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 1 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 sanc- tions 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 addi- tional 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 difficul- ties, 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 de- crease in employment is significant, it is still less than it would be if the labor mar- ket 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 repre- sented 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 house- holds 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 num- ber 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 circum- stances 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 over- whelming 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 con- sumption, sale of property, savings, inter-generation solidarity, international hu- manitarian 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 repub- lics of former Yugoslavia. Yugoslavs represent