Stalin is Back

The purpose for this conversation with the analyst of economic trends of many years in Yugoslavia refers to the prohibition of food export and other vital products from Serbia to other republics. Numerous problems are already presenting themselves, primarily for the businessmen who have made contracts earlier, whereas the police is now seizing their goods at the administrative borders of Serbia.

* What, in your opinion, is the deeper meaning of the current politics of the official Serbia and what are its consequences?

I put all that, starting with the halt of the trade exchange in Yugoslavia, in a broader context. I shall illustrate this with the example of inflation. Next year it can reach ten to twenty thousand, whereas its increase can be only 100%. The first case is applicable if the present trends of the monetary aggregates continue. However, a different outcome is equally likely: if the majority of states implement a price freeze and introduce rationing, the official inflation will be very low, or it will not be there at all.

* But, we will be living in the real socialist Stalin-type economy.

The market economy requires a regulatory mechanism which is called macroeconomic policy; it produces equal conditions of production which are known to everyone, whereas the economic subjects have free reign within these limits. A state conducts such politics. There is no state here. Republics-states fill in a part of that space, for example with regards to fiscal policy, but they are even here directed more towards collecting the money for war, and not towards the usual and normal fiscal functioning. It is, however, important that the most important aspect, which is monetary policy, does not have a state. Dinar is used in five republics and not one of them has control over that policy.

The federal state has no way to prevent each of them from creating their own money apart from new money issuing from the Topcider mint. There is an increasing number of money substitutes, such as shares. In each republic the issuing can be activated to an extent which would suit everyone. Everyone does this.

In short, the issuing is uncontrolled on two levels. The first is federal: since the republics have withheld income from the federal budget, the enormous emission goes mostly to the Army, and less to the work of the organs of federation. To this we should add the funds for agriculture, which were taken from the budget, and the overall sum total is twice the planned issuing for this year and for all purposes. Secondly, the republics, of course, are spending what they haven not given to the federation budget, so the effect is the same as if they had received the money from issuing. The republics have taken from the federation the monetary authority and the income.

Judging from all this, I expect that the money will be gradually withdrawn from circulation, which means that we are progressively heading for a dirigist economy, of distribution and supply, in the barter exchange which is already in sharp expansion, which can be seen from the fact that supply exceeds demand on the money market and from the considerable bank liquidity. On the money market the interest rate is considerably below the rate of inflation. Money is in unrestricted supply, so that it will be abolished from the economy and the population will have to find another way to get what it needs. There is no other way to achieve this but through rationing of the staples, at first, and then by introducing an increasing number of products until money has been totally withdrawn from circulation.

In short, states-republics will be increasingly directing the economic trends and even prices, so that next year the rate of inflation could be unusually small - but this will not make the people happy. Namely, the industry is already in a grave state and the EC measures will aggravate the problem - mainly in textile industry, footwear industry and to all the serious exporters. Not only will the economies of scale be affected, but also a drop in production will occur owing to the thwarted import of parts and raw materials for such production. The Yugoslav industry of textile and footwear employs around 700,000 workers, whose livelihood is already under threat. So the state will have to take care of them. The producers will, if they get a free hand, resort to barter, instead of concentrating on buying and selling.

* The trade will first become superfluous, which is, at any rate, the characteristic of the socialist economy?

The private trade which has just been started, will fare even worse. The most serious consequence stemming from the return to the primitive economy will be manifested in the further drop in production. GNP has been reduced by 30% last year and this year as well.

This was caused by the split in the market and the drop in the investment funds owing to the political crisis, to the announcement of the civil war and, lastly, by the war itself.

I think that next year, bearing all this in mind, every percent of the GNP over the half of this year's would be a success. Added to this, the country is militarized as a whole and the entire war structure should now be paid out of the significantly decreased GNP. That means, for example, that the peacetime costs of the army are quadrupled, and the standard of living is a third of the one in 1989.