Centar za proucavanje alternativa

Braće Jugovica 21/II

11000 Beograd

Tel./Fax: ++381 11 3220 253

Ivana Aleksic

CORRUPTION IN SERBIA

March 2001

The beginning of the 90s and the disintegration of the former Yugoslavia hailed a period marked by a series of wars, long-lasting and counterproductive sanctions imposed by the UN Security Council, EU and the USA, the so-called "outer wall" of sanctions and the NATO bombing. Within the country, things deteriorated with a fall in the real GDP, periods of high inflation which culminated in the hyperinflation crisis of 1993, frequent devaluation of the dinar, an increase in unemployment, a decline in overall living standards with the population's material status being more and more equalised so that it was "equality in poverty", and a widening of the gap between the few who were well-off and the great majority of the ever-poorer citizens. The state institutions became progressively criminalised. The imposition of sanctions contributed to this situation the most.

It was only five months ago that the process of political changes started. With September 2000, federal, presidential and local elections, and the ensuing events of October, the process of democratisation in Serbia has begun. Looking back, for both the world and Serbian citizens, October 5 symbolises the fall of Milosevic regime. However, it was only the beginning of the transfer of power. The first democratic government of Serbia was, for numerous reasons, formed after December parliamentary elections, at the end of January 2001.

At present, there are three centres of power in Serbian society: representatives of former regime, organised crime and new Serbian Government. Although behind the scene after October events, members of the Milosevic regime are still active and, to certain extent, powerful. By transferring the capital and goods from state to private hands, they hope to preserve at least the economic advantages acquired in the past. Those involved in organised crime, including the people coming from the police and military forces and close to the previous regime, represent a real treat to building democracy. New Serbian Government has no financial resources, there is a lack of institutional channels for the reform implementation, etc. It can count on neither police nor the army, given that those were the pillars of the Milosevic regime.

New political class in Belgrade is faced with a truly formidable set of challenges. The legacy of the past they have to deal with is a burden that is hardly comparable with any case in the region or in the whole post-communist reconstruction: a decade of gross mismanagement and international sanctions has brought economy to ruins, and foundations for democratisation are very week after an equally long period of authoritarianism and national populism.

Moreover, there are enormous unsolved problems regarding the basic issues, such as country borders: the unclear status of Kosovo, armed conflict on the South of Serbia as well as the fact that the Montenegrin authorities do not recognise federal government as legitimate, preparing the referendum on independence for April 2001.

In these unfortunate circumstances Serbian government enters the process of very much needed reforms.

CREATING A FAVORABLE INSTITUTIONAL AND LEGAL ENVIRONMENT FOR CURBING CORRUPTION

The state of the state institutions is quite dissatisfactory. Most institutions inherited from the previous regime, at all levels – from the federal (Yugoslav) to the Serbian to the local level – were paralysed, dysfunctional, and did not undergone serious change since the end of January 2001.

The new Serbian Government has given a promise to start its work with fighting against corruption. One of the first statements issued by the Serbian Prime Minister Zoran Djindjic was that Serbia will ask for the membership in various international organisations in order to deal with corruption and organised crime successfully. By addressing the Stability Pact for South Eastern Europe and its program for curbing corruption and civil control of power, the Government will demonstrate its commitment to this critical area.

The financially transparent and government which will not be corrupt are the primary goals of the new Serbian Government. Moreover, set as a priority, fighting against corruption is seen as a general strategy of a process of building the confidence in the state institutions.

Three significant steps has been taken so far:

1. Draft Amendments to the Criminal Code of Serbia have been made by the Working group of the Serbian Ministry of Justice and Local Government in March 2001.

There are three main directions in changing the Criminal Code of Serbia as it was proposed. Apart from introducing more severe punishments for a great number of criminal offences, one of the biggest changes represents the proposal for introduction of institution of the protected witness. Having in mind the ties between the organised crime and the former republic government, this measure is directed towards the investigation and prosecution of those who have been abusing power for more than a decade.

