set themselves the fundamental goal of achieving stability of prices and the exchange rate. As a result of an orthodox stabilization program in January 1994, hyperinflation was halted and a zero price increase ensured in that year. Powerful inflationary pressures were already appearing in the middle of that year and gained in intensity in the coming years. Those pressures come primarily from the enormous growth in public expenditure (estimated at some 60% of the GDP until the NATO air strikes; official data speak of a balanced budget since 1994, but it is estimated that the deficit is on the level of some 10% of the GDP) and with an increase in salaries above a balanced level (particularly characteristic during election periods), accompanied by an accommodatingly conducted monetary policy (Figure 6 – Public expenditure, wages, M1). Prices and the rate of exchange have been destabilized by a stop-go and, on several occasions, expansively conducted monetary policy, while the structure of the money in circulation has been subject to a considerable extent to the relation between the street and the official transfer rates of exchange (Table 1) As more than 50% of products are to be found on various control and agreement regimes, it is evident that despite overt inflation (December 1995/December 1994 = 120%, December 1996/December 1995 = 58%, December 1997/1996 = 9.3%, De- cember 1998/1997 = 44.3%, December 1999/December 1998 = 50.1%; covert inflation is also a characteristic of the Yugoslav economy. CHAPTER I: MACROECONOMIC AND FINANCIAL STABIITY

Table 1: Money in Circulation (sums in millions of dinars, state at the end of the period)

Cash in cir- Deposit Primary M1 M2 culation money money 1990 5.7 2.5 3.2 3.0 8.6 1991 19.5 6.9 12.6 13.1 26.2 1992 1233.1 458.3 774.8 759.9 2403.8 1993 135.5 5.3 130.3 89.9 496.0 1994 2435.1 1073.8 1361.3 1331.0 3605.7 1995 3256.1 1444.9 1811.2 2283.5 6251.7 1996 5495.3 2956.8 2538.5 3736.7 9786.5 1997 9148.0 4716.4 4431.6 6499.4 15626.5 1998 10817.3 5050.8 5756.5 7171.2 20681.4 1999 16581.9 6688.3 9893.6 9667.5 28981.1 2000 16916.1 6065.8 10850.3 9767.9 29322.6 January 2000 17591.8 6015.7 11576.1 10030.2 30648.4 February

According to indicators of foreign indebtedness, the Yugoslav economy is one of the most indebted in the world. Before the NATO air strikes, the external debt (some 13 billion dollars) represented approximately 70% of the GDP, but, with the decrease in the GDP, in 1999 it reached as high as 100% (according to World Bank criteria, countries with indebtedness over 80% are considered as highly indebted). As compared to exports, the foreign debt amounted to nearly 400% in 1998, to reach as high as 800% in 1999 (the level of 220% is considered as critical). Inter- ests on arrears of approximately 800 million dollars are ascribed to Yugoslavia annually in the name of unpaid obligations that have come due. Financial repression reigns on the finan- Figure 6: Wages, Money supply and Public revenues (1994=100) cial market (selective credits, ceiling inter- 1200 est rates, open and 1000 covert inflation…). The range of interests 800 is markedly high 600 (Table 2), which cre- 400 ates a serious obsta- 200 cle in the way of normal functioning 0 and the return of 1994 1995 1996 1997 1998 1999 credibility to the banking system, Wages M1 Public revenues while extent of the weighted interest rates on commercial bonds and deposit certificates (Figure 7) speaks of the exceptionally high risk rate of investing in (ultra) short-term securities (2-4 weeks), that is on the economy’s need for costly capital in order to resolve pressing problems.

13 Table 2: Interest rates (in percentages at monthly level)

1999 2000

Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Discount rate 2.50 2.50 2.00 2.00 2.00 2.00 2.00 2.00 2.00 2.00 2.00 2.00 2.00 Weighted short-term 4.61 4.12 2.74 2.25 2.24 2.46 2.97 3.92 3.59 3.46 3.27 3.19 3.33 rate Weighted active 4.58 4.26 2.71 2.24 2.21 2.45 2.92 3.89 3.58 3.45 3.23 3.18 3.30 interest rate Weighted passive 1.11 1.02 0.56 0.48 0.44 0.53 0.55 0.46 0.25 0.28 0.24 0.26 interest rate

The process of destruction has continued in the real sector. Significant institutional progress was made with the passing of the Republican Law on Ownership Trans- formation that came into force in November 1997. As of 12 May 2000, 2685 companies (38% of the companies that have applied for privatization) had completed their estimates of capital value, and 1829 certificates of approval have been issued to date. A total of 356 companies have entered into the actual privatization process, the largest number from the sphere of industry (169), trade (54), building (34) and financial services (29). There are 94 companies in the second circle of privatization, while inventories have been completed in 153 companies. The demand for shares is exceptionally low regardless of reductions and the possibility of the pur- chase of shares on an installment basis, and the actual privatization process is evolving very slowly. Only 326 million dinars have been contracted to date. From amongst the public companies, there has been only the partial privatization of Telecom. Only one from amongst the total of 514 companies founded by towns and municipalities has become privatized.

Figure 7: Weighted interest rate on commercial bonds and deposit certificates

16,00 14,23

14,00

12,00

10,00 7,04 % 8,00 6,55

6,00 4,04

4,00

2,00

0,00 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2

1997. 1998. 1999. 2000.

Future economic performance will be determined by internal and external factors. The further stifling of market mechanisms, autarchic development and the insis- tence on “self-reliance”, price control, a high level of public expenditure and popu- list policy will represent additional burdens on the already impoverished economy. CHAPTER I: MACROECONOMIC AND FINANCIAL STABIITY

On the other hand, many arguments point to the fact that the continuation of sanctions and further isolation are “pushing” the economy further into poverty and a non-market development model, which has extremely deep-seated implications for the future development of the economy and of society. There are many challenges, and further growth and development will depend on the ways the mentioned issues are resolved.

Chapter II: Employment and Labor Market According to the 1991 census, out of the total of 7.8 million inhabitants of Central Serbia and Vojvodina, 7.5 million were in the country, of whom approximately 3.6 million were economically active, that is present on the labor market. Out of that total, over 900,000 inhabitants were economically active in agriculture and, according to Yugoslav statistics, are thus registered as a separate category and do not come under the category of employed persons. The age structure of this category, according to the figures from 1991, is unfavorable, as over 37% of the economically active persons in agriculture were over the age of 60. Bearing in mind the aging of the population in Central Serbia and Vojvodina, and particularly the aging of the agricultural population, this structure can be estimated to have further dete- riorated in the last ten years. Figures on refugees and internally displaced persons that fled to the region of Cen- tral Serbia and Vojvodina during and after the wars in former Yugoslavia and from Kosovo and Metohija must also be added to the data on the overall number of inhabitants. According to a census of refugees and other war-affected persons held in 1996, 4 there were 597,500 war-affected persons in these regions, 519,000 of whom had the international status of refugees. Amongst the war-affected persons, 290,000 came into the category of economically active members of the population, which could not but exert additional pressure on the labor market in the second half of the 1990’s. According to UNHCR figures, the total number of internally displaced persons from Kosovo and Metohija amounts to some 220,000, over half of whom are also potential participants on the labor market. Employment in Central Serbia and Vojvodina in the 1990’s decreased on a continuous basis. The average number of employed persons in 1999 was 1.96 million, as compared with 2.3 million in 1990. In this period, the number of employed decreased at the average annual rate of 1.8%. Despite this major decrease, it is evident that economic circumstances are not the only factors to have been reflected in trends on the labor market. The decrease in the number of employed persons is, in fact, due to a considerable extent to “natural drain” (retirement, death of employed persons). During the entire period, given the absence of a totally functioning labor market, companies in the socially owned sector have maintained a social function, and the dismissal of workers, thanks to legal regulations, is a complicated process. The dismissal of workers was even forbidden during the early period of sanctions (1992-1995). There was no mass dismissal of workers in the socially owned sector even after the total destruction of certain capacities during the air strikes. Such conditions created under employment and had the particular effect of encouraging the expansion of the gray economy on the labor market, as well as forms of employment that make it possible for the employer to dismiss workers when they became unnecessary (con- tractual work for a specific period, hiring workers through youth employment services, etc.). It is illustrative to note that in recent years, according to figures from the Employment Office, over 50% of the workers to have lost their jobs were

4 UNHCR, Commissioner for Refugees of the Republic of Serbia, Commissioner for Dis- placed Persons of the Republic of Montenegro “Census of Refugees and other War- Affected Persons in the Federal Republic of Yugoslavia”, Belgrade, 1996.

