090112ED

Page 35122

1 Mr. Karnavas to proceed.

2 MR. KARNAVAS: Thank you, Mr. President, Your Honours.

3 Examination by Mr. Karnavas:

4 Q. Good afternoon, Mr. Cvikl.

5 A. Hello.

6 Q. As I understand it, for your testimony today, you prepared a

7 PowerPoint preparation. Is that correct?

8 A. Yes, that's correct. I prepared a short PowerPoint presentation

9 to summarize the report which has been prepared.

10 Q. All right. And because you're going to be speaking English and I

11 speak English and because we have these terrific translators that do need

12 some time to get it right, I would ask that you pause a little bit after

13 hearing the question before answering.

14 A. Okay.

15 Q. Okay? Speak slowly and enunciate. That would help.

16 Now, as I understand it, you did prepare a report, and that would

17 be 1D 03111. Is that correct? Could we have it on the screen, or do you

18 have it with you?

19 A. I have that report with me in one of the binders, and it's the

20 report which I prepared.

21 Q. Okay. And just a couple of questions on this report before we

22 get into it. Who prepared this report?

23 A. That report has been prepared by myself on the basis of the

24 documents which were provided, many from you.

25 Q. And if we were to turn to Roman numeral -- page Roman numeral

Page 35123

1 vii, the preface portion of it, there we can find a section on your

2 educational background and experience; is that correct?

3 A. Yes, that's correct. That's a short CV of myself.

4 Q. And then if we go on to the following page, which would be page

5 Roman numeral viii, under the section "Object of the Analysis," and we

6 continue on, we see more or less the tasks that you were assigned, the

7 documents that you reviewed, and the individuals that you met with and

8 spoke with in preparation for your report; is that correct?

9 A. That is correct. On these mentioned pages, there is, you know,

10 what I have done, analyse the documents which were provided for me as far

11 as the documents related to the socioeconomic finance key issues in the

12 -- first, Croatian community, and then later, Croatian Republic of

13 Herceg-Bosna, and then for that I had been utilizing the documents

14 provided. Plus, I have also identified some additional documents that

15 explain what was happening on the economic front during the collapse of

16 Yugoslavia and later on in different parts of Yugoslavia.

17 Q. All right. Thank you. And, of course, we can look at the table

18 of contents, which is on Roman numeral I, and it goes on, I believe, into

19 Roman numeral III or IV, and very briefly, the PowerPoint presentation

20 that you prepared for your testimony, can you please explain to us

21 whether that indeed follows and is consistent with your report, or does

22 it contain anything -- any material that is not in the report?

23 A. No. The PowerPoint presentation which I had prepared is based on

24 the report. It is the presentation which summarize what is in the report

25 and, of course, I wanted to summarize around 38 slides, the most

Page 35124

1 important events for the Judges and for the -- all of you to understand

2 the essence of my report.

3 Q. And I also understand that along with --

4 THE INTERPRETER: Microphone, please.

5 MR. KARNAVAS:

6 Q. I understand that along with this PowerPoint presentation, there

7 are a list of documents somewhere in the neighbourhood of 40 or so,

8 perhaps a few more. Are those -- are all those documents referenced in

9 your report?

10 A. Practically all of them are referenced in the report. A couple

11 of them that I have been -- that were submitted to me later, which I

12 could not include it in the report, but most of the documents, they are

13 in the report and even additional documents, they are in -- basically

14 just describing what has been happening and what I described in the

15 report as presented to the Court.

16 Q. And who presented you with those documents, the additional ones

17 that are not in your report?

18 A. The additional documents were presented to me by you.

19 Q. And when was that, sir?

20 A. That was over the last weekend when I came to The Hague.

21 Q. All right. And when we get to them, I would kindly ask you to

22 point out that these are additional documents.

23 A. I will do that.

24 MR. KARNAVAS: And for the record, Your Honour, they have been

25 provided to everyone.

Page 35125

1 Q. All right. Now, if we could turn to the PowerPoint presentation

2 and get right into it. And basically, look at slide number 3. In here,

3 in this slide you provide us a basic outline of your professional

4 experience, and I would like to start with the bottom, with the very last

5 one, that is, your current position. You indicated that you were the

6 general secretary and Chief of Staff of the government of Slovenia.

7 Could you please explain that position for us?

8 A. Yes. As of November 22nd, when the new Slovenian government, the

9 Karnavan [phoen], met on its first session, as the first point of agenda

10 of the first session on the proposal of the prime minister, the

11 government had elected me as the general secretary or Chief of Staff of

12 the government. It is the highest administration post in the Slovenian

13 administration, and I work closely with the prime minister, but I have a

14 team organised in the general Secretariat of the government, around 120

15 people directly under me and then some couple of hundred in different

16 small departments. And we coordinate the work of the government, the

17 three main bodies of the government, one to deal with the -- mainly what

18 we will say economic issues; that one is shared by one of the ministers.

19 Then there is the other one which deals with the state organisation and

20 public affairs that is chaired by a Minister for Internal Affairs. Then

21 there's the third body of the government, the so-called Body For

22 Administration and Personnel Issues, which are chaired by myself.

23 Government meet in this three committees, and then each Thursday morning

24 at 10 o'clock there's the session of the government, and I under the

25 guidance of the prime minister put together the agenda and then make sure

Page 35126

1 that all the decisions of the government are prepared in according to the

2 bylaws on how it should be done, and then also after the decision are

3 made they are appropriately distributed to the country or to the Official

4 Gazette.

5 Q. All right. And when you said November, the new government, this

6 was November 2008?

7 A. Yes, this is November 22nd, 2008. We had elections on 21st of

8 September, 2008. I run these elections, and then we two months later got

9 a new government.

10 Q. All right. It's important that we have the time-frame so that we

11 all know the period in which we're speaking of.

12 Now, if we move from your current position and we move backwards,

13 I see that you are also -- before this position, you were minister of the

14 EU affairs in Slovenia. Could you please briefly describe that position.

15 A. Yes. In the year 2004, just before we entered formally on May

16 the 1st, 2004, to the European Union, I was appointed, elected in Slovene

17 parliament as the minister of European affairs, where I worked as one of

18 the members of the council of the ministers responsible for general

19 affairs issue, and then I also coordinated the work of the ministers of

20 Slovene government when they are dealing with European Union matters, and

21 I represent the Slovene government in Slovene parliament when we are

22 identifying the most important issues that we have to agree as far as the

23 position of Slovenia is concerned in relation to the EU matters.

24 Q. All right. And prior to that, I understand from the first slide,

25 you were a commercial banker, and if you could briefly describe that

Page 35127

1 position as well as the one before that where you are the state secretary

2 ministry of finance.

3 A. Yes. In the period '98 to 2004, that's the period after I

4 returned home from Washington where I was with the World Bank, I first

5 was a team leader of an analytical research team in the Nova Ljubljanska

6 banka, and later in 1998 I become the state secretary or a deputy

7 minister of finance, if one can say so, for the public finance public

8 expenditures management issues in Slovenia, which means I was responsible

9 for preparation of the Slovene budgets, the central government budget as

10 well as the budget of the other para-fiscal or para-budgetary funds, the

11 health budget, the pension budget, and I was at that time also head of

12 the negotiating team, which in period 1998, 2000 was negotiating with

13 European Union issues of approval of the EU-related legislation in

14 Slovenia environment as a part of Slovenia becoming a member of the

15 European Union.

16 Q. All right. Now, I'm going to skip over your activities with the

17 World Bank. We'll get to that. But first, if you could talk a little

18 bit about the first bullet on frame 3 of your PowerPoint presentation

19 when you are a macroeconomist. This would have been for Slovenia. If

20 you could briefly discuss that position.

21 A. Yes. I concluded my studies in 1983. The studies finished with

22 my thesis on the issues of the -- mainly the so-called monetary supply

23 money-demand issues in market economy, and I started to work as part of a

24 team in, at that time, National Bank of Slovenia, which was part of the

25 federal monetary system of the former Federation, Socialist Federal

Page 35128

1 Republic of Yugoslavia. And in the period 1983 to 1991, in that team we

2 have been very much following what was happening in Yugoslavia and what

3 kind of reforms should have been undertaken for Yugoslavia to remain as

4 an economically sustainable society. However, unfortunately, by late

5 1989 there was a hyperinflation. Early '99 [sic], there was reforms

6 initiated by then -- last prime minister Mr. Markovic. Those reforms

7 were not successful, and by the summer of 1990, I was appointed a member

8 of a narrow team, which in the central bank and in other Slovene

9 government institutions start with preparation for the independence of

10 Slovenia. And as a part of that, I single-handedly wrote a couple of

11 legislation, Bank of Slovenia Act, the New Central Bank of Slovenia Act,

12 as well as calculated the amount of money that need to be printed in

13 order to undertake the monetary transition once Slovenia become

14 independent in 1991.

15 Q. This was done all prior to the break-up of Yugoslavia?

16 A. That was done all prior to the break-up of Yugoslavia. We have

17 practically on the eve of the referendum, which was held on Slovenia on

18 the 23rd of December, 1990, we had prepared in the central bank and in

19 other government institutions legislation needed for Slovenia, first, of

20 course, go for Slovene -- cities as to go to the referendum to make a

21 decision whether they would want Slovenia to become independent country;

22 and six months later, we had made arrangements, which, of course, created

23 independent country, and I was part of that team up to early August 1991.

24 Q. All right. Now, let's briefly speak about your experience with

25 the World Bank, and the reason I kept that last because as I understand

Page 35129

1 it, it's in your report in your CV at some point with the World Bank you

2 were in Bosnia Herzegovina. So briefly discuss your experience with the

3 World Bank.

4 A. I -- in late 1990, early 1991, I went on a concur [phoen] with

5 the World Bank, the so-called young professional concur, where I was

6 elected in a group of 30 young professionals that were employed with the

7 World Bank in 1991. I started with two short 6-month assignments from

8 September 1991 until September 1992, one in Tanzania and one in the

9 industry and energy sector in the European department. And then in late

10 -- second half of 1992 and 1993, I was an economist for the former

11 Yugoslavia public of Macedonia. I led a team. I was a task manager, and

12 that team prepared in the course of late 1992 and early 1993 the first

13 economic recovery loan for Macedonia, for Former Yugoslavia Republic of

14 Macedonia, where we, of course, ensured that Former Yugoslavia Republic

15 of Macedonia would become member of the World Bank.

16 In the summer of 1994, I was asked by then-director of the

17 European department, Mr. Kamandervis [phoen], to form a small team of

18 myself and the head of the World Bank, Rezda [phoen] mission in Warsaw to

19 start establishing contacts with officials of, at that time, Republic of

20 Bosnia and Herzegovina because we need to assure that -- after all other

21 former Yugoslavia republics became member of the World Bank, we wanted to

22 ensure that, also, the World Bank and the IMF would undertake necessary

23 economic work for the -- for the Bosnia-Herzegovina to inherit the place

24 of Bosnia-Herzegovina in the World Bank. And then I was there a part of

25 the team which prepared the economic work. In 1995, we travelled

Page 35130

1 extensively and have a lot of contacts with officials from

2 Bosnia-Herzegovina, and in early 1996, in February 1996, post-Dayton

3 period, I also organised the first post-war reconstruction or

4 international donors' conference in middle of Sarajevo, and then I

5 continued to work on Bosnia-Herzegovina for another half a year or 9

6 months, and then in early 1997 I returned back home to Slovenia.

7 Q. And just very briefly, from that experience, I understand it was

8 in 1994 that you went to Warsaw, your first trip into BiH was in 1995,

9 and that you were in and out all the way to 1996. Did you draw any

10 conclusions from that experience?

11 A. Well, the main conclusions which we draw at that time were

12 summarized in this report, the Bosnia-Herzegovina toward economic

13 recovery --

14 Q. Okay, hold on, because every time you refer to a report, we need

15 to make sure that we are referring to a document, and I understand that

16 this is 1D 02967; is that correct? If you look at your binder, which is

17 --

18 A. Yes.

19 Q. That would be 1D 0 --

20 A. That is correct.

21 Q. Okay. And so briefly discuss this particular report.

22 A. This report was the first piece of economic work which the World

23 Bank prepared. It was a World Bank country study, but it has two

24 purposes: One, it was to present to the international community at large

25 what were economic events after the war -- after the Yugoslavia ceased to

Page 35131

1 exist, after the war started in Bosnia-Herzegovina, because we need to be

2 sure in the World Bank that the unpaid or un -- current debt, which was

3 at that time due from Bosnia-Herzegovina toward the World Bank, would be

4 covered; and second, we work on this report together with International

5 Monetary Fund and the EU institutions because we wanted to analyse, what

6 are the post-war reconstruction needs of Bosnia-Herzegovina?

7 Q. All right. Now, you indicated that initially you were in Warsaw

8 in 1994, and while you were there, were any one or any missions or any

9 high-level personnel coming from Bosnia-Herzegovina to visit the World

10 Bank officials that were there to -- for the purposes of

11 Bosnia-Herzegovina?

12 A. Yes. We at that time were not able to travel into

13 Bosnia-Herzegovina, what would be usually the way the World Bank does

14 economic work. So we have asked authorities -- I met in September,

15 October 1994 for the first time authorities from, at that time, the

16 Federation of Bosnia-Herzegovina. So we have asked them to come to visit

17 us in the Rezda mission of the World Bank, and then there was the World

18 Bank team and authorities from Bosnia-Herzegovina where we exchanged

19 opinions, and we also looked into the documents which they brought to us.

20 Q. And do you recall some of the individuals that came on behalf of

21 Bosnia-Herzegovina there, whether it be for the Federation or the state?

22 A. Yeah. A lot of them, for example, Mr. Enes Gotovusa, he was a

23 high official of the Federal Secretariat for industry; Sefika Hacizowic

24 [phoen] from the Minister of Finance; Obrad Piljak and Kasim [phoen]

25 Omicevic from the, at that time, National Bank of Bosnia-Herzegovina; Mr.

Page 35132

1 Neven Tomic was also coming to visit us; Mr. Zlatko Bas [phoen], Mr.

2 Petar Bosnic [phoen], a lot of officials, and they are actually

3 mentioned, also, in that report.

4 Q. Okay. Now, just very quickly, if we do look at this particular

5 document, 1D 02967, on Roman numeral VII under "Acknowledgement," you

6 know, we see several names including Mr. Tomic and Dr. Jadranko Prlic.

7 Are these the names that you are referring to that either came to Warsaw

8 or later had contact with the World Bank in the preparation for this

9 report?

10 A. Yes. These are the officials from the state federation and also

11 Serb republic government which we were -- that we were meeting throughout

12 the preparation of that report, and so these are the names, Mr. Gotovusa,

13 Mr. Tomic, Mr. Prlic, Mr. Piljak, Belanger [phoen], and as you can see,

14 also, as a part of the World Bank team there is my name according to the

15 alphabetic order. But these are the people that we were meeting in 1994,

16 1995, and 1996.

17 Q. All right. And let me go back to one of my earlier questions,

18 which was in 1994, 1995, 1996 when you went to Bosnia-Herzegovina and you

19 were involved in preparing this particular report among with others, did

20 you personally draw any conclusions as far as, say, the Federation was

21 concerned?

22 MR. STRINGER: Excuse me, Mr. Cvikl. Your Honour, we're going to

23 object to any testimony that goes outside the confines of the expert

24 report that's been submitted, and I don't know whether the witness is

25 going to do that, but it seems to me that counsel is asking for testimony

Page 35133

1 that is not within the bounds of the expert report. I think it's

2 improper. He's here to testify about the report.

3 MR. KARNAVAS: If I may ask a couple of background questions,

4 Your Honour, and then if Mr. Stringer still wishes to object, then I'll

5 respond to the objection.

6 JUDGE ANTONETTI: [Interpretation] For the context, go ahead.

7 MR. KARNAVAS: All right.

8 Q. Now, Mr. Cvikl, you wrote this report, and as I understand at

9 some point you were asked to draw some comparisons. Is that correct?

10 A. Exactly.

11 Q. And you also -- we can see towards the end of your report that

12 you have a whole section on the conclusions that you reached. Were part

13 of those -- the questions that I'm eliciting right now as far as

14 observations that you made in 1994, 1995, 1996, within the Federation,

15 are they part of your report?