However, the most significant part of the Draft is a part on “Special Criminal Offences of Corruption”. This part includes: Mismanagement of the state budget, Corruption related to public procurement, Corruption in exercising the medical profession, Unnecessary medical treatment, Abuse of the power of attorney, Corruption in the educational system, Corruption in the process of privatisation, and Restriction of the freedom of information for personal benefit. The perpetrators of these crimes will also be sanctioned by dispossession of all the goods gained in an illegal way.

2. The Government of Serbia formed a special Commission for Fighting against Corruption which task is to investigate the most severe economic crimes of the past decade. It will look into financial irregularities carried out during the period of hyperinflation and international sanctions as well as the legality of privatisation of the biggest companies. It will also check whether residential and business premises were legally allocated and who is responsible for the loss of citizens’ hard currency savings accounts, the setting up of the phantom Jugoskandik and Dafiment bank, etc. The Commission has no authority to prosecute, but co-operates with the state organs. The first results of its work are expected by the April 15.

3. A special governmental body, Working Group for Preparation of the Law on Local Government, was established. The Working Group consists of the governmental and independent experts as well as a representative of the PALGO Center (Public Administration and Local Government Center, Belgrade), a local NGO, which has already completed the first Draft Law on Local Government. However, it will have to go a long way through political and expert polishing before it could undertake parliamentary processing.

It needless to say that the previous regime’s laws are discarded as not useful and undemocratic but they remain in power until the new ones are accepted by the parliament.

What is most needed now is education for the new people at all levels: from local to the highest state functions. They have had no chance so far, except in several opposition-ruled cities, to acquire experience in running local communities, not to mention running the state. In this aspect all kind of expertise is lacking, including managerial and communication skills. Above all, knowledge about how to prevent and fight corruption is needed. At the moment, PALGO Center, G17 Plus and several other NGOs are preparing a broad educational campaign to be organised for 60 local governments throughout Serbia. Foreign expertise is very much needed here and the Stability Pact could play a very useful role in the process as well.

IMPLEMENTING REFORM OF THE JUDICIAL SYSTEM

The key problem within the judicial sphere is an unresolved problem of jurisdiction between the federal and the republic levels. Serbian Constitution from 1990 has not been harmonized with the Federal Constitution since 1992 when the latter was adopted. The same confusion exists as far as relevant legislation is concerned. This problem is even bigger having in mind the huge task ahead of this Ministry which will have to engage in the harmonization of the entire legislation with the European standards, both as far as the Council of Europe and the European Union are concerned.

During the last decade the Serbian Ministry of Justice has played a more prominent role than the Federal Ministry of Justice, marginalised due to the unclear status of the federation. The Serbian Ministry of Justice covers the organization of judiciary and penitentiary administration at the republican level. It was also heavily involved in the preparation of numerous laws (such as the infamous Public Information Act or the University Law) which stand in contrast to the existing European standards in the respective fields.

Within weeks after the change of the Federal Government some reforms at the federal level have been launched, but serious problems in hiring top officials become obvious. New persons are needed both for their professional capabilities but also to clarify further organizational issues within the ministries and to decide who should do what. At the moment, in many federal ministries, Serbia has a very active cabinet at the top and a silent majority within the Ministry, without a solid link between them. The main problem is that highly qualified and experienced lawyers and other professionals with knowledge of the public administration have left the government for better paid jobs and they are not willing to come back.

The international community might help in various ways, especially when it comes to the training and expertise in the field of the harmonization of the Yugoslav legislation with the European standards. It might be useful creating certain financial or other incentives for the best-qualified candidates to join both the Federal and the Serbian government.

Non-governmental organizations have been active in creating the environment for better functioning of the judicial system as well. The Center for the Advancement of Legal Studies (CUPS), a NGO from Belgrade, has been working on the establishment of the Institute for Additional Education of the Employed in the Judiciary System as a national institution. The project goal is to predict, plan and organize permanent institutional education of jurists working in the judiciary system. The main activities within the project are: a. Carrying out a survey on the sample of judges on the state of judiciary; b. To analyze the present state of the judiciary system with recommendations; c. To analyze the models and experiences of the referent countries. As a part of this project, the Fund for an Open Society, along with the CUPS, initiated the action of supplying the courts in the Republic of Serbia with literature, which is to contribute to the better working conditions of judges.