17 working under contract for a specific period, and over 70% of the workers to gained employment have done so under contract for a specific period. According to figures for 1999, there were 1.67 million employees in socially owned, state owned and mixed companies, which is lower than in 1990 when 2.27 million people were employed in the socially owned sector. In contrast to overall employment trends and employment trends in the socially owned sector, the number of employees in the private sector increased in the 1990’s. There were nearly 57,000 persons employed in the private sector at the beginning of the 1990’s, while that figure had reached nearly 300,000 (including owners) in 1999. The most rapid growth occurred in 1991 when, due to a change in methodology, owners became included in the category of employed workers. Re- gardless of that, however, a continuous increase in employment has been registered in this sector, by over 130,000 (1991-1999). This increase occurred exclusively in the authentic private sector as a result of the functioning and opening of private shops, which testifies to the vitality of this sector and its development despite overall unfavorable economic trends. It is also doubtless that, even in the existing circumstances, if there were more flexible state policy and the more complete functioning of the labor market, the growth and development of the private sector would be even more powerful, which would be reflected in a higher level of employment. Although there are no explicit data to show this, a number of employees in the private sector are not registered and remain in the sphere of the gray economy. In 1999, from amongst the workers in the socially owned, state owned and mixed ownership sectors, 1.28 million persons worked in the economy, the majority of whom in industry – 680,000 (52% of the total number in the economy). Slightly fewer than 400,000 persons were employed in the non-economic sector (24% of the total number of employees), the majority of whom in educational, cultural and healthcare services. Compared with the beginning of the decade a shift can be noted towards the services sector, the share of which was 18% at the beginning of the decade. According to a survey on the economically active population, nearly 40% of the workers in the private sector are employed in trade, which illustrates the special conditions in which this sector has been developing. The percentage of women among employees did not change during the 1990’s and reached the level of approximately 40%. The largest number of women, that is almost two thirds of the total number, was employed in the sector of financial and public services. The percentage of women amongst employees in the private sector was, however, lower and amounted to some 33%, while the percentage of women owners of private shops and companies was particularly low – 22%. In recent years, the percentage of women amongst employees in the private sector has grown and reached the level of nearly 40%, but it is too early to state if this is a stable trend. The fewer women in the private sector can also be explained by the nature of the work and the greater demands made by the private sector as concerns working hours. This phenomenon can further be explained by the diversification of risks within the family and the decision that one member, usually the wife, should keep a CHAPTER II: EMPLOYMENT AND LABOR MARKET

“safe” job, the fact that it is rarer for private family capital to be invested in accor- dance with women’s knowledge and interests, the lower number of traditionally female jobs in the private sector, etc.

Table 3: Number of employed and unemployed persons and rate of unemployment (in thousands, %) from 1990. to 1999. Number of Number of employed Number of Unem- Number of employed in socially unemployment employed in private owned sec- ployed rate sector tor* 1990 2329 2272 57 467 16.7 1992 2232 2057 175 574 20.5 1994 2127 1923 204 586 21.6 1996 2084 1832 252 654 23.9 1998 2013 1725 288 656 24.6 1999 1963 1671 292 686 25.9 *Note: this includes employees in the state owned and mixed sector As indicated in the above, the problem of unemployment, both open and repressed, is widespread in Central Serbia and Vojvodina. Unemployment has increased parallel to the decrease in employment, but far more rapidly. According to figures for 1999, the number of unemployed reached 686,000. As the number of unemployed amounted to approximately 467,000 in 1990, this means that the annual increase rate was 4.4%. The unemployment rate gradually increased from 16.7% in 1990 to the virtually extreme figure of 26% in 1999. According to some earlier estimates in the middle of the nineties, between one third and one half of the persons employed in the economy are underemployed.5 After the air strikes and new economic difficulties, this share has certainly increased. If we include underemployed persons amongst the unemployed, the unemployment rate exceeds 50%. It is not therefore surprising that since the middle of 1998 the problem of unemployment is gaining in importance in the perception of the citizens of Serbia.6 On the other hand, it is possible that, on account of widespread open unemployment, the majority of citizens, virtually two thirds, prefer a safe job, al- beit poorly paid. The percentage of women amongst the registered unemployed was 57.8% in 1999. This percentage has remained at around the same level in recent years, and has even decreased slightly as compared with 1990. The female unemployment rate is, however, more than 50% higher than the male unemployment rate. According to figures for 1999, the female unemployment rate was 32.4%, while it was “only” 20.3% for men. Only on the basis of these figures can the difference between the relative unemployment of men and women actually become clear and its proportions assume their real significance. Furthermore, the structural characteristics of

5 Economic Institute “Report on Human Development in Yugoslavia 19 1997. 6 Preliminary report, Centre for Political Research and Public Opinion, June, 2000.

19 unemployed women are unfavorable. As the duration of waiting for a job increases, so does the percentage of unemployed women. Women account for over two thirds of the persons that have been looking for a job for over eight years. The structure of unemployed persons according to education level shows that almost 40% of the unemployed have the lowest qualifications (only primary school education and unskilled and semi-skilled workers). The fact that persons with university education account for 6% and persons with secondary school education for nearly 30% of the unemployed can be considered a particularly unfavorable factor. A characteristic of unemployment in Central Serbia and Vojvodina is also the long duration of unemployment and the large percentage of persons that have been unemployed for a long period of time. In fact, over half the unemployed wait longer than one year for a job, and every third unemployed person waits longer than five years. The percentage of persons seeking employment for the first time is over 60%. As, according to the laws in force at the moment, only persons who have lost their jobs have the right to unemployment benefit, and that is for a duration of between three and 24 months at the most, depending on years of previous employment, only 46,000 people received unemployment benefit in 1999. 7 This represents a considerable increase as compared to 1998 when, on average, some 30,000 persons were receiving unemployment benefit. As, amongst the unemployed, the percentage of persons that had previously been employed even decreased in the second half of the 1990’s, the increase in those that receive benefit testifies to the increasingly slower reemployment of persons who have previously been employed. On the other hand, a large number of registered unemployed persons and employed persons are engaged in the gray economy, which represents one of the most important coping mechanisms. According to research carried out by the Economic Insti- tute,8 in 1997 nearly 2.3 million inhabitants have been engaged in the gray economy, either full time or part time, mostly in trade (28.3%), agriculture (21.7%) and arts and crafts (18.8%). The basic reasons for the emergence of the gray economy are many and complex and are, of course, mainly to be found in the non-functioning of the market and the absence of appropriate measures (legal regulations and economic solutions). Amongst the other reasons, the most important are: low wages and pensions, taxes and particularly high taxes and contributions on personal incomes, great pressure on the labor market due to high unemployment and the large influx of refugees and the need of the state to preserve “social peace”, insufficient engagement of those already employed at their workplaces, the relatively large number of people on paid leave, the high demand for products that cannot, in certain periods, be ac- quired through regular channels (gasoline, foreign currency) or are far more expen-

