The country could use a pick-me-up. Its economy has been destroyed by 10 years of war, international sanctions, and corruption under Slobodan Milosevic. With $12 billion to $14 billion in foreign debt, another $14 billion in internal debt, and no significant foreign reserves, the country is effectively bankrupt. Pension and health systems are collapsing, unemployment has risen above 30%, inflation is running at nearly 300% -- and NATO reduced much of Serbia's infrastructure to rubble in 1998 in its campaign to push Yugoslav military forces out of Kosovo.
Christopher Condon recently interviewed Djelic for BusinessWeek Online. Here are edited excerpts of their conversation:Q: You've been outside Yugoslavia for more than 15 years. How did you suddenly end up back in Belgrade?A: Sometimes I wonder how the heck I got here. While I was abroad, I was always in contact with the Serb opposition. I was particularly in contact with [current Yugoslav Deputy Prime Minister] Miroljub Labus. He is an old friend. I was in Paris watching the federal elections [on television] and what followed [the overthrow of Milosevic] and, of course, we were elated. Then, Labus called me and said, "Bozidar, get your ass down here, we need you."
Of course, it was no joke. They needed someone to help them get back into the IMF [International Monetary Fund] and World Bank and help prepare a reform package. I had worked for the IMF in Poland, mainly on a mass privatization program, and I had also worked in Russia advising [former Russian Prime Minister Anatoli] Chubais.Q: You were also a partner at McKinsey & Co.A: Yes. I worked in Silicon Valley on high-tech and Internet stuff. Then, after working in Poland, I went back to Paris where I was in charge of @McKinsey [McKinsey's division specializing in advising Internet and e-commerce ventures].
When Labus called me, I was quite torn about leaving my family in Paris. But if you know something that is useful to your homeland.... My wife and my partners at McKinsey were quite understanding.Q: How did that assignment evolve into your job as Minister of Finance & Economics for Serbia?A: At first, I was on leave from McKinsey only until Christmas. But then in January, [the new Prime Minister of Serbia] Zoran Djindjic asked to meet with me. He asked me to join his new government and said I could name the job. So I chose the toughest Finance Ministry job in Europe.Q: Outside economic advisers to post-communist governments -- and you have been one in the past -- have the luxury of recommending tough reforms without having to face the political realities of executing them. Are you finding it much more difficult now as a politician?A: No. When I was an adviser I always tried to give advice that was weighed with reality. The difference, what really ups the ante for me now, is that everybody in Serbia knows me. People stop me in the street and say, "It's hard, but we trust you." That's a tremendous burden, and this is the first time in my life I've experienced something like this.Q: Already, some are saying the government has the choice of facing labor unrest or printing more money, which could lead to hyperinflation.A: No, we won't print more money. There are great expectations, for sure, but we are engaged in dialogue with the trade unions. You'd be surprised at how responsive they are. They clearly understand how far the country has fallen. Our logic is not lost on people.
Look at what we have already done with prices. We've raised electricity prices by 60%, with another 40% increase to come in June. Medicines have gone up an average 78% -- all this because the previous regime left unsustainable prices. We could not continue this way.Q: How long can people remain patient? Reform-minded Finance Ministers usually don't remain popular for long.A: I realize the Finance Ministry is not for someone who likes to be popular. What I want is that people respect me. Maybe I will be blamed for being too tough. So be it. But they will never suspect me of trying to steal from them or of not working in their best interest.Q: That, it seems, cannot be said of your predecessors under Mr. Milosevic. In fact, one of your first tasks was to have a government audit conducted. What have you uncovered?A: In February, we launched the first general audit ever done in Serbia. And to my dismay I discovered the country had sunk not only into financial bankruptcy, but also moral bankruptcy. There was illegal spending everywhere. Half of government spending was going through special accounts without parliamentary oversight. The most disgusting thing I found was that they took money that was supposed to go to medicines for kids with leukemia.Q: How have you changed the budgetary process to clean up this?A: First we prepared, and Parliament passed on Mar. 31, the country's first transparent budget. We're also preparing a new budget law that will create an independent accounting office -- like the General Accounting Office in the U.S. That will soon go to Parliament.Q: You have also prepared a privatization and investment package that is headed for Parliament.A: Yes. We did it in 100 days -- a completely new privatization package in consultation with the World Bank. Mostly we are looking for trade sales [for Serbia's major state-owned industries].Q: You have also pushed tax reform. What was the main reason for this?A: Under Milosevic, there were 235 different taxes. It was a very arcane system and difficult for investors to understand. It also allowed many political allies of Milosevic to avoid taxes.
Our major accomplishment was to move to a single-rate corporate tax. In June, we will introduce a 10% tax break on wages. And next year, we will introduce a simplified VAT when our information technology systems are ready.Q: And what comes next?A: Well, if first we put our house in order, then make structural reforms, the last thing is to pick our brains and create a medium-term economic plan. We are working on a white paper outlining our vision and priorities.
Eventually we need Serbia to participate in higher value-added segments. If Hungary can attract HP [Hewlett-Packard] and IBM, then why not Serbia? I would also like to attract the Serb diaspora back. We have made an appeal through the Web site Belgrade.com. So far we've received 700 resumes form Serbs working abroad, and two-thirds of those are from people working in information technology.Q: Has the West been doing enough to help Yugoslavia pass reforms and begin rebuilding its economy?A: I wish the West could do more. Serbia is the best investment in democracy, regional stability, and economic reform you can make in Europe today. We need a few billion dollars. That doesn't mean the West isn't doing anything. The EU, in fact, is working faster than others. But collectively, I think the West underestimates the scale of this problem.
We are not simply a transition country, we are also a post-conflict country. Our starting point isn't the average starting point for post-Communist countries. We are starting from a national disaster. And we are conducting a reform process two to three times faster than what was seen, for instance, in Poland.Q: You will be attending, along with federal officials, an international donors' conference for Yugoslavia at the end of June. How much are you trying to raise there?A: About $1 billion.Q; The West, particularly the U.S., is tying promises of aid to the extradition of Milosevic to the International War Crimes Tribunal, where he is wanted for war crimes and genocide. But the federal government here is worried about the reaction at home to extraditing him. Is the West pushing too fast for this?A: First, I'm one of those who thinks the Serbs have to come to terms with what was done in their name. But this is an enormously important time, and yet we sometimes see this attitude [from the West] of "behave or else." My response is, let us not snatch defeat from the jaws of victory. You know what can happen in Belgrade. And that is not a threat, we are too weak to threaten anyone. But we are very close to closing this terrible chapter. Don't paint us into a corner.Q: You sound as if the next year or two can determine whether Yugoslavia can be put on a long-term path of stability.A: Yes. That hits the nail on the head. People here are ready for reform. They know we need reform. This is the most important moment in Serbia since it first achieved independence in 1878. If we put things right now, I believe things will evolve well for decades. I hope the West can understand this and come to support us fully.
And this is a crucial time not only here, but for the whole region. Serbia is now part of the solution in this region, exactly as it should be. But sometimes I wonder whether the West is completely aware of this historic moment.Q: I understand you have not had time to even find your own apartment in Belgrade. Are you still sleeping on a sofa at your aunt's home?A: Yes, that's true. We are working unbelievable hours here. It's like Goldman Sachs, but without the bonuses.