Svetlana Lukic: Economic journalist Misa Brkic speaks. We start our interview with the subject of the Yugoslav Airlines (JAT), where the CEO has just been deposed, and his deputy appointed to his position. Incidentally, JAT is “owned” by the Democratic Party.
Misa Brkic: JAT is a paradigm of Serbia – everything has fallen apart in that company. However, every day, we can see the commercial telling us how successfully JAT airplanes fly. All the planes are in poor shape, they are taken apart and then parts from one plane are used on another. They owe money to everyone. Furthermore, JAT airplanes are not allowed to fly over certain countries, because JAT did not pay the fly over tax. JAT is also prohibited from landing on certain airports, because JAT did not pay agencies which sell its tickets. JAT did not pay for the maintenance of two of its engines, so Lufthansa was forced to seize them. JAT can no longer service its engines and planes in JAT Tehnika (engineering and maintenance), because they owe a large amount of money to this company as well. There is no food to serve in the planes anymore, so they serve a plum covered with chocolate.
JAT is still alive only in the virtual world of marketing. And the same stands for our state. I keep remembering Kornbluth’s book, which was published in Serbia in 1953, called The Space Merchants. Kornbluth’s vision of the state as the rule of consumerism reminds us that, 47 years later, Serbia lives according to this book. Anything you put your hands on here is a commercial or some form of marketing. Until some time ago, they were trying to convince us that we are well on the European road, and that everything we do, we do in agreement and in accordance with European rules and values. And then, a month ago, the report of the European Commission arrived, and we could see that the situation was not as they were trying to convince us for two years, from the judiciary to the lack of institutions of market economy. You would then expect from someone serious in the state to draw a line, to say – these ministers have made progress, these haven’t, someone is responsible for the fact that the European Commission gave us a negative report. But no. For the first three days they were trying to convince us that we received a great report, and when this type of marketing failed, they recognized that there was a problem. What is most interesting is the answer of certain ministers whose departments were seriously criticized in the report. They said – yes, all of this is true, we will do everything we are asked to do. And the story ends there, but my question still remains –wait a little bit, who can guarantee that the situation will improve in two years, that it will not be the same as now. Another report of the European Commission will arrive, and, once again, it will say that we have failed to do anything, and, once again, we will say – we will fix it. Thus, this absence of responsibility is what characterizes this state and this government at the end of 2010.
Look at how the social economic dialogue through the social economic council failed. Thus, it is the year of crisis, and if the President said that this is a welfare state, then there is no better place for social dialogue than this social economic council. We know that no state is a pretty flower, and neither are entrepreneurs, tycoons, syndicates, or workers. However, in some countries, when the economic crisis started, everyone sat down and reached an agreement. Angela Merkel said – come on, workers, syndicates, hold on a minute with your demands for higher wages, entrepreneurs – wait a little with your ambitions, share with the society the problems that we have, give a little more of your money, try to create new jobs, and the state will start saving money. And this is, as I would say, the civilized answer to the crisis. When I asked – people, why haven’t you done this in Serbia, I was told – we will do it. Then they said that the crisis was over. But unemployment in Serbia is the highest in Europe. I don’t care what you are planning to do next year, why haven’t you done it when unemployment reached the highest level in Europe.
Let us return to the rule of commercials. JAT is a company which is falling apart. During the last ten years, JAT served as a school for generations of party cadre, except in the era of Zoran Djindjic. All of that is an experiment which transformed the patient into an even more disabled person, but the state keeps protecting and guarding it. This week, the government deposed the CEO of JAT. It was supposed to happen last week, but it didn’t, because a member of the government said – we don’t have anyone else for the position. This sentence reflects the worst situation in this relationship between the state as the owner and JAT and the national air carrier. If one has followed the media on the operation of JAT during the last two years, listened to radio or newspaper commercials, one was able to see that JAT was flying to Portoroz and Rome, also advertising that you can fly with JAT to Stockholm.
Well, I am not crazy enough to fly with JAT. And, at the same time, globalization is taking place on the world market, and only 5-6 of the largest airlines will survive this crisis: Singapore Airlines, Qantas, maybe British Airways, etc, but that is it, no one else. These two years, the CEO of JAT has been wasting money in order to create the impression in the public that he and his company are working successfully, while this company is deeply in debt. Losses are just piling up – 25, then 75 million; since 2004 debts are only piling up. When you look, you can see the following – JAT owes money for gas, for flyovers, for servicing engines, airplanes repair. And what is JAT paying every month? It is paying the PR agency. Nothing needs to function except the illusion that I am a successful CEO and that the company I am managing is successful. The situation is similar with other state-owned companies.