7 This is the largest number of persons on the labor market to have received benefit over the last decade. In the first half of the nineties that number grew from approximately 11,000 to 35,000 persons in the period from 1990 to 1993, to decrease to 10,000 persons in 1994. It has been increasing continuously since that year. 8 Economic Institute, “Analysis of the Gray Economy in FR Yugoslavia with estimates for 1997 and recommendations for its legalization”, Belgrade 1997. CHAPTER II: EMPLOYMENT AND LABOR MARKET sive when purchased regularly and, finally, conditions in the environment that en- courage gray activities (war, sanctions). According to the results of the mentioned survey, most of the participants in the gray economy are already employed in the formal sector (52.1%). Apart from the fact that the category of employees is the biggest potential source for the gray economy (their number is considerably larger than the number of unemployed, pensioners etc.) there are two possible explanations for their high participation in the gray economy; firstly their jobs provide them with opportunities to come into contact with different people and thus creative possibilities for supplementary engagement and, secondly, they are able to perform other jobs during their working hours. The motives of the “employers” (when it is not a question of self- employment in the gray economy) to take on persons already employed are considerable; such persons’ wage demands are relatively low, and they are covered by social and health insurance thanks to their regular jobs. It is estimated that approximately one third of employed persons are engaged in the gray economy. Participants in gray economy:

· employed · owners, self-employed · pensioners · unemployed · others The self-employed, owners and other persons that, according to statistical definitions, come under the category of the economically active persons that perform a job account for the portion of 23.2%. The relatively high participation of pensioners in the gray economy - 9.4% (17% of the total number) is illustrative of the situation in the country. This is, of course, a result of the fact that the average retirement age has lowered to that of 56-57 on average due to liberal retirement conditions. On account of age and illness, older pensioners are probably not able to engage in these types of activities. The share of unemployed persons amongst those engaged in the gray economy is 7.6%. It is estimated that out of the total number of unemployed, 40 percent par- ticipate in the gray economy, particularly in trade, arts and crafts. The remaining 7.7% of participants in the gray economy are housewives, students, persons living off annuities, etc. The percentage of women on the “gray labor market” is lower than their percentage amongst employed and amounts to approximately 30%. As compared to those employed in the socially owned sector, who are in some elements “over-protected” as concerns their rights, those employed in the private sector, and particularly those engaged in the gray economy, often work in unac- ceptable conditions, below all civilized norms and achievements.

Chapter III: Socioeconomic Stability Economic trends during the 1990s were extremely unfavorable – from the steep decline in GDP, real wages, pensions and all other personal incomes, over the decrease in employment and increase in unemployment, to the expansion of the gray economy, criminalization of economic life and the society as a whole, and similar. These trends were fully reflected on the income of the population and the standard of living. From a moderately developed country, Serbia became virtually the poor- est country in Europe, with living standards corresponding to those in third world nations. The overwhelming majority of people struggle to survive on a day-to-day basis. Movement of the average real wage (nominally corrected for trends in the cost of living), is shown on the following graph (Figure 8): The elimination of hyperinflation Figure 8: Average real wage (February 2000. in early 1994 was followed by a dinars) rapid rise in real wages, with latter 3000 fluctuations. The maximum was 2500 reached in 1997, after the sale of 2000 Telekom to foreign investors and Dinars 1500 an inflow of US$ 1.6 billion. A downward trend in real wages 1000 500 appeared in late 1997, which was IV IV IV IV IV IV XII 94 95 96 97 98 99 99 further aggravated by the decline in economic activity during the bombing. A slight increase in real wages has been recorded since the bombing ended. A large majority of the 1.5 million-strong population of pensioners in Serbia lives in straitened circumstances.9 Pensions are small and in arrears, the pension funds’ debts to pensioners are increasing and prospects for any improvement in the fore- seeable future are practically non-existent. The entire pension system is obviously in deep crisis: it has been plagued by deficits for years and is unable to cover out- lays. The deficit of the Employed Persons Fund in recent years stands at between one-quarter and one-third of outlay. The following graph (Figure 9)shows the trend in real pensions paid out by the Employed Persons Fund:

9 Retirement and disability insurance in Serbia is organized through a system of three separate pension funds – for the employed, self-employed and farmers. The Employed Per- sons Fund is the largest, both in terms of number of pensioners and financial resources. The Self-Employed Persons Fund has only a small number of pensioners while the Farm- ers Fund is virtually bankrupt and very irregular in paying out pensions. All three operate according to the PAYG model, that is, current expenses are paid out of current revenue. Retired military personnel are not included in the system; their pensions come from the federal budget.

23 The sharp peaks and troughs Figure 9: Real pensions (February 2000. dinars) on this graph are due to the

3500 fact that monthly pensions in

3000 Serbia are paid in two equal

2500 installments. It often happens

2000 that pensioners receive only Dinars 1500 one installment in certain

1000 months and three installments

500 in others. The former is evi- II II II II II XII 95 96 97 98 99 99 dently much more frequent, as a result of which pensions are in arrears with regard to the legally fixed rhythm. By the summer of 1999, pensioners were owed four pensions but this was subsequently reduced to one by con- verting the three-month debt to coupons with which pensioners pay their electricity bills. The preceding graph also shows the trends in real pensions. After rising up to 1997, they started falling, together with average wage to which they are index- linked. An alternative method of showing the movement of real wages and pensions is to express them in US$ converted at the unofficial rate (Figure 10). The advantage of this method is that it avoids use of the disputed official cost-of-living statistics but it does have the disadvantage of relying on the unofficial exchange rate, which is less a reflection of the purchasing power of hard currency than of supply and demand and is consequently subject to major fluctuations. Figure 10: Average wage and pension in US$ Trend of the real wages, e.g. shows Average Wage much greater oscillations, when Average Pension given in US$ (1:3), then when being 140 120 corrected by life expense index (1: 100 1,7). It is certain that the decrease of

US $ 80 real incomes stirs in the interval lim- 60 ited with these two boundaries. 40 20 The absolute amount of average 0 IV 95 IV 96 IV 97 IV 98 IV 99 XII 99 wages calculated in US$ is more important than the dynamics, gardless of methodological problems. With averageregard lesswage of ranging methodological from US$ pro41 b-to 145 and average pension ranging from US$ 34 to 130, Serbia is far behind compa- rable countries in transition and at the bottom of the list of European nations. Pensions in Serbia are obviously so low as to threaten the survival of the elderly population. However, in a bid to retain the favor of the electorate, the government’s policy has for years been to maintain the average pension at approximately the level of the average wage. The 1990s witnessed a major expansion of the gray economy. Many of those with low wages at their regular jobs, unemployed persons, pensioners, housewives and others seek some kind of work in the gray economy to earn enough for at least the essentials of life. There are at least 2 millions of them in Serbia. The income of the population (Figure 11), at least its greatest part, is very low, as CHAPTER III: SOCIOECONOMIC STABILITY brought out by a December 1999 survey (when one US$ was worth 40.6 dinars):10 The survey showed that two thirds of Ser- Figure 11: Income of households (December 1999, in %) bian households have 25 a monthly income of up to US$ 80. This is 20 indeed minimal, in 15 spite of the fact that a

US$ buys more in Percents 10

Serbia than in compa- 5 rable countries. 0 do 799 1600-2399 3200-3999 6000+ Poverty recorded a 800-1599 2400-3199 4000-5999 dramatic rise in Serbia in the 1990s. As a result of the economic and political situations, the middle classes disappeared. An extremely small class of wealthy emerged (1% to 3% of the total population, according to some estimates) while all the rest may be said to be poor though not all equally so. Poverty became so widespread, especially after the NATO bombing, that when studying the phenomenon, researchers should primarily think in terms of mere survival. The poor may thus be classified in two groups: those who find it very hard to survive and those who are “only” poor. The usual yardsticks, including balanced diets according to proper nutrition standards, essential clothing and shoes, summer vacations and similar become irrelevant as they would place a huge proportion of the Serbian population in the category of the poor. Under the minimal “consumer basket”11 criterion and based on a regular population consumption survey by the Federal Statistical Office, the number of poor was estimated to have reached 2.8 million in the first half of 1999, which was three times more than in 1990. Earlier surveys showed that, in contrast to the beginning of the decade when the rural population was most highly represented in the category of the poor, poverty, as it became more widespread, was increasingly becoming an urban phenomenon. The most threatened groups were industrial workers and min- ers and families with children, and they are now being joined by elderly pensioners (especially in urban areas), couples living alone, families with handicapped members and similar. When the refugees and displaced persons are added to these threatened categories, the total number of poor rises dramatically. Since the crisis has lasted almost ten years, the choice of coping mechanisms has been narrowed down. In general, the most important of these mechanisms are assistance from family, especially in provisions from relatives living in the country, work in the gray economy, production of food for households own consumption, sale of property, savings, inter-generation solidarity, return of adult children to live with their parents, non-payment of utility bills, international humanitarian aid and the like.

