Serbia's Leader Risks Street Protests to Keep Iron Grip on Economy

Vladimir K. is just the kind of businessman who could jumpstart Serbia's faltering economy.

His chain of upscale bakeries turns a nice profit. But now he says the local authorities in Belgrade, Serbia's capital, want to take one of his stores away from him.

"It is almost impossible to make a proper living here," he says. "You have no idea. We pray that things will change."

Mr. K. is not alone. In fact, local city councils control many of Serbia's most important businesses - most electricity plants, many manufacturing facilities, the state-run airline, and a critical munitions factory in the south.

These local councils have long been dominated by the socialist party of President Slobodan Milosevic. And Mr. Milosevic's sway over local party officials has been a key element in his ability to keep pervasive control over Serbia's economy - and set up web of cushy patronage jobs that beget loyalty among officials.

So when the opposition won control of councils in Belgrade and several other key cities in recent elections, Milosevic's power was threatened. But when he overturned the election results the people took to the streets in the biggest and most sustained protest against the government since Milosevic came to power nine years ago. Day after day, the opposition is able to muster crowds of 100,000 to demand that the election results are reinstated.

On Wednesday, the opposition claimed the biggest demonstration yet in Belgrade with more than 150,000 people in the streets. Discontent over Milosevic's economic policies has swollen the crowds.

International agencies say one-third of the population lives in poverty. The Red Cross feeds thousands of people in Serbia every day. Unemployment is 50 percent; annual inflation 100 percent.

After three weeks of mass demonstrations and no official response, the authorities yesterday made the first sign of movement. The Serbian government adopted a number of populist measures, including a reduction in electricity bills, and prompt payment of pensions. And, in an apparent attempt to open talks with the protesters, Milosevic began sacking senior socialist officials. In a one-sentence report, state television announced the resignation of the mayor of Serbia's second city, Nis.

Diplomats said the most "blatant" electoral fraud took place in Nis, where voter returns were allegedly altered by hand. The socialist mayor, Mile Ilic, ran the city as his own fiefdom. He attracted personal criticism from opposition demonstrators in a way no other local politician had.

Despite this, the authorities made no announcement on the opposition's minimum demand - recognition of election victories - and for the time being, the huge demonstrations are continuing.

To lose control of the city councils would severely threaten Milosevic's power. Belgrade's city council earlier this year, for instance, assumed control of Serbia's last politically independent television station, Studio B, by means of a court order.

The council argued that the privatization years earlier of Studio B was invalid, and the city was therefore still the owner.

"They are thieves," says one Studio B employee who lost his shareholding in the company when the city council took over.

Many think the takeover was ordered by Milosevic, who was reportedly unhappy about the station's independent coverage of politics. The socialists' grip on power in part depends on maintaining their grip on the media. If the opposition controlled Belgrade's council they would also control Studio B.

Other television stations in Serbia are under independent ownership, but their coverage of the huge demonstrations is either nonexistent or mirrors that of state television. BK TV is owned by Dragoljub Karic, who is seen as one of the government's favorite businessmen - and one of the country's richest. Having successful businessmen close to him is also appears to be Milosevic tactic for retaining power.

Mr. Karic and his brothers started out as musicians in a nightclub band. But he denies their success came with political help.

"In every country it's the same," he says. "If you don't have good relations with the state, you don't have good business. But there's no secret, we succeeded by working hard."

But Karic's friends say his huge empire would suffer at official hands if his television station caused problems for the Milosevic administration.

He has a lot to lose: Karic's company is the biggest privately owned multinational in the former East bloc. It deals in mobile phones, construction, banking, and owns a television station.

But business has taken a downward turn because of the turmoil over the election results.

Another whose business has suffered is Vladimir K. Every day he puts up metal shutters at his city center shop - in case of a violent clash between police and protesters - and turns customers away. But, he says, it is a price he is prepared to pay to change Serbia.