Milosevic (36 page)

By 1992 any boots, let alone snakeskin ones, were out of reach of most Serbs. In June inflation topped 100 per cent per month. But Milosevic ensured that he and his family were living in comfort. The previous year, he had signed a contract of purchase for number 33 Tolstoyeva Street, a three-storey house that was more than three and a half times the size of the family's previous home: the modest flat on 14 December Street in downtown Belgrade.

In fact the Milosevic family had already lived in the house for three years or so, since the defeat of Ivan Stambolic at the 1987 Eighth Session. That had been a turning point, not just for Serbian politics, but also for Milosevic's status and prestige. 33 Tolstoyeva Street had been renovated, redecorated, and kitted out with the latest security equipment. The villa was located in the smartest part of Belgrade, a plush and exclusive suburb known as Dedinje, surrounded by woods and parkland. Tito had lived in Dedinje, as did the nationalist writer Dobrica Cosic, and Arkan, the paramilitary leader. The outbreak of the Croatian war spurred Milosevic to formalise his ownership. The price was 7.3 million dinars (£197,000), and a monthly repayment of 15,977 dinars (£430).
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Milosevic understood money. He could have used his knowledge of capitalism to introduce free market reforms and privatisation. Instead he ran the Serbian economy the same way he ran the Serbian state, setting up a network of trusted loyalists who either took over, or sidestepped, the established financial institutions. At the apex sat Borka Vucic, the Beogradska Banka official who, back in the 1970s, had accompanied Milosevic to IMF meetings in Washington, D.C., and insisted on pressing his trousers. Vucic was ferociously loyal to Milosevic. Apart from Mira, she was the only woman admitted to his inner circle.

Vucic was based in Cyprus as head of Beogradska Banka's offshore subsidiary, before returning to Belgrade in 1998. In Cyprus she ran a multi-million dollar international financial network stretching from Serbia to Switzerland, Lebanon, Russia and Greece. Suitcases full of money were flown in and out of Cyprus to fund a complex sanctions-busting operation to pay for the wars, and enrich the business-political elite around Milosevic. According to one diplomatic source: ‘Borka Vucic was Milosevic's chief financial officer throughout the whole of the Milosevic era. She played a critical role. She was the principal person
making payments to Cyprus, running all the financial aspects. She was head and shoulders above everyone else.'
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Cyprus was chosen because it was near to Serbia and offered offshore banking secrecy. At the same time, Orthodox Greece was one of Serbia's few allies in Europe, a sympathy shared by Greek Cypriots. At one stage there were 7,500 offshore Yugoslav companies registered there. ‘All the banks did the same to survive,' said Vucic. ‘A lot of people were taking money into Cyprus. There were other people on airplanes carrying the money, but not with me. If someone was taking money without the permission of the bank or the companies, it's not my responsibility.'
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Borka Vucic also defended her role as a patriotic duty: ‘We had no other resources. We urgently needed medicine, hospital equipment.'
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While Vucic was setting up in Cyprus, Milosevic was cooking the books. National monetary policy was under the control of the Yugoslav National Bank, but each republic also had its own bank. Serbia was fortunate enough to control the Voivodina Bank as well. In December 1990 these two institutions suddenly conjured up the equivalent of 18.3 billion dinars (
£
1 billion). These ‘grey dinars' were either issued as new banknotes, or simply distributed as credits to favoured companies and institutions. The following month, the books were balanced, sort of. Suddenly injecting an extra 18.3 billion dinars into the economy obviously devalues the dinar, so the official DM exchange rate was altered from 1:7 to 1:9.

The next step was simply stealing funds from Serbian citizens. Because so many Serbs had worked abroad as guestworkers in Germany, Austria and other western countries, substantial amounts of hard currency had entered Serbia. The Serbian state froze foreign currency accounts worth almost 7.5 billion DMs. The money was returned later, but only as dinars.