10 Preliminary Report, Center for Political Research and Public Opinion, June 2000. 11 The minimal “consumer basket” contains foodstuffs meeting the minimum nutritional needs.

25 Savings enabled many people to survive when conditions were normal. However, mainly because of the long-standing crisis, this source has been severely depleted. Furthermore, the hard currency savings of a proportion of the population are “fro- zen,” meaning that they can draw their money out of the bank only in exceptional circumstances (to buy medicine in case of illness and similar). In the conditions created by the massive impoverishment and low GDP, the social welfare system has practically collapsed. Though confronted with major problems, institutions such as homes for children without parental care and handicapped children continue operating. The different types of benefits, however, are so low and so far in arrears that they debase the very principle of social welfare. Thus, for instance, child benefits amounting to less to $10 per child are almost two years in arrears. About 100,000 people entitled to welfare benefits did not receive them at all in 1998 and only a few monthly payments of circa $4 per person were made in 1999. The grave economic and social situations have an effect on how the population views Serbia and its problems (Table 4). A series of surveys conducted by the Cen- ter for Political Research and Public Opinion brought out that economic problems were considered the most momentous and serious except during 1998 and early 1999 when the Kosovo crisis was at its peak.

Table 4: Most serious problems confronting Serbia (in %)

Jul. Jan. Sep. Nov. Feb. May % 1998. 1999. 1999 1999 2000. 2000. Economic 32 28 53 45 34 43 Political 52 59 35 33 35 34

However, a different kind of opinion poll made in early 2000 by the same Center and based on people’s views on numerous features of Serbia’s social, economic and political life, brought out a very high level of dissatisfaction with the economic and political circumstances. Thus 90% of respondents were dissatisfied and only 4% satisfied. A huge majority, 84%, was dissatisfied also with their personal standard of living, while only 11% was satisfied. Such dissatisfaction with the socioeconomic situation is unparalleled in the world.

Chapter IV: Interethnic Stability Given the historical heritage, the inter-ethnic links and the emergence of national- ism as the prime mover of social changes, the creation of new states of the region of the former Yugoslavia has not been able to come about without deterioration of ethnic relations in the new states. Alongside the creation of new states, there has also emerged the problem of so-called new minorities. As a result of this, besides the earlier minorities that had their mother country in one of the neighboring countries (Albanians, Hungarians, Romanians, Bulgarians), small minorities of Euro- pean origin (Slovaks, Ukrainians, Ruthenians, Germans) and “transnational” (extra-territorial) minorities of non-European origin (Jews, Romas), there have appeared in Serbia, which is a heterogeneous political community from confessional, language, ethnic and cultural points of view, the new minorities of Croats, Muslims and small numbers of Slovenes and Macedonians, whose mother country are the republics of former Yugoslavia. Yugoslavs represent a separate group as they live in a country called the Federal Republic of Yugoslavia but they do not have a separate language, cultural or ethnic origin but are members of one of the nationalities from the area of the former Yugoslavia or, as is more frequently the case, are people from “nationally mixed marriages”.12

Table 5: The national composition of the population of Serbia in 1991 (including Kos- ovo and Vojvodina)

Number % Total 9 778 991 100 Serbs 6 446 595 65.9 Albanians 1 674 353 17.1 Hungarians 343 942 3.5 Yugoslavs 323 555 3.3 Muslims 246 411 2.5 Romas 140 237 1.4 Montenegrins 139 290 1.4 Croats 105 406 1.1

Table 6: National composition of Vojvodina 1991

Number % Total 2 013 889 100 Serbs 1 143 723 56.8 Hungarians 339 491 16.9 Yugoslavs 174 225 8.7

12 Among those who declared themselves as Yugoslavs in the first place are according to the census in 1991, Orthodox, Catholics, atheists and people who are in the group “un- known”. 89,7% said that their mother tongue is Serbian (Serbo-Croat), i.e., Croatian (Croatian-Serbian)/in statistical classification answers were given together/. Most Yugo- slavs live in Vojvodina (174,225 of 349,714), which is ethnically and nationally the most heterogeneous region of FRY, where Yugoslavs make for 8,7% of the total population. Breznik Dusan – Raduski Nada, “Demografske odlike stanovnistva SR Jugoslavije po nacionalnosti”, Jugoslovenski pregled No.4, Belgrade, 1993, pp.24-27

27 Number % Croats 74 808 3.7 Slovaks 63 545 3.2 Montenegrins 44 838 2.2 Romanians 38 809 1.9 Romas 24 366 1.2 Ruthenians 17 652 0.9 Macedonians 17 472 0.9

Table 7: National composition of Kosovo and Metohija 199113 Number % Total 1 956 196 100 Albanians 1 596 072 82.6 Serbs 194 190 9.9 Muslims 66 189 3.4 Romas 45 746 2.3 Montenegrins 20 356 1.0 Turks 10 446 0.5

On the area of Serbia without Kosovo, which has from June 1999 been under en- forced international administration, the largest national minorities (ethnic communities) in Serbia are now Hungarians and Muslims that inhabit relatively homogeneous territories; Hungarians – northern Baèka in Vojvodina and Muslims – Raška region /Sandžak…

Hungarians Members of 26 nations, national minorities and ethnic groups live in Vojvodina, the huge majority of whom are Hungarians. There are also 34 religious organizations and communities, the most numerous of which are the Serbian Orthodox Church, the Roman Catholic Church, the Slovak Evangelist Church, the Romanian Orthodox Church and the Reformationist Church. Despite such ethnic, confessional, language and cultural disparity, according to the 199114 census, three nationalities account for 82.4% of the total population: Serbs - 56.8%, Hungarians - 16.9% and Yugoslavs – 8.7%. The other more numerous nationalities in Vojvodina are Croatians – 3.7%, Slovaks – 3.2%, Montenegrins – 2.2%, Romanians – 1.9%,

13 Since Albanians boycotted the 1991 census an estimate was made on the basis of birth and death rate, but without migration trends which were great even before armed conflicts in Kosovo and Metohija. Out of the estimated figure of over two million inhabitants before the outbreak of conflicts in Kosovo and Metohija it is estimated that a few hun- dreds of thousand people (mostly Albanians) left Kosovo and Metohija due to economic reasons. 14 Ethnic structure of Vojvodina has significantly changed since the 1991 census since a great number of refugees from Croatia and Bosnia moved to this region. At the same time a significant number of people belonging to minority groups moved from Vojvodina to their “mother countries”. CHAPTER IV: INTERETHNIC STABILITY

Romas – 1.2%… The less numerous are Ruthenians, Muslims, Ukrainians, Bun- jevci, Šokci , Macedonians, Romas, Slovenes…

Muslims A large part of the Muslim population of FR Yugoslavia inhabits the Raška region (Serbian name) or Sandžak (the name of the administrative unit during the time of Turkish rule, which is generally accepted amongst the Muslim population)15, on a territory that is situated part in Serbia and part in Montenegro, and where Muslims account for 183,498 of the total population of 352,475. According to the last census in 1991, 246,411 Muslims live in Serbia and represent 2.5% of the total population. Muslims represent the absolute majority in three municipalities of Central Serbia (2.6% of the territory of Central Serbia) where the Serbian part of Sandžak is lo- cated. These municipalities are Novi Pazar (74.4%), Sjenica (76.1%) and Tutin (94.2%). There are also a considerable number of Muslims in the municipalities of Priboj (30.4%) and Prijepolje (43.4%), where they are just behind Serbs in number.

