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Wednesday, February 28, 2001 Radovan Jelasic, the FRY National Bank Vice Governor I still keep my money in a safe
If one were to judge by the number of economy experts who have "returned from around world" to our country in order to assist the new government in the realization of the state economic revitalization, expectations that Serbia (or the FRY) could end up in European Union in a couple of years do not seem that unreal. One of such experts is Radovan Jelasic, the new FRY National Bank Vice-Governor in charge of bank rehabilitation. By taking a look at his CV we are informed that he was born on February 19, 1968, in a Hungarian town called Baja, that he graduated Marketing at the Faculty of Economics, University of Belgrade in 1992, and then left for Hungary where he worked as an assistant-manager in Budapest foreign-trade company Vega-impex KFT. During 1994 and 1995 he was an assistant at the University of Illinois, Chicago, during which time he finished his post-graduate studies in Finance. From 1996 to 1999 he worked as a manager in Deutsche Bank AG in Frankfurt, with corporate and institutional banking. After that, he left to work as an assistant with the Frankfurt based McKinsey & Company Inc. He came to Yugoslavia at the invitation of Mladjan Dinkic, former executive director of the G17 Plus, and current FRY National Bank Governor. Mr. Jelasic speaks Hungarian and Serbian as native languages, and also English, German and Russian as foreign languages. FS: Mr. Jelasic, the first 100 days of the new monetary government in the FRY have passed. What is your opinion of the current state of the FRY banking system as the FRY National Bank Vice-Governor? We have spent the first 100 days in assessing the true state of the banking sector. We have made two studies. Firstly, an "airplane shot" form 10.000 feet was made, in which the representatives of a German consulting company spoke with representatives from some 40 local banks. These discussions dealt with general problems, staff, and business policies. Afterwards, we made a much more detailed financial analysis with one of the audit houses. The situation is alarming and the question of to what degree can local banks be used in revitalizing our economy is raised, as the Governor has stressed on a number of occasions. This will be one of the greatest problems we will be facing in the next few months. FS: The consolidation of local banks will be a very long and difficult task. Is there a clear plan how this process will be carried out? This is a very important issue because economic logic is not the only factor to be considered. There are further aspects to be considered, such as the banking sector labor force technical redundancy issue, which currently employs 24.000 people. Even though this sector will employ much more people than today in two, or three years time, during the next six months a major reduction in this number is expected. Also, there is the question of what will happen with the entire economy and therefor the process of bank rehabilitation should continue to solve problems in the economy sector. The responsibility for the major part of the "dead tissue" that lies in the banking sector was taken by the state. This is a moment of historical significance, and therefore should be used to determine what belongs to the state, what to private enterprises, and what is under the jurisdiction of the banks. So far, the banks represented a detached department of the Ministry of Finance, and the Ministry of Social Politics. The banks were used to finance social peace, and not to make decisions according to the market principles and profit. FS: Governor Dinkic stated that some of the banks would have to be closed due to catastrophically bad operation. Which of the local banks are healthy enough to continue operating, and which of them face the liquidation proceedings? 