After that the regime targeted the actual hard currency that people had hidden at home. Two methods were used: state-induced hyperinflation, and state-sponsored pyramid banking schemes. Hyperinflation was triggered simply by printing more and more money. The dinar was soon barely worth the paper on which it was printed. In 1993 a banknote was introduced with a face value of 50,000,000,000 dinars. By January 1994 Serbian inflation was running at a monthly rate of over 310 million per cent, which meant 62 per cent a day, or 2 per cent an hour. On 10 November 1993, a kilogram of potatoes cost 4,000 dinars. By 17 January 1994 it cost 8,000,000,000,000,000 dinars.
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Yet while the dinar banknotes were virtually worthless, state-owned shops that provided staples such as bread and cooking oil – and petrol – would not take hard currency. This meant that in order to live, citizens were forced to sell their dollars and Deutschmarks to the state, in exchange for devalued dinars. The shady characters on every street corners whispering the word ‘
devize, devize
' (foreign currency) at passers-by were part of a ‘grey market' run by the state itself, and were state employees.

Milosevic's Serbia deliberately impoverished its own citizens, said Aleksandar Radovic, president of the Investigating Commission of Economic and Financial Abuses of the Milosevic Regime (ICEFA), which is now attempting to track the missing money, estimated to total $30 billion. ‘One cannot behave like a naïve French maid, but anyone would be shocked at this. The first aim of these policies was the extreme impoverishment of Serbia. When you have poor people struggling to survive, you can buy them for nothing. They need to make a deal with the regime.'
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Initially at least, the imposition of sanctions, intended to weaken Milosevic, to some extent rebounded. Even liberal Yugoslavs were angered at the isolation in which they found themselves. Academics could not get their papers published abroad. Foreign books could no longer be imported. Medicine and medical equipment became scarce. Milosevic himself said that sanctions were the price the country had to pay for supporting the Serbs outside Serbia. Serbs adopted a Balkan version of the ‘Blitz spirit' of wartime Londoners. They dug for victory, and grew their own food. Radovic said: ‘Milosevic did not want anyone else to corrupt Serbia, so if one man was happy to have sanctions it was him. People think Milosevic was a mediocrity, but in this he was an absolute master, to achieve such things on such a level is unprecedented.'

Sanctions also significantly accelerated the impoverishment and criminalisation of Serbian society. A parallel economy sprang up, rooted in pre-existing Communist era smuggling and black market networks. Previously upstanding citizens found themselves engaged in dubious deals with criminals and smugglers. Obscure border villages suddenly turned into boom towns, made rich on the proceeds of contraband. Hyperinflation also brought strange benefits as the dinar became worthless. Gas, electricity and even telephone calls became free, in effect. State utilities could not keep up with hyperinflation. Nor could banks.
Milosevic's mortgage was now just the equivalent of a handful of Deutschmarks.

The collapse of the economy could be measured with figures and statistics. The wider impact of this was harder to quantify, but no less significant. Economies can be rebuilt, but the regime's destruction of the foundations of everyday life in modern European society – the value of money, of honest work, ethical behaviour, even common courtesy – had a profoundly corrosive effect on Serbian society, from which it has yet to recover.

The next stage was setting up pyramid schemes. These date back centuries. They are a financial juggling act, paying very high interest rates that are funded by new deposits. But the scheme only works as long as gullible new investors are willing to pay in their money to keep the scheme going. When that stops the scheme collapses. Pyramid schemes are symptomatic of a primitive capitalist economy: they also operated in Russia, Romania and Albania.

Hijacking a whole country's economy demanded substantial organisation. But not everyone was willing to take part in the state-sponsored plundering. As one of Yugoslavia's best-regarded bankers, Aca Singer, who had worked at Ljubljanska Banka in the 1970s, was asked to lend his expertise. He refused. ‘They asked me to help them obtain money, first from the people. Milosevic knew there was a lot of money in people's houses, especially those who had families abroad. There was a lot of confusion and corruption at that time. But I refused to cooperate. Thank God I was not involved.'
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Milosevic and Vucic's front-man for the pyramid schemes was a former television importer called Jezdimir Vasiljevic, who was also known as Gazda Jezda, or Jezda the Boss. Although Vasiljevic had no experience in banking, he was given permission to set up a credit and savings co-operative, which opened in Milosevic's home town of Pozarevac in 1990. This evolved into the Jugoskandik bank, which then offered interest rates up to 10 per cent on short-term foreign currency deposits. With the open support of the state-controlled media, the scam initially worked very well. Large amounts were invested into Jugoskandik, from where funds were transferred to the National Bank, and the state granted Jezda a concession to import cigarettes and petrol. This was priceless. During the Milosevic regime, especially under sanctions, petrol and cigarette smuggling developed into complex industries worth hundreds of millions of dollars a year.