* * *

It is important to note that the mentioned figures are from the first quarter of 1991, before the bloody break-up of SFRY. The war in the region of the former Yugosla- via, with the accompanying political tensions and pressure, has caused great migra- tory trends, whereby nation and confession had a decisive effect on the proportions and the directions of those movements. It is estimated that at least half of the refugees from Bosnia and Herzegovina (some 400,000) and Croatia (some 260,000) will stay permanently in Serbia, which will increase the share of Serbs by about 5%. It is further estimated that at least 10% of Hungarians have left Serbia, which means that there are now between 300,000 and 310,000 of them in Serbia now. This, combined with the fact that a large number of refugees have settled in Vo- jvodina, leads to the estimate that the share of Hungarians in Vojvodina today could be under 15%.16

Inter-Ethnic Relations The deterioration of the situation in Yugoslavia at the beginning of the 1990’s had the effect of consolidating national homogenization, which was also visible in the findings of empirical research into national awareness. Regarded from the beginning of the sixties to the end of the eighties, the strengthening of the influence of

15 The work “Sandzak” originates from Turkish “sancak” flag . This was the name of the army and administrative-territorial unit of the Ottoman empire. See: Enciklopedija Leksi- kografskog Zavoda, Yugoslav Lexicography Institute, Zagreb, Volume 5, 1969, pp.602. 16 The results of the Kosovo conflict is smaller number of Serbs in Kosovo and less Albani- ans in Central Serbia. According to some estimates, between 100,000 (according to UNMIK) to 250,000 Serbs and other non-Albanians (Raska-Prizren Eparchy which has made Kosovo a much more homogeneous territory. This has not affected the ethnic structure of Central Serbia to a great extent where most of the non-Albanian refugees fled. See: Report on Refugees, Institute of Statistics of Serbia, Belgrade 1994/95, UNHCR Bulletins 368; Institute of Statistics of Serbia, Belgrade 1995; Srdjan Bogosavljevic , “Southeast Europe and Demographic Ethnocentrism”, Southeast Europe 2000 A view from Serbia, editor Jelica Minic, Stubovi Kulture, Belgrade, 1999, pp.115-117

29 national, republican and provincial belonging has been noted in assessments, opinions, stands and value options. That strengthening was also visible with respect to the former primary characteristics of differentiation in public opinion – generation, level of education, social-professional position… The trend of national homogenization that has been manifested through migration, the development of national economies and the statehood of republics and prov- inces – has become visible in the sphere of national awareness through the trend of more negative reaction towards others and more positive reaction towards one’s own nation, as well as the neutralization of the social aspect of awareness concerning Inter-Ethnic relations.

Table 8: The opinions of the individual nations that live on the territory of the present and former Yugoslavia

Feb. 1993 1996* 2000.

able able able r r r able able able r r r favo favo favo unfavo unfavo unfavo

Serbs 92 6 78 9 87 7 Montene- 83 14 – – 77 12 grins Macedonians 34 57 34 21 60 12 Romas – – 34 22 52 17

Slovaks – – – – 39 8 Romanians – – – – 36 20 Slovenes 19 71 16 44 39 30 Serbs about Hungarians 20 69 17 36 32 30 Bulgarians – – – – 28 34 Muslims 10 84 7 67 18 56 Croatians 12 82 7 70 17 59 Albanians 6 88 7 63 11 75 Muslims 92 5 94 – 94 3 Montene- 87 10 – – 97 3 grins Macedonians 74 14 83 3 89 0

Slovenes 79 7 69 5 87 3 Serbs 77 19 85 3 87 7 Croats 50 47 63 10 70 22 Hungarians 67 19 62 4 67 0

Muslims about Romas – – 62 14 68 3 Slovaks – – – – 68 0 Romanians – – – – 65 0 Bulgarians – – – – 62 8 Albanians 62 33 65 14 68 30 CHAPTER IV: INTERETHNIC STABILITY

Feb. 1993 1996* 2000.

able able able r r r able able able r r r favo favo favo unfavo unfavo unfavo

Hungarians 81 6 55 4 92 0 Montene- 69 15 – – 90 4 grins Serbs 72 15 46 2 72 7

Macedonians 62 17 34 – 71 3 Croats 50 37 33 10 70 5 Slovenes 50 32 35 4 68 4 Slovaks – – – – 57 5 Romanians – – – – 43 28 Hungarians about Bulgarians – – – – 44 13 Muslims 41 37 21 11 42 17 Romas – – 23 14 44 36 Albanians 34 44 21 13 36 27 *As a modality of response, besides favorable and unfavorable opinions and “I have no specific opinion”, in 1996 there existed the modality “I am neutral”. That accounts for the lower percentage of favorable and unfavorable opinions. The evident distance towards Albanians was, however, very marked even before the outbreak of the Yugoslav crisis, indeed far more marked than towards others, which demonstrates somewhat deeper and stronger roots of ethnic distance towards other nations from the region of the former Yugoslavia. Before the break-up of SFRY, that distance was particularly widespread amongst Macedonians, Montene- grins and Serbs, who lived together with Albanians. And Albanians, towards whom the greatest ethnic distance was expressed, at the same time distanced themselves most from members of the other Yugoslav nations, and especially from Macedoni- ans, Montenegrins and Serbs. The non-acceptance of these three nations is evident, although it is most strongly marked amongst Albanians. The research carried out in 1993 demonstrates a highly widespread unfavorable opinion about Albanians, Croats and Muslims, which can be explained by the political (and armed) conflicts in Bosnia and Herzegovina, Croatia and later in Kos- ovo too. Serbs expressed themselves unfavorably towards Croats to the extent of 82% during the time of the conflict in Croatia in 1993, but, with the cessation of armed conflicts, there was a fall in unfavorable opinions to 67% in 1996 and 56% in 2000. Serbs’ unfavorable opinion of Muslims was stable at the high level of 84% from 1993 until the signing of the Dayton Agreement, after which there was a fall in the number of unfavorable opinions to 67% in 1996 and 56% in 2000. However, Mus- lims have expressed a predominantly favorable opinion about Serbs (77% in 1993, 85% in 1996 and 87% in 2000), which is probably a consequence of the fear on the part of the minority nation to express an unfavorable opinion about the majority

31 nation (instead of this a socially desirable response was given, that is a response that would not provoke suspicion and a negative reaction from the majority nation). Negative opinions about Hungarians were at a lower level because there were no direct conflicts between Serbs and Hungarians, but at the time when the conflicts in Croatia and Bosnia were at their height (1993), Serbs expressed a predominantly negative opinion (69%) about them, which was virtually halved to 36% in 1996 and reduced to 30% in February 2000. Therefore, with respect to the second largest national group, Serbs opinion of Hungarians was at a relatively low level, but the fact that in February of this year the percentage of favorable and unfavorable opinions was virtually equal points to fear on the part of Serbs of the demand of certain Hungarian political leaders for territorial autonomy. It can therefore be said that fear of secession is a reason for Serbs’ divided opinion on Hun- garians. At the same time, Hungarians, similar to Muslims, gave socially desirable responses, expressing favorable opinions on Serbs (72%). This is particularly evident in 1996 when there also existed the response modality “I am neutral”, and the number of favorable opinions on Serbs was considerably lower. Dissatisfaction with Figure 12: Satisfaction with Inter-Ethnic relations in Inter-Ethnic relations February 2000. predominated in Serbia

17% Unsatisfied in February 2000. The 24% 59% Satisfied younger the citizens, Don't know the greater was the dissatisfaction. In the 18-

29 age group, the percentage of dissatisfied was 70% as compared with 15% satisfied, while in the over 60 age group, 49% expressed themselves dissatisfied and 34% satisfied. Regarded according to nationality of citizens, there was no great deviation from the percentage except in the case of Muslims, who were particularly dissatisfied (73%). A total of 61% of Serbs expressed dissatisfaction and 55% of both Yugo- slavs and Hungarians did the same. Dissatisfaction with Inter-Ethnic relations was less marked in the multi-national environments in Vojvodina than in the rest of Serbia, while in the region of Banat satisfaction with multinational relations is even more marked than dissatisfaction (52%/40%).