CURBING CORRUPTION IN THE ECONOMY

Revitalisation of Serbian and Yugoslav economy is tied to the necessary changes in several major fields. Among the most important are the issue of privatisation as well as the problem of grey economy and the black market.

a. Privatisation

In early February the new Serbian Government agreed on proposals regarding the Law changes and amendments to the Law on ownership transformation. Serbian Privatisation Minister said recently that it was important for the privatisation process to be transparent, especially that involving large infrastructure systems such as national oil industries and National Power Grid.

However, transparency was not exactly the word to describe the process of privatisation, which has been going on for the past decade, i.e. in Milosevic regime.

Serbian example represents the case of slow, reversible and discontinuous privatisation. It is hard to say that much was done during the 1990s. State property was only partially transformed and that was done in a completely non-transparent way. A good illustration is the fact that in 1998 only 5% of all private enterprises recorded 47% of the profit. This means not only that private sector worked more efficiently, but also that it was a direct consequence of the invisible process of "privatisation" of the state and so-called "social" property. Cases of ministers simultaneously acting as managers of the biggest state firms are to be investigated in months to come.

b. Grey economy and black market

The informal sector is thought to have been small in Yugoslavia during the 1980s when social guarantees were high and unemployment was relatively low. During the 1990s, the combined effect of law salaries among those employed, high unemployment, and impediments to normal trade during sanctions created both a need and opportunity for informal sector activity. It is estimated that 20-30% of the population became involved in petty trades and services or small-scale agriculture (around 10%).

Assessments of the grey economy in FRY indicate that GDP was considerably higher than that recorded by official statistics - in 1991 31.6% higher, in 1993 54.4%, in 1995 40.8%, and in 1997 34.5%. In other words, the contribution of the grey economy in those economic activities which play a part in creating GDP (registered and unregistered) - in 1991, it amounted to 24%, in 1993 35.2%, in 1995 29%, and in 1997 25.7%. The greatest relative importance of the grey economy was at the time of hyperinflation in 1993 when it was greater than half the registered social product (54.4%) and more than one third of the total income activity (35.2%). There are estimations that grey economy makes up to 70% of total economic activity, but given its partial "illegality" cannot be registered.

On the other hand, large-scale trade, particularly in scarce goods subjected to sanctions, created a nepotistic class of the newly affluent. The number of firms permitted to trade grew smaller and smaller and were ever more closely associated with the government and the ruling parties through the 1990s. This reached its apex with the EU's white list. One side prohibited almost all firms or the other to engage in trade; almost all goods entering or leaving the country then became grey or black market goods. The monopolistic nature of trade under crony arrangements raised the price of goods, reduced the access of a wide array of basic goods, and left imported luxury predominantly accessible through private markets for affluent clients. Having this in mind, it was expected that the present government would be interested in extending the tax base and lowering the tax rates in an attempt to legalise present economic activities that are not criminal.

It has been estimated that government measures on internal trade and transactions would return about two billion DEM annually to the budget by eliminating the grey economy and illicit trading in oil derivatives and cigarettes. Taking that into account, the Serbian government has recently announced temporary monopoly on oil imports. The Serbian Prime Minister stated that the decree introducing monopoly was necessary to stem organised crime.

However, without a regional approach in dealing with cross-border smuggling and trafficking it will not be possible to resolve all the problems emerged mainly from the imposition of economic sanctions against Serbia and FRY, which affected both Serbia/FRY and all the neighbouring countries.

MEDIA REGULATIONS

On Oct. 20, 1998 Serbia’s notorious Public Information Act was passed. It was the Milosevic regime’s principal instrument for repression of independent media. Since then, the media in Serbia, mostly independent ones, have been fined on 67 occasions. Fines ruled to them amounted to over 30 million dinars or 2.5 million DEM. The “Evropljanin” weekly, owned by the killed journalist Slavko Curuvija, paid the highest fine of 2.4 million dinars. That was the first fine decided on the PIA, ruled just 4 days after its adoption.

Public Information Act was annulled in February 2001 although, after Serbia’s turn to democracy, the PIA had not been practically applied, while the Federal Constitutional Court proclaimed its key provisions unconstitutional.

