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. Last Updated: 07/27/2016

Yugoslavia Pins Its Hopes on Privatization

LESKOVAC, Yugoslavia -- Serbia's Zdravlje drugs company hopes privatization and foreign investment will pave the way to a healthy future, mirroring the reformist government's ambition for the whole of the dilapidated economy.

Like Serbia, the pharmaceutical firm in the southern town of Leskovac needs a capital infusion to bring in new technology and to prosper again after a decade plagued by conflict and international isolation under ex-President Slobodan Milosevic.

It is among dozens of medium-sized firms in relatively good shape that the authorities plan to sell via tender to strategic investors this year, as part of efforts to breathe new life into an economy shaped by socialism and shattered by warfare.

The success in selling them will determine not only the fate of the companies and the workers they employ. It will also be vital for raising badly needed budget revenue and for Serbia's chances of catching up with the West.

"Obviously we would like privatization to go fast," said Rory O'Sullivan, head of the World Bank's mission in Yugoslavia. "It is important to get the assets into the hands of owners with capital, who can run the companies in a more efficient way."

Zdravlje, maker of products ranging from drugs to medical equipment and cosmetics, was put up for sale in June. The deadline for submitting bids for the company, whose name means health, is Aug. 30.

Several foreign firms have expressed interest, buying the documentation they need for taking part in the bidding, said general manager Petar Stojanovic.

Stojanovic, who like many other corporate chiefs took office after reformers toppled Milosevic in 2000, said employees also favored the plan.

"I believe 90 percent of workers, if not all, want to see the company successfully privatized," he said at company headquarters. "We promised them better standards."

Known locally in the early 20th century as Serbia's Manchester because of its thriving industry, Leskovac saw hard times during Milosevic's turbulent rule, like much of Serbia.

About a quarter of the town's 85,000 inhabitants are unemployed and many people struggle to get by.

Dusanka Ilic, a Zdravlje employee for 28 years, saw her wage fall as Yugoslavia sank into poverty in the 1990s from relative affluence in communist Europe during the Cold War.

She said she backs privatization as new funds would help boost production, even though many people fear for their jobs.

Ilic, a single mother of two daughters, now makes the equivalent of 200 euros ($197.2) a month, above the Serb average but less than a third of her pay 20 years ago.

"I support privatization, but we are all afraid of it," she said, standing outside in Zdravlje's sprawling plant complex, quiet during the summer with many workers away for their annual holidays. "People are afraid of job cuts."

Seeking to ease such concerns, Stojanovic said investment would strengthen Zdravlje's market position and a buyer would not be allowed to lay off workers in the next three years.

Profitable and with a turnover of about 40 million euros, Zdravlje is among the more successful companies in Serbia, Yugoslavia's dominant republic.

In contrast, many socialist-era conglomerates are virtually bankrupt, after years of mismanagement and Western economic sanctions imposed over Belgrade's role in the violent collapse of the old Yugoslavia.

They need thorough restructuring before they can be offered for sale. "Some of the companies are in tremendously bad shape," said a Western official who advises the Serbian authorities.

After ousting Milosevic, the ruling reformers embarked on an ambitious drive to introduce a Western-style market economy, liberalizing the dinar currency and removing price controls.

They have won strong support from international lending agencies such as the International Monetary Fund, which approved a three-year, $829 million loan in May.

"I think most investors have been impressed by the high standard of the economic management of the reformist government," said the World Bank's O'Sullivan.

But the IMF cautioned that daunting challenges lie ahead, such as restructuring the "decapitalized and overstaffed" enterprise sector, which experts say will lead to job losses.

O'Sullivan called for increased focus on creating new businesses, saying most growth in ex-communist European countries had come from such firms, not from state sell-offs.

Successful privatization is nevertheless seen as an essential building block in constructing a new economy.

The European Bank for Reconstruction and Development stressed the importance of selling state firms to attract foreign capital and increase budget income. "Additional privatization successes are urgently needed," it said in a report in June.

Since it was set up in mid-2001, Serbia's privatization agency has sold three cement plants to foreign investors and auctioned some small firms to mainly local entrepreneurs. It plans to accelerate the pace in the coming months.

Its director, Vladimir Cupic, said it had invited tender bids from strategic investors for more than 20 firms.

The figure is expected to reach 50 companies later this year, operating in sectors ranging from pharmaceuticals to sugar refinery plants. Serbia hopes to auction 1,000 smaller firms by the end of 2002, mostly to domestic investors.

In Leskovac, Stojanovic warned that failure in selling Zdravlje could lead to its break-up and job losses.

Employee Mihajlo Milenkovic, 55, said he too wanted Zdravlje to become privately owned. But he added that many colleagues believed mistakenly that it would automatically lead to better wages.

"We have to work harder to get higher wages," he said.