One or more nations To general questions of principle the citizens of Serbia mainly replied with socially suitable responses (socially acceptable, not irritating to other nationalities). This occurred even at the time when the great ethnic distance amongst them had been empirically established. Thus, approximately 66% of Serbs, 86% of Hungarians and 88% of Muslims, and that was at time of the war in Croatia and Bosnia and Herzegovina (in November 1993), considered that different nations can live together. At that time only 30% of Serbs, 13% of Hungarians and 9% of Muslims considered that it was better for a country to be comprised of members of only one nation. CHAPTER IV: INTERETHNIC STABILITY

Two and a half years later (in May 1996), 92% of Hungarians, 90% of Muslims and 75% of Serbs agreed with the claim that different nations can live in harmony in one country. In the course of 1996, after the signing of the Dayton Agreement, tolerance and mutual respect became part of the official opinion of the citizens of Serbia, and citizens reacted to a public opinion poll in a like manner. Nonetheless, some responses recalled the previous period of strong national tension amongst Serbs. For example, 42% of Serbs (as against 46% that gave the opposite opinion) agreed with the claim that in conditions of large-scale unemployment priority in employment should go to Serbs and Montenegrins. A total of 52% of Serbs agreed with the claim that one should always be cautious and reserved towards other nations, even when they are friends, whereas 69% of Muslims and 58% of Hungarians did not agree with that claim.

Figure 13: Reserve towards other nations in February 2000

16% 44% One should be cautious and reserved

40% No ned to be cautious and reserved Don't know

Although the great majority of citizens considered that Serbia is not only for Serbs, a relative majority of them considered that “one should always be cautious and reserved towards other nations, even when they are friends”. Members of the Serbian nationality showed above-average caution and reserve (48% as against 36% that did not agree with the claim. The majority of members of other nationalities, however, did not agree with the claim that one should always be cautious and reserved towards other nations, even when they are friends. 78% of Muslims, 64% of Hungarians, 52% of Yugoslavs… did not agree with the claim. In multi-national environments, that is in the three regions of Vojvodina – Banat n- compasses the Raška region, or Sandžak (55%), the majority of citizens considered that one should not be reserved towards other nations.

The importance of belonging Observing the importance of belonging amongst the citizens of Serbian nationality from November 1993 to February 2000, a stable attitude towards belonging to Ser- bia can be noted (between 31% and 37%) and the place of residence (some 33% of Serbs designate place of residence as the most important element of belonging). The third most important element for Serbs is belonging to Yugoslavia, but this is showing a downward trend: in May 1996, 24% of Serbs denoted belonging to Yugoslavia as the most important element, in May 1998 – 19% and in February 2000 – 12%. Hungarians show a high degree of local patriotism, designating place of residence as the most important element of belonging: such an option was expressed by 60% in 1993, 33% in 1996, and has become stabilized at around 50% in the last three years. What makes Hungarians different from others, and even from Muslims that

33 live compactly i e- gion, which, in February 2000, reached 29% of those who considered it most important on the list of elements of belonging. Belonging to Yugoslavia ranks low on that list and has a downward tendency (from 17% in 1996 to 6% in February 2000), whereas belonging to Serbia ranks even lower (only 1% of Hungarians consider it most important in 2000). The situation is similar amongst Muslims. Only 3% designate belonging to Serbia as most important, and the tendency of a fall in the popularity of Yugoslavia is marked (from 27% in June 1998 to 5% in February 2000). In contrast to that, the place of residence has gained in importance amongst them: in November 1993 – 20%, May 1996 – 39%, June 1998 – 50%, February 2000 – 57%. Muslims rank place of residence as the most important element of belonging. Hungarians more freely express belonging to a region than Muslims, who are settled along the borders with Bosnia, where Muslims were the opponents of Serbs in armed conflicts. The stress on adherence to the region (Sandžak) could have been interpreted at that time (but now as well) by Serbs as a secessionist state of mind, that is a disloyal, hostile act. That is why in February 2000 only 3% of Muslims stressed belonging to a region as the most important element of belonging. Empirical public opinion polls show that intolerance and national homogenization have been the essential characteristics of life in Serbia since 1989. That research shows the powerful differentiation of Serbs from other ethnic groups that could endanger their national identity and national interest, while, on the other hand, Muslims and Hungarians, as members of national minorities, have, in fear of expressing themselves negatively, given more positive opinions of Serbs as the majority nation. However, answers to some other questions complete the picture that members of majorities have about Serbs and Serbia. For example, in the case of both Hungarians and Muslims the belonging to place of residence, that is local patriotism, has far greater importance than patriotism, that is belonging to Serbia and Yugoslavia.

Chapter V: Crime and Social Stability

1. Concepts, definitions and occurrences The concepts of organized crime and corruption have always been and remain largely in the dark. The legal definitions of these phenomena vary widely among various legal systems. In the Yugoslav criminal legislation, appropriate definitions of organized crime and corruption are entirely absent. While a number of crimes that are conventionally subsumed under the headings of “organized crime” or “corruption” are indeed defined and sanctioned in the Serbian Criminal Code, no feasible conceptual context is provided within the law which would allow these crimes to be perceived as but manifestations of the broader phenomena of organized crime and corruption. There are several examples of the above key deficiency in the legal definitions within the Serbian criminal legislation in this particular area. For example, some of the commonly depicted crimes within corruption, and sometimes within organized crime, are sanctioned by the following articles: Chapter Eight of the Serbian Criminal Code contains crimes committed against personal and civil liberties - crime that the modern political theoretic vocabulary would describe as transgressions of human and civil rights. These crimes, among others, include violation of civil equality on the basis of ethnic, racial, religious, political or other criteria that are not directly based on the criterion of citizenship (Article 60), coercion (Article 62), illegal incarceration (Article 63), forceful extortion of confessions (Article 65), illegal entering of premises (Article 68), illegal disclosure of personal secrets, opening of letters, etc. (Articles 72–3). While most of these crimes frequently constitute the broader phenomena of organized crime and are a result of various forms of corruption, they are nowhere defined in a manner that would distinguish their occurrences as part of organized criminal activity, or as a result of corruption, and those that occur in an “unorganized” way and are not necessarily connected with corruption. The few exceptions include the penal provisions for some of these crimes, where it is provided that if the crimes are committed with an intent to generate personal gain, or have in fact resulted in a personal gain, the sentence to be passed is to be more severe than otherwise. How- ever, the difference between particular criminal actions when they are committed in isolation from other crimes, and when hey are committed as part of an organized criminal activity or as a result or corruption is only quantitative. In the few cases where personal gain is pointed out as a criterion whereupon an additional degree of severity of the sentence is envisaged, there is no qualitative distinction. This marks the often-pointed key deficiency in the legal encapsulations of organized crime and corruption in the Serbian legislation, and accounts for the extremely limited value of the strictly legalistic arguments in trying to define and control organized crime and corruption in Serbia. However, this argument brings one to the issue of a conceptual definition of the two phenomena that will be used throughout this project. By organized crime any organized criminal activity that is conducted with a view of facilitating the achievement of the goals of a criminal organization, rather than an individual, is meant. In other words, not all criminal actions that are procedurally or operation-

