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Global Research,
October 28, 2009
Devastating "Free Market" Reforms Imposed on Serbia
by Gregory Elich
http://globalresearch.ca/index.php?context=va&aid=15849
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Gregory Elich, Global Research, 2009
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A dozen years ago, neoliberal political forces took power in Serbia,
promising a radical transformation of the economy. Today, deep into
that transformation, Serbia is foundering from its effects exacerbated
by the worldwide economic downturn. Industrial production has fallen 15
percent compared to the average of last year, (1) while unemployment
remains high.
A delegation from the IMF is in Belgrade, negotiating over Serbia's
2010 national budget and how best to deal with the economic crisis. The
two sides are not far apart, in that both parties envision more of the
usual neoliberal prescriptions as the way out of an economic crisis
brought about in large part by those very same measures.
The probable outcome of the talks is the further enthrallment of Serbia
to Western dictate. Already the economy has been essentially placed at
the service of U.S. and Western European corporate interests, and the
centerpiece of that transformation is the privatization drive. The
economy of Serbia was at one time predominantly based on two forms of
public enterprises: socially-owned firms that were worker managed, and
larger state-owned companies. The last remaining firms in the former
category are scheduled to be completely eliminated by the end of this
year, while the latter category will take longer to tackle.
The outcome for those who work at enterprises that undergo
privatization has been all too predictable. Companies privatized in
accordance with the 2001 privatization law have shown a decrease of 45
percent in employment over the first two years of private ownership.
Those companies that are privatized based on the 2003 law dropped just
15 percent by the end of the first year, but this apparent difference
was only because of the extensive downsizing that these firms must
undergo prior to sale, in order to make them more attractive to
investors. The textile industry has been particularly hard hit, with
steep job losses and falling performance. As the Privatization Agency
reveals, "the performance of privatized companies is worse than the
performance of the sector as a whole," an interesting admission. (2)
Inevitably, it is working people who bear the brunt of privatization.
Unemployment in Serbia steadily grew since 2000, when neoliberal
political forces came to power, quickly reaching 32 percent within four
years. (3) After that there was a modest economic recovery, due in part
to the short-term influx of cash from the sale of enterprises through
privatization. Unemployment dropped to 16 percent by April 2009, but
this apparent improvement is illusory, having to do mainly with the
recent adoption of the current American model for calculating
unemployment. Under this method, workers who are not regularly and
actively seeking jobs are counted as "discouraged," and "out of the job
market," and therefore not belonging to the ranks of the unemployed. If
one adds back in the number of workers who are classified as "inactive"
but who profess both the ability and the desire to work, then the
unemployment rate increases to 25 percent. In real terms, then, there
has been no meaningful improvement in the unemployment rate. (4) To put
this in perspective, at its peak in 1933, unemployment during the Great
Depression in the U.S. reached 25 percent, a figure that was then not
calculated to exclude a significant portion of workers. Today Serbian
workers are enduring their own Great Depression, but one that has been
imposed through adoption of the neoliberal economic model. For those
who lose their livelihoods, there is little hope. Nearly two thirds of
the non-discouraged unemployed have been without work for a year or
longer, sometimes much longer. (5) They are society's discards.
"Pay is often barely enough for basic needs including food and bills,"
points out Dejan Bizinger on his blog. "There is absolutely no way for
them to get a mortgage from a bank to buy a car, let alone affording a
flat." At an unemployment center, a woman remarks, "Of course I could
not get employment." Seeing little hope, she was applying for a reduced
early pension. "I am a 50-year -old engineer holding a university
degree and the only place I can find a job is at a fast-food
restaurant. Think how humiliated I would feel after 30 years of work at
the office to start flipping burgers at some local shop." A British
resident of Belgrade relates that the "Serbian people are crying out to
be able to get mortgages and loans that will allow them to move out of
their parents’ houses before they turn 40, and by that same token they
are crying out for the kind of financial responsibility that will see
them become voluntary slaves to their companies; living in fear of
losing their jobs." (6) The free market has come to Serbia, with all
that it entails.