16 A. To a certain extent they are because I have -- of course, in

17 preparing for my report I also used this report, and I was recalling what

18 was happening in the 1994, 1995 period, and of course at that time we

19 have been travelling in Bosnia-Herzegovina from the south. We flew into

20 Split, and then from there we went by cars into Bosnia-Herzegovina, into

21 the Federation of Bosnia-Herzegovina, and actually, first meetings could

22 not even take place in Sarajevo. They took place in the region of --

23 around Mostar in Medjugorje, and there I could identify and I've seen a

24 kind of very vibrant economy.

25 Q. Let me stop you right here before we get too far ahead of

Page 35134

1 ourselves. The report you cited, you know, in helping your report, which

2 -- we're speaking about 1D 02967, Bosnia-Herzegovina Towards Economic

3 Recovery; is that correct?

4 A. That is correct.

5 Q. And the observations that you -- that I was eliciting from you,

6 are they contained in this report which is cited, which is cited as one

7 of the references to your report?

8 A. No. The analysis which I make for -- you know, in preparation of

9 this analysis of the economic measures, we were not during the 1995,

10 1994, 1996 period going into very detailed analysis of what is happening

11 in a different part of the Federation of Bosnia-Herzegovina because our

12 purpose at that time was of a different nature.

13 We, of course, need to identify whether the Bosnia-Herzegovina as

14 such is sustainable, so that once the World Bank would have again the

15 financial relation with this very country, we would make sure, we would

16 be sure that, you know, both the debts and the new loans that might be

17 lent would be -- the country would be able to pay back. So in that

18 period, we were not going into a very detailed analysis of the

19 environment which was in different parts of Bosnia-Herzegovina.

20 Q. All right. Thank you. But the questions that I'm asking you

21 now, do you know whether to any extent you commented on them in your

22 particular report, that is, what you found in Bosnia-Herzegovina when you

23 arrived there as part of the World Bank mission?

24 A. When, of course, we were as a part of the World Bank mission,

25 there were the World Bank mission, and at the time there was also the IMF

Page 35135

1 mission. The International Monetary Fund was more focusing on the

2 macroeconomic issues while we were focusing more on the ability of the

3 country to somehow, you know, have a vibrant economy.

4 Q. But Mr. Cvikl, I would kindly ask you to listen to my question

5 and try to be as precise as you can. For instance, if you were to look

6 at the conclusionary part of your report where you do make references;

7 for instance, if you would look on page 188, final remarks on the

8 economic and social development situation at the end of the war, 1994,

9 1996. Okay. So that would -- and then you have the following page, the

10 situation in 1995 on page 190, you have a table that you're referring to.

11 You speak of the Muslim majority area, the Croat majority area. So my

12 question is, rather, very precise. When I'm asking you questions about

13 what you observed and what you saw on conclusions that you drew from your

14 personal experience in Bosnia-Herzegovina in 1994, are they included into

15 your report?

16 A. Well, they are certainly included in the report based on the

17 information which has been provided to me at that time, which we

18 identified in the World Bank report and also in the IMF recent economic

19 developments report.

20 Q. Thank you.

21 MR. KARNAVAS: Now, if Mr. Stringer still wishes to object --

22 JUDGE ANTONETTI: [Interpretation] Mr. Witness, I have a follow-up

23 question to put to you. I was looking at the report to be found in

24 Exhibit 1D 0967. That is the World Bank report on the economic recovery

25 in Bosnia-Herzegovina. Now, this report, I understand that you were

Page 35136

1 involved in drawing up this report. Were there many such experts drawing

2 up this report, or is this report the result of your own personal work?

3 THE WITNESS: This report has been prepared by a team of the

4 World Bank economists. I was a member of the team, and as in all World

5 Bank reports, such reports are then approved by the, you know, bosses of

6 that team, and that is stated on Roman VII of that very report. At that

7 time, this was Mr. Miseno [phoen] and Kristin Walik [phoen]. But I was

8 part of the team, and I was the first World Bank economist for

9 Bosnia-Herzegovina. So in 1994 and early 1995, I was then the one that

10 was collecting the most information. Once we were preparing the report

11 and we had meetings with a group of officials, there were also other

12 colleagues working along me.

13 JUDGE ANTONETTI: [Interpretation] Very good. To your knowledge,

14 this World Bank report on the economic situation in Bosnia-Herzegovina

15 drawn up, it would appear published in June 1996. To your knowledge,

16 were there other reports coming from other institutions, for example, the

17 European community or other countries; or to your knowledge, is it the

18 only exhaustive report on the economic situation in Bosnia-Herzegovina?

19 THE WITNESS: In addition to the World Bank country study

20 published in June 1996, and that is usually done after, you know, the

21 report is utilized in the internal work of the World Bank, the very

22 important other document is the IMF report, Recent Economic Developments,

23 which has been also cited as part of my -- as part of my report. In the

24 report, in my report, I cite that under the footnote 1 on page -- on page

25 Roman (vii), and that is the recent economic development report, and that

Page 35137

1 is the document 1D 02959. That is the other very important or, you know,

2 really available report, IMF staff country report, recent economic

3 developments number 96 over 104. And the team that was preparing the IMF

4 report and the team that was preparing the World Bank report worked

5 together very extensively, and we have also worked closely with European

6 Union institution, especially the representative of the European

7 Commission, mainly during the time of the preparation for the first

8 international donor conference in February 1996, but I'm not aware

9 whether, you know, at that time -- because Bosnia-Herzegovina was not

10 even negotiating or being close to become the member of the European

11 Union whether there was any other such report prepared by others.

12 JUDGE ANTONETTI: [Interpretation] If I understand well, the IMF

13 report and the World Bank reports are reports in -- back in 1996 are

14 report that we can describe as objective reports because they were

15 drafted by world-renowned organisations and which are the subject of

16 major consideration in international economic circles; and therefore, if

17 I understand well, these two reports are indeed marked by objectivity?

18 THE WITNESS: Yes, I would agree with you. These are objective

19 reports; they are prepared by, you know, two international financial

20 institutions for a very clear purposes; and they followed scrutiny and a

21 good economy's work that, of course, is known for these two institutions.

22 JUDGE ANTONETTI: [Interpretation] Very good. It seemed to me

23 important to specify that. Mr. Karnavas, you may proceed.

24 MR. KARNAVAS: Thank you.

25 Q. Mr. Cvikl, going back to my original question, when you went into

Page 35138

1 Bosnia-Herzegovina in 1994 to 1996, did you draw any conclusions based on

2 what you saw as a result of your work.

3 A. I was part of the team, and we present these conclusions in that

4 very report, and we have of course seen that the way, especially the

5 Federation of Bosnia-Herzegovina at that time, is organised, the way its

6 prepared would enable us as the World Bank to go ahead with both the

7 membership and providing loans for, you know, taking care of the post-war

8 reconstruction issues.

9 Q. All right. If we go on to the next slide --

10 THE INTERPRETER: Microphone, please.

11 MR. KARNAVAS:

12 Q. If we go on to the next slide, which is slide number 4, just very

13 quickly, you already spoke about the methodology to some extent in one of

14 your initial answers to one of the initial questions, and sorry, I just

15 want to focus a little bit on the structure of the report. In looking at

16 this slide, we see that you begin with the background chapter on Yugoslav

17 decentralisation. Perhaps you can explain why it was necessary to start

18 there.

19 A. Well, for understanding both by economists and non-economists

20 what was happening in Yugoslavia, especially in the '70s and '80s, it is

21 very important to present what were the kind of overall framework in

22 former Yugoslavia. And the very important feature of Yugoslavia was it

23 was extremely decentralised country, and that is of course is best seen

24 by very decentralised fiscal system wherein actually many small points at

25 the level of local communities major decisions on state and social

Page 35139

1 expenditures are made in a form of a very special para-fiscal funds. So

2 in order, you know, to present and to somehow analyse what was happening

3 later on in 1991, 1994 period on the territory, I analysed and I

4 presented to the analysis of at that time Yugoslav constitution and

5 organisation the way it was done what had been happening on the fiscal

6 and on the monetary front. And that --

7 Q. Okay. We're going to go step by step. So let's go on to the

8 next slide, and that would be slide number 5. And over here, and the

9 reason I want to go to this particular slide is before we go into any

10 great detail of the report, starting with the former Yugoslav system, as

11 far as your particular report is concerned for what you did in this

12 particular case, having looked at the documents, analysed them, met with

13 individuals, and what have you, did you draw any conclusions? And if so,

14 can you please briefly discuss them?

15 A. Yes. This main conclusions are presented in this -- my

16 presentation on page 5. What was happening in Bosnia-Herzegovina and

17 what was happening the last years of Yugoslavia when still existed was

18 that there was a very independent economic policy making in individual

19 republics, and unfortunately, reforms that have started in the second

20 half of 1980s and somehow were concluded with the Markovic reforms in the

21 early 1990, they were not successful. These reforms were at that time

22 linked with an attempt of the European Union to invite still-Yugoslavia

23 to become the member of European Union. Yugoslavia had a -- kind of a

24 European agreement at the same time as Austria and Finland had it. Five

25 years later in 1995 Finland and Austria become the member of the European

Page 35140

1 Union, Yugoslavia ceased to exist.

2 What we have seen, and I was observing that from my post at the

3 time in Slovenia, we have seen that there was derogation of old

4 Federation because economically, the old Federation was simply not

5 sustainable, and we could not agree in old environment who will cover the

6 fiscal burden of the necessary reforms that would have to be undertaken

7 in the enterprise and in the banking sector.

8 So the war erupted once Slovenia and once Croatia or Republic of

9 Croatia become independent. Why we went into independence is now already

10 history, but mainly, main point was that we did not want to be in a

11 convoy of six republics slowly becoming member of European Union.

12 Now, what have I seen then, you know, from -- on the basis of the

13 documents provided to me and analysis is that in Bosnia-Herzegovina the

14 situation was, of course, extremely difficult. We have seen that the war

15 resulted into practically immediately 70 percent of the territory being

16 occupied by aggressor authorities. Authorities, the central government

17 authorities in-Sarajevo have not undertaken those economic independence

18 measures that we have done in Slovenia. They have not, you know, issued

19 new currency, they have not undertaken necessary fiscal measures, and

20 there was suddenly a situation that at the level of local communities

21 there were no funds available for the provision of normal state and

22 social services, like, you know, name it: electricity, garbage

23 collection, schools, hospitals, et cetera. So in this very

24 circumstances, local communities started to act, and from the report I've

25 seen that they have started to act in a very similar manner, whether that

Page 35141

1 was Tuzla region or that was Jablanica region or that was Siroki Brijeg

2 area or that was Mostar, or that was actually a very similar manner,

3 also, I've seen over the weekend, also, in Zenica.

4 Now, why local authorities had to act? In Yugoslav constitution,

5 we have a very strong role of local community, the so-called Opstina.

6 They had to act in order to increase supply of goods and services for the

7 benefit of the citizens. And on the other side they have to act, that's

8 what the economists say, in war circumstances on a demand side. So local

9 communities acting and looks like, as there was, you know, almost 100

10 small economists appearing because in Bosnia-Herzegovina there is a

11 hundred local communities, I have not been looking to the Republika

12 Srpska area, so I can't say what is happening there, but I was looking

13 what was happening in an area within Bosniaks or Muslim majority or in

14 the areas with a Croat majority. And there were actions which resulted

15 in almost, you know, dozens, 20, 30, 40, 50 small economies appearing all

16 over the place.

17 Later on, when that was -- that was resulted, authorities, both

18 the central government authorities and regional authorities, realised

19 that there is a need for coordination, need for coordination in order to

20 assure, as we economists say, economy of scale. Local communities were

21 of a different -- were of a different economic situation, those local

22 communities that they were able to arrest some of fiscal revenues because

23 they were on the -- on a border or because they were able to arrest some

24 of the revenues because they were able to get some funds from abroad from

25 their gastarbeiters, guest workers working abroad, they were in a better

Page 35142

1 situation. But they were local authorities, local communities which they

2 could not perform the government, social and state services, so there was

3 a need for the regional coordination.

4 And that need was actually recognised by the presidency of, at

5 that time, Republic of Bosnia-Herzegovina, which issued a decree on

6 districts, where somehow gave up and say, okay, if I can't really control

7 and make sure what is happening in the local communities, let me

8 organise, let us organise seven districts, and let those seven districts

9 coordinate local communities.

10 Now, in 1990, 1991, 1994 period, the economic developments in --

11 on the free territory, because, you know, once the war or the military

12 activities were concluded, on that free territories local communities and

13 later regional local authorities and later regional authorities started

14 to organise economic life for the benefit of the citizens. Just in the

15 last stage, in the 1993, 1994 period, one could see that they were

16 starting to utilize a normal or a modern government tools; there were

17 budgets being prepared, the financial sector became active, the banking

18 sector, insurance; and thus, they were enabling a normalisation of

19 economic situation. And as I conclude on that slide, when we arrived in

20 the -- early 1995 into Bosnia and the Federation of Bosnia-Herzegovina

21 was already up and running, all that was - I can see that now - based on

22 the initiatives and legislation that had been prepared in the period

23 before 1994, 1995.

24 And thus, I conclude that what happened in the period 1991, 1994

25 was a reaction of local communities in a very decentralised environment

Page 35143

1 to take over functions of authorities to take care for the benefits of

2 the citizens, first on the supply, taking sure about the demand, and thus

3 provide a normal economic development that authorities are usually asked

4 to do in any economy.

5 Q. And based on your --

6 JUDGE ANTONETTI: [Interpretation] One moment, Witness. You said

7 a lot of things, and your answer is very relevant in respect of many

8 factors. I'm particularly interested in the part played by local

9 communities. That is item 5 in your conclusion. You explain to us that

10 Yugoslavia was basically operating as a decentralised community, hence,

11 the possible relevance of local communities. You are an economist and

12 you know as such better than anyone that there's always a connection

13 between the political and the economic spheres. Sometimes the political

14 part is going to instrumentalise the economy, or at times it is the

15 economy that is the driving factor for the political realm.

16 But in this case, in which we have to assess the part played by

17 local communities, would your conclusions say that in the 1991 to 1993 or

18 1994 period in Bosnia and Herzegovina the economic system was solely

19 dependent on local economies or communities, and that as such, the

20 "state," inverted commas, that is, the "state" in Sarajevo was basically

21 non-existent, and that in the end the economic activity was only based on

22 local communities and that the local communities through their economic

23 development were the ones that basically made policy?

24 THE WITNESS: Well, I would say like this: With the war and

25 because of the lack of actions by the central government authorities, and

Page 35144

1 I have mentioned already before two of them, one was lack of new currency

2 and the second was not very clear reforms needed to kind of surround --

3 or around the economy.

4 The local -- the central government authorities were landlocked

5 in Sarajevo. They were issuing some decrees. We would maybe later

6 mention some of them, but I have not seen them acting in a very similar

7 manner as we have done in Slovenia. In 1991 when we became independent,

8 we in order to make economy of Slovenia also sustainable, we centralised

9 some of the functions. In the case of Bosnia-Herzegovina, they were not

10 able to do that for obvious reason of the war. So suddenly, there was a

11 situation that at the level of the local community, there were government

12 needs that have to be -- or government services that have to be provided

13 to the citizens, but there were no funding provided from the central

14 government. So local authorities had to act, and they have started to,

15 you know, invent new fiscal instruments to collect revenues, so that they

16 will be able to cover the needs of population. That's what I've seen in

17 Tuzla. That's what I've seen in Siroki Brijeg. That's what I've seen in

18 Prozor. They went ahead with a lot of new fiscal measures, collecting

19 revenues to be able to take care of the citizens and also, you know, to

20 ensure what was also their constitutional right to provide logistic

21 support to the defence.

22 So big state companies or socially owned companies at that time

23 ceased to operate. There were no energy. There were no banking sector

24 active. There were no telecommunications lines. So practically all

25 major companies closed their businesses, and the way this country

Page 35145

1 economically survived is that the private sector in -- at the level of

2 the local communities provided not just new employment but provided

3 first, you know, through the trade sufficient -- sufficient amount of

4 food. Provided, you know, together with the donors' assistance, then

5 refugees, displaced people, or people that actually stayed in various

6 territory would have something to eat. I have also seen that especially

7 in the second half of 1992 when the kids were to return to the school

8 year, it was, you know, by the local communities and the regional

9 authorities that they provided funds needed for the re-opening of the

10 schools that were closed over the summer.

