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The Serbs' New Quest: Western Investment (Int'l Edition)

International -- Letter From Serbia

The Serbs' New Quest: Western Investment (int'l edition)

In April, Milan Beko, chairman of Zastava DD, the sprawling 12,000-hectare Yugo plant some 100 kilometers outside Belgrade, feared his factory would be bombed by NATO. He spent the night phoning French and Italian auto executives and ambassadors with whom he had been negotiating export agreements just days before. "I reminded them of our past and future business relations, and I offered any sort of a deal to save the factory," says Beko, 38. Beko's foreign associates quickly contacted NATO officials to point out the facility was guarded by a human shield of workers. Beko says the intercession explains why the factory wasn't completely destroyed, even though it was producing M-93 multiple-grenade launchers on the side.

While the Yugo plant was spared total destruction, others weren't so lucky. The 78 days of bombing caused some $30 billion in damage, devastating much of Serbia's manufacturing capacity. Now, with the prospect of a grim winter ahead because of little heat and electricity, Serbian execs are turning to the very countries that bombed them for help in rebuilding their economy. They need money and technical assistance.

One big problem is Serbia's president, Slobodan Milosevic. As long as he remains in power, Western investors are barred by the U.S. and the European Union from buying in. Nina Bulatovic, director of PricewaterhouseCoopers in Serbia, says: "Our clients are thinking beyond Milosevic." Her Western clients expect that as winter comes on, angry Serbs will oust Milosevic, possibly by yearend.GLORY DAYS. That's why, with "all the family silver" for sale, says Beko, companies such as Greek metals trader Mytilineos Holdings, Italy's Stet International Telecom, and Germany's Krupp Fordertechnik are shopping in Serbia. They may not be able to sign off on deals, but they are negotiating them.

Those negotiators no longer meet under the massive crystal chandelier at the Hotel Yugoslavia, Belgrade's first modern hotel. It was hit by three missiles early in the war. Torn curtains flap out of its shattered windows, and a crater marks the site of the front door. The glory days--when a concierge dressed in an immaculate uniform greeted the likes of Richard Nixon or Milosevic--are only a memory. Now, business deals are done anywhere--a McDonald's in the center of town, for instance. When the lights flicker out, execs continue their discussions by flashlight over their Chicken McNuggets.

Beko does most of his negotiating in Italy. He wants to assemble cars for Peugeot-Citroen or Fiat. He's also negotiating the sale of up to 50% of state-owned Zastava. "Our partners are waiting for NATO's go-ahead for foreign investment," he says. "They want to be in. They covet our market." Beko covets European money, which he needs to rebuild his assembly line. He will "accept any terms," he says, standing in the rubble of his bombed factory. "I don't care now if we just produce components." Foreign aid would let Zastava rebuild its factory, modernize production, and market the cars. After a decade of sanctions, it turned out just 14,000 Yugos last year, down from 238,000 in 1990.

In Pancevo, 30 km from Belgrade, Slobodan Bosiljkov, managing director of NIS Pancevo, Serbia's newest refinery, started contacting Westerners even as storage tanks smoldered from a direct hit on the last day of the war. Still suffering headaches from noxious gases released during the bombing, he is trying to arrange meetings with potential investors such as UOP in Des Plaines, Ill., and Sweden's ABB Asea Brown Boveri. The prospect of being scooped up by the enemy doesn't faze him. "The more Westerners take over this factory, the better," he says, dabbing his eyes with a handkerchief. "We want to be part of Europe again. Had our bridges been owned by the West, they wouldn't have been bombed.FEW PLUMS. Bargains abound. Last year, Serbia passed a privatization act that put 4,000 government-owned companies on the market. Before the war, France's Lafarge agreed to buy a 51% stake in cement plant Beocin for $150 million. Now, it can be had for less than a third of that. Lafarge is still interested, but the French government is holding it back.

While luring foreigners to help rebuild the economy, Serbia's execs are also working to replace Milosevic. Even Milosevic's cronies, whose loyalty was assured with important licenses and monopolies, are faltering. With the economy in bad shape, there are few such plums to be given. Factory directors at NIS have urged employees to strike, while in Belgrade, economists and businesspeople help organize demonstrations. Predrag Simic, 34, a strategist with the largest Democratic opposition movement, the Serbian Renewal Party, encourages Westerners to discreetly channel money directly to enterprises and cities run by opposition parties. "We don't have any instruments of power except these factories and the people inside them," he says. "We need investments to topple Milosevic, not guns or sanctions. We need to show Serbs a reward for overthrowing the system." With Serbia broke, Milosevic is eager to sell, even though foreign investment might weaken him by making executives less dependent on his handouts.

Investors face other problems, including the threat of anarchy. Belgrade seethes with resentment. At clubs like F6, organized-crime figures and war profiteers party till dawn, dropping $100 bills for bootleg liquor and staring glassily at their Versace-clad dates. Near F6, an angry crowd of refugees gathers around Darko Andreevic, 26, a miner from Kosovo. Standing beside the statue of King Michael, the 19th century hero who Westernized Serbia, he yells: "Is this what we fought for? Down with Milosevic!" The listeners cheer. Many Serbs believe it would take only a few agitators to ignite the popular anger.

Indeed, at the Belgrade Zoo, Dragan Vasiljkovic, a retired paramilitary leader known by his nom de guerre, Captain Dragan, tosses apples to his favorite bears and says he's waiting for the next war. He believes the 30,000 homeless soldiers evacuated from Kosovo will revolt when the weather turns cold, and many here agree with him. "Next year, I'll either be developing my Internet business or fighting in Kosovo," he says.

By then, some Serbs will be gone. With unemployment among the 11 million Serbs approaching 50%, young people who only weeks ago were spitting out anti-NATO propaganda at Internet cafes, now seek migration routes to the West. "We can't waste time overthrowing Milosevic," says Magdalena Dokic, 22, an engineer. "We must try to get out of the country.

Others are choosing another path. Milan Popovic, dressed in the ubiquitous street-hustler uniform of blue-jean jacket and khakis, directs boys hawking tobacco and chewing gum. Black marketeers are the healthiest element of the Serbian economy these days, and Popovic doesn't lack for confidence. "If we can't rely on our Western business partners," he says, "we'll have to rebuild our country with chewing gum." Without foreign investment, that could be Serbia's future.By Peter Klebnikov; Edited by Sandra DallasReturn to top

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