But things are not universally dire. For those who are well-positioned,
there is money to be made, and it is that class that the Serbian
government is keen to serve. In particular, it is Western corporate
interests that are being wooed. As the Serbian Chamber of Commerce
reports, "the key objective" of the privatization process "is to
attract foreign investment." (7)
To further that objective, the Law on Foreign Investments offers a
broad host of incentives. The corporate tax rate is quite low, just 10
percent. But companies are totally exempt from any taxes whatsoever for
a period of ten years from the first year in which they make a profit,
as long as they invest a minimum of $11 million and employ at least 100
people. This is an easy hurdle to clear for any investor purchasing a
medium-to-large sized firm. Yet even companies unable to meet those
conditions are offered a variety of other tax incentives, so that in
real terms the corporate tax rate tends to be well below 10 percent.
The Law on Foreign Investments also offers guarantees against
nationalization, removes restrictions on foreign investment and
provides custom duty waivers. (8) In addition, a company that hires a
new employee is permitted to take a tax reduction of 100 percent of
that person's salary for a period of two years.
To meet the demands of Western corporate investors, Serbia has also
launched a program entitled the "guillotine of regulations," which aims
to quickly eliminate one third of Serbia's regulations governing
business operations. (9) It is probable that many of the regulations
that will be axed serve some protective function for the populace. At
the inception of the "guillotine" project, the Ministry of Economy
invited foreign investors to offer their recommendations on what they
wanted to see it accomplish. (10) No clearer signal could have been
given as to the project's objectives.
U.S. corporate circles are not shy about ensuring that their needs get
met. Their presence is woven throughout the Serbian economic and
political system, running much deeper than such visible manifestations
as the spread of Western companies and chain stores and the blight of
billboards.
Representing the views of the U.S. corporate world, the U.S. Agency for
International Development (USAID) has implemented a number of programs
in Serbia designed to promote those interests. Among other things,
USAID says, its efforts are intended to "help deepen structural
reforms." One of its programs that is designed to advance that
objective is the Bankruptcy and Enforcement Strengthening (BES), which
helps the Serbian Privatization Agency Bankruptcy Unit "privatize state
and socially-owned enterprises through bankruptcy, reorganization
and/or liquidation in a more efficient and effective manner." (11) Not
to mention making those enterprises cheaper to purchase for the Western
investor. The BES program is managed by a private contractor, Booz
Allen and Hamilton, which reports that it is also "attracting global IT
companies to outsource in Serbia." (12)
One of the pillars of USAID's efforts is the Serbia Economic Growth
Activity (SEGA), in which the agency "advises" the government of Serbia
"on the formulation and implementation of laws, policies and procedures
relating to financial, fiscal and macroeconomic development." (13) It
is SEGA that played a major role in the establishment in Serbia of the
Value Added Tax, the most regressive form of taxation there is. (14)
The Value Added Tax currently stands at a whopping 18 percent, but the
IMF is pushing for it to be raised still higher. Among SEGA's "key
results" achieved so far has been its involvement in the introduction
of private pension funds, which are envisioned as an eventual
replacement for Serbia's public pension program. (15) The organization
is currently actively "facilitating the next stages of pension reform."
Having helped establish voluntary private pension funds, SEGA is
currently "analyzing the feasibility of introducing mandatory private
pension funds." (16) The outcome of that analysis is entirely
predictable: the abolishment of the public pension fund and the
abandonment of retirees to the tender mercies of the market.
Another component of the agency's efforts in Serbia is the Municipal
Economic Growth Activity (MEGA), which sees its role as "facilitating
private sector growth" through a variety of means, including advocating
policies and supporting legislative action. (17) That "support" goes so
far as to include direct participation in the drafting of Serbian
legislation.(18)
MEGA's most important accomplishment has been the establishment of the
National Alliance for Local Economic Development (NALED), "through
which leaders from both business and local governments gather together
around issues of common interest." (19) Interests, it probably goes
without saying, that are inimical to those of the working population.