11 So you have situation where mainly local communities were those

12 that took the role that was before provided by central government or

13 institutions that were at that time formerly responsible for undertaking

14 financing of government state and social services to the citizens at

15 large.

16 JUDGE ANTONETTI: [Interpretation] One last question after this

17 very long answer.

18 As far as you can see, those heading the local communities,

19 especially in the financial economic sectors, were they competent, or was

20 it just goodwill on their part?

21 THE WITNESS: Well, as an economist, I would say that they

22 actually invented very new tools, how to, you know, find fiscal revenues.

23 They were very -- actually, very similar tools. So in that context, I

24 would say that yes, they were competent. The local communities, they

25 were before the independence responsible for at least organising some of

Page 35146

1 the, you know, government functions, so they knew what was happening.

2 And also, when I was discussing with some of them, I got the feeling that

3 they knew what they were doing but, of course, they had a very limited --

4 limited amount of the available resources.

5 MR. KARNAVAS:

6 Q. Just one point of clarification, and I know we'll get to it later

7 on, but you said that there was no money -- no currency that was -- new

8 currency that was issued by Bosnia-Herzegovina.

9 A. Mm-hm.

10 Q. Now at what point -- are you suggesting that at no time

11 Bosnia-Herzegovina issued new currency?

12 A. No. I'm not suggesting that, but I'm only suggesting that there

13 was a delay. What was the problem with this delay, when Slovenia and

14 Croatia became independent, in Slovenia and in Croatia a new currency

15 were issued, and this new currency replaced Yugoslav dinar that was

16 before used a cash in Slovenia and Croatia. And that Yugoslav dinars

17 were now, you know, of course moved physically to a much smaller economy.

18 Since in Bosnia-Herzegovina they have not replaced Yugoslav dinar with

19 the new currency immediately, the effect of that was that too much money

20 was chasing too little goods. So the supply of money and available goods

21 was simply too high, and that's why they have immediately very high

22 inflation. Very high inflation means that nobody trusted Yugoslav

23 currency. Later on, the Yugoslav currency was replaced by the Bosnian

24 dinar, but there were too much of that dinars printed, and so as a result

25 of that parallel currency, Deutschemark and others were put in place in

Page 35147

1 order to ensure that you would have some kind of an objective unit of

2 measure, how much, you know, a kilo of bread or a kilo of sugar is worth

3 in currency.

4 Q. And just to follow up on that, in 1994 when you -- 1995 when you

5 first went into Bosnia-Herzegovina, I don't know whether it was pre- or

6 post-Dayton, was the Bosnian dinar at that point in time, at that point

7 in time, was it considered hard currency?

8 A. No. At that time, we went -- when we went into

9 Bosnia-Herzegovina, we have to take with us cash, Deutschemarks in order

10 to pay bills and, you know, practically in Sarajevo and the Hotel Bosnia,

11 all the pricing was in Deutschemark, nobody was really believing that the

12 Bosnia dinar was there as a kind of a currency that one trusts. It was

13 not a convertible currency, and so that's what we were using. Only later

14 when the convertible marker was established, because it was obviously

15 backed by also international financial institutions, that was the money

16 that we have started to trust, and we started to use that money. But we

17 foreigners were using Deutschemark. I guess others were using dollars,

18 but, you know, I know that in Washington we had problems getting enough

19 Deutschemark to travel into Sarajevo.

20 Q. All right. Well, let me back up a little bit. I know we're

21 getting ahead of ourselves a little bit, but you indicated at some point

22 there was a convertible mark and that the internationals were backing it

23 up. Can you briefly describe to us based on what you were able to

24 observe and through your analysis, to what extent, to what extent was the

25 Bosnian dinar backed up by anything in 1992, 1993, 1994?

Page 35148

1 A. I think it was not backed. I mean, Bosnia-Herzegovina did not

2 have at that time net international reserves. Also, other country not

3 have it, and so the amount of the money printed resulted into a very high

4 inflation, or a very high inflation was the result of the fact that, you

5 know, very huge amounts of the Bosnian dinars were printed, and that's

6 why it was not backed. It was not convertible currency.

7 Q. Lets move on now. If we go on to the next slide, and now let's

8 start with your report. This is one of the first items that you speak

9 of, and the number of the slide is 6, which deals with the

10 characteristics of former Yugoslavia. If you could very briefly discuss

11 it. I know that you have touched upon it a little bit but just very

12 briefly so we can move along to the next slide.

13 A. Well, on slide 6 there are the characteristics of former

14 Yugoslavia, explains what was the responsibility of the Federation and

15 republics and then the role of local communities. Socialist Federal

16 Republic of Yugoslavia is a federal state, a very loose federation.

17 Actually, at the level of the Federation there was monetary policy

18 around; there was Yugoslav dinar. However, even that Yugoslav dinar was

19 printed to the amounts as defined within the system of national banks of

20 republics and autonomous provinces. That is very important because later

21 on when Markovic reform actually did not succeed, that was because one of

22 the republics printed too much money.

23 Second, of course, Federation was responsible for setting up the

24 exchange rate, foreign affairs and the really strongest power of the

25 level of the Federation was Yugoslavia military force, both the army

Page 35149

1 itself and the military production which was very much centralised. I

2 was at that time working for the National Bank of Slovenia, and there was

3 a special war service of the National Bank of Yugoslavia responsible for

4 financing this military production. Republics were throughout the

5 developments of Yugoslavia from '50s into '60s and then with constitution

6 of 1971, '74, responsible for most of the issues but in a very peculiar

7 manner. We did not have at the level of republics, governments. We have

8 only so-called executive counsels with Secretariats for particular

9 issues. So there was a Secretariat for education, but major education

10 matters were actually dealt at the level of local communities because

11 local communities were responsible to implement republican policies at

12 the local level. And the way that was done, if you can move to slide

13 number 7, the way that was done was done with a very peculiar fiscal

14 decentralisation where we have had at the level of local communities in

15 former Yugoslavia. In former Yugoslavia, there were, you know, six

16 republics. On average, there were, you know, altogether some 600 local

17 communities. In each of these local communities, you have for a

18 particular government service, and I'll give an example, education. For

19 elementary education organisation in a particular Opstina, you created a

20 special Self-Management Interest Community which composed of two

21 chambers. There was one chamber of teachers that were providing services

22 of education, and then there was a chamber of representative of parents

23 buying services from teachers. And in that very chambers, the decision

24 was made on the level of the money that a particular local community

25 should spend for education. When you have high-level education, a group

Page 35150

1 of local communities formed Self-Management Interest Community for

2 high-level education of particular area; where you have university, in

3 Slovenia, for example, we have two university, so we have just one

4 Self-Management Interest Community to finance university at the level of

5 Slovenia.

6 Now, this system of self-management or the system of

7 Self-Management Interest Community was not just for the social services;

8 it was also for the financing of infrastructure. So for water

9 management, for energy, for, let's say, traffic, roads and railways,

10 there were special self-management interest funds established that

11 collected from enterprises that needed, let's say, services of energy,

12 funds were investment, they also charge energy prices back to those

13 enterprises and thus create an environment into which energy sector has

14 been developed.

15 Now, the problem with this fact is that when you have so many

16 local communities and you have so many self-management interest

17 communities, at more than 5.000 points in the former Federation,

18 decisions on who is using government cash has been made. And that's why

19 Yugoslavia was not sustainable. That's why we had from year to year

20 higher and higher inflation resulting in hyperinflation in 1989. And

21 that's why we say that despite that fact that Yugoslavia, as said on the

22 top of the slide 7, was different than other socialist economy, we

23 replaced the central planning with this self-management system or

24 self-controlled system in early 1950s, it was not economically

25 sustainable.

Page 35151

1 Q. Okay. Let me stop you right here. Before we go on to the next

2 slide, as I understand it you wanted to draw our attention to 1D 02976.

3 That is the constitution of the former Yugoslavia, and you wanted to draw

4 our attention, I believe, to Article 51; is that correct?

5 A. That is correct.

6 Q. Just look at it real quickly. And perhaps tell us, why is it

7 relevant to the discussion that we're having right now?

8 A. Well, this Article 51 is relevant because it define the basis --

9 this is the constitution of Yugoslavia from 1974, how self-management

10 communities interest shall be formed in order to satisfy the personal and

11 common needs and interest at the level of communities. And actually,

12 that self-managing communities of interest, the way they were organised

13 is they were a very peculiar affect or a very peculiar organisation of

14 how fiscal decentralisation has been implemented in Yugoslavia.

15 At the same time, creation of those self-managing communities of

16 interest at the level of local communities were given ability to local

17 communities to take care of a lot of government and social and state

18 services.

19 Q. And why is that --

20 THE INTERPRETER: Could the speakers kindly slow down and pause

21 between question and answer. Thank you.

22 MR. KARNAVAS:

23 Q. My apologies. I take it you heard that admonition?

24 A. Yes.

25 Q. Good. Now, why is that important for our discussion here today,

Page 35152

1 for your report? Why is it important?

2 A. Well, it is important for two reasons. First, to understand why

3 the country collapsed. But I think it's more important to -- also to

4 understand that once in the case of Bosnia-Herzegovina central government

5 authorities were not really a factor. There was a knowledge, there was

6 experience at the local communities and also the responsibility of local

7 communities to take care of assuring that the common social needs of the

8 population are to be organised in an appropriate manner.

9 Q. Okay. Thank you. Now, if there's nothing else with respect to

10 slide 7, we can move to slide 8; is that correct?

11 A. That is correct.

12 Q. Okay. So moving to slide --

13 JUDGE ANTONETTI: [Interpretation] One moment, Witness. I do have

14 a follow-up question because you are dealing with essential problems to

15 understand a lot of facts in this case as I understand it, because the

16 three judges in front of you do have knowledge as they have acquired it

17 in the last few years, but you are now dealing with difficult economic

18 concepts, so it's good to specify things and seek clarification.

19 If a western judge looks at the former Yugoslavia, he may think

20 that Yugoslavia had a centralised communist system, but you have just

21 told us that in the '50s, in 1950, in the former Yugoslavia there was a

22 reform that sort of tended to establish self-management, and from that

23 point onwards it was a self-managed country, and there was an increased

24 part played by local communities. Would this mean that the central

25 authority in a system of economic self-management is less powerful, is

Page 35153

1 less strong than in a centralised system?

2 THE WITNESS: Yes, I would agree with you. Certainly, since in

3 Yugoslavia after the break-up with Stalin in 1948 decided to replace

4 central planning reform with this, what is called, self-management or

5 self-controlled system, the central authorities were throughout economic

6 and political reforms losing their power. I would argue as a Slovenian

7 that that was also due to the fact that there were, you know, forces in

8 Yugoslavia by which republics and local communities need to have this

9 power because it was not impossible in the Yugoslav context to have just

10 unitarian state seated in Belgrade. So central planning -- the

11 replacement of central planning system was a kind of a response of,

12 actually, at that time Tito and the leaders to ensure that Yugoslavia

13 would sustain, and at the same time it was also, you know, ensuring that

14 this economic system would survive.

15 Why was that important? We immediately after the Second World

16 War of course abandoned the central planning because we wanted to have a

17 nominal monetary economy. I give you an example. Already in 1956, in

18 Yugoslavia we have commercial banks established. In case of Poland, the

19 commercial banks were established 30 years later. I believe the similar

20 was also in Hungary, only 1986. The commercial banks where you could

21 deposit money and you could, you know, borrow, were established very

22 early in former Yugoslavia, and actually, the World Bank and the IMF were

23 providing funds to Yugoslavia already in '60s and '70s. So the system

24 somehow enabled activation of the factors of productivity of the labour

25 under the capita that we have through that system of self-management.

Page 35154

1 Was it sustainable over the long term? No, it was not. And

2 that's also -- you know, it's known in theory of economy that this is a

3 so-called concept of the Illiryan firm that there is an intrinsic

4 conflict in a self-management enterprise between the workers that control

5 through the workers' council, the directors, and the directors that of

6 course have to pay back either the credit to the bank or, you know,

7 profit to the, you know, owners. So over the long term, the system was

8 not sustainable. But nevertheless, Yugoslavia was especially in '60s and

9 '70s, you know, economy that was growing mainly based on the foreign

10 borrowing which ceased to exist at the end of 1997. So then in the

11 1980s, we went into a crisis, but the system is different. The central

12 planning system of the Soviet type and the Yugoslav self-management

13 system is different. We called it market socialism. It's a kind of a

14 very tough word, but the market forces were out there to be assisted.

15 And I will maybe conclude with another example why that happened

16 in 1948. In central planning system, you have also the land being owned

17 by state. We tried to do that. The country became hungry [Realtime

18 translation read in error, "Hungary"]. There was a starve -- you know,

19 people started to starve. So the fact that in the former Yugoslavia

20 agriculture reform taking away the land from the farmers did not succeed

21 and the farmers were able to have 10 hectares of land under their

22 management, and the workers' council systems in the enterprise sectors,

23 that was the basis for a different type of the socialism that we have had

24 in Yugoslavia compared to Soviet Union or -- yeah, compared to Soviet

25 Union or other western -- sorry, eastern European countries. And in that

Page 35159

1 [The witness entered court]

2 MR. KARNAVAS:

3 Q. Mr. Cvikl, before we go on to the next line, there was one

4 particular term which baffled some of the translators and perhaps the

5 court reporter when you indicated for instance there was this conflict

6 between management and the workers, and you used a particular term or

7 theory. If you could kindly tell us again what it is, and go slowly so

8 we can get it down properly.

9 A. Yes. In the economic theory is a known firm, so-called Illiryan

10 firm.

11 Q. Illiryan?

12 A. Illiryan firm or Illiryan company.

13 Q. Okay. All right. That's all we need for now. Thank you, and if

14 we need the spelling of that, we'll get that later on.

15 All right. I believe we were on slide 7, and we can move on to

16 slide 8 at this point unless I'm mistaken, and if you --

17 JUDGE TRECHSEL: Excuse me. If I interrupt, Mr. Karnavas, but

18 the decisive word does not figure in the transcript, the Illiryan. Maybe

19 it would be better to spell it out right away; otherwise, it looks really

20 a bit Kafkaesque.

21 MR. KARNAVAS: That term didn't come to mind, but I take the

22 point.

23 Q. If you could spell it out for us.

24 A. Well, it is spelled I-L-L-I-R-Y-A-N, like Illirya area of what

25 used to be, you know, Dalmatia and the known part. It's a concept which

Page 35160

1 is known between the economists that you want to have enterprise sector,

2 where workers and owners share the responsibility over the management of

3 the company and over the fruit that the company produce.

4 Q. All right. Thank you.

5 JUDGE TRECHSEL: Thank you.

6 MR. KARNAVAS: And we appreciate that bringing the translators

7 bringing it to our attention.

8 Q. If we can go on to slide number 8, and continuing on with a role

9 of local communities very briefly, if you haven't finished, if you

10 perhaps comment briefly on that, and as I understand you wanted to bring

11 our attention to two particular documents as well.

12 A. Yes. What I wanted to refer in that very slide is this first

13 notion that while there was a social ownership in Yugoslavia, where there

14 was a general opinion that material resources belonged to the population

15 collectively, one should note that in the case of enterprise sectors, the

16 workers were authorised to manage assets in this very company as long as

17 they were producing positive results. There was a possibility in the

18 Yugoslav system, and here I would like to refer to the constitution of

19 the Socialist Federal Republic of Yugoslavia, 1D 02976, Article 130.

20 Where there was a possibility that in the case if workers in an

21 enterprise were not producing positive results, they were producing

22 losses, there was a possibility that the local communities had a right to

23 abolish the self-management rights of those workers and thus preserve for

24 the benefit of the society at large the social ownership.

25 Q. Can you give us an example?

Page 35161

1 A. Yeah, I can give such an example. It's actually known in

2 Slovenia. It has been known, also, in other parts of Yugoslavia. In

3 Slovenia, we have a producer of wide goods. It's called Gorenje. It is

4 like Phillips of Slovenia. This company in 1985 got into quite big

5 troubles because it was borrowing extensively, it tried to buy a company

6 in Germany, so it starts to create losses. Because of that, the company

7 would not be able to borrow any more from the banks, and the company

8 would go bankrupt.

