Serbs Use Denial to Keep Bank Scandal at Bay : Yugoslavia: Patrons accustomed to 15% monthly returns on their hard-currency deposits blame sanctions--and Western media.

Holding fast to the delusions that have shielded them through two years of war, Serbs dodged the blow of a shattering bank scandal Wednesday by insisting it wasn’t happening.

When flamboyant banker and reputed gunrunner Jezdimir Vasiljevic fled the country earlier this week, he left 4 million depositors holding passbooks attesting to $2 billion in savings in a bank with assets estimated at $7.5 million--too little to cover even 1 cent on each deposited dollar.

Vasiljevic held a press conference in Budapest, Hungary, while en route to exile in Israel, to blame a corrupt Belgrade leadership for forcing him out of business. He said he was being stalked by Serbian racketeers, but Western diplomats and independent economists say his hasty departure was more likely to escape his uninsured bank’s imminent collapse.

Thousands thronged Belgrade branches of Vasiljevic’s Jugoskandic bank Wednesday when they reopened after a vaguely explained four-day closure. At the downtown Terazija branch, they crushed in with such force that windows surrounding the door frame were broken. Angry depositors scuffled with plainclothes security officers and fought over request forms for early withdrawals.

The Jugoskandic chain and the even more popular Dafiment private banks have been luring Yugoslavs’ hard currency out of cookie jars and mattresses by offering phenomenal interest rates. Some of the new deposits were used to pay interest on older accounts, but both banks have survived by investing in lucrative black market activities such as the smuggling of arms, oil and drugs to beat U.N.-imposed sanctions.

Amid six-digit hyper-inflation and unemployment now thought to affect nearly 40% of Yugoslavia’s remaining 10 million people, the high-interest, high-risk private bank accounts have been a crucial factor in helping many families make ends meet.

Foreign currency accounts at Jugoskandic and Dafiment banks were paid 15% interest per month, on condition that depositors agree not to withdraw the principal for fixed periods of three to 12 months. On savings of $1,000, a depositor could collect $150 per month in cash, more than three times what is now the average monthly salary for those who still have work.

Former Yugoslav Economics Minister Ljubomir Madzar has been warning for months that the banks are involved in a massive pyramid scheme and would fail as soon as they exhausted the public’s limited hard-currency nest eggs.

“This could be the crisis that I’m afraid will be ended by bankruptcies . . . and ultimately by liquidation of these banks,” said Madzar, a professor of economics at Belgrade University since losing his Cabinet post when reformist Prime Minister Milan Panic, the Orange County businessman, was ousted late last year.

“If this is not what is happening now, it will happen in the not too distant future,” Madzar said of Vasiljevic’s hasty exit and the run on Jugoskandic accounts.

Yet few in the long lines that snaked out of Jugoskandic branches throughout Serbia were willing to concede they have probably been swindled.

“Jezda hasn’t fled. He just has business abroad,” Nebojsa Antonijevic contended, nervously jangling keys in his pocket. “When his business is done, he’ll be back.”

Like many standing in line, Antonijevic insisted he was not seeking to withdraw his money, only the interest his account is due.

“We’re not worried. We’re all Balkan--we’re used to standing in lines. We stand in line for gasoline and for bread, why not for our money?” Mara Petrovic asked in sarcastic tones.

Despite the devastating news that Vasiljevic has left town with his bank in trouble, Belgrade customers lashed out at Western governments and journalists as the cause of their latest distress.

“It’s not Jezda who cheats us--it’s your sanctions and threats of military intervention!” one woman waiting to learn the fate of her deposits shouted at an American journalist.

A Jugoskandic deputy director, Stevan Protic, tried to allay skepticism about the bank’s solvency at a press conference. He said Vasiljevic was on a business trip to buy a highway in Germany.

“Jugoskandic will fulfill all of its obligations to its depositors,” Protic insisted repeatedly, adding that the bank would decide within eight days how to deal with customer demands for early withdrawal.

The only money paid out at Jugoskandic branches Wednesday was monthly interest on mature accounts.

Despite palpable fear and hostility among the presumably well-armed crowds thronging the banks, there were few reports of outright violence.

“It’s a very peculiar approach people have to this situation,” observed a Western diplomat with expertise in financial affairs. “Here there is a seeming acceptance of the people to let their banks screw them over, where by contrast you would have people hanging from lampposts if this happened in the United States.”

Two years ago, Yugoslav citizens lost $12 billion in savings held by state-run banks when the government nationalized bank assets as part of a currency reform.

BACKGROUND

Banker Jezdimir Vasiljevic, a portly, cigar-chomping 44-year-old, gained notoriety last September when he lured a former world chess champion, American Bobby Fischer, out of retirement to play a highly publicized rematch against rival Boris Spassky in Yugoslavia. Vasiljevic put up a $5-million prize, won by Fischer, to entice the chess stars to ignore Western sanctions on Yugoslavia as punishment for its aggression in Croatia and Bosnia-Herzegovina. The origin of Vasiljevic’s wealth is a mystery. He left his native country a pauper 20 years ago and returned a multimillionaire. Independent Belgrade media have reported that he made his fortune smuggling arms.