NALED has initiated what it terms the Business Friendly Certification,
which is awarded to those local governments which prove themselves
sufficiently subservient to USAID's demands.
NALED organizes "business encounters" once a month to promote "open
dialogue between businesses and government," thereby furthering the
influence of the business world on government policy. (20)
In July, 2009, NALED signed a memorandum of understanding certifying
Belgrade as a "business friendly environment." In line with that
agreement, USAID's MEGA program will train all of the employees in the
city and municipal governments "on how to provide relevant information
on development opportunities to prospective investors." MEGA will also
work with the city on drafting an action plan and defining priorities
and projects. It is MEGA that will play the primary role in those
endeavors. Belgrade is to be oriented firmly towards the business
investor. (21)
Igor Pavlichich, mayor of Novi Sad, Serbia's second largest city,
observes, "Since we joined USAID's Municipal Economic Growth Activity
program, many expert analyses have been developed on how to rationalize
the city's budget expenditures. Program experts have advised us on how
to use the budget funds for the capital investments in infrastructure.
From now on, public utilities will have to take care of their budgets
and to move on to a more market oriented approach."(22) Such statements
make one wonder: who is running the affairs of this city, the mayor or
USAID? Looking to the future, the city has also developed a strategy of
economic development, with the heavy involvement of USAID.(23)
In Nish, the city assembly passed a decision to offer land for
industrial construction. Employees of MEGA actually wrote the draft
legislation, which the city dutifully passed with the backing of the
mayor, who reported that the city would be "offering a number of
incentives to new investors." (24) The project is being run by MEGA,
and the project leader is an employee of that organization. "The city
leadership showed great flexibility in negotiations with potential
investors," comments the project leader. (25)
Earlier this year, representatives from the towns of Loznica, Zrenjanin
and Kragujevac set up presentations at the Hanover Industry and
Technology Fair. "Our appearance at this fair was actually a prize won
at the Invest in Serbia competition," pointed out a member of the
Loznica group. "All costs of the travel were covered by USAID through
its MEGA program." The group's display was also supported by USAID
consultants who gave the town's delegation "directions on how to
promote themselves," which smacks of treating the town's municipal
employees as children in need of guidance. But they learned their
lessons well. As one member of the delegation remarked, "Our
competitors are India, China and Pakistan, for the cheap labor and
wider market potentials." (26)
Since USAID's goals run directly counter to those of any rational
working person, propaganda is an essential component of its efforts.
The agency can help there too, providing "funding and technical
assistance to NGOs across Serbia so that they can mobilize citizens to
understand and support necessary reforms." (27) These reforms are
considered "necessary," but for whom? Only for the class that stands to
gain from them.
Another organization actively involved in the affairs of state in
Serbia is the American Chamber of Commerce, as it seeks to promote U.S.
business interests. Its "support" of the reform process goes so far as
to actually help write Serbian legislation and to have legislation
submitted to it for its approval. In a recent example, representatives
of the American Chamber of Commerce met with Natasha Kovachevich,
Assistant Minister of the Fiscal System Department in the Ministry of
Finance. The meeting took place in response to a list of
recommendations for so-called "improvements" to the Corporate Tax Law
that the American Chamber of Commerce had submitted to the agency.
Kovachevich informed the visiting committee that "most of the AmCham
recommendations would be incorporated in the New Draft Law," planned to
be adopted in tandem with the 2010 budget. Kovachevich then "invited
AmCham representatives to a follow-up meeting as soon as the new Draft
Law is completed, but before it is sent to Government," so that the
American Chamber of Commerce "can talk over any further amendments."
(28)
The Foreign Investors Council (FIC) represents the interests of Western
corporations in Serbia. Its purpose "is to assist Serbia in fully
accepting and nurturing market economy and introducing a system of
European values and standards." In order to "improve the investment and
business development climate in Serbia," the Foreign Investors Council
makes "concrete reform proposals." (29) In other words, it meddles in
the Serbian regulatory and legislative process just as the American
Chamber of Commerce does.
