Serb company debt soars on reconstruction

BELGRADE, Jun 28, 2000 -- (Reuters) A sharp increase in Serbian company debt shows that the government urgently needs to pay up for the high-profile reconstruction work it has carried out over the past year, a leading economic analyst said on Wednesday.

The total debt shot up 38.9 percent in May as due payments for repairs to the damage inflicted by NATO's 78-day air campaign accumulated, the Institute for Market Research said.

"The time has come to start paying for months-long activities on reconstruction and raw material purchases," IZIT's chief research economist Slobodan Milosavljevic told reporters.

After a decade of isolation imposed by the West for its role in the breakup of the socialist Balkan state and NATO's 11-week bombing in 1999, Yugoslavia is still subject to sanctions that ban investment and force it to finance the reconstruction of destroyed infrastructure and industry on its own.

The government of Yugoslav President Slobodan Milosevic has used its widely-publicized reconstruction efforts to show it can manage without the West.

But it clearly relied on domestic credit. Construction companies polled by the institute said 89 percent of completed works had not been paid for.

According to the Accounting and Payment Operations Office of Yugoslavia's central bank, total matured but unpaid liabilities at the end of May rose to 51.114 billion dinars ($1.23 billion) and were 38.9 percent up on April.

"This is at least twice as large as M1 money supply, which is apparently anywhere between 18.0 billion and 19.0 billion dinars," Milosavljevic said.

Yugoslavia's small pro-Western republic of Montenegro began taking control of its monetary policy in November last year and Belgrade has no access to its figures.

The National Bank of Yugoslavia has not published M1 figures since February, when the figure stood at 17.59 billion dinars. Central bank governor Dusan Vlatkovic said last week it was 1.6 billion dinars up on December 1999 level of 16.6 billion.

The five-month total inter-company debt was 41.4 percent up on December 1999, the institute said.

Of 28,305 companies reported insolvent, 27,884 were considered permanently insolvent. They together employed 448,000 people, it said. According to official statistics, Yugoslavia has 1.7 million employed workers.

"If the trend continues with the same intensity this economy could be paralyzed," Milosavljevic said.

The Yugoslav government on Tuesday submitted to parliament a draft amendment to the law on payment operations that orders the central bank to initiate receivership of insolvent firms.

Economists said strict implementation would be difficult and, judging by past practice, not the intention.

"Laws are not passed to affect all legal entities equally," Milosavljevic said.

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