9 However, a local community of Velenje, Velenje is a town where

10 this Gorenje from Velenje, Gorenje factory resides, has abolished the

11 self-management rights of the workers and appointed a general manager as

12 a caretaker of that very company, and that is what the Article 130 of the

13 Yugoslavia constitution allowed to do it. By this, over the two years

14 with abolished self-management rights of the workers, the new general

15 manager got company again into the positive figures, and today, Gorenje

16 Velenje, which was in the 1985 under the brink of bankruptcy, is one of

17 the biggest Slovenia exporter producing more than 1 billion Euro worth of

18 wide goods and exporting it throughout the world.

19 Q. And I understand you also wanted to refer our attention to 1D

20 02974. If you could briefly describe what is in this document. I do

21 note that it has been cited by you in your report.

22 A. That is the document which I also have, of course, a book of.

23 This is a chapter from the book, which was published in 2004, and that is

24 the chapter written by Mr. Gligorou, and on page 16 of that book, which

25 is in the document, there's an explanation that there was -- there was a

Page 35162

1 different concept of ownership in Yugoslavia than the state ownership.

2 We did not have a state ownership. We had a social ownership, and then

3 in this very article, the author Mr. Gligorou described what was

4 happening in the time of the, you know, reforms in Yugoslavia in the last

5 year of its existence and later in Slovenia as far as the ownership is

6 concerned. The social ownership was two reforms becoming a private

7 ownership.

8 Q. Thank you. And as I see here, it was published by the World

9 Bank; is that correct?

10 A. Yes. That is -- the book is "Slovenia: From Yugoslavia to the

11 European Union." It has been published by the World Bank. There are

12 many different authors. I also wrote a chapter on the fiscal issues, and

13 it explains not just the collapse of Yugoslavia in economic terms but how

14 one country that came out of Yugoslavia with a set of reforms started an

15 independence, then become a successful member of the European Union.

16 That's why the title of it is "Slovenia: From Yugoslavia to the European

17 Union."

18 Q. Thank you. Now, unless there's anything else on slide 8 -- if

19 there is, go ahead.

20 A. Yeah. Why I put this in -- why I dwell on this in the report is

21 that the role of local communities as defined in the Yugoslav

22 constitution and also republic an constitution was very important so that

23 once war in Bosnia-Herzegovina broke out and suddenly local communities

24 did not have, you know, any abilities to get funds from the central

25 government, they had all these powers vested in local communities and as

Page 35163

1 they were able to undertake necessary measures both in the supply and the

2 demand in a particular area of that very local community. So there was

3 this ability of local community which has been, of course, out there, you

4 know, based on the constitution and where they were -- people understood

5 their responsibility to manage rights but not just waiting for the

6 central government to do something.

7 Q. Well, to what extent, if any, did the elections -- because we do

8 know at some point there were elections, to what extent if any did these

9 elections impact on this self-management method that was ingrained in the

10 former Yugoslav system?

11 A. Well, I'm writing the report that, of course, up to elections,

12 there were really, let's say, three most important persons in the

13 particular local community. The president of local assembly, the

14 president of executive council, and the president of the local communist

15 party. When in, I believe, in Slovenia in April 1990, I believe in

16 Bosnia-Herzegovina in the late 1991, free elections took place. In each

17 of those local community, a particular political party won. So the

18 person who was elected on a free elections as the president of the local

19 assembly or president of the -- or president of the Opstina, president of

20 a local municipality, he was extremely powerful because he has in a

21 decentralised environment instruments, and he has also the political

22 backing got on the free elections to actually do in the name of the

23 society through the powers vested to him in the free elections whatever

24 need to be done to, let's say, in the war circumstances protect the

25 environment or once the war was over and they took necessary measure on

Page 35164

1 the supply and demand side of the economy. So that power was extremely

2 strong and, of course, the free elections helped that power to be

3 strengthened.

4 Q. All right. If there's nothing else for slide number 8, if we

5 could go on to, then, the next slide.

6 A. Well, on slide 9, somehow I explain what is on the macroeconomic

7 side really two most important features of Yugoslavia. One is that of

8 course there was a very decentralised fiscal system where you have had a

9 lot of decisions made at the level of local communities or at

10 intercommunal regional level, and they were also different types of taxes

11 at that time in the former Yugoslavia. There are federal taxes, there

12 were republican taxes, but the most important as far as the size and as

13 far as for the benefits of the population were actual special

14 contributions to finance so-called self-management interest funds.

15 People paid as a part of their gross wage contributions to

16 self-management interest communities funds for different government

17 services: education, health, pension, et cetera.

18 The second important feature is this decentralised monetary

19 system, which was really established only in 1974. That system had two

20 main characteristics. One was that there were national banks as a part

21 of the central banking system created in each republic and also in the

22 two autonomous provinces. These central banks were very instrumental, at

23 least in Slovenia, Croatia, also Former Yugoslavia Republic of Macedonia,

24 during the independence; to a certain extent, also in Bosnia-Herzegovina

25 but with a delay. The second feature was there was a kind of a unified

Page 35165

1 monetary policy, but that policy had to be agreed by the so-called board

2 of governments of the National Bank of Yugoslavia.

3 THE INTERPRETER: Kindly slow down for the record, please. Thank

4 you.

5 THE WITNESS: What was the problem with this board of governors

6 of the National Bank of Yugoslavia that it was composed by republican and

7 provincial governors. So a governor of the National Bank of Macedonia

8 was elected in the parliament of Macedonia, but it represented Macedonia

9 at the level of the Federation. And this board of governors which was

10 politically responsible to the republics was actually not able to manage

11 monetary policy in an appropriate framework, and thus, inflation had been

12 created by too much printing of the money through the system of the

13 Yugoslav central bank. It is also known that hyperinflation created in

14 1989 and then later attempts by Markovic in early 1990, in the first half

15 of 1990, to somehow run better policies were breached by a decision, one

16 of the governors of one of the national banks of republics, actually

17 National Bank of Serbia, republic of -- National Bank of the Socialist

18 Republic of Serbia to issue money to finance some of the expenditures,

19 and then that then created in kind of a major political fight collapse of

20 Markovic reform.

21 So just to conclude, decentralised fiscal and monetary system

22 somehow prevented Yugoslav Federation to be economically sustainable.

23 Q. All right. Now, just one point of clarification because this may

24 come up later on again. Where you say under the decentralised fiscal

25 system, you mentioned the term "para-fiscal" and then "para-budgetary

Page 35166

1 funds." We've seen this term before in this Court, but if you could

2 remind us from an economic point of view, what does para-fiscal mean?

3 A. Okay. In a normal, let's say, western-oriented -- or western

4 market economy, you would have just one place where government

5 expenditures are defined, and that is government budget, usually adopted

6 in the parliament upon proposal of the government. When you have a

7 special budget like health budget, like education budget, like road

8 budget, that are not within the overall central government budget, we

9 call that in theory para-fiscal budgets. And the first step when you

10 want to create a normal macroeconomic environment, that you take control

11 over how much money government spend. So you need to know how much is

12 spent within the budget, and if you have para-fiscal budgets,

13 para-budgetary funds, then of course you have to prevent it.

14 Yugoslav system of self-management interest -- self-management

15 community of interest, the self-management funds was a typical system

16 where in addition to republican or Federation budget, there were more

17 than 6.000, ten in each of 600 local communities, para-fiscal budget,

18 actually preventing the country as a large, would finance only so much,

19 would spend only so much as we created the value in the economy. And

20 that's why, again, economy not sustainable. So this para-budgetary funds

21 or para-fiscal funds are known in the theory, and also when we -- when I

22 was with the World Bank were analysing the public expenditure management

23 issues in particular country, we always look to this situation whether

24 you have outside the budget any expenditures that you can't control.

25 Q. All right. I'm going to ask you just to be a little more concise

Page 35167

1 and shorter with your answers so we can go through this material.

2 A. Yes.

3 Q. I think that we're about to go on to the next slide, slide number

4 10 --

5 JUDGE TRECHSEL: May I -- excuse me, Mr. Karnavas, just for

6 clarity's sake. Mr. Cvikl, you have often referred to communities, local

7 communities. Now, we have been told by another witness that one has to

8 distinguish between municipalities and local communities, the latter

9 being subdivisions of municipalities. I wonder, in which sense do you

10 use the term "local communities"? Are you familiar with and actually

11 using that distinction, or is your terminological system a different one?

12 MR. KARNAVAS: Before -- if I may, Your Honour, if I may, because

13 there may be a point of clarification, the term that you're referring to

14 is "commune" as opposed to "communities."

15 JUDGE TRECHSEL: Yes.

16 MR. KARNAVAS: So there may be -- so if you could give --

17 JUDGE TRECHSEL: Right. Local communes.

18 MR. KARNAVAS: Right.

19 THE WITNESS: Well, if you look into the Yugoslav constitution,

20 the English translation of this community is "socio-political community."

21 The term which I use for local community is units which are smaller than

22 the republics, and this is so -- I mean, the Slovene word or the B/C/S,

23 Bosnian/Croatian/Serbian, is "Opstinas." "Opstinas." Now, within these

24 Opstinas or local communities, they could be smaller parts, especially of

25 Opstina consist of a, let's say, big town, you have an Opstina or local

Page 35168

1 community of Sarajevo which has smaller pieces of that local community.

2 But I use the term "local community" for lower parts of republics that

3 are defined within the constitution as the socio-political community.

4 That was the old term, and we then later, at least in the World Bank, you

5 know, went with the local community taking out the basic principle that

6 the local community is the one that has an autonomy over the local

7 matters.

8 JUDGE TRECHSEL: I would now draw the conclusion that this refers

9 to what we have been referred to as municipality. Would you agree to

10 that?

11 THE WITNESS: Yes.

12 JUDGE TRECHSEL: Thank you. Excuse me, Mr. Karnavas.

13 MR. KARNAVAS: All right. I meant to -- that was on the list of

14 my questions to get a clarification, and I'm glad that we clarified that.

15 Q. Now, if we look at -- we can go to now slide number 10, and I

16 know that with slide number 10 we will at some point look at 11 and 12

17 because they're connected, but here in this particular slide, you make

18 reference to the Social Accounting Office. We've heard some testimony

19 about this, but perhaps you can comment on this particular slide, and we

20 can then look at some documents as well.

21 A. Yes. Another very important characteristic of former Yugoslavia

22 that in former Yugoslavia, the most of the economic relation between the

23 enterprises or between the legal entities was done in a cashless manner.

24 Cashless manner mean without actual utilisation of cash, and the way that

25 was done, it was done through Social Accounting Office. If you look on

Page 35169

1 page 11, there is -- the slide 11, there is a picture, how did -- how

2 this Social Accounting Office was actually organised. It was -- it

3 worked as an agency, and all legal entities, enterprises, local

4 communities or municipalities, even republics, para-fiscal funds, all

5 legal entities have an account, gyro account, an account with this

6 agency. Also, banks, commercial banks have accounts with agency. Even

7 the central bank has an account with agency, and then all transactions

8 were done between the accounts in this very agency. The Social

9 Accounting Office was, thus, extremely important institution to ensure

10 that the transfer of funds have been undertaken in the economy. Even

11 more, because in Yugoslavia there was a quite developed fiscal system,

12 social accountants office also acted not just as the payment mechanism

13 but also as a tax collector.

14 So in the evening, a shop, a legal entity brought to a vault of

15 Social Accounting Office its daily proceeds. And there was a calculation

16 made, so much of daily proceeds with so much of shares taxed, and then

17 the Social Accounting Office, the money was collected, put into the

18 vault, but in the general ledger of a company there was a transaction

19 made to the account of the, let's say, republican budget or to the

20 account of the local community budget for the appropriate portion of the

21 sales tax.

22 In the similar manner, when gross wages were paid each month, a

23 company brought a list of the gross wages, and it says, okay, out of

24 these gross wages, net wages are deposited to the accounts of individuals

25 with commercial banks. The portions of the gross wages which were

Page 35170

1 contribution to different para-fiscal funds for education, health,

2 pension et cetera, they were deposited to particular para-fiscal funds.

3 Why is this important? When the war started and

4 telecommunications were down and -- or the social accounting offices

5 were, you know, destroyed, even if there would be some economic activity,

6 a Social Accounting Office was not operational, tax collection could not

7 take place, and that's why it was very important that once, like in

8 Slovenia when we became independent, the control over the Social

9 Accounting Office is to be undertaken if you want to have any

10 continuation of economic activity in a cashless environment, which was a

11 feature of Yugoslavia at that time to be taken.

12 JUDGE TRECHSEL: May I just make sure that I understand correctly

13 by making a simplified example. Let's say Company X employs Worker A,

14 and Worker A has a salary per month of 100. 100 is transferred by the

15 company to the SDK. The SDK then hands over 70 to the worker. 5 go to

16 education fund, 5 go to health, 7 go to defence, and so forth. Is that

17 the way it worked?

18 THE WITNESS: That is exactly the way it worked. This is exactly

19 what the Social Accounting Office did. It didn't do this just -- did it

20 for all the workers, but if were just one worker, did for one worker.

21 Everything in cashless, and the worker got cash in the bank because the

22 70 was, as you have said, given to the bank.

23 JUDGE TRECHSEL: Thank you. That, of course, gives then a lot of

24 control to the authorities.

25 THE WITNESS: It does, but -- well, there are two theories why

Page 35171

1 the Social Accounting Office has been created. In the early '50s, people

2 say it was created because while -- political powers wanted to know what

3 is happening in political enterprises. But later in '60s and '70s, when

4 we all, you know, went into a monetary economy, and it was very

5 cumbersome, to carry around cash to establish cheques clearing system as

6 it's known in America or the gyro account system that is known in

7 European environment in the Social Accounting Office, that was very

8 beneficial for the economic developments because nobody wants to carry

9 around cash. And even what is additional function, tax collection, tax

10 collection was a hundred percent. There were problems where, you know,

11 enterprises just wanted to pay net wages and delay the contribution, but

12 that was more an exemption to the system. The sales tax that has been

13 all collected, so in that context the Social Accounting Office and the

14 organised -- the level of the whole Yugoslavia with its local offices was

15 an extremely important part of the decentralised economic and financial

16 system that existed at the time of the eruption of the war in

17 Bosnia-Herzegovina. That's why to have a control over that was extremely

18 important.

19 JUDGE TRECHSEL: Thank you very much.

20 MR. KARNAVAS: Okay. Now if we could go on --

21 JUDGE ANTONETTI: [Interpretation] One moment. Witness, this SDK

22 system, did it apply also to servicemen, to officials, let's say the

23 Mostar university that had to pay a professor from school? So did it

24 have an account with the SDK, and would it transfer a certain amount on

25 that account, and then the SDK would send to the professor' -- the

Page 35172

1 university professor's account his or her salary, so did that apply to

2 all sectors of activity?

3 THE WITNESS: That applies to all legal entities. Exactly.

4 Also, the, let's say, University of Mostar or University of Ljubljana,

5 first, it got in principle funds to be spent from the para-fiscal fund

6 for education. The funds were -- on account of that university, when the

7 professor was to be paid, net wage went to a professor; the contributions

8 for, let's say, teacher's pension went to the pension fund through the

9 SDK. Everything was done through Social Accounting Office. All legal

10 entities have accounts at the Social Accounting Office.

11 JUDGE ANTONETTI: [Interpretation] And one last technical

12 question. In such a system, so there was no direct taxation? Did that

13 mean that people would pay taxes, or was it pay as you earn, and was it

14 done by the SDK?

15 THE WITNESS: Well, people paid taxes, but there were two --

16 there were different type of taxes. We did not have at that time value

17 added. We had sales tax. So the sales tax, which was a tax above the

18 value of the good, was paid in the evening when a company -- sorry, when

19 a shop were selling goods brought the daily income into SDK. And so

20 their, you know, net was deposited to the bank, to the account of that

21 shop, and the sales tax was deposited to the central government and to

22 the local government portion. The employees, the employees earn gross

23 wage, but in principle what they were perceiving is that they were

24 getting only net wages. The so-called personal income taxation, the one

25 which is known in market economy, the one which is progressive, has been

Page 35173

1 only imposed much later, and only in very high salaries, there were, you

2 know, some personal income taxation added. So these were the two main

3 instruments. Also, Social Accounting Office to a certain extent also at

4 that time dealt with some of the customs duties. It depends where the

5 customs were actually charged.