Each year the Foreign Investors Council produces a White Book, which
includes "proposals for improvement of the business environment in
Serbia." The aim of the White Book is to "point out the desired changes
so as to improve conditions for doing business, and to provide concrete
suggestions [to the Serbian government] on how to improve them." As the
FIC notes, the organization "has always worked in close partnership
with the relevant government authorities."
None of the FIC's "helpful" suggestions are surprising. It calls for
more privatization and more "market competition," that is, additional
advantages for Western investors. The FIC suggests that "additional
decreases in labor expenses are necessary." Apparently, Serbia's
already low salaries are considered still too high to suit all
investors. There should be "further reductions of the income tax rate
and the income amount exempt from taxation, or by a reduction in social
security contributions." At over 70 pages, the recommendations are far
too numerous to enumerate here, but suffice to say that no stone is
left unturned in this wish list. (30)
Not to be left out, the World Bank has its own set of prescriptions it
is furnishing to the Serbian government in addressing its fiscal
crisis. The Ministry of Finance asked the World Bank to provide advice
on constraining expenses, a request the bank was all too happy to
comply with, stating that the Serbian "public sector is already
oversized."
The World Bank, while acknowledging the cuts that Serbia has already
made in public services, feels that more can be done. Current pension
benefits are frozen for a period of two years, an action that the bank
deems "highly desirable," yet the government of Serbia "should also
consider other methods for reducing benefits on a permanent basis."
Pension benefits are "too high," the bank complains, explaining that
"the pension due to a new retiree in Serbia is equal to nearly 60
percent of the net average wage." Something has to be done about such a
state of affairs. After all, a person might survive on such a sum. The
solution? "Freeze pensions, then index to inflation." But one has to be
careful not to overdo it, lest it cause a popular backlash. "Over the
longer term, however, indexation based solely on inflation will reduce
pension levels to socially unacceptable levels. Employees would be
asked to contribute 22 percent of wage over a lifetime of employment to
support a pension equal to 9 percent." What to do, then? Serbia should
move to a mixed inflation and wage based system in which benefits would
drop substantially but not catastrophically. Another desirable reform
would be to reduce pension benefits for early retirees "even if they
meet the years of contribution criteria." Raising the retirement age
for women would be another improvement, from the bank's standpoint. The
goal of pension reform, the World Bank states, is to turn the pension
system "into a surplus-generating system which pays very low benefits."
What is the point of such a pension system? Simply, to vanish. And in
its place? "The Government will also need to further develop the
private pension sector." (31)
The health system is another arena ripe for reform. The World Bank
suggests that "efforts to right-size [translation: down-size]
facilities and staffing at hospitals and [community health centers]
should continue."The number of beds at facilities can be reduced. The
Health Insurance Fund "now has a considerable number of occupational
therapists on its payroll." This sector should be "assumed by the
private sector." Community health centers "could reduce staffing levels
without reducing the number of consultations they provide." That is,
existing staff should be made to work harder and longer hours and
reduce the amount of time spent with each patient. (32)
Education, the World Bank suggests, would benefit from the
"rationalization of the school network, particularly at the primary
level." The problem, according to the bank, is that "Serbia has too
many teachers... As a result, many classes are inefficiently small."