EPS (Electrical Power Company of Serbia) is described as the jewel of the Serbian state. But that is simply not true. By keeping the price of electricity under the economic treshold, you are destroying EPS. This destruction is not clearly visible in the case of EPS, because this is a big company, they mine coal, they produce electricity. But the debts of both citizens and companies to EPS are very high, no one is paying for electricity. I am afraid that, at some point, EPS will be placed in the situation JAT is in now, not due to the incompetence of its management, but due to the negligence of the state. On every front, we encounter the story about Serbia being the leader in the region. Yet we have the lowest salaries, the highest rate of unemployment, highest inflation rate, problems with the exchange rate. Several days ago, papers published that only in 2010, 65 new taxes and other different payments were imposed on entrepreneurs, while, at the same time, the state is leading a campaign claiming that we are a country people should invest in, come and invest. Who will come and invest money, when even local entrepreneurs complain all the time how they can no longer endure all these payments? And then some state representative shows up and says – these are only tycoons lobbying through the media in order not to pay taxes and contributions.
And then you hear the information that the owner of some tavern in Belgrade owes 100.000 Euros to the city for taxes. Then comes the information that between 2004 and today, different entrepreneurs owe Belgrade the sum of 23 billion. And then, all you can say is – wait a second, they are not guilty for not paying. When you don’t pay a tax bill, you get a notice with default interest which you have to pay in 5 days, and if you don’t, you have to go to court. In this country, some entrepreneurs have not been paying taxes for six years, and nothing has happened. When you want to see how low the level of a specific rule of law is, you only have to look at the number of people who are not paying taxes, and everything becomes clear. You can write whatever you want to the European Union, that you have the best rule of law, but, when you look at the unpaid taxes, then farewell.
Svetlana Lukic: To my knowledge, the owner of the restaurant Ruski car (Russian Czar) is the one who owes 100.000 Euros. How could this have happened?
Misa Brkic: Every now and than, the IRS closes a grocery shop at Kalenic green market, because there was a 23,85 dinar discrepancy in the fiscal cash register. The notification would say that the grocery store is to remain closed until the owner explains to the IRS what he did with these 30 dinars. Why doesn’t IRS close this restaurant, or any other shop that is not paying taxes , and say – until you pay taxes, you cannot work. You can be the Russian Czar or the English Queen, I don’t care.
Our politicians are not missing any opportunity to call on foreign investors to come to Serbia. However, every now and then, a new affair comes into the focus of the public, and you can see that Serbia is not honoring the obligations it has undertaken. An example is the affair with the American businessman of Serbian descent, Srba Ilic, that is, his company which bought the tourist agency Putnik. He bought this agency, then allegedly did not fulfill his obligations, and the state canceled the contract with him. Since his company is an American one, he submitted an appeal to the International Court of Arbitration in Paris. He, as all other American companies did, paid insurance to the Foreign Investment Insurance Agency (FIIA) when he came to Serbia to invest. He appealed to the Court in Paris because the state canceled the contract with him, and asked for punitive damages, because the Court decided in this favor. Serbia said – all right, we will pay, we can finance it from the budget. But, then someone decides to say – no, we will not pay.
Svetlana Lukic: And by signing the contract, we agreed that the International Court of Arbitration in Paris has jurisdiction in case of a legal dispute.
Misa Brkic: The contract between his company and the Agency for privatization says that the Chamber of Commerce has jurisdiction, that is, its Court of Arbitration in Paris, and that the decision of that Court is final and binding. The Court ruled that 9 million must be returned to Srba Ilic, bur Serbia refuses to do this. Ilic went to FIIA and said – you know what, I was cheated in Serbia, they not only cancelled the contract, but here is the decision of the Court in Paris, which, as prescribed by the contract, is the only competent court in this case. And FIIA was forced to pay Srba Ilic the amount of money he was demanding from the Serbian government, because he had that right. And now, Serbia no longer has a problem with Srba Ilic, but, instead, with FIIA.
FIIA has written five letters to the Serbian government saying that a court decision was reached, that the Serbian government could no longer stall, because they owed money to FIIA, not to Srba Ilic any longer. The Serbian government played dumb the first three times, and then decided to ask Serbian courts to reverse the decision of the Court of Arbitrage. And this case was dragged between courts, and the courts told the state – we are not above international law, the contract you signed says that you must respect the Court of Arbitrage. Hilary Clinton visited Belgrade and told Cvetkovic – Kosovo, NATO, we support you in European integrations, but you owe us some money. And no less than 9 million dollars. And our government then had a new idea – to sue Srba Ilic before the same international court. Now I ask – excuse me, but is that even possible, since the court already decided? And the person I was talking to laughed and told me – you know what, international arbitrage is not a non-profit organization. If you want to file charges before this court, it will accept gladly, because it will charge you for that service. And these proceedings have been initiated once again. To my knowledge, the verdict has already been written, but has not been submitted to the parties. No one knows what that verdict says, but there is one strange circumstance.