It is a relative thing to decide which bank is a good one, and which one is not. Even the best bank in this country would hardly meet the minimal criteria set in the neighboring countries such as Hungary or Austria. There are, of course, some healthy banks here, but many of them are not banks in a true sense of the word, dealing in certain businesses that have no direct connection with banking at all. Anyway, the entire banking system cannot be shut down, because people and firms need to be enabled to do financial transactions through certain institutions. Therefore the attack should not be a frontal one, but rather one in which the banks ready for bankruptcy will be separated from the rest of the banking system. The FRY National Bank has quite a few negative experiences with the manner in which the judiciary system functions. Bank liquidation sometimes lasts even five, ten or fifteen years, which is really no solution, except in the sense of somebody else taking care of your problem. FS: When could we expect the return of foreign banks to our market? An Austrian bank has already submitted an work license application and documentation necessary the license to be issued. The IPC consulting house will open a bank for micro financing using funds obtained from the International Monetary Fond and European Bank for Renewal and Development. Also, a Dutch government organization is planning to open branch offices in a number of cities in Serbia. The greatest interest so far has been from Austrian and Greek banks, and probably, in a short time period, Italian and German banks that have been the most active in East European region will be activated again. FS: Having in mind numerous negative experiences, regaining trust in domestic banks will not be an easy or quick process. How can one actually have trust in the dinar and keeping savings in the local banks? One of the ways is to offer attractive interest rates to the people, but not like the ones once offered by Jezda and Dafina, which were unreal. Those offers represented pure hazard. The offered interest rates would probably be around two or three percent or even four percent. Having in mind the current state of our banks, I still keep my salary here in the safe because I do not have to beg anyone, or open an account. Therefore I believe that the majority shares my opinion on the matter. Also, people should start believing that the FRY National Bank is operating again, and that it's not just pure talk. That kind of trust will probably be boosted once we start closing down the non-liquid banks. Foreign banks should also play a major role in this process, as well as the payment of the old foreign currency savings. FS: What kind of credit and monetary policies will the FRY National Bank lead during the following year? The National Bank will lead a restrictive monetary policy, which will be founded on the predicted basic inflation rate of ten percent. We will try to resist the numerous pressures that are always present. FS: Foreign currency reserves have grown, the rate of the German mark has been steady at the level of 30 dinars for some time now. Is such a rate a real one considering that the economy has not been significantly moved yet? This is all normal once people are offered to buy foreign currency. The reality of the 30:1 rate will be proven in the next few months. The prices are very flexible at their upper level, so it is a question whether trade liberalization would force the producers to lower the prices. If the prices inside a state have been liberalized, and there is no extra export, then the producers incorporate all sorts of things into the prices they dictate, including their future and current losses, as well as possible difficulties with the ruling regime, and so forth. Therefore, the final prices end up huge. The question is whether the state can utilize importing in order to regulate the prices and to force the producers to lower their current prices. As far as German mark rate is concerned, any significant changes, like the rise from 30 to 40 dinars for a mark, are not anticipated. FS: Exchange offices have been set up in towns in Serbia, even though not many. However, dealers are still present on the streets? The state interest is, of course, to increase the number of exchange offices because we would all prefer doing business in such institutions than on the streets, especially if there is danger of being arrested, or running into a dealer which you are not familiar with, who would give you foreign currency at who knows which rate or supply you with bank notes of suspicious origin. However, this transformation will take much longer in these parts since the people have grown used to their dealers. That means no one really goes to the dealer spontaneously, but rather that dealer became your friend over the time, your best man, and so on, which is quite normal after all the years the dealers have been present here. I hope that they will soon realize that it is better for them not to do their work in the streets, but legally instead, and in institutions that could be trusted more both by them and the people. FS: Economists warn that interest rates could seriously endanger the foreign currency exchange rates and heat up the inflation. Are those fears justified? 
The first National Bank bonds were issued two months ago when they valued around 3.5 percent. In the meantime they dropped down to two percent, and even to 1.5 percent on a monthly rate and I believe that this is a good sign. The question is whether we will go one step beyond that, and that would be to rehabilitate banks and restructure organizations. The amount of healthy money in the country is limited. Such a small quantity of money is "attacked" by financial institutions that are not interested in the interest rate, but rather wish to get the money fast, no matter what the cost. They will, naturally, suck out all that money and use it to provide their own liquidity, but also to buy social peace. If such "zombie" banks are extracted from the system, it automatically leads to interest rates drops. Second, interest rate drops will also be induced by the supply of the new money, which can be expected slowly, but surely. And third, if the people realize that they can trust some of the foreign banks that will open their branches here, they will invest their money in them, with which they will fund different projects. That way the money supply will also be increased, and the interest rates only mirror the state our country's economy is in. FS: The Governor recently requested help from the ICTY chief prosecutor Carla Del Ponte in tracing secret accounts where members of the previous regime have hidden money. Is there any news that might indicate the money mentioned could be found and returned to the country? I believe that there is an interest to aid us on this matter, but we are also expected to start legal proceedings against the people involved. Due to the unreal expectations that billions and hundreds of millions from those accounts will be returned I feel it's necessary to say that it will not happen. People should not be given a message not to work and or think of our survival, and expect certain amounts of money to be retrieved from Cyprus, some from the old regime, from Dafina, and then expect they will have a nice life, when all this is combined. I believe we will only see spoonfuls from these sources, and that we should be concentrating on createing better life through our own production and hard work. It is very important to trace the money in question, but no one should expect a large sum to be retrieved. That is because if someone was clever enough to smuggle, it was also nor hard difficult to spend it, even an eight-year-old can see that. FS: What is the amount of money that has already entered the country as part of financial aid by foreign international institutions? This question rises concern, since many citizens show interest in that money, demand salary increase, threaten to go on strike... 