The average class size in primary school is 19 students, and in
secondary school it is 26. The recommendation for rationalization of
the educational system would result in the widespread closing of
schools, bussing over long distances of students who reside in sparsely
populated areas, and a "considerable reduction in staff." Those
teachers who survive mass layoffs would be made to face the prospect of
a lowered standard of living. "In principle," the World Bank helpfully
suggests, "wage restraint could be a source of future savings," and
there is "no evidence" contrary to the proposal that wages could be
lowered without generating recruitment and retention problems." With a
newly formed large pool of laid off educational staff, there would be
an inevitable reluctance among employees who might otherwise clamor
over the reduction in their wages. Current regulations in Serbia set
the maximum class size at 30. The World Bank proposes changing the
regulations so that this number would instead become the minimum class
size. To counter claims that smaller class sizes are more conducive to
learning, the World Bank points out that Serbian students score lower
on achievement tests than their counterparts in some of the other
nations of the region. The implication is that packing more students
into a classroom will not matter, yet it is difficult to imagine room
for improvement under such a scenario. Regardless, that program is
underway. The Ministry of Education has already initiated a three-year
plan to carry out some of these measures, including the closing of
schools and mass layoffs. (33)
To appeal to the IMF and in order to meet loan conditions, Serbia sent
a letter of intent to that organization in April 2009, in which a
number of promises were made. Serbia committed to freezing pension and
public employee salaries for a period of two years and cutting
discretionary budgets in all ministries by 26 percent. More importantly
from the IMF's standpoint, Serbia indicated that state ownership in
banks "will be phased out as soon as market conditions permit," and
that it would "continue to restructure state-owned enterprises,
increase private sector participation, and improve the investment
climate." (34)
The IMF Mission that visited Belgrade in September 2009 noted with
approval that the government of Serbia, "in consultation with the World
Bank, will proceed with health, education and non-pension social
benefit reforms." But the IMF wanted to see a speed up in reforms. "It
is now time to shift from immediate crisis-fighting mode to putting in
place more medium-term oriented policies," including yet more
privatization. (35) As an earlier IMF Mission to Belgrade reported, "We
welcome the renewed efforts to accelerate privatization or bankruptcy
of socially owned enterprises," but "we urge completion of the process
as soon as possible." Many of the previously privatized firms have been
sold for peanuts, closed down and then stripped of their assets,
leaving the former workers without any livelihood. More of this would
be a desirable thing, as the IMF suggests the nuclear option: privatize
as fast as possible, and where a firm cannot be sold in a timely
manner, close it down and sell off its assets. "The bankruptcy process
should be strengthened, and government and public authorities should
initiate bankruptcies without delay. Unviable companies that cannot be
sold rapidly should be liquidated to free up productive assets." (36)
This is a recipe for sparking a huge leap in unemployment and mass
immiseration.
For the IMF, the economic crisis is seen as fortuitous. "The current
difficulties present an opportunity to tackle long-delayed structural
reforms. While the global financial crisis may not be particularly
conducive to pushing ahead with the still extensive privatization
agenda, this should not deter the authorities from bold structural
reforms. With vested interests likely off balance, this may indeed be
an opportune time to tackle long-standing - politically difficult -
issues." (37)
That the Serbian government not only listens to such proposals, but
enacts them is an embarrassment. The government of Serbia flaunts its
disregard for its own citizens. The bourgeois parties in power
represent only the narrow interests of their own class and the system's
Western beneficiaries.
With mounting radicalization, workers are increasingly responding to
the abuses of the system with strikes and protests. Despite strong
motivation among the workers, these actions tend to lack much in the
way of success, given spotty support from the unions. Indeed, the
unions recently signed an agreement with the government on mass layoffs
of government employees. (38)
Unfortunately no measure is likely to dislodge the grasp of Western
power in Serbia in the foreseeable future. The powers arrayed against
workers are at the present time too powerful, and Serbia occupies too
important a geographical position in the Balkans, one that Western
corporations are not likely to readily relinquish. Centrally located,
and along the Danube, the country has the region's major road, rail and
river navigation routes. The nation's location is crucial for
integrating the entire Balkans under the neoliberal model and the
shipment of goods from this low-wage region to the West. It is also an
important trading linkage between Europe and the Middle East. The
Corridor X project is planned to expand Serbia's transportation
capabilities, which as the World Bank reports, " will enable Serbia to
capitalize on its geographical position as a key transit country in the
Pan-European network." (39) It will be a long and daunting task for the
Serbian working class to reverse its losses.
Gregory Elich is on the Board of
Directors of the Jasenovac Research Institute and on the Advisory Board
of the Korea Truth Commission. He is the author of the book Strange Liberators:
Militarism, Mayhem, and the Pursuit of Profit.
Notes
(1) "Industrial Production in August 2009," Statistical Office of the
Republic of Serbia, September 30, 2009.