Much of the cigarette-smuggling business ran through the southern republic of Montenegro. It was there that Gazda Jezda organised one of the more bizarre events of the Yugoslav wars: a sanctions-busting chess match in autumn 1992 between the eccentric American player Bobby Fischer and the Russian Boris Spassky in the extremely luxurious seaside resort of Sveti Stefan, which gave the Milosevic regime a much-needed domestic PR boost. The Boss also financed the Serbian Socialist Party, helping pay for its election campaign in 1992.

In March 1993 Jugoskandik followed the inevitable path of every pyramid scheme and collapsed. Gazda Jezda fled abroad, first to Israel and then on to Ecuador. Over DM 100 million simply disappeared, the life savings of many gullible Serbs. There was little public reaction, mainly just a weary resignation.
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Milosevic's perverse monetary policies played on the naïveté of many Serbs. Over four decades of Communism – of life in a society where work, home, holidays and a decent income were provided by the state – had produced a certain passivity. If the state media said your money was safe in Jugoskandik, then surely it would be. Socialist Serbia was run by the same people as under Communism. Corruption was anyway institutionalised. Poverty-stricken Serbs found little support for their plight among officials of the ruling Socialist party, as they struggled to survive collapsing pyramid schemes and hyperinflation. Borisav Jovic declared in September 1993 that ‘the cause of poverty in Serbia is the great quantity of money which citizens have at their disposal.'
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Soon after the launch of Jugoskandik a more ambitious version, known as the Dafiment Bank, was set up. It says a lot about the Milosevic regime that the woman selected to run Dafiment, Dafina Milanovic, had been imprisoned for financial malpractice. Like Gazda the Boss, Milanovic was trumpeted by the state-owned media as the answer to the financial problems of both Serbs and Serbia. She appeared on television waving fistfuls of Deutschmarks, and when Jugoskandik went bust she took television cameras into the vaults of her bank to prove it was still solvent. There also seem to have been links between Dafiment and the Serbian secret services. Mihalj Kertes, the key Milosevic loyalist and Serbian intelligence agent, started his career working with Milanovic's husband and knew the family well. ‘He called Dafina “little sister” and she called him “little brother”,' states the ICEFA report.

Milosevic used Dafiment as a kind of ad hoc treasure chest to boost state funds when they ran low. He tapped the bank for a ‘loan' of
DM40 million to carry out repair work on the railway network. Not surprisingly, the French businessmen of whom Milosevic had spoken at dinner with the US ambassador Warren Zimmerman had not come through with their plans for a high-speed rail link through Serbia. Milanovic's connection to Milosevic did not prevent Dafiment from also going spectacularly bust, soon after Jugoskandik. Dafiment's loss was estimated at between DM500 and DM600 million.

Some time before it collapsed, Milanovic's husband and two of her children were killed in a car accident in Hungary. Milanovic herself, though, was prevented from leaving the country. In the dark world where high finance and politics met in the Milosevic regime, the tragic deaths of her relatives spawned a myriad of conspiracy theories. The Serbian leader was the driving force behind Gazda Jezda and Dafina Milanovic, said Dusan Mitevic. ‘They were not real bankers, they were unsophisticated people. Milosevic gave the idea to them, he taught them how to do it, and then created the environment in which it could happen. Milosevic was an absolutely key person for them. Without him they would not have been able to work for three minutes. Milosevic and his regime were stealing the people's money.'
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Milosevic ran the economy – if it can be so called – the way he ran the country, by micromanaging. It appears that, sitting in the presidential office, Milosevic in effect worked out sums on the back of an envelope to keep the country running. It was under his instructions that the dinar was devalued in 1995 by over 200 per cent. When funds ran low, whether to pay pensions or paramilitaries, he called up his associates such as Dafina Milanovic. After the fall of his regime in October 2001, Mira Markovic, Marija Milosevic and Borislav Milosevic all had their Swiss bank accounts frozen, together with several other aides.
¹³
Yet it appears that apart from purchasing property at a bargain rate, Milosevic personally did not vastly enrich himself. No hoards of banknotes, jewels or valuables were found at the Milosevic residence. Nor did Milosevic acquire fleets of luxury cars or yachts. His currency was power, the only thing which he wanted to acquire.