A recipe for a smooth recovery
AFTER THE DRAMATIC FALL OF THE MILOSEVIC REGIME, THE TWO REPUBLICS THAT MAKE UP THE YUGOSLAV FEDERATION-SERBIA AND MONTENEGRO-HAVE MOVED SWIFTLY TO REINTEGRATE THEMSELVES INTO THE INTERNATIONAL COMMUNITY. THE EXTRADITION OF MILOSEVIC TO THE HAGUE WAS AN IMPORTANT FIRST STEP; THE NEXT IS TO BUILD UP THE ECONOMY THROUGH REFORMS AND FOREIGN INVESTMENT

There is no escaping the fact that in recent years Yugoslavia has made the headlines for all the wrong reasons. A devastating war, brutal ethnic conflict, international sanctions and NATO air strikes have all left deep scars on the people, the economy, the infrastructure as well as the international image of the region.
However, the collapse last year of the outcast authoritarian regime of Slobodan Milosevic gave Serbia and Montenegro (the two republics that make up the Federal Republic of Yugoslavia) a chance to redirect their future and usher in a new and more hopeful era in the history of the region. Major changes have come since the Milosevic regime imploded in October 2000, although it has already become clear that the path to reform and reconstruction will not be entirely smooth.

SERBIA hopes economic reforms will bear fruit.	MONTENEGRO is promoting its potential as a tourist destination.

One of the first aims of the new federal government led by President Vojislav Kostunica was to reintegrate into the international community. But it was only after Serbian authorities decided to extradite Milosevic to The Hague in June to face charges of crimes against humanity that the process truly began. In the same month, the country was awarded a $1.28 billion aid package by the European Commission and World Bank’s Donors Conference for Yugoslavia in Brussels.
Question marks still remain over the future of the federation that binds Serbia and Montenegro. Disagreements between Serbia and the federal government came to a head over the extradition of Milosevic and it is still not clear whether Montenegro will decide to remain within the framework of the federation.
An independence referendum, scheduled to take place in Montenegro in early 2002, is likely to result in a close vote but it should at least help to clarify the nature of the future relationship between two republics that have traditionally been closely linked.

Deputy Federal Prime Minister Miroljub Labus believes that the sooner the political problems are resolved, the brighter the economic prospects will be for the whole region. The authorities will then be free to turn their attention to the business of reconstructing and redeveloping an economy ravaged by years of conflict, mismanagement and neglect.
The minister’s other prerequisite for economic advancement is the removal of the crippling foreign debt burden, totalling some $12 billion. “If we can remove the obstacles related to foreign debt and political instability, then we will be well placed to attract foreign investment,” says Mr. Labus. In November, the government successfully negotiated a write-off of two-thirds of its debt ($3 billion) with the Paris Club. The country is also negotiating a write-off with the private creditors of the London Club.

At the same time, Mr. Labus and his government are taking significant steps to push through reforms to restructure the banking sector and to accelerate its privatization program in order to provide additional incentives to attract foreign capital. “These reforms will provide the framework for recovery and future development,” says Mr. Labus, who is considered as the architect of the whole reform program.
In a recent report, the IMF praised the Yugoslav authorities for pursuing prudent macroeconomic policies that have helped reduce inflationary pressures, strengthen foreign-exchange reserves and support a recovery of output. Growth forecasts for 2001 range between 4-5%, while year-end inflation is expected to fall from 45% in 2001 to 10% by 2003. The government is aware that it will have to endure a difficult period before the benefits of economic reforms are felt by the people, but the Governor of the National Bank of Yugoslavia Mladjen Dinkic believes that they have gotten the recipe right. “The government is doing all it can to ensure the right legal and macro-economic environment for investment, and we are doing everything possible on the micro-economic level.”
Mr. Dinkic is also keen to highlight the potential access to the whole regional market provided by an investment in Serbia and Montenegro. “An investment here has great potential because it is not just an investment in Yugoslavia, but in the whole of Southeastern Europe, which is still very much an underdeveloped market.”