Yugoslavia All the Party Chief's Men

By Kenneth W. Banta/Belgrade

For more than a month, newspapers in Yugoslavia have been dribbling out the details of the country's biggest financial scandal since World War II. The scam centers on Agrokomerc, a giant food-processing firm that issued up to $400 million in worthless promissory notes to 63 Yugoslav banks. So far eight people, including the firm's president, have been arrested. The scandal, dubbed "Agrogate" by the local press, took a dramatic turn last week. As allegations mounted that he and his family were implicated, Hamdija Pozderac, 63, Yugoslavia's Vice President, abruptly resigned. He had been scheduled to begin a one-year term next May as the country's President.

Pozderac's resignation was swiftly followed by that of Metod Rotar, president of the Ljubljanska Banka, a state-run bank that had bought large quantities of Agrokomerc's promissory notes. Yugoslav officials hinted that still more resignations, and possibly more arrests, were to come. Despite some rumors to the contrary, there was no evidence that the government, which is run by Prime Minister Branko Mikulic, 59, was in danger of falling. But Yugoslav economists estimate that in 1986 alone thousands of enterprises besides Agrokomerc issued unbacked promissory notes and other flimsy financial instruments amounting to more than $9 billion. If they were all written off -- an unlikely prospect -- the enterprises and their creditors would go bankrupt, and the entire economy would collapse.

The scandal spotlighted the problems facing the country's economy, a chaotic system of decentralized enterprises and Communist central planning. Inflation is raging at an annual rate of 120%, unemployment stands at 14% and foreign debt has hit $20 billion. In July, Yugoslavia failed to make $419 million in payments owed to Western lenders. Angered by relentlessly declining living standards, more than 120,000 workers have mounted a total of 900 strikes since February. In an unusually frank interview after the scandal surfaced, Prime Minister Mikulic conceded, "We do not have a proper financial system, and our legal system doesn't function."

Agrokomerc, like most industrial enterprises in Yugoslavia, was in effect the personal fiefdom of the local Communist Party chief. In this case the boss was Fikret Abdic, 48, one of the most influential figures in the northwestern republic of Bosnia-Herzegovina, and the firm's chief executive since 1967. Stout and graying, Abdic ruled Agrokomerc in imperial style, often issuing $ directives from a villa on the Adriatic coast, to which he commuted, attended by secretaries and bodyguards, in a customized bus.

Under the hard-driving Abdic, Agrokomerc grew from a tiny milk-processing plant to a conglomerate with 13,500 employees, 1985 sales of $183 million, and products ranging from chicken parts to frozen dough. The rapid expansion transformed the firm's hometown, Velika Kladusa, from an impoverished peasant village to a prosperous community of whitewashed brick homes. But it turned out that Abdic had financed much of the expansion through a type of fraud that has become common in Yugoslavia's byzantine financial system.

The key to the swindle was the power that local Communist chiefs have over regional banks. According to Yugoslav press accounts, Abdic pressured the local branch of Privredna Banka, the Bosnian central bank, into providing guarantees for a steady flow of unsecured promissory notes issued by Agrokomerc. The guarantees made it possible for Agrokomerc to sell the notes for cash to other banks. Abdic plowed the proceeds into his ambitious development plans for the company and lavish community projects for Velika Kladusa, including an Olympic-size swimming pool.

The fraud began to unravel last January when, following a warehouse fire, police discovered falsified bank orders in Agrokomerc's records. Newspapers, relying on government leaks, began running stories on the scandal in August. Earlier this month the entire governing boards of both Agrokomerc and the Privredna Banka branch were fired, while Abdic and seven others were jailed on charges of "counterrevolutionary activities." Following demands for a purge of the Bosnian hierarchy from Communist leaders in Belgrade, the capital, 50 functionaries were expelled from the republic's party organization.

Though the scandal has shaken public confidence in its banks, some of Yugoslavia's 23 million citizens have found reason to cheer. They say that the country's cumbersome rotating leadership, which has ruled since the death of Dictator Josip Broz Tito in 1980, may now have the opportunity to push through needed reforms. On the reformers' list are such measures as liquidation of money-losing state companies, closer supervision of regional banks by central authorities, and curbs on the ability of regional governments to veto national legislation. Moreover, the Yugoslav press played an unusually aggressive role in uncovering the fraud, and optimists hope that the high-level resignations ^ and arrests indicate that the days of official cover-ups are ending.

"These kinds of things went on in the past and no one wrote about them," said Alexander Zigic, 23, a Belgrade University student who works on a popular youth radio program. "This is a new openness and accountability. It is a kind of democratization." The question is whether it is coming too late. Said a Western diplomat in Belgrade: "This is perhaps Yugoslavia's last chance to get its economic house in order. If it doesn't, things will get worse and worse and worse."