35 ally “organized” fall under the definition of organized crime as a phenomenon. Even individual crimes are often elaborately organized. The existence of a criminal organization as an entity that this the proper subject of criminal activity, and with a view of whose benefit and goals the activity itself is conducted, whether by one or more individuals that belong to or are affiliated with that organization, is the key criterion for the definition of organized crime. Thus, organized crime exists where there are criminal organizations. Vice versa, where there are no such organizations, criminal activity that is conducted by individuals, however procedurally organized, does not fall under the definition of organized crime.17 Corruption, on the other hand, may or may not be a part of organized crime. It is definable in the broadest possible sense as any type of illegal activity that is conducted with a view of securing personal gain. In other words, the customary definition of corruption tends to place an emphasis on its individual character. One more readily speaks of an individual who is corrupt, rather than a whole collective that is corrupt, although there is no strict logical reason for the former ¾ there are deeply corrupt organizations and collectives. Whether or not the individual character of corruption is more pronounced that corruption in an organization to a large extent determines whether the particular case of corruption is part of organized crime or not. The important feature of this definition to remember, however, is that corruption includes any type of gain, rather than mere financial or material gain. Profes- sional gain and opportunities also enter the realm of corruption. Chapter Sixteen of the Serbian Criminal Law enumerates the criminal offences “against property”, most of which are the subject of discussion in the context of the rising rates of corruption in the region. The Law mentions, among other offences, embezzlement (Article 170), fraud (Article 171), illegal trade in the so-called “social property”, meaning in the assets that do not belong to those who conduct trade but are rather entrusted to them as managers (Article 178), abuse of trust in commercial affairs (Article 179), extortion (Article 180), blackmail (Article 181), trade for a disproportionate personal gain (Article 182), damaging another’s property rights (Article 183), etc. While these crimes, along with crimes such as accepting bribes and abuse of official position that are defined elsewhere in the Criminal Law, almost regularly constitute a large proportion of what is commonly considered corruption, they are nowhere defined and sanctioned in a way that clearly points out the context wherein they are committed as a result of corruption and a decay of the institutional and societal culture of legitimacy.18 Studies of organized crime and corruption are essentially studies of structures of societal legitimacy, perceptions of legitimacy amongst the population and policy- and lawmakers, and ways in which these structures could be improved. In this sense, the value of facts is undeniable, but facts necessarily need to be deeply in- formed by a theory of the structures of legitimacy and ways in which these structures can be reinforced and revitalized on a policy level.

17 For a more detailed criminological discussion of these conceptual and definitional issues, see Fatiæ, A., Crime and social control in “central”-eastern Europe: A guide to theory and practice, Ashgate, Aldershot, UK, 1997. 18 Serbian Criminal Law. CHAPTER V: CRIME AND SOCIAL STABILITY

Since the beginning of disintegration of the former Socialist Federative Republic of Yugoslavia, there has been a pronounced discrepancy in the relative constancy between reports of the so-called “economic criminal offences” (an inappropriate local equivalent of the concept of white-collar crime, that does not include a large part of the connotation of white-collar crime), and the charges brought against the alleged offenders. For example, according to the Federal Bureau of Statistics’ 1995 data, in the previous year, 1994, there was a total of 16,978 reported “economic offences”, and most of those reported were in fact charged (16,758). The following year, the number of reported economic offences was considerably greater (24,472), but only about half of those reported were charged (10,465). In 1996, of the 17,449 reported, 12,402 were charged, while in 1998, of the 13,664 reported, 10,507 were charged. The discrepancy between reported and prosecuted economic crimes then assumes a degree of constancy towards the end of the decade, but the initial discrepancy reflects fluctuations in criminal policy around the end of the security crises in Bosnia and Croatia (the Dayton Peace Accords were signed in 1995). While this type of interpretation of official statistics in a country ostensibly riddled with corruption is extremely risky, and may be misleading (both because reliance on official statistics, however necessary for an empirical investigation, may not even nearly reflect the extent of presence of the problem in real life, and because statistics of this type can be interpreted in light of virtually any social and political developments that coincide with the phenomena captured by the statistics, it should be pointed out that by far most of the officially recorded “economic” crimes were related to tax evasion by small enterprises. For example, of the cumulative number of criminal convictions in 1994 (4272), 1635 were the so-called “accounting offences” (meaning false book-keeping to avoid the payment of taxes, mostly by street stalls and small private shops that had to survive on the very brink of the economy). For illustration purposes, the next largest group of convictions by the type of economic crimes committed were offences in levying taxes on enterprises (in other words, the criminal execution of taxation), and this group accounted for 342 convictions, or about 20% of the “accounting offences”. The same trend is continuous (in 1995, 1542 convictions for accounting offences as opposed to the next largest group of convictions being just 294; in 1996, 1676 of the former as opposed to the next largest group of just 259; in 1997 as many as 2813 if the former as opposed to the next largest group of 685, etc.).19

2. Context and substance of organized crime and corruption in Serbia Organized crime can perhaps best be understood as an economy in itself, a more or less self-sufficient world of income-generation and consumption control. This is an economy with its own rules, its own job description systems, and it needs both direct participants and persons in charge of organizational policy. Life in criminal organizations is based on loyalty to the organization above and before any other loyalty, including, of course, loyalty to the legitimate society and state institutions. Such organizations can, therefore, be seen quite properly as “societies within societies”, or as large companies that consist of many smaller enterprises.

19 Yugoslav Bureau of Statistics Yearbooks 1995, 1996, 1997, 1998…

37 Taking this analogy to its logical conclusion, the conditions for the flourishing of organized crime and particularly corruption in Serbia after the start of the socio- political transition in southeastern Europe have become relatively favorable. They are the same as the economic and social conditions for the flourishing of any branch of economy and include:

(i) relative lack of serious competition; (ii) social and political circumstances that help to maintain commercial transac- tions within acceptable risk levels, opportunities for achieving high profits, and, most importantly, (iii) the existence of a large market. All these conditions have existed in Serbia over the last 11 years. In Serbia today, the level of confusion about norms and structures of legitimacy is the highest at least in this century. For example, one of the most predominant forms of organized crime and corruption in Serbia today is, widespread extortion, whereby companies are forced to pay for “protection” by criminal gangs. This is possible due to inade- quate police protection. Similarly, criminal and violent “debt collection” is to be expected where there is no effective legal system and, virtually speaking, no possible legal recourse to debts collection. Generally speaking, wherever there is no sense of respect for the effectiveness of the legal system, a “market of fear” is created that is catered for criminal organizations. This is the situation in Serbia today, as well as in the majority of countries of Southeastern Europe. There is no adequate statistical encapsulation of this type of crime at all. Given that the definitions of crimes in the Serbian criminal legislation do not encompass the phenomena of organized crime and corruption as types of crime in their own right, it is difficult to derive any sense of the precise numbers of the offences that can be appropriately characterized as belonging to these types. On the other hand, given the general societal decay, many forms of corrupt practices are assuming an appearance of increasing de facto legitimacy and acceptability, thus causing a divergence of the norms that apply in the region in relation to those that apply elsewhere, in the more economically prosperous European countries. Let us look at one example. At the beginning of the year 2000, the average salary in Serbia amounted to DEM 80. On the other hand, average living costs far ex- ceeded that sum. Part of the “deficit” that appears in each household is therefore covered by the “gray” economy (cigarette smuggling, illegal sale of gasoline and other more minor legal economic offences). However, despite the gray economy and the supplementary income it generates, the great majority of the population lives on the very edge of the elementary standard of living. Cultural needs have been reduced to a minimum, although theatre and cinema tickets and book prices are relatively low. People often do not have enough money to buy daily papers, and that is one of the main reasons for the powerful influence of the predominant elec- tronic media, mainly state television.20 Electricity and heating bills have increased considerably, and the consequence of ten years of economic sanctions is a ruined infrastructure. As a result of this, Serbia no longer has any really powerful or economically competitive industry.