I can understand the citizens of his country who sometimes feel they have been deceived. There is a saying "10 million here, 50 there, and 100 out of here". When you get home there is no heating, no electricity, and so on. A very important issue is how the media presents these things to the population. The European Union, for an example, give us 250 million Euros in aid during the last two months of 2000. It's all very nice, but no one said that 95 percent of that amount would be in products. In translation, that means: "You need electricity? Fine. Where do you buy electricity? From the Hungarians or the Greeks? OK". Then they pay to the Hungarian and Greek power companies, and the electricity arrives into the country. It should be explained what the people can really expect from those millions. As far as actual projects are concerned, they should start soon. The World Bank can supply us with some money, eight digit sums, even before we become its member. As far as the International Monetary Fond is concerned, we will have a stand-by arrangement that will be used for budget purposes. FS: Before arriving to Yugoslavia you lived and worked in Germany. Do you believe that you have returned for good, or are you here on a temporary basis in order to help Governor Dinkic and the new democratic government? I met Mladjan Dinkic in 1997 in Hotel "Yugoslavia" garden. He told me even then that he would one day become the FRY National Bank Governor. A seminar followed, then another one, and in 1998 I was one of the lecturers at the Group 17 Summer School in economic policies. We maintained continual correspondence after that, occasionally spoke over the telephone, and in 1999 I became a member of G17. When I saw and heard what was happening in Yugoslavia on October 5, I came to Belgrade for a day and flew back to Frankfurt immediately afterwards. On Monday, instead of starting a new project, I submitted a request for a one-year leave of absence from my firm. They agreed and I arrived here for a defined period of time. FS: Do you privately socialize with Serbian Minister of Finance Bozidar Djelic, FRY National Bank Governor Mladjan Dinkic, Republic Minister for Economic Relations with foreign countries Goran Pitic and other experts, and generally, what is your opinion of the new group of local economists? Mr. Djelic used to work for the same firm as I did, except that he was stationed in Paris, and I was in Frankfurt. We spoke twice before I returned to Yugoslavia, and he arrived a couple weeks after I did. We met for the first time in the "Stubovi kulture" here in Belgrade. I've known Mladjan Dinkic for four years and, of course, we socialize. I met Goran Pitic two or three months ago. The only problem is that we all have much work here so the only time we meet is usually at receptions or dinners and I admit that we need slightly better coordination so that we would team up in this system. A great effect could be produced in this country if everyone dealt strictly with his or her own jobs. FS: What was it that you missed while being abroad, and what do you miss here? You mostly complain about the system you live in. When in America you complain about it to the Americans, and when you are here you complain to the local system. That does not imply that the other one is much better, but when in Rome, do as the Romans do! In this country, as far as mentality is concerned, people have so far probably been taught not to think, but to be told what to do, and when they did it, they were satisfied with the work done. Let's say I would like to have my trousers shortened. I ask a man to ask around and tell me where that can be done. He returns and tells me that it can be done just across the street. When I ask him how much will that cost me; he tells me that he had not asked about that. When I ask him how long is the store open, his answer is the same. If I ask how long will the whole process last, I get the same answer as well. When I ask why hadn't he asked all those things, the answer is probably that I didn't request all those things. [Laughter] The whole process should be done the same way you would do something for yourself. Lack of motivation to perform additional steps is ubiquitous here. Besides that, the manner in which our state bodies function will probably discourage many foreigners who wish to come here, and when I say this I have in mind the police officers at the border, who usually ask foreigners questions like: "Why have You come here?" instead of greeting every good guest. I believe that these matters should be worked on much more. Bojan Bozic
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