Balkan Bottom Line

• Ekonomist (Economist),
Nos. 136–137, December 30, 2002, Belgrade

Want to buy the latest music cd for only $2? Vendors along the row of metal stalls outside Belgrade’s Student Cultural Center will sell you a pirated copy of almost any compact disk available at a U.S. record store for 120 dinars — often weeks ahead of the record’s official release date.

The permanent cd "sale" on Belgrade’s streets is only the most visible residue of the informal "gray economy" that took hold in the bad old days of Serbian dictator Slobodan Milosevic. International economic sanctions and the 1999 NATO bombing helped create this shadow market, but the damage wreaked by the systematic kleptocracy of the Milosevic regime still remains an integral part of Serbian economic life. More than two years after Milosevic’s ouster by democratic forces, Serbia’s gray economy reportedly accounts for at least 50 percent of the country’s economic output.

Flagrant piracy in a fledgling democracy allows corrupt officials to plunder and stifle economic growth. But many observers see bootleg cd vendors as potential legitimate business people. As Glas Javnosti cultural writer Predrag Dragosavac recently told me in Belgrade, "I think that it would be important to help some of those [pirates] to legalize their small businesses." Of course, reform of this sort requires the creation and enforcement of a new legal framework.

This interplay of domestic politics and economic reform was the hottest topic at a distinguished roundtable of experts (including Serbian finance minister, Bozidar Djelic) convened last December by the Belgrade weekly magazine Ekonomist. A transcript of this discussion, titled "The Fate of Reforms: Crucial Year 2003," appeared in the magazine’s year-end issue — and it contained a number of surprises.

The greatest of these surprises was that the participants glossed over why the country’s economy is in such bad straits. Rather, the discussion centered on the difficulties of establishing economic reform in a newly democratic nation. This task ranges from creating new financial-sector laws to navigating the various minefields of the country’s confused and often nationalistic politics.

On the financial-sector front, Serbia has touted its tangible success in restructuring and privatizing its banking system and increasing its hard currency reserves. Yet squabbles among the forces that united to oust Milosevic have undermined the pace of reform and public confidence in Serbian politicians. Three separate attempts to elect a new Serbian president, for example, have failed due to a lack of turnout required by law to make them valid. And the recent assassination of Prime Minister Zoran Djindjic will further threaten the reform agenda.

Internecine political warfare has put even basic constitutional reforms on ice — and hindered the passage of laws to spur privatization, reorganize the media, and battle the gray market. The impasse left roundtable participants such as Ljubomir Madzar, a noted Serbian economist and dean of Braca Karic University in Belgrade, arguing that only a new constitution would facilitate reform and prevent legislators from groping for solutions "in the dark."

Though legislation provided one pivot for discussion, much of the Ekonomist roundtable focused on the inadequate leadership of the country’s lawmakers. Participants chastised politicians for lacking a vision for economic reform and the political will to carry it out. As Balkan economist Vladimir Gligorov noted, Serbia’s politicians rely on "propagandistic rhetoric" to enhance their appeal, and thus they "exhaust the entire energy of reform."

As befits a politician, Djelic argued that much of the electorate doesn’t have the stomach for sweeping change. In his prepared remarks, the finance minister cited polls suggesting that only one-third of voters favors reform and European integration. With another third of the voters labeled as unreconstructed nationalists and conservatives, Djelic pointed to a middle slice of voters whom he dubbed "conservative but democratic."

That "middle slice" — which values hard-won democracy but remains susceptible to what Gligorov and others labeled "economic patriotism" — will have the ultimate say in the pace and effectiveness of Serbia’s reforms. Can they be won over quickly enough to halt a growing rift between Serbia and Europe? Will they give up cheap bootlegs for greater European integration? In the minds of some observers, delay could be fatal to prospects of a quick recovery for the country. As Podgorica University economics professor Veselin Vukotic observed, "I think that 2003 is not the crucial year, because the crucial year is already past."