6 Just maybe last sentence. The Social Accounting Office was able

7 to tax everything at the source. So it was not like as you have it now

8 in Slovenia or in America where at the end of the year, you make your tax

9 statement. You were actually -- you know, your money was taken away on a

10 monthly basis at each wage being paid out.

11 JUDGE ANTONETTI: [Interpretation] Very well.

12 MR. KARNAVAS:

13 Q. For illustrative purposes, I believe on slide 12 we can see a --

14 sort of a different approach, and if you could please first -- if you

15 could look at this slide. First, tell us, where does this come from?

16 A. I would like to here refer to the document 1D 02972, where we

17 have on page 43, this is a report by the IMF, Republic of Slovenia,

18 financial systems stability assessment in many different issues including

19 end payment system. And on page 43 of that report, there is a summary

20 assessment on what was happening in the reform of the payment system.

21 And if we now turn to page -- to slide 12. On slide 12, you see how does

22 the payment system looks after Social Accounting Office is abolished.

23 You can see that now a private person has an account with the Bank A, and

24 if he wants to pay to a private person which has an account with the Bank

25 B, it pays that via central bank payment system. So no more Social

Page 35174

1 Accounting Office.

2 However, this is what has happened as a reform of that payment

3 system only in 1997, 1998 in Slovenia and also in some other countries,

4 so this is the actual result of the abolishment of the Social Accounting

5 Office. But if you go back to slide 11, the system that existed at the

6 time of the collapse of Yugoslavia and the war in Bosnia-Herzegovina and

7 elsewhere was the system that all legal entities have accounts with the

8 Social Accounting Office, so if you wanted to have support to the

9 development of the economy, you need recreate, re-establish or have a

10 functioning Social Accounting Office. So I just refer to this, you know,

11 study of the IMF to show the comparison between the two system, but

12 please note that at the time of the war, the system was as presented on

13 slide 11.

14 MR. KARNAVAS: If there are any questions, I'll move on.

15 Q. I believe we can now move to slide 13.

16 A. Well, on slide 13, I'm presenting what was happening and how the

17 liquidity, how the cash has been provided in the old system, and what, of

18 course, is important, what then happened actually with the war. Now, in

19 the old system, since everybody has an account with SDK, everything was

20 done cashless. But for small transactions that has to be done in cash,

21 like, you know, payments of daily allowances if people travelled or

22 withdrawal of cash from deposits of individuals with commercial banks,

23 for that you need actual liquidity. You need cash. And that cash

24 resided or was basically somehow, you know, safe in the vault of SDK. So

25 the national bank of a particular republic, the National Bank of Slovenia

Page 35175

1 has a vault in Ljubljana, but for the purposes of distributing cash

2 around Slovenia, there were vaults in different towns in the SDK Social

3 Accounting Office premises, which were usually back to back with

4 commercial banks.

5 Now, during the old time, liquidity was thus provided by transfer

6 of cash from the vault of the SDK to either the premises of the SDK or to

7 the vault of the commercial bank and then to the cashiers or the tellers

8 where you withdraw cash if you are a private person.

9 Now, when in Slovenia we became independent, we replaced that

10 Yugoslav dinar in that vault of SDK with new Slovene-printed currency.

11 In the case of -- in the case of Bosnia and Herzegovina, that came with a

12 delay. That's why I say in this slide 13 that new republican authorities

13 if a country became independent should provide this liquidity. If they

14 have not provided liquidity, that means that, of course, you have

15 immediately problem with normal economic environment. In

16 Bosnia-Herzegovina, two things happened. First, there was a delay on the

17 issuance of new currency; and second, once the National Bank of

18 Bosnia-Herzegovina issued Bosnian dinar, that dinar was issued in the

19 environment of high inflation or the other way around. Since there was

20 so much money created, since there was so much money created, the result

21 was actually oversupply of money, and that's why there was -- there was,

22 of course, high inflation.

23 In these circumstances, parallel currencies such as Deutschemark

24 came to be active again as the mean of exchange as the unit of value.

25 Q. Okay. Now, I understand with this particular slide you wanted to

Page 35176

1 draw our attention to two particular documents. The first one, I

2 believe, is 1D 02974.

3 A. Yes. This is the document -- this is the chapter 6 of the book

4 "from Yugoslavia to European Union" when Mr. Rant [phoen] explains in his

5 writing what had to be done to establish monetary sovereignty of a

6 particular country. And I would like to point to the -- his conclusion

7 on page 94 that -- that 97 -- last sentence on page 94, the 1974

8 constitutional system with its decentralised organisation of the central

9 banking system facilitated the process of established monetary

10 sovereignty enabled Slovenia to more smoothly separate operations of

11 banks and also to undertake steps necessary for independence. This is

12 what has happened in Slovenia. I have not seen to be undertaken at the

13 start of independence in Bosnia-Herzegovina, and thus, it was logical

14 that parallel currency such as Deutschemark or other currencies of the

15 countries that you did business with started to appear on the territory

16 of Bosnia-Herzegovina.

17 Q. All right. And I believe you also wanted -- is there a question?

18 JUDGE TRECHSEL: There is, but I do not necessarily need to

19 interrupt you. I can put it -- if you have a follow-up, then I don't

20 want to break your rhythm.

21 MR. KARNAVAS: I was going to the next document, but if --

22 JUDGE TRECHSEL: Okay. Then perhaps -- it's a bit of a bracket

23 question, but it turned up when you spoke of private banks. Apart from

24 SDK, one wonders, what is the function of private banks? Did they

25 function as credit lenders, and did they take monies for savings, and

Page 35177

1 what was the interest of putting monies to the bank rather than having it

2 in the SDK account?

3 THE WITNESS: Well, at that time, which means before the reforms

4 that started only after independence, these were not private banks.

5 These were banks that actually, legally speaking, they were joint stock

6 companies, but they were owned mainly by enterprise sectors. It was a

7 very peculiar situation. We had commercial banks, which means that they

8 were able to borrow abroad, but the purposes for which they were

9 borrowing were mainly linked with the support of the, you know, what

10 enterprises needed. To have a kind of a classic private banks, that

11 happened only later.

12 Now, these banks, they had deposits. They had in some -- in the

13 last years of the Yugoslav system, they also have, I would say, quite

14 normal interest rates, but those interest rates were mainly result of the

15 fact that people have not trusted those banks the way you have in a

16 normal private bank environment. I would even say that they were to a

17 certain extent, you know, Ponzi schemes there, you know, Madoff case.

18 Why is this important? Because with independence, most of these banks

19 had major problem not just with liquidity but also with solvency, meaning

20 repaying back to the depositors the money deposited there.

21 So the most powerful institution in the old Yugoslavia to ensure

22 a kind of a smooth financial system was SDK. The banks, especially

23 commercial banks, were helpful for the international transactions, and

24 they were helpful in the case when you establish right rules of the

25 regulation to slowly create and generate some savings in the economy.

Page 35178

1 But initially, I would say at the end of 1980s, we have major problems

2 with the banks, and this is really in the bracket: One of the reason why

3 Yugoslavia collapsed is because we could not agree how we will finance

4 losses in the commercial banks. Would that be done at the federal level,

5 republic level or individual banks, but that is more now kind of an

6 economic debate why the country collapsed.

7 JUDGE TRECHSEL: Thank you very much. Excuse me, Mr. Karnavas.

8 MR. KARNAVAS: I was going --

9 JUDGE ANTONETTI: [Interpretation] One moment, Mr. Karnavas.

10 Witness, I do have a very essential question. Generally, when I have

11 questions, I go straight to essential matters because I want us not to

12 waste time, and we shouldn't spread ourselves too thin.

13 If I understand you well, this fundamental part played by the

14 SDK, because you showed us this scheme on slide 12, that is the outcome

15 of the 1997 reform. I'm still talking about 1991, 1992, 1993, and I go

16 straight to Herzegovina. The Prosecution case is that as part of the

17 joint criminal enterprise, the Croats from Herceg-Bosna and possibly also

18 the Croats in Zagreb changed the currency, so moved from the Yugoslav or

19 Sarajevo dinars to Croatian dinars. The Prosecution case is that the

20 monetary unit which was the legal tender was the Croatian dinar whilst we

21 were in Herzegovina which was a part of Bosnia Herzegovina, but with the

22 SDK system, the fact that you could say that from tomorrow on you would

23 have the Croatian dinar as the legal tender, did that change anything to

24 the SDK-based system?

25 THE WITNESS: Well, from what I understand, authorities in the

Page 35179

1 Herceg-Bosna had not replaced Bosnian dinar with Croatian dinar, but they

2 have allowed in addition to the Bosnian dinar, which remained as a legal

3 tender, also two additional parallel currency. One was Deutschemark, and

4 the other was Croatian dinar, and later, Croatian dinar replaced by

5 Croatian kuna. Why they have done that, or why it was to certain extent

6 logical that this had been done? You were in a situation where the

7 Bosnian dinar had been in an oversupply. I would like to refer to the

8 document 1D 02959. This is the IMF report. Page 26, footnote 36.

9 In that -- in that -- on that page, you could see that in the

10 so-called Bosnian majority area, the inflation was 73 -- 730.000 in 1992.

11 In Croat majority area was 900 in 1992. In Republika Srpska, it was

12 73.000. Why am I saying this? When you have a situation where the

13 Bosnian dinar was overprinted and there was a high inflation, and as we

14 will later see a lot of things was happening with the exchange rate, and

15 you cannot -- you don't have a trust, people did not trust the Bosnian

16 dinar, the only other possibility is to allow the use of other

17 currencies. Not to abolish the Bosnian dinar, because I haven't seen in

18 the documents that they abolish Bosnian dinar, but they allow that the

19 gyro accounts and the accounts at the SDK would have first the original

20 -- what's called the original account in Bosnian dinar, and then they

21 would add additional two accounts, one is in Deutschemark and the other

22 one in the Croatian dinar, because they were doing trade with Republic of

23 Croatia and they were doing trade with other countries where they were

24 using those two additional parallel currencies.

25 So I'm not -- I'm not seeing this as a breach of the monetary

Page 35180

1 sovereignty of Bosnia-Herzegovina. I see this as a mean to support the

2 economic developments if you have such high inflation.

3 JUDGE ANTONETTI: [Interpretation] Your answer is connected to the

4 inflation rates, and then one can understand then one will resort to a

5 currency that will be less susceptible to problems than the

6 Sarajevo-based dinar, and this has not been tackled yet. The SDK is well

7 connected to the central branch, isn't it?

8 THE WITNESS: Well, the SDK is well connected in the central bank

9 in the normal circumstances. But I understand that the National Bank of

10 Bosnia-Herzegovina, and also that is what I was discussing with wise

11 governor and governor of the National Bank of Bosnia-Herzegovina. When

12 we were visiting them in 1994, 1995, they did not have a control over the

13 whole territory because they were -- the SDK offices in Tuzla, they were

14 acting independent of SDK office or the National Bank of

15 Bosnia-Herzegovina office in Sarajevo. In the same manner, I've seen

16 that in Travnik and the same manner, we've seen that in Mostar. So

17 central bank would provide to the vaults, in the normal circumstances, to

18 the vaults of SDK money printed for the purpose of, you know, the

19 currency, but that had not been done. I don't know how much of these

20 funds were really made available throughout that Bosnia-Herzegovina and

21 from the discussion which I had with one of the wise governors of the

22 National Bank of Bosnia-Herzegovina was that this, really, control of

23 National Bank of Bosnia-Herzegovina over the whole territory of the

24 Federation took place only in 1994. But in 1992, 1993, these local

25 communities were their own, and there are a lot of documents which I

Page 35181

1 observed where they are setting up the exchange rates which were, you

2 know, quite different depending on how much money was on a particular

3 territory and what was the level of the goods to kind of balance the

4 supply the demand.

5 JUDGE ANTONETTI: [Interpretation] So you are telling me under

6 oath that back in 1994 you had a conversation with the governor of the

7 central bank of Bosnia-Herzegovina, and he told you that prior to 1994 he

8 had no link or control over the local SDKs? Is that what you are telling

9 us?

10 THE WITNESS: Yes. Under oath. I had discussion both at that

11 time both with Mr. Omicevic and later on with Mr. Backovic, Endor [phoen]

12 Backovic, I ask him this again, Mr. Backovic, on December 21st last year

13 when I last visited when they actually were able to take over control

14 over the whole territory, and his explanation to me was 1994. Also, when

15 we visited Bosnia-Herzegovina in 1994, 1995, we even in the circumstance

16 that there was a control we were still not -- the foreigners were still

17 not using Bosnian dinar because inflation was still very high. So yes,

18 Mr. Omicevic and Mr. Backovic, that's what they were telling us, that

19 they were not able to, you know, control from the monetary point of view

20 the whole territory of Republic of Bosnia-Herzegovina or of the

21 Federation of Bosnia-Herzegovina because I understand that in the area of

22 Republika Srpska, Yugoslav dinar was there up to the replacement of the

23 Yugoslav dinar with convertible mark, which was only in 1995.

24 JUDGE TRECHSEL: If I may add a small question. 1994 in the area

25 was an eventful year, so it would be interesting for us to know, if it is

Page 35182

1 possible to know, whether your interlocutors referred to a specific

2 moment during that year? Was it in the beginning before May, for

3 instance, or was it towards the end? Maybe you don't know the answer,

4 and I take that.

5 THE WITNESS: We were starting to have discussion with

6 authorities in the fall of 1994. First, in Warsaw they were coming to

7 us. Then in 1995, we came into Bosnia-Herzegovina and we, the

8 foreigners, were not using Bosnian dinar. We found out and we came to,

9 you know, different parts that, you know, Deutschemark was the kind of

10 currency that one need.

11 Once post-Dayton Agreement convertible mark was put in place, at

12 that very time everybody started to use convertible mark.

13 JUDGE TRECHSEL: Thank you.

14 MR. KARNAVAS:

15 Q. Now, I believe in reference to the document that you have been

16 speaking of, which is -- this is document 1D 02959, you brought our

17 attention to footnote -- to paragraph -- to page 26, footnote 36, but I

18 also believe you wanted to draw our attention at some point to a couple

19 of tables, one on page 82 and another one on page 102. Is that correct?

20 A. Yes.

21 Q. If we could just look at now page 82 of this document. Perhaps

22 you can describe to us, what are we looking at, keeping in mind that we

23 are under somewhat time constraints.

24 A. Well, on -- page 82 of that document explains -- this is an

25 indices or the physical scope of industrial production, and in column 3

Page 35183

1 on the top, total industry, there's a figure 8.6. That means that if

2 1991 is 100, then in 1993 the level of industrial production was at 8.6

3 percent or what it was in 1991. In 1994, they have a little bit

4 increased up to 9 percent. But a drop of industrial production as a

5 result of the war was 91 percent.

6 Q. All right. Now, if we go to page 102, there's another table, and

7 I believe you wanted to draw our attention to that as well.

8 A. Yes. Page 102 shows the expenditure shares as a percent of total

9 expenditures in Bosniak majority area, and these are the figures for

10 1994, and if you could see in the line social fund expenditure, we see

11 that there's a quite a major difference between what is the level of

12 expenditures in the Croat majority area, 80.2 percent, and what is in the

13 Bosniak majority area which is 8 percent, which means that in the Croat

14 majority area they were spending more money for the social funds

15 expenditures, and most likely that is a result -- if we also look in the

16 same document, table 29 on page 100, there we can see that in the 1994,

17 the total revenue, the fiscal ability in the Croat majority area is 352

18 million Deutschemark, one in the Bosnian majority area, only 47.9 million

19 Deutschemark.

20 Q. Go ahead.

21 A. And the reason why I'm saying this is because I would like to

22 suggest that we move to slide 14.

23 Q. But before we do that, if we look at -- going back to page 102,

24 you pointed out to us the column, the social fund expenditure. If you

25 look at the very first line, wages and contributions for the Bosniak

Page 35184

1 majority, we see zero, whereas the Croat majority we see 11.2, and for

2 Republika Srpska we see 7.8. Does that -- is that relevant in any way,

3 and if so, how?

4 A. Well, also, this is relevant. That means that in the Croat

5 majority area, in addition to paying pensions as explained in this line

6 of social fund expenditures, they were also paying out wages to the

7 employees, while in the Bosnian majority area they were not paying wages

8 and contributions for the government employees. So the fiscal situation

9 in these two areas were very much different, and that's -- if I may

10 suggest, if we move to page 40.

