High Rollers Flock to Serb Banks : Finance: Accounts earn up to 150% a month. It may be the biggest pyramid scheme in history.

Armed guards keep order as desperate students, housewives and pensioners stand in line all night to be told in the morning when to come back. At the appointed time, a day or two later, each “customer” returns for another all-day vigil, braving hours on the frosty streets of Belgrade to wait with thousands of others to enter Dafiment Bank.

The system for collecting monthly interest payouts at Serbia’s flourishing banks is so complicated it seems designed to discourage depositors from withdrawing their investments.

In what is probably the biggest pyramid scheme in history, millions of Serbs and untold numbers of foreigners have plunked their life’s savings into banks offering phenomenal interest rates of 150% per month for dinar deposits and 16% per month for hard currency.

Bank owners boast that their lavish interest rates are all that is feeding much of this economically ravaged country.

But financial experts trying to rescue the remains of Yugoslavia from total economic ruin warn that the banks are actually partners in the crisis that has pauperized millions of Serbs and that the institutions will fail if the government stops printing mountains of money.

“It’s like a lottery. We know we might lose, but we hope we will win,” said Sasha Dimitrijevic, a 19-year-old soldier waiting to deposit 300 German marks, about $200, under a contract that forbids withdrawal before six months. “I figure if I lose there will be others who lose even more. I’m willing to take my chances like everyone else.”

“Everyone else” is an accurate description of those willing to risk seeing the bankers take their money and run.

Dafiment Bank, owned by a Serbian woman with at least one embezzlement blemish on her record, has 12 million accounts--in a country with only 10 million citizens. The Jugoskandic bank chain holds 2 million hard-currency accounts, and the Brothers Karic network has half a million depositors.

“The rates of interest offered are the highest in the world. I don’t know if they are the highest in history, but they might be,” new federal Economics Minister Ljubomir Madzar said of the banks. “The question is how they are able to earn such tremendous amounts of money to pay such high interest in this situation.”

Madzar, who hopes to reform the doomed and corruption-ridden economy, says there are two possible explanations.

One is that interest is paid from new deposits. “This can continue only so long as new deposits are coming in,” he said, describing the system as “reminiscent of certain games of chance.”

The other way the banks may be operating is by using depositors’ money to finance black markets for high-profit commodities such as oil, which Yugoslavia is forbidden to import through normal trade channels because of U.N. sanctions imposed in May.

“This money is being used to finance illegal trade and speculation; only in that manner can it possibly yield such enormously high interest rates,” Serbian Finance Minister Slavko Culibrk told the Novi Sad daily newspaper Dnevnik in a recent interview.

Western diplomats speculate that the banks are involved in money laundering and arms trafficking, in essence underwriting the Yugoslav war profiteers.

The Dafiment Bank chain, which claims $6 billion in capital, is owned by Dafina Milanovic, a hefty widow who worked as a bank clerk only three years ago and has admitted to once using her former employer’s funds to cover a personal overdraft.

She now declines to give interviews on the grounds that she is too busy, but she recently told the Belgrade daily paper Politika that the success of her bank is a side effect of the economic chaos resulting from the overprinting of Yugoslav dinars. The two remaining Yugoslav republics, Serbia and Montenegro, suffer hyper-inflation estimated at an annual rate of 150,000%.

“These interest rates can be met for as long as the political and economic crisis is present and for as long as there is (both) an official and a black money market,” Politika quoted Milanovic as saying. “When the economy gets stabilized, when we become more stable economically--and I know this will happen soon--Dafiment Bank will adjust its interest rates to the system or to the economic situation.”

Jugoskandic owner Jezdimir Vasiljevic, a mysterious Serbian millionaire known as “Jezda the boss” and who is believed to have made his fortune in the underworld during 20 or so years abroad, contradicts Milanovic in explaining how he is able to offer such lucrative returns on deposits.

The portly, pipe-smoking banker, who sports wide-lapel pin-striped suits and a Liberace hairstyle, contends that he is merely sharing the wealth from wise investments with his clients’ money.

“The government banks rob people of their savings,” Vasiljevic said, referring to the Belgrade regime’s freezing of individual hard-currency accounts, valued at $12 billion, a year and a half ago. “Private banks give them enough interest to live. . . . We are a kind of humanitarian organization. What’s wrong with that?”

Asked if income from other Jugoskandic operations is subsidizing the banks, Vasiljevic replied, “Absolutely,” adding that unlike the situation in Western financial circles, such a system is not illegal here.

Vasiljevic, who bankrolled his own long-shot--and unsuccessful--run for Serbian president on a campaign theme that aimed to convince Serbs that they too can get rich quick, denies that his banking system would crumble if the government curbed the uncontrolled printing of dinars.

Prominent economists such as Danko Djunic of the Belgrade Economics Institute say there is no legitimate means by which banks can offer such high interest rates.

Government complicity is needed, they say, to keep the national bank’s printing presses operating three shifts a day to ensure a steady supply of money. The increasingly worthless dinars are used to buy up hard currency on the streets and through a chain of new exchange offices run by Belgrade mobsters.

Despite the criminal overtones and occasional fears that the banks could go under, the jobless and hopeless now numbering in the millions choose to view the private banks as gifts from heaven.

Many of the depositors express faith in Milanovic, known affectionately throughout Serbia as Dafina. The widely publicized deaths of her husband and two children in a car accident abroad in June contributed to her image as a hard-working martyr committed to rescuing fellow Serbs from impending disaster.

“I believe in Dafina and in Serbia,” said Slavica Berbakov, a kerchiefed 61-year-old pensioner, parroting the state-run media’s explanation of Yugoslavia’s financial crisis. “The banks failed before because of Ante Markovic (the reform-minded federal prime minister ousted a year ago), foreign powers and the CIA, not because of Dafina and Serbia.”