Public Debt Servicing

Conversion of Citizen’s Foreign Currency Deposits Into Republican Bonds

A new law regulating the settlement of liabilities arising from the frozen foreign currency savings of citizens came into effect as of July 4, 2002. (The Law on the Settlement of the Public Debt of the FR of Yugoslavia Arising from the Citizens’ Foreign Exchange Savings , published in the Official Gazette of the FRY, no. 36/2002).

This law regulates the mandatory conversion of foreign currency savings deposits into the bonds issued by the Republic of Serbia and the Republic of Montenegro according to the depositor’s place of residence and amount of savings in question.

The republican bonds envisaged in the Law were issued on August 19, 2002.

The conversion of frozen foreign currency savings deposits into the state bonds will be carried out by the respective banks where the frozen foreign currency savings had been deposited, or the National Savings Bank since it is this bank that had taken upon itself to settle the obligations of the banks in liquidation or those under administration. The procedure is relatively simple: the banks calculate a 2% interest on the savings deposits starting from the conversion date (August 19, 2002), and at the same time convert the amount into EUR applying the current exchange rate prevailing on that date. The amount in EUR is entered into the state bonds falling due in the period between 2002 and 2016.

Each converted savings deposit is entered into the savings book of the deposit holder. Also, each holder receives a Certificate of Conversion of his savings deposits into republican bonds. Along with the Certificate, the holder has a securities’ account opened in his name with the Central Registry of Securities (CRS). The holder’s account is opened as a sub-account of his bank’s CRS account.

The conversion is carried out for each individual savings account, whereas if a deposit holder has several savings accounts, one Certificate is issued for the total sum of converted savings deposits, meaning for all deposits of one deposit holder.

In case the savings foreign currency deposits are inherited and subject to validated court order, the heirs are entitled to their inherited share of the annual disbursement.

Main Characteristics of the Republican Bonds

At issue are transferable, dematerialized bonds (in the electronic form). The ‘A’ series of these bonds fall due on May 31, every year starting from 2003 through to 2016. The maturity of bonds due in 2002 fell on August 26.

The settlement of obligations arising from individual foreign currency savings deposit are envisaged to be realized in the following amounts:

• ‘A’ 2002 series bonds – EUR 276.10
• ‘A’ 2003 series bonds – EUR 380
• ‘A’ 2004 series bonds – EUR 530

The remaining part of the obligations due to frozen foreign currency deposit holders will be effected in 12 monthly installments applying the 10% geometric progression growth rate. These installments are subject to fixed date maturity on May 31 each successive year starting from 2005 through 2016, and the rates referred to in article 4 of the Law, provided that the annual installment may not amount to less than EUR 500.

The deposit holders who failed to draw the installments for the year 2000 and 2001, will have those funds, up to EUR 301.66, added to the A2002 installment falling due on August 26,2002. In other words, the installment for the year 2000, amounting to up to EUR 76.69, and for the year 2001, EUR 224.97, may be added to the installment coming due in 2002. The banks may disburse these funds either in foreign currency or, on request from the depositors, in dinar counter-value applying the purchasing exchange rate prevailing on that day.

The banks will disburse the funds due to a bearer of the A2002 bond, falling due on May 31, 2002, in either foreign currency or on bearer’s request, in dinars, applying the official mid exchange rate valid on that day.

The trade in the state issued bonds is free of all restraints and trade taxes, payment operations fees, capital gain tax, as well as tax on financial transactions and other taxes, fees and charges (see Article 9 of the Law).

Upon maturity, the holder of maturity may use the securities to pay the traffic tax, excises, property tax, income tax, corporation income tax etc.

In line with article 14 of the Law, the original holder of such bonds, meaning the savings deposit holder whose formerly frozen savings deposit had been converted into the state securities, may use the bonds prior to their maturity date, subject to a 2% discount in order to cover certain personal costs or otherwise, costs incurred by the members of his/her immediate family (spouse, parents, children, siblings). The costs at issue are those related to procurement of medicines, orthopedic aids, health bills incurred in the country and abroad, burial costs or costs related to transportation of the deceased family member’s body from abroad.

In order to cover such costs using the state bonds, an applicant must submit an application along with the original documentation to the bank with which he/she had opened a securities’ account.

Also, securities may be used prior to their maturity in order to purchase the following:

1. shares of enterprises currently in the process of privatization;
2. shares of licensed banks
3. apartments, living quarters, office facilities, land and other currently state-owned real estate.

Federal ‘A’ and ‘B’ series securities issued in line with the Decision on the Issue of the Federal Bonds in Order to Meet Obligations Arising from Old Foreign Currency Deposits of Citizens (Official Gazette of the FR Yugoslavia no. 4/2001, 6/2001, 27/2001) may freely exercise their rights guaranteed under the Decision, or otherwise, they may exchange their securities for the new series issued by the Republic of Serbia.

Trade in Securities

Resident juridical person or entrepreneur, as well as residents, citizens temporarily employed abroad and non-residents may engage in trade in the republican securities on market using in foreign currency as means of payment, provided that they deposit the gains on their foreign exchange bank account. The foreign exchange funds obtained through trade in securities on the market, as well as funds obtained by cashing the securities prior to their maturity may be transferred abroad free of restrictions (articles 10/11 of the Law).

These securities may also be traded off the market but only for dinars.

Market trade in securities is conducted on the Belgrade Stock Exchange Market (Belex) making use of the stock market intermediaries (brokers) who are at the same time members of the Central Registry and Depository of Securities.

The brokers must sign an intermediation agreement with their clients, and on the basis of this agreement brokers appear on the stock exchange to realize purchase or sale of securities in the name and for the account of their clients.