11 Q. 14?

12 A. Sorry. Slide 14.

13 Q. Slide 14. Okay.

14 A. When you have a situation -- when there is no liquidity provided

15 by the central bank, when you have a situation -- when you have a dire

16 economic situation, there are really two options that authorities have

17 chosen to solve that problem. One is to print the cash needed. The

18 other is to collect fiscal revenues via different form of taxation. And

19 what I have seen, especially when I look into the war budget of the

20 Republic of Bosnia-Herzegovina, for practically 98 percent of the

21 revenues is actually borrowing from the commercial -- from the central

22 bank, which means printing the cash needed, a much logical and much more

23 correct way to manage the economy is to collect fiscal revenues via

24 different forms of taxation. For that, you need tax administration,

25 which means you have to re-establish social accounting offices, and for

Page 35185

1 that you need to go with imposition of different forms of revenues, and

2 that has been done at the level of local community -- either in Croat or

3 in the Muslim areas at the level of local communities.

4 Q. I want to just go back one second because I think this may be

5 important because you did indicate now that practically 98 percent of the

6 revenue is actually borrowed from the central bank, which means just

7 printing. Can you please describe, what do you mean by that? Because

8 you talked earlier, and there was a question about confidence level. We

9 talked about this particular currency not having any backing. It now

10 appears that you're telling us something that's a little bit more

11 complete that might give us some -- might be helpful for us.

12 A. Well, there is in the Official Gazette of Republic of

13 Bosnia-Herzegovina, Official Gazette with war budget. And that war

14 budget in the structure of its revenues, 98 percent of the revenues is

15 money printed from the central bank, and that, of course, when you have

16 such situation, then you have, of course, a very high inflation. While

17 in the level of the local communities, the way they started, since they

18 could not print the money, they started to collect fiscal revenues for

19 different forms.

20 Q. And it sounds from what you just told us that we have a

21 situation, at least in Sarajevo, that is somewhat similar to Zimbabwe

22 today, where Mugabe is just printing money to finance his government. Is

23 that what you're telling us?

24 A. Well, 730.000 high inflation 1992 is a result of authorities

25 printing the money, yes.

Page 35186

1 Q. All right. Now, if there's nothing else for slide 14, we can

2 move to slide 15.

3 A. Well, the slide 15 and slide 16, they were explanation how one

4 state should operate. When I was looking to all these documents, I of

5 course as an economist need to put a frame, and that frame is best

6 described on slide 16. That is a slide which is a figure 5.2 from the

7 document 1D 02966.

8 Q. Which is? If you could just --

9 A. Yeah, which is a book, "Managing Public Expenditure," a reference

10 book for transitions country, edited by Richard Allen and Daniel Tommasi,

11 and there on page 153 of that book or on the slide 16, here we -- it

12 explains what do you need to do in a particular state to have a normal

13 management of economy. You need to clearly establish a relation between

14 domestic and external sector. You need to ensure that in the real

15 sector, the one in the middle, the goods and services market, you have

16 appropriate relation between what are known as other domestic sectors.

17 These are the households providing labour and owners providing capital so

18 that you organise economy, and then you need to have a general government

19 collecting taxes for the government to be able to undertake government

20 services, and you need to have a working banking sector that providing

21 financing of all that.

22 If you don't have these all sectors up and running, it is

23 extremely difficult to undertake, of course, normalisation of economic

24 situation. Authorities, the central government authorities in

25 Bosnia-Herzegovina have not undertaken all these measures. They have

Page 35187

1 done them with a delay, and for these very reasons, local communities as

2 presented in follow-up slides have done a lot of that measures at the

3 level of their own small economies as defined in their small local

4 communities,

5 MR. KARNAVAS: If there are no questions, Your Honour, we'll move

6 on to the next slide.

7 Q. Okay. If we could go to slide 17.

8 A. On slide 17, we of course claim on the basis of the analysis that

9 while in the same time internationally recognised -- Republic of

10 Bosnia-Herzegovina, the same time as Slovenia and Croatia, while it was

11 internationally recognized a sovereign state, it was not an effective

12 state because it had not undertaken measures to ensure its economic

13 viability. As presented in the previous pictures, relations among key

14 economic sectors did not materialise as they should have. Of course,

15 there are obviously reasons why that had happened: military activities,

16 inability of the central government to have a control out of Sarajevo, no

17 taxes, no customs control established, very high portion of the budget

18 for military expenditures, very low level of economic activities. But

19 the fact is that while the war in the Republic of Bosnia-Herzegovina

20 prevented the creation of the institution that they needed, somebody need

21 to act. Authorities haven't done as presented in the bottom part of that

22 slide 17 -- they haven't undertook the customs authority. The central

23 banking authority acted with a delay, Social Accounting Office at the

24 level of the whole Bosnia-Herzegovina was not functional, so they did not

25 have the government -- the tax authority, and government also did not

Page 35188

1 acted as regulator.

2 If you move to slide 18 and then slide 19, the slide 18 is the

3 first of the two slides which explain what was the result of the war.

4 Clearly, more than 70 percent of the territory had been occupied. The

5 government of Republic of Bosnia was not able to establish customs

6 control, no new currency issued, no collection of taxes, and very weak

7 execution of public expenditures management functions, which means

8 creation of the government services. Thus, there was practically a

9 complete collapse of the pre-war economic system. I have seen this

10 reports by the economic departments, and I wanted to check whether that

11 was correct, and of course, when I was looking into this legislation and

12 I was looking for whether they have done all this, I of course was not

13 able to find it, and that's why, of course, we have a situation where a

14 normal pre-war decentralised system was not operational. That was, of

15 course, also due to the fact that telecommunication were down, railways

16 were down, roads were down, and practically there were a standstill at

17 the level of activity of the local communities activities.

18 Q. And I believe, Mr. Cvikl, for this particular slide, slide 18,

19 you wanted to draw our attention to P00274 as the first document.

20 A. Yeah, this is the document. It's a translation of the Official

21 Gazette of Republic of Bosnia-Herzegovina where in the preamble under --

22 on page 1 of the translation, 1, 2, 3, 4, 5, in the fifth line, says that

23 is the regressor [sic] who refuses to halt aggression has occupied over

24 70 percent of the territory, which is -- which was for me proven, of

25 course, that authority could not act and the military activities were a

Page 35189

1 very, you know, strong factor of why that had not been undertaken.

2 Q. Okay. And we can see that's as of 20 June 1992.

3 A. Exactly. That is the -- June 1992 when the authorities declared

4 that proclamation of the state of war.

5 Q. And I believe you also wanted to draw our attention to P00128,

6 and I should caution you that when you're away from the mics, it may be

7 giving the folks translating you or interpreting you some difficulty.

8 A. Yes. Thank you for the warning. I will put the paper in front

9 of me.

10 Q. Okay. P00128?

11 A. This is -- P00128, I would like to refer to page 32, section E,

12 the economy, where there is a description of what had happened at the

13 beginning of the war. And it says that: "The beginning of the war and

14 to some extent also before it, the overall former system collapsed

15 completely and all economic activity and payment operations stopped while

16 all communication, railroad and telecommunication links were severed.

17 With the stoppage of economic activities" --

18 Q. Slow down, Mr. Cvikl, because somebody is trying to translate

19 you.

20 A. Thank you. "With the stoppage of economic activities, all

21 sources of revenues for leaving and the conduct of the war dried up while

22 the need for funds was greater than in peacetime."

23 Q. All right. Is there anything else in this particular document

24 that you want to draw our attention on, or shall we move on?

25 A. We can move on.

Page 35190

1 Q. Okay. So then we can go on to the next slide, and that would be

2 slide 19, I believe.

3 A. The slide 19 somehow conclude what was the result of the war.

4 Since the steps and measures required for an independent state were not

5 undertaken, economic system and economy came to a standstill. There was

6 a very limited economic production, and since the tax administration was

7 not established, since the Social Accounting Office at the level of the

8 whole country was not implemented, even this limited activity was not

9 taxed. It is also known that particular fact was at that time the

10 banking system, 1995 when we -- even 1995 came into Bosnia-Herzegovina,

11 the banks were still not operating, at least not in Sarajevo. And thus,

12 collapse payment system did not support even if there was a limited

13 economic activity. And as I've already said, the central bank authority,

14 the monetary authority needed for a kind of sustainable economic system

15 and a revival of economic activity of the whole country was regained much

16 later when convertible mark was issued in the post-Dayton period.

17 Q. And just to clarify that point, when the convertible mark was

18 issued by the central bank authorities, who was running the central bank

19 authorities in Bosnia-Herzegovina?

20 A. Well, it is known that according to the Dayton Agreement it was

21 run by a foreigner, Mr. Peter Nicholl, I believe, from New Zealand or

22 Australia.

23 Q. Right. From New Zealand. That's correct. All right.

24 JUDGE PRANDLER: Mr. Karnavas, I'm sorry to interrupt you. I

25 would only like to ask one question here, and then I would like to make a

Page 35191

1 small remark. This -- I believe this page 19, the result of war, second

2 of the two of them, then it was mentioned that the steps and measures

3 required of an independent state were not undertaken. And now I would

4 like to ask Mr. Cvikl if he would be able to tell us that, that why the

5 steps and measures were not undertaken on the one hand, and on the other,

6 if he feels that was there any realistic ground to believe that these

7 steps were really to be undertaken in light of his earlier statement when

8 he spoke about the banking systems and the problems that he himself

9 mentioned, that in many instances and mainly in 1992, 1993, the banking

10 system simply could not work because of the situation in a bigger part of

11 the country, I mean Bosnia and Herzegovina, and he mentioned several

12 places like, I believe, Travnik, Mostar and others.

13 So does he believe -- I mean, do you believe, Mr. Cvikl, that

14 there were practical possibilities to take steps and measures required of

15 an independent state, unquote, in that case, or it was only frankly

16 wishful thinking on the part of the central government or on the part of

17 any other entities? It is my question, but being a Hungarian, I listened

18 carefully what you previously said, and since also in Hungary we have

19 followed with great interest the economic and political, financial

20 development of former Yugoslavia at that time.

21 And I have only one remark to make. Earlier today, you referred

22 to the starvation in Hungary, starvation in Hungary. Now, it is not my

23 -- no, I know that it was in the transcript. You refer to the fact that

24 even in Hungary there was starvation. I would like to say - let me

25 finish, Mr. Karnavas - that it is not the national pride which now makes

Page 35192

1 me make this statement, but the -- knowing of the fact that in Hungary

2 during that period of 1948, 1950, et cetera, we did not have starvation.

3 We did have -- since I lived that time, I know we did have some period of

4 starvation in 1945, early 1946, first, because of the German army took

5 whatever they could when they went back to Germany, and number 2, also,

6 because then the Soviet army took whatever was left there by the Germans.

7 So, therefore, I would say that, yes, there was really starvation but not

8 that period of time which you made the reference to. Thank you.

9 THE WITNESS: Your Honour, I would like to apologise what was in

10 the transcript because I have said there was starvation in Yugoslavia and

11 people were hungry. People were hungry. That's what I guess is in the

12 -- and, of course, I refer this because I just want to explain how in

13 1948, people were, of course -- the hunger and starvation in Yugoslavia

14 was prevented by stopping the agriculture reform, stopping taking land

15 from the farmers, and we'd be assured that the farmers continue with the

16 production of the food for the food markets, and thus we had to have the

17 workers' self-management and the workers having the wages to buy that

18 goods, food in the market, and my parents told me how was that in '48.

19 Now, on your question, Your Honour, I have stated on slide 17 and

20 slide 19 that I simply observed that the steps and measures required of

21 independent states were not undertaken. I'm saying that the Republic of

22 Bosnia-Herzegovina was an internationally recognised state, but it was

23 not an effective state, but people still need to survive. And since we

24 had a decentralised economic system, it was logical that at the local

25 community level, authorities started to act. Sarajevo government,

Page 35193

1 central governments landlocked; they were issuing different type of

2 legislation, not known outside; and then authorities acted, and they

3 acted in a very similar manner as if they would be creating independent

4 states for their own territory. Now, when I say independent states, I

5 mean economic areas that are to work and to deal with other parts. So

6 that's why I've seen in Tuzla creation of the fiscal revenues. I see

7 that in Zenica, Travnik, Mostar.

8 Now, I'm an economist, and I haven't judged whether they were

9 possible to do it, and I have said they could not do that because there

10 was a military aggression. But on the other side, once the military

11 activity, you know, calmed down and the government remained landlocked in

12 Sarajevo, it was logical from the economic point of view and from the --

13 yeah, from the economic point of view and given the authorities that were

14 vested in the local communities that these authorities acted, first in

15 local communities and later at the level of regions.

16 JUDGE PRANDLER: Thank you very much, Mr. Cvikl, for your answer

17 on both issues, and I'm satisfied with that. Thank you.

18 JUDGE ANTONETTI: [Interpretation] Witness, the question put by my

19 fellow judge and your answer that was based in particular on tables 17

20 and 19, allow me to ask you the question that I was burning to ask you

21 but I was waiting for the right moment. In slide 17, you indicate

22 clearly and specifically that internationally recognised

23 Bosnia-Herzegovina that recognised this state internationally seemed, in

24 fact, to raise a number of problems linked to economic factors, and I was

25 very struck by the document where we realised that industrial output on a

Page 35194

1 basis of 100 fell to 8 percent. In other words, there was major economic

2 collapse.

3 Now, my question is as follows: In such a situation, is it

4 logical to recognise a state that doesn't function economically, and to

5 support my question, I'm establishing a parallel with Kosovo. I know

6 that the Slovenian presidency managed the -- issued the recognition of

7 Kosovo, and you as the expert, I would ask you whether from the economic

8 standpoint current that Kosovo presented the same situation as

9 Bosnia-Herzegovina back then.

10 THE WITNESS: Well, the short answer would be no. There's a

11 difference, and the difference is the following: European Union member

12 states recognized Slovenia, Croatia, and Republic of Bosnia-Herzegovina

13 at the same time. Now, Slovenia and Republic of Croatia have undertaken

14 some of the measures, and as you know, Slovenia was immediately attacked

15 by the Yugoslav Army, and over the two weeks' war we were able to get to

16 some kind of the peace. And here is the answer why there's no -- it's

17 not the same situation in Kosovo now as it was in Bosnia-Herzegovina in

18 1991. For all practical purposes, and I have visited Kosovo as the

19 member of parliament a couple of times, effectively there is a, you know,

20 force out there that, you know, prevent or can prevent eventually

21 military attacks, and that was not the situation in the case of

22 Bosnia-Herzegovina in 1991 and 1992.

23 So all the military forces that we drove from Slovenia after the

24 October 15th actually moved south, and since Bosnia-Herzegovina was

25 really the core of the Yugoslav military production, those forces end up

Page 35195

1 in Bosnia-Herzegovina. That's why this 70-percent possession of the land

2 by non-Republic of Bosnia-Herzegovina authorities, where in the case of

3 Kosovo it is different. There is a real force out there that could

4 prevent -- you know, EU lacks now police force, et cetera, that could

5 prevent such aggression. Is this economically and from the -- all other

6 issues the smartest decision, I can't comment on that. About Kosovo, I

7 mean.

8 JUDGE ANTONETTI: [Interpretation] Thank you. I'm looking at the

9 clock. It's time for the break. We'll resume at 6 p.m., and

10 Mr. Karnavas will have an hour to continue the examination-in-chief.

11 --- Recess taken at 5.41 p.m.

12 --- On resuming at 6.02 p.m.

13 JUDGE ANTONETTI: [Interpretation] We are back in session,

14 Mr. Karnavas.

15 MR. KARNAVAS: Thank you. Thank you, Your Honour.

16 Q. If you could go to now slide 20. I believe that's where we left

17 off, and we can go rather quickly here.

18 MR. KARNAVAS: I think there might be an open mic on the Bench,

19 Your Honour.

20 Q. Go ahead, Mr. Cvikl.

21 A. Well, in slide 20 we explain what kind of actions would need to

22 be taken in order to strengthen the economy, to strengthen the tax and

23 revenue authority, re-establish the SDK and for that, one would need to

24 repair the telecommunication networks. And those measures were not

25 implemented. They were implemented to the level of local community, and

Page 35196

1 I have seen some of those measures, region-wide measures, implemented in

2 the area of Herceg-Bosna and to a certain extent from what I've seen, in

3 Tuzla region by a couple of local communities where they were sharing

4 some of the -- mainly approach to the strategic reserves which they have

5 had there.

