Threat of Sanctions Cools Yugoslav Business
By Lee Hockstader
Washington Post Foreign Service
Thursday, March 19, 1998; Page A36
BELGRADE, March 18 - In a bleak landscape
of rusting factories and industrial ruin,
Tigar Rubber Products Co. was that rare success
story in Yugoslavia: a firm whose sales -
- and profits -- were booming on the strength
of exports to Western Europe.
Tigar's tires and shoes were
catching on rapidly -- so rapidly, in fact, that sales were
expected to rise by about 50 percent this year
over last year's figures. Company
executives were rubbing their hands.
But thanks to the police crackdown
on ethnic Albanians in the southern Serbian
province of Kosovo, Tigar's dreams of high export
profits are dying fast. European Union
tariff exemptions, which the company and EU officials
expected to be renewed possibly as
early as next month, are now a non-starter.
That means sharply higher
tariffs on Tigar's products -- and sharply lower profits for
Tigar. A company spokeswoman said the firm expected
the higher tariffs would lop more
than $3 million off the firm's profits for 1998.
"We'll have to reduce our
investments and rewrite our business plan," said Jelena
Petkovic, Tigar's representative in Belgrade.
"This is a big problem for us."
Tigar's saga may become a
familiar one if Western governments go ahead with
sanctions they have threatened unless Yugoslavia
ends the crisis in Kosovo, where ethnic
Albanians outnumber Serbs by 9 to 1. Serbia is
the dominant republic of Yugoslavia.
If imposed, the economic sanctions
themselves -- a freeze on at least $100 million in
state funds believed held overseas and a moratorium
on government-financed export
credit support for trade investment -- are expected
to have a moderate effect. After years
of war and international isolation, Yugoslavia
has only recently begun to come up for air.
But already, even before a
formal decision on sanctions has been made, the threat
alone is freezing foreign investors in their
tracks and souring business prospects in one of
Europe's poorest countries.
One American office supply
firm froze an investment of several hundred thousands of
dollars last week in response to the Kosovo situation.
Belgrade newspapers have reported
that Serbian businessmen are complaining their
foreign deals are on hold.
With a 1997 trade deficit
of $2.4 billion and a gross national product of just $16 billion,
Yugoslavia can ill afford further setbacks.
Under previous sanctions maintained
by the United States stemming from Belgrade's
inaction on Kosovo and indicted war crimes suspects
from the war in Bosnia, Yugoslavia
already is ineligible for international loans
and aid programs from the World Bank and
International Monetary Fund.
Retirees and state workers
have been paid in recent months only thanks to what a
Western diplomat called "selling the family silver"
-- a $900 million cash infusion last spring
from the sale of 49 percent of the main telephone
company to a foreign consortium.
Still the economy, having
shrunk by nearly 60 percent since 1989, had begun turning up
with the lifting of most sanctions at the end
of the war in Bosnia in 1995. Real wages were
also starting to grow, albeit from a low base.
Now the prospect of further
sanctions has cast a cloud over the chances for sustained
recovery.
Petkovic, the Tigar spokeswoman,
said the company had a relatively strong year in
1997, selling $27 million of rubber tires and
shoes abroad thanks to the EU extension of
trade credits from May to December.
The preferences were suspended
-- and tariffs imposed -- beginning in January
because of European concerns on a range of human
rights issues, including Kosovo. But
there was a general expectation they would be
renewed this spring. Buoyed by that hope,
Tigar projected export sales of $43 million this
year.
Now, a break on tariffs is
a distant dream. European officials, speaking privately, said
there is no way the EU will extend trade advantages
to Yugoslav companies as long as
the crisis in Kosovo continues.
c Copyright 1998 The Washington Post Company
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