20 See: Brunnbauer, U., “Between Internal and External Isolation: The Independent Media Policy Advocate, Belgrade, Vol. 1, No. 1, 2000, pp. 6-10. CHAPTER V: CRIME AND SOCIAL STABILITY

Taking all these circumstances into account, corruption remains the sole means of survival for those that do not have sufficient income from legitimate sources and those that encounter problems meeting their elementary human needs on a virtually daily basis. Many administrative officials that issue various permits and determine state quotas literally depend, for their families’ survival, on the bribes they receive. The same goes for other officials whose work entails some kind of decision- making at their own discretion.21 In short, the situation concerning corruption in Serbia is such that the country is slowly heading towards a situation where more or less everyone will be corrupt, in one way or another. Unofficial “prices” for various services in the public sector are a matter of public knowledge. The basic division within the scope of the general phenomenon of corruption is into “small-scale” and “large-scale” corruption, whereby small-scale corruption includes minor offences and economic infractions that are mainly provoked by individuals wishing to raise their monthly incomes by abusing their official positions. The policeman that flags down a driver for not stopping at a red light and demands money instead of instigating regular legal proceedings is becoming involved in small-sale corruption. The owner of a shop that has goods in stock that are in short supply on the market and sells those goods to people prepared to pay extra for them is doing the same thing. On the other hand, the politician that concludes an international arms deal that will profit a national arms manufacturer and is motivated by a large gift from the manufacturer, frequently reaching the realms of millions of dollars, is dealing in large-scale corruption. The so-called “medium-scale corruption”, which often includes trade in informa- tion and business secrets in large companies leaked by corrupt officials is more difficult to uncover and, as a rule, is brought to court less frequently than many forms of large-scale corruption, such as illegal arms trade or revealing state secrets. Although the absolute damage stemming from individual acts of “medium-scale” corruption is less than the damage stemming from individual acts of “large-scale” corruption, the very fact that medium-scale corruption is more difficult to uncover means that the cumulative damage from medium-scale corruption is at least as great as that from “large-scale” corruption. The sale of business secrets to competi- tors is a form of corruption. Particular mention is made of this threat to the business world in all courses dealing in business ethics attended by companies’ executive officials. With respect to “medium-scale” corruption, the question arises of how to define it quantitatively and conceptually in comparison with “small-scale” and “large-scale” corruption. There are many levels of corruption that cannot be considered as being “small-scale” because of the large sums of money involved. But, on the other hand, they cannot be considered “large-scale” as, in individual cases, they do not represent such a financial blow to the national economy or specific industrial sectors as to be necessarily considered “large-scale” corruption. For example, the municipal authorities or local governments in virtually all towns in the Balkans set internal prices for the issuing of various types of permits, particularly for the renting or sale of business premises, the sale of land that is under the jurisdiction of the local au-

21 See: Transparency International Source Book, “Executive Summary”, http://transparency.de/documents/source-book/summary.html.

39 thorities, or for the issuing of building permits or permits for performing certain activities. In the main towns of Serbia, for example, the “compensation” for issuing permits for the construction of kiosks (selling various commodities ranging from newspapers to alcoholic beverages and clothes) amounts to DEM 15,000 for the town center and between DEM 7,000 and 10,000 for the periphery. It is also known how much has to be paid to receive building permits or to buy land for the construction of business premises or commercial facilities in the town centers. In order to obtain a new telephone line, an official in the telephone company has to be given a specific amount of money to “push the matter through”, while, however, the standard response for those who apply in the customary, legal manner for a new telephone line is that “at present there are not sufficient technical possibilities for the installation of new lines.” Money also has to change hands to link newly built apartments and houses to existing heating systems and to obtain permits for the adaptation of existing facilities, etc. In hospitals, operations “cost” between DEM 1,000 (for simple cases) and DEM 10,000 (for more complicated cases). Monitoring pregnancy is relatively “cheap” (between DEM 1,000 and 2,000), and this covers the entire duration of the pregnancy.22 The mentioned forms of corruption are neither “small-scale” (as the benefit gained from them exceeds the mere “existential needs” of those who are corrupt, which is typical of officials or other persons providing services), nor are they large-scale (as they do not jeopardize the national economy or large enterprises in an existential sense, at least not directly as do individual acts of corruption). The victims of these forms of corruption are ordinary citizens, and the main reason why corruption oc- curs does not lie with those who are corrupt, but with the state, which has not succeeded in providing employees and the endangered categories of the population with an elementary standard of living or even with basic functioning social services. The state has not succeeded in providing employees either with the necessary means and working conditions or with just and commensurate salaries. 23 Corruption is, in fact, institutionalized in Serbia as a so-to-speak legitimate manner for the generation of public income. In 1998, the Ministry of Internal Affairs passed an internal ruling according to which citizens resident in Serbia were not allowed to drive motor vehicles registered in any other part of the territory of FRY, even if they possessed legal authorization issued by a court. The penalty for such a “violation” was the confiscation of the vehicle. This measure, which is contrary to the Constitution and the principle that a legally authorized document prevails over a customary police act, was directed mainly at preventing the import of foreign second-hand vehicles, as the Government of Montenegro had previously unconsti- tutionally assumed a number of prerogatives belonging to the federal state, and was not even paying incomes from taxes and customs duties on the import of vehicles

22 See: Platforma za reformu lokalne vlasti u Srbiji (Platform for the Reform of Local Gov- ernment in Serbia), Center for Management, Belgrade, 2000 (in the process of printing). 23 See Fatiæ, A., “Corruption and stability in southeastern Europe”, paper presented to the “Balkan Security: Visions of the Future” conference, held at the School of Slavonic and East European Studies, University College of London, 16–7 June 2000, forthcoming in the conference proceedings edited by Peter Siani-Davies, 2000. CHAPTER V: CRIME AND SOCIAL STABILITY into the federal budget, while it was at the same time liberalizing the import of second-hand vehicles from European countries. Police corruption is one of the greatest problems in this domain. The police obtain greater and greater powers wherever and whenever a crisis arises in internal social relations. Such crises have been ever more frequent in the countries of Southeast- ern Europe. There is a very strong police force in Serbia (some 150,000 policemen according to unofficial estimates) as compared to a relatively small population (some 8 million, not counting Kosovo). The police are acting more and more in line with internal decrees and orders, which are often contrary to constitutional rul- ings and laws, both on republican and on federal level. And the very existence of “internal decrees” in the work of such sensitive services is highly problematical from the point of view of principle. It is not necessary even to comment upon the aggressive and ever broader use of such decrees in everyday police work.24 There is another sector in Southeastern European societies in which the problem of corruption is very pressing, and that is the judiciary. The judiciary is one of the most corrupt social sectors in former Yugoslavia. Through Parliamentry procedure, judges are, virtually speaking, appointed by the ruling party or block of parties. Personnel policy in the courts and issues such as promotion, etc. are dealt with in an astounding manner, and people with meager knowledge of law often become prominent judges who do not apply the law correctly in the cases they judge. These persons are, nonetheless, allowed to continue to perform their functions. The fact is thus overlooked that the judiciary has an extremely important social role, and the independence of the judiciary is a major pillar of any democratic society. Political dictate in the implementation of law by the courts is customary in Serbia, and court inefficiency is a normal state of affairs. As a result, the threat of litigation by an ordinary citizen is more of a joke than a threat. Private litigation usually lasts five or even ten years, and the dates of court procedures are fixed months in advance. The task of the forthcoming part of the Early Warning Project in the sphere of the analysis of the presence of corruption will, therefore, include the quantification of corruption at this moment in Serbia according to sectors and types of corruption, both quantitatively and qualitatively. It will further contain an analysis of the ways society has in the past addressed and is now addressing the battle against corruption, as well as an analysis of the ways to fight against corruption that have proven themselves most effective in the specific circumstances in Serbia today.

24 On some aspects of police work, see: Fatiæ, A., Crime and social control… ibid..