6 Now, the war resulted into a very difficult situation. And in

7 this situation, authorities which were according to the Yugoslav

8 constitution responsible to manage affairs on their own territory, they

9 had to act. They had to act on supply and on demand side. And from the

10 documents which I have seen, authorities, local authorities have acted in

11 such a manner.

12 Q. All right. Is there anything else, or should we go on to --

13 A. We can go to slide --

14 Q. Slide 21?

15 A. Yeah.

16 Q. Okay. Moving on to slide 21.

17 A. In slide 21, we of course explain why there was a complete

18 collapse of economy, and the main reason was that the enterprise sector

19 ceased to operate. Manpower was called under arms, no energy was there,

20 raw material supply was very limited, and domestic shops were closed.

21 And the reason why society, why people survived were really two reasons:

22 One, the food markets operated throughout the war, which means that the

23 private farmers were providing to the food markets stuff throughout the

24 war; and the private sector initiative took place. There were hundreds

25 of new enterprises established, especially in the trade sector, and this

Page 35197

1 enterprises provided the supply of goods needed for the benefit of the

2 population, and these enterprises and the donor assistance somehow in a

3 situation where we had 91 percent drop of the industrial production,

4 enabled the survivor of the population throughout the war period up to

5 1991, 1994 period.

6 Q. And as I understand it, with respect to this particular slide,

7 you wanted to draw our attention to 1D 02959?

8 A. Yes, this is the -- exactly. This is the report of the IMF where

9 we again show on table 11, page 82, this indices, very low indices of the

10 physical scope of industrial production summarising how bad was the

11 situation, on page 82 of that report.

12 Q. Okay. And we saw that already. Then I believe the other

13 document is 1D 02967.

14 A. Yes, here, this here I'm referring to the Bosnia-Herzegovina

15 toward economic recovery report by the World Bank, and I would like to

16 refer to page Roman xvii when at the bottom of the second paragraph there

17 is an assessment made by the World Bank team at that time that the

18 external financing requirement need was currently estimated at 5.1

19 billion dollars for the initial three to four years, and this is big

20 amount, a big amount because compared to the figures which we have seen

21 before, this is almost six to seven times bigger than the amount of the

22 old fiscal revenues for the country.

23 Q. All right. And just to make sure that everyone sees that, that's

24 on the second paragraph on this particular page, and it's the last

25 sentence of that paragraph, which is titled above it: "Reconstruction:

Page 35198

1 Priorities and Organisation."

2 All right. Now -- and I guess we can go on to the next slide.

3 A. Yes. On slide 22, I'm summarising the monetary policy area. The

4 National Bank of Republic of Bosnia-Herzegovina had not implemented

5 immediately the policies needed, and since there was a lack of unique

6 domestic legal tender that people would trust, and as the other

7 currencies, the Deutschemark, Croatian dinar, started to play the role

8 the paralegal tender, and convertible mark was established much, much

9 later, in the meantime, in the meantime, local communities implemented

10 the traditional measures of the central state authority. We have seen

11 later on a situation where local communities were actually undertaking

12 those measures which would be normally done by central banks.

13 Q. And can you just give us an couple of examples --

14 JUDGE PRANDLER: Mr. Karnavas, just simply a matter of

15 functionality. I believe that under second dot: "The national bank

16 delayed provision of the new currency. The currency was not widely

17 accepted..." So far so good. "...and it was hard currency..." I

18 believe that you should have said that it was not a hard currency.

19 THE WITNESS: It was not a hard currency.

20 JUDGE PRANDLER: Yes, thank you.

21 MR. KARNAVAS: Thank you, Judge Prandler.

22 Q. All right. And do you want to give us some examples or are we

23 going to be seeing some examples later on concerning what was done?

24 A. We will see them later on.

25 Q. Okay. So if we go on to the next slide, which would be 20 --

Page 35199

1 A. 23.

2 Q. 23.

3 A. The slide 23 and slide 24 explains how the war affected the

4 fiscal system. Since we have said that the domestic payment system

5 ceased to operate, Social Accounting Office not being activated, there

6 were no ability for collection of domestic fiscal resources, and thus,

7 para-fiscal funds, the self-managed interest communities that were

8 supposed to provide money for the social services, were not really

9 effective. And thus, initially in practically all local communities,

10 different types of fiscal revenues were implemented, and of course

11 authorities have undertaken this by either obtaining fiscal resources, or

12 in some cases, and that was a very nice case in Tuzla, they even provided

13 food packages as a mean of payment. Instead of giving people a wage,

14 they were giving them a monthly rationing food package as the monthly

15 wage for the services, let's say, of the health officials in a local

16 health facilities in Tuzla.

17 On slide 24 --

18 Q. I'm going to ask you, Mr. Cvikl, to speak a little bit slower

19 because as we go into the evening, everybody is getting tired, so if you

20 could slow it down a little bit.

21 A. Thank you. On slide 24, here I summarized what is happening on

22 the expenditure sides. As there were no gross wages, as there were no

23 economic activity, no gross wages, there were no obligatory contributions

24 to be paid into the accounts into the different para-fiscal funds. Thus,

25 health, pension, education and other funds that would finance social and

Page 35200

1 state expenditures did not have resources. Pensions were not paid;

2 health services were not receiving funds through this system via from

3 central authorities; schools, universities stopped receiving funds, and

4 they would continue to be closed, they would continue to not operate

5 unless somebody stepped in. And in that context, I conclude the

6 situation of the war and fiscal system with the last bullet where I say

7 that budget users, different entities being financed from budget, either

8 budget or para-fiscal funds, they became completely dependent on ability

9 of local communities to finance these expenditures.

10 That is result of the war and result of the collapse of the

11 existing decentralised fiscal system and collapse of the economic

12 activity.

13 Q. All right. If we go on to slide 25, which is your summary, and I

14 believe you wanted to draw our attention, as well, with this particular

15 slide to 1D 02964.

16 A. Yes. In this slide, I somehow summarized as an economist what

17 was the overall economic situation. And the best description of this

18 situation is on the document 1D 02964, where the Ljubiski municipality

19 had issued the following communique that the regular supply of

20 electricity was interrupted, and we hereby inform the population that

21 there will be no electricity until further notice. And that's why

22 measures have been undertaken to ensure at least the minimum amount of

23 electricity possible. It's a kind of a very vivid picture that, you

24 know, on April 21st, 1992, the country practically came to a standstill

25 with no electricity being provided, despite the fact that

Page 35201

1 Bosnia-Herzegovina has ample ability either in power -- either in thermal

2 power or hydropower to produce electricity.

3 Q. All right. And if you can now -- have you concluded with your

4 summary or shall we ...

5 A. We can continue, but, you know, as I say in the last point, since

6 the government of Republic of Bosnia-Herzegovina in Sarajevo was unable

7 to effectively implement the measures, local authorities started to act

8 independently. And as we presented in the follow-up part of the report

9 and in follow-up slides, these occurred in a very similar way, whether

10 that was a Muslim or Croat majority area.

11 Q. All right. And so with that, unless there are any questions from

12 the Bench, we could go into more concrete situations with the next slide,

13 which is 26, "Activities of Local Communities."

14 A. Yes. Local communities need to act for two reasons. First, they

15 need to act to defend themselves, but once they defend themselves from

16 the aggressor attacks, they need to restore basic economic conditions.

17 And in that context, as central authorities were not active, local

18 authorities became the key elements for what I call national governance,

19 of the governance of economy in their respective areas.

20 They had for that constitutional mandate. They had the power to

21 act on many issues, and here I would refer to document 1D 02994, which is

22 the constitution of the Socialist Republic of Bosnia-Herzegovina, and

23 there is on page 91, in chapter 7, Article 262, which explain the

24 responsibility of the municipality being, of course, responsible to

25 ensure the conditions for the work -- for the life and work of the

Page 35202

1 working people and citizens.

2 And in that context, the local authorities acted as, you know,

3 defined in the constitution, but even more, if I refer and I would like

4 to refer to another document, which is the document 1D 0247. Sorry,

5 2047.

6 Q. All right.

7 A. This is the document issued on August 1st, 1992, by the

8 presidency of Republic of Bosnia-Herzegovina, adopting decree law on the

9 application of the law on the financing of general social needs, and in

10 this very decree law, in Roman ii, section 2, the financing of the

11 functions and tasks of socio-political communities during an imminent

12 threat of war and during a state of war, in Article 2, it is explained

13 what -- which general social needs shall be covered in war or during the

14 war. And that is first the financing of the armed forces.

15 Q. Slow down. Slow down a little bit so we can all -- now, this is

16 rather important to absorb.

17 A. Yes. Article 2. It starts by defining what are the most -- what

18 are the priority to be finding during an imminent threat of war and

19 during a state -- and it says, first, the financing of the armed forces

20 of the Republic of Bosnia-Herzegovina; second, the work of the presidency

21 and other administrative bodies; third, the securing and maintenance of

22 commodity reserves; fourth, additional resources to municipality; and

23 then it continues, five, financial support for families or persons,

24 et cetera.

25 But I would like also to refer on next page to Article 3,

Page 35203

1 defining that all these needs shall be referred -- the needs referred in

2 Article 2 of this decree shall be financed from the budget, and that

3 budget is hereinafter referred to as the war budget. So the decree

4 issued by the presidency has given local authorities or socio-political

5 communities ability to establish war budget. Why is this important? In

6 Article 3, the war budget is defined. In the Article 2, what are the

7 priorities of the needs? And in Article 20, I would like to refer to

8 Article 20, which is under the Roman iii, revenues of the socio-political

9 community. In Article 20, it is defined that during an imminent threat

10 of war and during a state of war, the socio-political community may

11 determine new sources of revenue and abolish the existing ones,

12 et cetera. Which means that here with this decree law, the president was

13 giving the local communities an authority to issue new "legislation" by

14 which they would be collecting new fiscal resources. They would have to

15 put this new fiscal resources in the war budget and finance what is the

16 -- requested from the presidency in that decree, and that is to defend

17 themselves and to, of course, take care of the needs of the population on

18 their own territory.

19 Q. One minor detail. Article 20, which you've just discussed, and

20 it says, i.e., you know, and it gives some examples, I guess: "Increase,

21 lower and abolish tax rates. Determine tax relief and the exemption of

22 certain taxpayers..." and so on. Are these the sorts of activities that

23 are normally carried out by the state or by the local communities?

24 A. These activities are normally activities that are done by the

25 state. State is the one that in the name of the power vested by its

Page 35204

1 constitution issue tax obligation, give to certain taxpayers possibility

2 of exemption. The Presidency of Republic of Bosnia-Herzegovina realising

3 that they cannot do that, they have transferred that state function down

4 at the level of the municipalities or so-called socio-political

5 communities, of course, and those socio-political communities according

6 to the Bosnian constitution were actually Opstinas or municipalities.

7 Q. All right. And we see that that's done in August of 1992,

8 correct?

9 A. That is correct. And that's why I -- you know, when I was done

10 looking into particular activities, I was not surprised that they were

11 done all this what would be the normal function of the state.

12 Q. All right. Unless there's anything else or any questions from

13 the Bench, we can move to the next slide.

14 JUDGE ANTONETTI: [Interpretation] Witness, there's an important

15 article that wasn't cited that follows up on what you were saying, seems

16 to me to be Article 8, that clearly sets out that additional resources

17 may come from the municipalities, which would tend to indicate that when

18 the state is unable through its national budget to meet the budgetary

19 expenditures owing to a war situation, then there is recourse to the

20 local authorities. Would you confirm that Article 8 is indeed consistent

21 with that?

22 THE WITNESS: Yes. In the Article 8, it says that the war budget

23 shall provide additional resources from the municipality to finance

24 needs. But when I looked into the war budget for 1992, I have not seen

25 on the expenditure side those additional resources being provided.

Page 35205

1 JUDGE ANTONETTI: [Interpretation] Very good.

2 MR. KARNAVAS:

3 Q. If there's nothing else from this particular slide, then we can

4 go on to slide number 27; is that correct?

5 A. That is correct.

6 Q. All right. So if we could go to slide 27.

7 A. In slide 27, I'm explaining what kind of economic measures local

8 communities have undertaken, and I've started it, of course, they have

9 undertaken macroeconomic measures because they were to ensure the balance

10 of the supply and the demand. And the second, they -- as vested by this

11 decree which they just discussed, they established a new fiscal setup.

12 They take over public services that used to be responsibility of the

13 central government, and then I under the last bullet summarized what kind

14 of measures were out there, and there are really four groups of measures:

15 Measures to ensure defence, macroeconomic measures, microeconomic

16 measures, and the measures to ensure government services, and in my

17 report I cite those measures and I group them according to the structure

18 which would -- which economists would usually do and as explained in the

19 last bullet of that slide 27.

20 Q. All right. Now, as I understand this with particular slide in

21 keeping with these measures, there are several documents that you wish to

22 go through and point out certain things for our edification. And I

23 believe the first document is 1D 03000, which is cited in your report, of

24 course.

25 A. Yes, that is the -- this is the decision by the Ljubuski

Page 35206

1 municipality on establishing a commission that will define the exchange

2 rate of the Yugoslav dinar relative to other currencies as stated in the

3 -- para first, and this would be normally the function of the central

4 bank.

5 Q. And we see that that is on 24 April 1992, rather early on,

6 correct?

7 A. Exactly.

8 Q. All right. And the next document is 1D 00786.

9 A. Yes, this is decision by the Jablanica Municipality Crisis Staff.

10 I would like to refer that this is a new document. I am not -- I haven't

11 cited this document in the report. I have got this document over the

12 last weekend in preparing for this, and this is the executive decision of

13 May 13, 1992, to form a working group that would draft documents

14 necessary to overcome problems arising from these functional system of

15 payment transaction and fiscal and monetary policy in Jablanica

16 municipality. That is, again, measures undertaken in Jablanica, one of

17 the local community where they have undertaken the functions of the

18 state.

19 Q. All right. Now, if we look at the next document, which I also

20 believe is a new document which you only saw recently, and that is 1D

21 02337.

22 A. Yes. This is document issued by -- on July 7 by Siroki Brijeg

23 municipality where the control of movement of goods in the area of Siroki

24 Brijeg municipality is defined, and it says in Article number 1 that the

25 control of entry and exit of all goods in the area of Siroki Brijeg

Page 35207

1 municipality will be carried out by the relevant inspection services with

2 mandatory assistance by military and civilian police, which means that

3 this Siroki Brijeg municipality established the control checkpoints to

4 ensure the control of the economic area. And it's a new document, but

5 it's one of these new documents which was given to me over the last

6 weekend but confirms that this is one of the classical macroeconomic

7 measures that the particular economic unity would have to undertake.

8 Q. All right. And we go on to the next document, again, a new

9 document, 1D 02523, 1D 02523.

10 A. This is the document, again, by the Siroki Brijeg municipality of

11 October 27, 1992, where the exchange rate are defined, and in Article 3

12 it says that for payments in German mark, the exchange rate should be set

13 above the exchange rate that had been at that time defined for

14 Deutschemark and Croatian dinar by National Bank of Croatia. And then it

15 says also that for other currency there should be a premium of 5 percent

16 each point above. Again, a measure of local community of Siroki Brijeg

17 that is actually a state -- usually a state measure.

18 Q. All right. If we go on to the next document, 1D 02984. 1D

19 02984. Again, this is a new document?

20 A. Yes. This is a document by another municipality. When I started

21 -- when I finished this report, of course, I got a mountain of documents,

22 but when I saw this document over the weekend, it's, again, a document

23 which in Article 2 defined that the single joint tax and contribution

24 rate is defound [sic] in the amount of 80.6 percent of net payment in

25 money and in kind, which means, here they were collecting either fiscal

Page 35208

1 resources in cash or in kind, and then it says that this -- in Article 4,

2 that this joint tax and contribution rate actually is for assuring funds

3 for contribution for healthcare, education, pension, disabled insurance,

4 all functions which were before functions of the central government

5 state.

6 JUDGE TRECHSEL: Excuse me, Mr. Karnavas. I have a technical

7 question I must raise. Are these documents on your 65 ter list?

