For more than a month, newspapers in Yugoslavia have been dribbling out the details of the country's biggest financial scandal since World War II. The scam centers on Agrokomerc, a giant food-processing firm that issued up to $400 million in worthless promissory notes to 63 Yugoslav banks. So far eight people, including the firm's president, have been arrested. The scandal, dubbed "Agrogate" by the local press, took a dramatic turn last week. As allegations mounted that he and his family were implicated, Hamdija Pozderac, 63, Yugoslavia's Vice President, abruptly resigned. He had been scheduled to begin a one-year term next May as the country's President.
Pozderac's resignation was swiftly followed by that of Metod Rotar, president of the Ljubljanska Banka, a state-run bank that had bought large quantities of Agrokomerc's promissory notes. Yugoslav officials hinted that still more resignations, and possibly more arrests, were to come. Despite some rumors to the contrary, there was no evidence that the government, which is run by Prime Minister Branko Mikulic, 59, was in danger of falling. But Yugoslav economists estimate that in 1986 alone thousands of enterprises besides Agrokomerc issued unbacked promissory notes and other flimsy financial instruments amounting to more than $9 billion. If they were all written off -- an unlikely prospect -- the enterprises and their creditors would go bankrupt, and the entire economy would collapse.
The scandal spotlighted the problems facing the country's economy, a chaotic system of decentralized enterprises and Communist central planning. Inflation is raging at an annual rate of 120%, unemployment stands at 14% and foreign debt has hit $20 billion. In July, Yugoslavia failed to make $419 million in payments owed to Western lenders. Angered by relentlessly declining living standards, more than 120,000 workers have mounted a total of 900 strikes since February. In an unusually frank interview after the scandal surfaced, Prime Minister Mikulic conceded, "We do not have a proper financial system, and our legal system doesn't function."
Agrokomerc, like most industrial enterprises in Yugoslavia, was in effect the personal fiefdom of the local Communist Party chief. In this case the boss was Fikret Abdic, 48, one of the most influential figures in the northwestern republic of Bosnia-Herzegovina, and the firm's chief executive since 1967. Stout and graying, Abdic ruled Agrokomerc in imperial style, often issuing $ directives from a villa on the Adriatic coast, to which he commuted, attended by secretaries and bodyguards, in a customized bus.
Under the hard-driving Abdic, Agrokomerc grew from a tiny milk-processing plant to a conglomerate with 13,500 employees, 1985 sales of $183 million, and products ranging from chicken parts to frozen dough. The rapid expansion transformed the firm's hometown, Velika Kladusa, from an impoverished peasant village to a prosperous community of whitewashed brick homes. But it turned out that Abdic had financed much of the expansion through a type of fraud that has become common in Yugoslavia's byzantine financial system.