The lawyer of the Serbian Agency for Privatization is asking the Court of Arbitrage to reverse this decision as well, because, allegedly, one member of the court publicly announced the decision somewhere. I did not see this anywhere, and even the appeal states that there is no evidence to confirm this claim. It will be very interesting if the verdict is negative, what will we do then? FIIA has informed all international institutions, from the World Bank to different associations of private investors, about what happened to it in Serbia. But still we ask ourselves – why are there no foreign investments? And until you have these big, global players in Serbia, you cannot attract any serious investments. Professor Pavle Petrovic calculated that we need 2 to 2,5 billion Euros each year, for the next 5 to 10 years, in order to maintain this level of growth necessary to exit the financial crisis.
We are also asking the EU for more funds from IPA for local communities. And then the state launches a project call, and from some 140 local communities, only 5 respond. This data shows that no one in this country wants to try hard and do something for his local community on his own initiative. I don’t know whether they do not know how to write projects or if they are just lazy. And why would they do all this if it is sufficient to call a number in the Serbian government and say – give us some money, or otherwise, we will come before the government building, and build a camp right there in the middle of this cold winter.
The President publicly announced – I am not satisfied with this, this and that. And? Media started talking about the reconstruction of the government, and they kept gnawing at this bone. They said – reconstruction of the government is being prepared for next year. I asked people who have better understanding of political analysis whether it ever happened in the world or in the region that a government was reconstructed in the year before elections. Everyone just gave me a blank look and said – you must be crazy.
Let me return to the subject of JAT. For a while, the story was – we are shutting down JAT and creating a new company. It was followed by the story – we are looking for a strategic partner, we are negotiating with Turkish Airlines. Yet, Serbia signed the European agreement called Open Skies. Thus, it has many benefits, European companies can fly to and from Serbia, you cannot prohibit anyone from doing anything. The Open Skies guarantees free competition, but the agreement is closed for countries outside the EU. The negotiations attempt with Air India failed because the EU said – wait a second, you have signed the Open Skies agreement, and we do not allow non-EU member states to become part of this agreement in this manner. And then India stopped being interesting. For a year and a half, they have been wasting our time with Turkish Airlines. I believe that people in the government know that the Open Skies limitation applies to Turkey as well. I hope they do, because if they don’t, it is a catastrophe. Turkish Airlines cannot enter Serbia, and, at the same time, we are negotiating with them about strategic partnership which will save JAT. In this way, the Serbian government is only prolonging the agony. Excuse me, but JAT took a 53 million Euro loan with government guarantee. 50 million dinars is not a small sum, let alone 50 million Euros. Thus, for seven years, the state could be described as the owner of a failing company.
I am afraid that, at some point, the Electrical Power Company of Serbia will suffer the same fate. Now we are seriously talking about the possibility that, in the not so distant future, we may find ourselves in the dark in the middle of the winter. No one is looking after the Electrical Power Company, a company which needs to live off the profit it makes. Four years ago, the decision was made to construct new thermal electrical power plants in Kolubara and Obrenovac. Four years have passed, and every six months, the Minister of Mining and Energy postpones the tender, while, at the same time, constantly repeating – there are many interested companies. I conducted a survey amongst these interested companies, and what they told me was that they were interested, but only from the moment Serbia proves itself to be, as the owner of EPS, a serious player. When I asked what a serious player is, they said – EPS must establish a system with a price attractive enough to make someone come and construct the plants, sell electrical power and live off the profit.
Otherwise, who would be crazy enough to construct a power plant, and then sell electrical power with welfare prices defined by the state, who is crazy enough to suffer losses with such a power plant? And another thing, no one here is thinking how much Serbia will have to pay for the Kyoto Protocol once it becomes a member of the EU. What will be our quota limiting CO2 emissions? Why would an investor construct a power plant running on coal, without knowing what level of CO2 emission will be allowed and how much it would cost. All of this influences the price of electricity. The Minister of Mining and Energy said that Serbia would get engaged in the construction of a nuclear power plant in Bulgaria, and would ask for 10%. And when I asked around, I was told that the electrical power from such a plant would cost us very dearly. There is no profit in this, apart from the Minister’s desire to construct a nuclear power plant with 10% participation. It is easier for him to waste money on the nuclear power plant in Bulgaria, since he is not able to construct anything in his own country, starting from those windmills producing electricity to small electrical power plants. He has failed to create a system, the same as in the judiciary or in education, where a system does not exist.
The PISA test showed how low the education level of our children is, and we can no longer brag about how smart we are, and how Americans and English don’t know anything. How our children are smart, how Serbs are a smart nation! And then one test shows that Serbia is not such a grand civilization as it claims to be. And when you are not grand, then you have a good PR agency which convinces the local population that you are truly grand, while no one in the world believes you to be.
Translated by Bojana Obradovic
From the radio show, 10.12.2010.