8 MR. KARNAVAS: Yes, they are.

9 JUDGE TRECHSEL: Oh, they are. They were only new for the --

10 MR. KARNAVAS: New for Mr. Cvikl.

11 JUDGE TRECHSEL: But not for us.

12 MR. KARNAVAS: No, not for you.

13 JUDGE TRECHSEL: Okay. Thank you.

14 MR. KARNAVAS: But I'm glad that you brought that up.

15 JUDGE TRECHSEL: Yes, because of course we have rules and --

16 MR. KARNAVAS: I understand.

17 JUDGE TRECHSEL: Thank you.

18 MR. KARNAVAS:

19 Q. Now, if we look at Article 4, for instance, and you just

20 commented on that, this would be an example, for instance, of what you

21 were speaking earlier about para-funds. Is that correct?

22 A. Yes.

23 Q. Now, the next document, again, this is new to you, this would be

24 1D 03018.

25 A. Yes. This is a document of October 26, 1993. Municipality of

Page 35209

1 Travnik in difficult war circumstances of the middle of 1993 had set an

2 agenda, and in this agenda, I would like to refer to two items of agenda.

3 The first, number 3, and then number 6, Current Affairs.

4 Number 3, defining the exchange rate for dinar is done on page 1D

5 57-0654, explained further, and it defined that in this municipality they

6 have decided what shall be the exchange rate for convertible currencies.

7 And interesting is, of course, that they are somehow defining the

8 cross-exchange rates between Deutschemark and dollars, but, of course,

9 defined that one Deutschemark shall be worth 100.000 Bosnian dinars.

10 And second, what I would like to refer is that current affairs,

11 and that current -- just a second. Yes, under the current affairs they

12 had of course been requesting, they were undertaking, you know, what I

13 would call economic measures, where they concluded on page 1D 57-0655

14 that a particular request from the match factory, factory producing

15 matches, had been granted, and of course saying that they would have to

16 do under particular condition a typical measure that would usually not be

17 undertaken by a local community but here they were, of course -- this is

18 the war situation.

19 Q. You need to slow down a little bit, and then I want to make sure

20 that the record is very clear. The numbers that you are referring to --

21 THE INTERPRETER: Would the counsel please speak into the

22 microphone.

23 MR. KARNAVAS:

24 Q. I want to be very clear for the record. The numbers that you

25 have been referring to are at the bottom right-hand corner, and the last

Page 35210

1 part that you spoke of is under item 8, I guess, current affairs, or

2 paragraph 8, number 8. And you were referring to that section; is that

3 correct?

4 A. That is correct. Since the document is not paged, I used the

5 bottom right...

6 Q. Okay. Now, if we go on to the next document, 1D 0 --

7 JUDGE ANTONETTI: [Interpretation] One moment, please. Witness,

8 we've just seen a document which is interesting because it does not stem

9 from the HVO but from a municipality controlled by Muslims. Indeed,

10 Travnik is part of Bosnia and Herzegovina, the part that was

11 Muslim-controlled. We notice the contents of this document, and we

12 realise that this Muslim municipality does exactly what the Croatian

13 municipality does, namely, that it acts on the exchange rate, but also on

14 the economic production because we see that prices are fixed when it

15 comes to oil and other products, sugar, coffee, et cetera.

16 Had you realised that this was a municipality from the other

17 side, as it were?

18 THE WITNESS: Well, I have -- when I was looking into all these

19 documents, especially the documents from Tuzla for which I knew that it

20 is Muslim controlled, I was for the first time surprised that the

21 measures are very similar. So when I over the weekend received these

22 documents from Travnik confirming, you know, again, that in the central

23 Bosnia, you know, the same situation and also later on we've seen some of

24 the same in Jablanica, that is just reiterate my conclusion which I made

25 as discussing issues and looking into documents for the local communities

Page 35211

1 that the measures were done in an equal manner notwithstanding whether it

2 was a Muslim majority or Croat majority area.

3 MR. KARNAVAS:

4 Q. If we go on to the next document, which is 1D 02977, staying,

5 again, with Travnik, if you could please give us an opinion on this

6 document.

7 A. Yes. Here I would like to refer -- there is a meeting of the

8 executive committee of this municipality of Travnik. The agenda has been

9 set. This is December 20, 1993, and I would like to refer to two issues

10 on the agenda: Number 5, deliberation on the programme of measures for a

11 more efficient collection of taxes; and number 8, current affairs.

12 Q. Okay. Okay. So let's go by page so we can locate them.

13 A. Yes, yes. I would like now first to refer to page 4. This copy

14 has been paged. And under page -- in page 4, there is a section 85, and

15 in the middle there are conclusions saying that the programme of measures

16 for a more efficient collection of taxes is hereby adopted together with

17 the commanded conclusions, and point 2, the Executive Committee hereby

18 tasks the municipal administration of income to prepare a write-off of

19 fixtures due, which means writing-off of the state obligations, and that

20 is, you know, something that they had been asked by the decree on law

21 about the role of the socio-economic -- socio-political communities. But

22 I would like also to draw attention to page 5.

23 Q. Before we go to page 5, sticking with page 2, again, we need to

24 make a very clear record, and you indicated that they were asked to write

25 off dues, and then you made reference. Is that to the law that we saw

Page 35212

1 earlier?

2 A. That is the law which we saw earlier. That is the decree law on

3 the application of the law on the financing of general social needs,

4 document 1D 02047.

5 Q. Okay. So this is an example of a particular municipality acting

6 upon the new authority that it has been granted. Is that what you're

7 telling us?

8 A. That is correct.

9 Q. All right. Now, what's the next part?

10 A. The next part is --

11 THE INTERPRETER: Would the speakers kindly not overlap for the

12 interpreters. Thank you.

13 MR. KARNAVAS:

14 Q. This was well overdue, this admonishment. So ...

15 A. Thank you. I would like to raise your attention to page 5 of the

16 document 1D 02977, and on page 5, in the bottom of that page, there are

17 conclusions on so-called (b), processing of bills. Now, this conclusion

18 is very interesting, and it is a result of a very difficult situation.

19 But here is the recommendation. Here, the conclusion has been adopted

20 that the recommendation of the social audit service of the Social

21 Accounting Office branch in Travnik is hereby accepted to process

22 Bosnia-Herzegovina bills of the following denominations: 10, 25, 50, and

23 100 Bosnian dinar in the following composition: 28.000 units of 100 BHD

24 to be worth 2.800 thousand, which means 2.8 million, and then it says

25 that this -- 45.000 of units, that these bills would ensure a total of

Page 35213

1 3.3 billion BH dinar that would suffice -- be sufficient to make payments

2 on due pensions. There seems to be an activity of creating money at the

3 level of Travnik municipality for the due pensions, and I would also like

4 to refer --

5 Q. Wait. Hold on, because we want to make sure we're clear because

6 we're not economists. What do you mean that they're creating money?

7 A. Well, obviously, they had some physical Bosnian dinars.

8 Q. All right.

9 A. And this seems to overstem them so that they be worth more so

10 that they would be able to pay the pensions out.

11 Q. Okay. Now, whose function is that?

12 A. Well, that is normally the function of the central bank.

13 Q. All right.

14 JUDGE TRECHSEL: Sorry. I also stumbled at the word "process,"

15 to process BH bills, and I wondered whether process here means printed,

16 but it's printing, but it seems that you say they took a stamp and they

17 took whatever bill because it is not said here, and then stamp 100, and

18 make 28.000 of those. Do you have an idea what practically happened?

19 THE WITNESS: Yeah. From my understanding is this is -- this is

20 what usually happened in the high inflation time. You are renominating

21 the bills in order, you know, to have a higher value. And that's why it

22 is not surprise, and I would like, Your Honours, to draw your attention

23 to page 6 on the top of that -- page 6 on the top. There is a statement

24 issued by the executive committee says: "The executive committee once

25 again warns the postal and telephone services, the utilities company, the

Page 35214

1 heating company and electric company of Travnik when collecting their

2 dues to accept Bosnian-Herzegovinian dinar bills."

3 You have a local community enterprises that were not trusting

4 Bosnia-Herzegovina dinar bills, so the executive committee had to request

5 them to collect legal tender. So there was such a low lack of trust that

6 even the electrical company in Travnik would not accept BH dinar bills.

7 And of course, this is middle of 1993 with a very high inflation, and

8 that's why I say that this is just a description how difficult situation

9 was and why really the national bank of Bosnia-Herzegovina was not

10 controlling the place.

11 JUDGE TRECHSEL: Thank you. It seems that translation is perhaps

12 not the happiest one. What you interpret this to mean is that the postal

13 and telephone service are told not to accept BHD bills?

14 THE WITNESS: No. They are warned -- it once again warns them to

15 accept. They were not accepting them. And so the executive committee

16 warns the postal and telephone services that when collecting their dues,

17 to accept BH dinar bills.

18 JUDGE TRECHSEL: Thank you.

19 MR. KARNAVAS:

20 Q. All right. Just, I guess, one point of clarification that was, I

21 guess, prompted from one of the questions from Judge Trechsel when you

22 indicated that usually the money is renominated with the stamp. Let's

23 say that you take this newly nominated currency to another municipality.

24 Do you know what, if any, value that currency would have? Would it have

25 the value that Travnik municipality places on it or Sarajevo or what?

Page 35215

1 A. Well, most likely it would not have that value because people

2 would only take the face value. But if there's a stamp over the Travnik

3 municipality that this is now not 1.000 but 10.000 dinars, people in

4 Tuzla might not accept that.

5 Q. All right. If we go on to the next --

6 JUDGE ANTONETTI: [Interpretation] One moment. There may be a

7 problem with the translation because when you say "bill" in English,

8 well, in French it was interpreted as "facture," so bill, but I have my

9 doubts. Is this not money, paper money, because if a bill is in BH

10 dinars, how by which miraculous operation could the bill be transformed

11 as to the amounts? So are we talking about bank notes that have a higher

12 nominal value, are given a higher nominal value? Are we talking about

13 bills issued by any order, enterprise or company?

14 THE WITNESS: Well, if I'm -- you know, I'm a central banker, so

15 American term would be US dollar bill. European term would be US dollar

16 bank note.

17 MR. KARNAVAS: All right.

18 Q. Not to be confused with bill as in receipt?

19 A. Exactly. And that's why I believe this translation talks about

20 the bank notes.

21 Q. Okay. If we could go to on the next document --

22 JUDGE ANTONETTI: [Interpretation] Thank you. So you can see that

23 I was ever so right in stepping in. So bill here is a bank note?

24 THE WITNESS: Exactly. Exactly. And I read Croatian, and here

25 they talk about -- sorry, B/C/S, Croatia, Bosnian, Serbian. Here they

Page 35216

1 talk about "novcanica," and "novcanica" is a bank note.

2 MR. KARNAVAS:

3 Q. Okay. If we go on to the next document, 1D 02980. I would like

4 to finish the next four documents very quickly.

5 A. This is the decision of the municipality of Tuzla to establish

6 duty-free shops that would help them to get some more goods into the

7 territory, and that is defined in Article Roman i and Roman ii and Roman

8 iii of that document 1D 02980.

9 Q. And again, is this a function that normally would be undertaken

10 by a municipality or by the state itself?

11 A. That would be functions taken by the ministry of finance of a

12 state.

13 Q. All right. Now, if we look at 1D 00244, staying with Tuzla

14 municipality.

15 A. That is an order issued on December 1992 by presidency of the

16 Tuzla municipality assembly to issue an order on obligatory payment of

17 war tax in foreign currency. Local community of Tuzla did not trust

18 Bosnia-Herzegovina dinars. They were already issued by that time, I

19 believe, and here they ask that, in Article 1st, all legal entities and

20 natural persons involved in foreign trade are hereby obliged to pay a sum

21 of money in foreign currency. They defined that sum of money as war tax,

22 and it should be paid as 20 percent of that special tax if they would

23 instead of paying money -- paying tax -- instead of paying tax in foreign

24 currency, and they would instead of foreign currency giving goods, giving

25 things in kind, then the tax would be 15 percent as stated in the third

Page 35217

1 paragraph of Article 1st of that varied order.

2 Q. All right. And then we can see in Article 2 where there are some

3 exemptions.

4 A. Well, yes. There is in Article 2 exemptions. If they import

5 goods in order to hand it over to directorate of rationing because they

6 establish -- I understand they had a special directorate where they were

7 delivering goods to the society, then there is no tax.

8 Q. All right. And again, with respect to the -- to the Article 1,

9 the activities that you just described, are those normally state

10 activities, or is the municipality entitled to do -- to undertake these

11 sorts of measures?

12 A. These are normally state authority. However, they've done this

13 given the war circumstances by local authority themselves. And I have

14 discussed this very issue with the Presidency, asking why he did that,

15 because that looks like, you know, he was stimulating the so-called war

16 profiteers.

17 Q. Who did you discuss this with?

18 A. I discussed this with Mr. Beslagic during my visit to

19 Bosnia-Herzegovina in December 20th, 2007. I met him and ask him --

20 Q. What position did he have at the time?

21 A. He was -- Mr. Beslagic was the one who actually issued that order

22 in December of 1992, so ask him during my visit why such an order, and he

23 had explained that in order to get goods into the country, into the local

24 community of Tuzla, he had also stimulate -- you know, he stimulate the

25 activities of the traders, and he took for the benefit of the community

Page 35218

1 the 20 percent as special tax.

2 Q. All right. If we go on to the next document. 1D 03021.

3 A. This is the decision by the Croatian Defence Council of Grude of

4 August 10, 1993, defining in Article 2 that the material obligation for

5 citizens of the municipality of Grude working abroad shall be set -- and

6 that is for those that they have the permanent Visas, shall be set at 200

7 Deutschemark for men and 100 Deutschemark for women, which means that

8 they impose a fiscal obligation on the citizens to finance the needs of

9 the council of the Grude municipality.

10 Q. All right. And finally, the last document for this slide is 1D

11 03019, and I believe this is Zenica.

12 A. Yes, this is Zenica. This was new document for me. It is a

13 decision of September 30, 1993, on provision of funds for procurement of

14 material and technical needs for the needs of armed forces of the

15 Republic of Bosnia-Herzegovina, and it says in Article 4 that privately

16 -- obligations of the privately owned company shall be defined depending

17 on the type of business activity, if it is registered for, that forms the

18 majority part of its activity, and it says that the wholesale shop should

19 pay from 1.000 to 4.000 Deutschemark of a special tax for covering the

20 needs of that varying municipality.

21 Q. Why is that important?

22 A. Well, that is important because they have actually undertaken

23 measures to collect funds from local private businesses in order, of

24 course, to finance the needs of Zenica municipality, again, a function of

25 the state being undertaken by local community.

Page 35219

1 Q. And as I understand it, the documents that we saw which were just

2 sort of, for lack of a better term, vignettes or examples, these are the

3 sort of documents that you were looking at and relying on in forming the

4 sorts of conclusions that we see on slide 27; is that correct?

5 A. That is correct. On slide 27, I explain in the bottom what kind

6 of measures they were undertaking, and then of course on slide 28, if I

7 --

8 Q. We're not going to go into 28 because we are going to be

9 finishing. I just wanted to conclude with that that --

10 A. Yes. On slide 27 and the documents which we presented are the

11 type of the measures to support defence, to undertake macroeconomic

12 measures, which means control of the fiscal revenues, to undertake the

13 role of the central bank and the microeconomic measures; that means the

14 support of the enterprises sectors that would be normally the function of

15 the state, and all that had been done by the local communities which have

16 been here presented.

17 MR. KARNAVAS: Thank you, Mr. Cvikl.

18 Your Honours, I see the time. This is actually a perfect

19 opportunity for us to break, as we go on to the next segment tomorrow.

20 JUDGE ANTONETTI: [Interpretation] Mr. Karnavas, you have used 2

21 hours and 17 minutes, for your information.

22 Witness, you shall return tomorrow at 2.15, since we sit in the

23 afternoons this week. Until then, you are of course not allowed to have

24 any contact whatsoever, not with the press, either, in case you would

25 like to comment anything about questions and answers.

Page 35220

1 I wish you all a very good evening, and I look forward to seeing

2 you tomorrow at 2.15.

3 --- Whereupon the hearing adjourned at 6.58 p.m.,

4 to be reconvened on Tuesday, the 13th day of

5 January, 2009, at 2.15 p.m.