Accusations of Cronyism in Yugoslavia’s Other Republic

Montenegrins often quote the old saying that you can’t choose your relatives but you can certainly pick your friends, and President Milo Djukanovic has done well with his choice of Dragan Brkovic.

Djukanovic, the West’s closest ally in its campaign to topple Yugoslav President Slobodan Milosevic, can’t pay pensioners, civil servants and a growing police force in Montenegro--Yugoslavia’s secondary republic--without tens of millions of dollars provided by the U.S. and European nations each year.

But thanks to a multimillion-dollar favor from Brkovic, a wealthy importer-exporter who just a decade ago was eking out a living selling auto parts for a state-run firm, Djukanovic has made sure that some of his most important supporters here live and work in luxury.

In the process, critics say, Brkovic and his foreign partners may end up controlling Montenegro’s major industry: the state-run aluminum plant.

Djukanovic’s opponents see that prospect as another sign of the spreading corruption and “crony capitalism” that have already resulted in allegations against the foreign minister and others--corruption they say Western governments have chosen to disregard because Montenegro is central to their strategy for containing Milosevic.

“But that behavior makes our people subservient,” said Mirjana Vujanovic, a business economics professor who advises Montenegro’s pro-independence Liberal Alliance. “Milo is a god now because he has the support of Western countries, and people are ready to accept him as a god. They think: ‘Money will come. We don’t have to work.’ ”

Djukanovic insists that he runs a clean government in Montenegro, which makes up, together with the larger republic of Serbia, what is left of Yugoslavia after a decade of war. A corrupt president couldn’t survive politically as long as he has in a republic with only 630,000 people, he says.

“In such a society, everything easily and quickly gets found out,” Djukanovic said. “And as you can see, in this society I have managed to survive for 10 years, and to win the elections.”

In October, government ministers, judges, officials and academics moved into 54 apartments appointed with marble corridors, oak parquet floors, climate-control systems, intercoms and built-in closets. These are comforts rarely seen in a republic where the average worker takes home $85 a month.

One of Tiny Republic’s Most Powerful Firms

The civil servants’ rent-free units are in a complex built by Brkovic’s Vektra, one of the most powerful companies in Montenegro. The complex also contains government offices furnished to what Brkovic calls “the most modern European standards.” The ministers’ proximity to work led opposition politician Dusan Jovanovic to ask in parliament whether they planned to show up in their bathrobes.

Brkovic insists that he is the one taking the bath on the 1996 deal. He received $1.6 million in cash and the right to collect $22 million in debt from the government-owned KAP aluminum mill, which hasn’t paid its creditors for years. In exchange, he gave the government most of the new building, which he says is worth more than $50 million.

Brkovic founded Vektra in 1990, importing 1,000 Peugeot cars per year until 1992. His company also worked with the KAP plant, which soon became his main concern after the U.N. imposed sanctions on Yugoslavia in May 1992.

Brkovic said that because he helped the plant import raw materials and export its aluminum in violation of the sanctions, the plant owed him millions of dollars even before the 1996 deal. But after the deal, its debt to Vektra swelled to $57 million, Brkovic claims, making his company the plant’s largest creditor. An audit by a French bank has put the firm’s total debt at $201 million.

Brkovic says he saved the aluminum plant--which accounts for 53% of the republic’s official economy, excluding government jobs and services--because he is a patriot. If Montenegro’s biggest industry collapsed, Djukanovic’s pro-West government would too, he says.

But so far, Brkovic says, he has received no money and no aluminum from the plant.

Nebojsa Medojevic, Montenegro’s leading anti-corruption crusader, suspects that Vektra may be secretly cooperating with a foreign partner in a bid to take over the plant, where Brkovic was a janitor while a student in 1974.

In October 1998, the government signed a five-year contract with one of Brkovic’s biggest foreign partners--Swiss commodities-trading giant Glencore International--to manage KAP. Three months later, Glencore hired the government’s chief negotiator on the contract, a close friend of Brkovic, to be the plant’s general manager, Medojevic says.

“Officially, the government is saying it will privatize KAP,” Medojevic said. “But I’m afraid that the privatization has already happened. It’s Vektra’s privatization.”

The sell-off to Djukanovic friends and their partners of other state-owned properties--such as seaside hotels, the renowned Niksic brewery and a profitable health spa--has prompted allegations of “crony capitalism.”

Critics charge that people close to the president have used state-owned firms, such as freight shipper Zetatrans and tobacco company Duvanski Kombinat Podgorica, in a multimillion-dollar cigarette smuggling racket tied to the Italian Mafia.