The provision contained in Article 1 of the former law (PIA) will be applied till a new law is passed. This provision stipulates “free public information” and “inviolability of free information”, and details that no one is allowed to illegally restrict or forcefully influence the work of the public media.

A new Information Bill is expected to enter the Parliament by the end of this year. At present, there are a couple of Draft Public Information Bills, one of which was prepared by a Working group of the Belgrade Center for Human Rights in May 1998.

However, the lack of legislation in this field is obvious. In early March the Yugoslav telecommunications minister announced that numerous TV and radio stations are to be closed with immediate effect. The stations affected will be those that began broadcasting after the change of government on October 5, or after the subsequent introduction of a moratorium on the issuing of new frequencies. Many of these are independent. The sweeping measure is necessary to regulate the broadcasting situation. There have been three complaints by the airlines in the past two months because of interference from illegal stations in Yugoslavia. Strictly speaking, no station in Yugoslavia has a valid licence, not even the state-run “Radio Television Serbia” or “Radio B92”. The moratorium, which is in place after the old laws have been annulled, will remain until the new broadcasting laws are passed and new tenders offered for frequencies. Some 95 per cent of the media, or 700 radio and 300 TV stations are currently unlicensed. The Ministry of Telecommunications has also started the action of returning money and equipment confiscated by the former regime.

PUBLIC ATTITUDES TOWARDS CORRUPTION

The first survey on public attitudes towards corruption in Serbia was carried out in the first half of March 2000 by the Center for Policy Studies (CPA/CPS) from Belgrade. The sample of adult population of Serbia without Kosovo was drawn from 82 local communities in 60 municipalities. The survey was divided in several areas: a. locating the problem of corruption among other social problems (nepotism, “rackets”, etc.); b. locating corruption in a broader spectrum of indicators of moral disintegration; c. spread and scope of corrupt practice and its relation to various activities/institutions and professions; d. attitudes towards corruption; e. personal experience of corruption and the form of corrupt practices involving the individual.

In the fall of the year 2000, CPA/CPS entered the regional project within the SELDI initiative, Regional Corruption Monitoring System, co-ordinated by the Center for the Study of Democracy from Sofia, Bulgaria. This was the first attempt to approach the problem of corruption perception regionally by using the same methodology in all the countries involved. The CPA/CPS was additionally motivated by the results issued during the same year by the internationally recognised non-governmental organisation, Transparency International, which placed FRY on the bottom of Europe, not to mention the 89th out of 90 ranges according to the extremely high value of the Index of Corruption in FRY, detected by the TI. The sample for the RCMS covers both Serbia and Montenegro.

INTERNATIONAL COOPERATION AND DOMESTIC NVOs

Serbia and FRY have just entered the process of regulating the status of the country in international organisations. The country has been accepted in the SPSEE, OSCE, started negotiations with IMF, WB and EBRD, acquired the observer status at WTO, etc. The first 11 European Conventions have just been signed.

The Government of the Republic of Serbia and UNDP have signed the Agreement on the Formation of the Fund for the Support of Institutional Reforms in the Republic of Serbia in March 2001. Both parties called upon the donors to jointly support successful implementation of the reforms initiated by the Serbian Government.

At the same time, the Ministry of Justice and Local Government of the Republic of Serbia appointed two permanent representatives of the Ministry to act as members in the Office of the National Co-ordinator of the Stability Pact of the SEE on the corruption related issues.

At the end of February 2001 the TI Chapter was formed in Serbia. Its primary tasks would be to submit a proposal for fighting against corruption to the Serbian Government. They will be working on the harmonisation of the domestic legal instruments with the EU standards as well.

The Center for Policy Studies/Centar za proucavanje alternativa has been working on the translation of the Transparency International Source Book to be published by the summer 2001. CPA/CPS has been working on the projects on corruption for the past two years.

INSTEAD OF CONCLUSION

According to the latest public opinion poll carried out by the CPA/CPS, this is how the citizens of Serbia estimate the successes of the present government in fighting corruption. When asked “What is the field in which the present government was the most successful in dealing with?”: 54% of the respondents said that the government was the most successful on the field of foreign policy and, right after that, in fighting against corruption and criminal, 24%