(2) "Impact Assessment of Privatisation in Serbia," Privatization
Agency, Republic of Serbia, October 27, 2005.
(3) "Unemployment in Serbia and Montenegro," www.worldwide-tax.com.
(4) "Labor Force Survey," Statistical Office, Republic of Serbia, April
2009.
(5) "Labor Force Survey," Statistical Office, Republic of Serbia, April
2009.
(6) Ljubisa Bojic, "Serbia: Unemployment and Low Salaries," Global
Voices, August 30, 2009.
(7) "Business in Serbia: Privatization," Serbian Chamber of Commerce,
October 11, 2009.
(8) "Serbia Investment Climate," U.S. Commercial Service Serbia.
(9) "2009 Investment Climate Statement - Serbia," U.S. Bureau of
Economic, Energy and Business Affairs, February 2009.
(10) "Willing to Help," Foreign Investors Council.
"AmCham Business Advocacy Activities," AmCham in Serbia.
(11) "Building a Strong Investment Climate," USAID Serbia.
(12) "Emerging Economies," Booz Allen and Hamilton.
(13) "Building a Strong Investment Climate," USAID Serbia.
(14) "Serbia Economic Growth Activity (SEGA)," US AID Serbia.
(15) "Serbia Economic Growth Activity (SEGA)," US AID Serbia.
(16) "Serbia Economic Growth Activity: About Us," USAID Serbia.
(17) "Municipal Economic Growth Activity (MEGA)," USAID Serbia.
(18) "Municipal Economic Growth Activity: Program Components," US AID
Serbia.
(19) "Municipal Economic Growth Activity (MEGA)," USAID Serbia.
(20) "NALED Portfolio," NALED.
(21) "Belgrade Signs MoU with USAID and NALED," Radio Television
Serbia, Belgrade, July 8, 2009.
"Creation of the Investor Friendly Climate," Danas, Belgrade, July 9,
2009.
(22) "Interview with the Mayor of Novi Sad Igor Pavlicic," Radio
Television Vojvodina 1, June 2, 2009.
(23) "Novi Sad Develops Strategic Plan," Vecernje Novosti, Belgrade,
June 16, 2009.
(24) "Nis Offers 10 Hectares of Land for Industrial Construction," NTV,
Nis, April 28, 2009.
(25) "Modernization of the Urban Land Management," Narodne Novine, Nis,
February 25, 2009.
(26) "Hanover Fair: Let the World Know That We Exist," LoznickeNovine,
Loznica, May 2009.
(27) "Strengthening Democracy and Governance," USAID Serbia.
(28) "Meeting at the Ministry of Finance," AmCham Serbia, Belgrade,
September 3, 2009.
(29) "About Us," Foreign Investors Council in Serbia.
(30) "White Book 2008," Foreign Investors Council, Belgrade, 2008.
(31) "Serbia: Doing More with Less," The World Bank, June 16, 2009.
(32) "Serbia: Doing More with Less," The World Bank, June 16, 2009.
(33) "Serbia: Doing More with Less," The World Bank, June 16, 2009.
(34) "Letter of Intent, Memorandum of Economic and Financial Policies,
and Technical Memorandum of Understanding," Republic of Serbia, April
30, 2009.
(35) "Republic of Serbia : Stand-by Arrangement - Second Review
Mission, Aide Memoire," IMF, September 1, 2009.
(36) "Serbia - 2007 Article IV Consultation Concluding Statement of the
Mission," IMF, November 6, 2007.
(37) "Republic of Serbia: First Review Under the Stand-by Arrangement
and Requests for Augmentation, Extension of the Arrangement, Rephasing
of Purchases, Waiver of Applicability of End-March Performance
Criterion and Modification of End-June Performance Criteria, and
Financing Assurance Review," IMF, April 30, 2009.
(38) "Govt., Unions in Job Cuts Compromise," B92, Belgrade, October 9,
2009.
(39) "Serbia: Doing More with Less," The World Bank, June 16, 2009.
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