In another case, Montenegrin Foreign Minister Branko Perovic was forced to resign in December after an Italian court summoned him and 26 others, including suspected members of the Mafia, to answer allegations of cigarette smuggling. Perovic insists that he will prove his innocence when the trial begins later this year.

Medojevic, the anti-corruption crusader, belongs to the G-17 group of independent economists, which is backing efforts to remove Milosevic. He thinks Djukanovic is weakening Montenegro at a time when it faces a possible war of secession against Yugoslavia by giving power to a new oligarchy instead of building a real democracy.

“In the Montenegrin case, transition means corruption,” Medojevic said. “Montenegro today is very close to repeating the Russian scenario of 1992--unfortunately, under the instructions of the international community, especially from the United States.”

With its mountain tracks and long coastline, Montenegro has always been well suited to trafficking in contraband. After the U.N. imposed economic sanctions against Yugoslavia and smuggling became a matter of survival, the republic became one big black market.

Analysts estimate that at least 40% of Montenegro’s economy is based on smuggling goods such as stolen cars, tax-free cigarettes and drugs, with help from organized crime in Italy and Albania.

Black Market Cuts Into Tax Revenues

In part because smugglers and black marketeers don’t pay taxes, Djukanovic relies heavily on foreign aid to pay the 58% of the population that depends on his government for salaries and pensions.

The U.S. government gave $55 million in financial aid to Montenegro last year, has approved another $55 million for this year and will add $35 million if Congress approves, said Vinka Jovovic, a media aide to Djukanovic. The European Union has donated $100 million since 1998, she added.

Medojevic says Montenegrins learned about breaking sanctions from Milosevic’s circle.

“In the first days of the sanctions, the Montenegrin government was very confused, and guys from Serbia came and taught our guys about sanctions-busting--how to extract the hard currency savings from the citizens, how to organize big banks and so on,” Medojevic said. “Around Milosevic there were experts; around Djukanovic there were just friends. It’s a dramatic difference.”

Brkovic, who describes himself and Montenegro’s president as “just close family friends,” insists that he met Djukanovic in 1993, long after Vektra got into the aluminum trade.

During a recent two-hour interview, Djukanovic dismissed the corruption allegations as chatter from evil people with too much time on their hands.

“I consider these to be provincial small talk and rumors,” Djukanovic said. “There is a clear way for everybody to become rich: to be clever and willing to work. Unfortunately, these criticisms come from those who are not prepared to work but just to watch others work.”

Most Montenegrins are paid in German marks as the government, on the advice of Johns Hopkins University economist Steve Hanke, tries to wean the republic from the Yugoslav dinar, which is practically worthless outside Serbia.

The “parallel currency” policy is fueling inflation, increasing the demand for foreign money to keep Montenegro stable enough to challenge Milosevic. Prices rose 45.6% in the last two months of 1999 alone, the parliament was told in February.

Foreign aid also is essential for Djukanovic’s buildup of a police force needed, he says, to counter 14,000 Yugoslav troops based in the republic and about 900 Milosevic loyalists in the 7th Military Police Battalion.

In the three years since Djukanovic first split from Milosevic, the ranks of the Montenegrin police force have swelled sixfold to more than 15,000.

Opposition politician Jovanovic, a former financial police chief and director of public funds, says Djukanovic fired him in July 1997 because he insisted on investigating allegations of police links to tax evasion by a company called ASI.

The company, which Jovanovic claims was set up by men close to Djukanovic and the police, did a cash business in scarce imported goods, he said. Most of the buyers were in Kosovo, which is a province of Serbia.

“It was a sign that other similar companies could be formed. I was personally offered 3% of the trade of one of them [a cut of almost $50,000 a month] just to guarantee that they would not face the financial police,” Jovanovic said.

The president’s critics also claim that Aco Djukanovic, the older brother of the president, has profited from family ties.

Aco has a two-story villa with creamy white walls of marble in the village of Bijela. A camera watches over the front door, and a Doberman pinscher guards the private beach.

Milo Djukanovic’s opponents claim the brother got rich from the cigarette smuggling trade by, for instance, requiring traffickers to fuel their speedboats--for double the market price--at one of two gas stations that he leased after the businesses were privatized.

Despite calls from the president’s office, Aco Djukanovic was not available for comment. Milo Djukanovic said he had no doubt that his brother gained the gas station concessions through legal bids.

“I am not informed that he has achieved a significant wealth, or maybe he is hiding it from me,” the president said. “And I know very well that he has been out of this [gas] business for the last seven or eight years.

“Everything else is a matter of his business operations that I am not involved in, and I am not interfering with, just like he’s not interfering with mine.”