Hopes and Fears

The first working day of 1994, January 3, passed in an orderly way although some protests had been announced. Hyperinflation continued its two-year-long rise unhindered. December 1993 will be remembered as the month when the Federal Republic of Yugoslavia (FRY) made the second place on the list of inflation rates in the world. This is if the growth of inflation is measured by the growth of the black market exchange rate for the Deutschmark from November 21 to December 21 (569,131%). The third place, behind Hungary and Greece, which FRY occupies if the official figures are taken into account (172,882%) is not bad either.

Various experts, such as sociologists and sociopathologists, psychologists and psychiatrists, ethicists and pedagogues, have yet to seriously address the issue of inflation which was unknown until recently. Only Marks and Pfenigs are used on green markets and in the streets, and a classic exchange of goods for goods has begun in some places. One has to pay three electricity bills whose sum is smaller than the price of a payment slip; in the bank a well-meaning clerk instructs a customer to pay her flat-rent in the post office since the banking commission is higher than the amount she has to pay; miners, railroad workers and undertakers are on strike and the court sends police inspectors to check whether there is a sabotage among the miners; the state threatens through its TV screens and radio waves that all salesmen who refuse checks will be arrested and thus encouraging people to eventually start robbing the shops. Most state-owned companies also refuse checks, either openly or indirectly, by making an inventory of stock for too long, by hiding the goods or putting up astronomic prices.

In the meantime, there are official and semi-official announcements that order will be installed quickly and energetically. Two concepts are already on the table. One is oriented towards a planned economy and the other to a free market economy. The first is epitomized in the economic policy which the Federal Government intends to conduct in 1994. Many believe that the political leadership of Montenegro or the majority of them support this concept (judging by how Risto Vukcevic, the Speaker of the Montenegrin Parliament, ardently and openly supported the introduction of a planned economy).

The authors of two other projects advocate a different way of solving economic problems: one is under the auspices of the Center for economic studies and was supervised by Pavle Petrovic, a Professor at the Economic Faculty in Belgrade, the other was drawn up by a consortium of two economic institutes in Belgrade and the Economic Faculty under the leadership of Dragoslav Avramovic, who has been a director in the World Bank for many years, and its main organizer is Nikola Stanic, who has a significant influence among economic and political authorities in Serbia. The latter project was ordered by the Serbian Government, and the former (CES MECON) by the Federal Government, which seems to have rejected it since it formulated its own program which is fundamentally different from the one it had ordered.

In brief, the starting point for the Federal Government and its supporters is that UN. sanctions are the main cause of the economic crisis, including hyperinflation, so that anti-inflation and stabilization policies cannot stand a chance as long as there are sanctions. In other words, the Government wants to curb hyperinflation during this year and has a goal to reduce the growth of inflation to 50 per cent a month. However, it emphasized that the main precondition for this program is that sanctions are eased until the end of the first six months of this year. In the meantime, and probably even longer than that, one has to find ways to adapt to conditions which have been imposed. The Government has drafted balance sheets for production, distribution and consumption for those segments which it believes are crucial for survival under isolation (from energy to military). Businessmen panicked right before New Year's as a word spread that the Government will make an "inventory" of companies' hard currency accounts, which is a part of its program as some dailies had reported. However, only a hard currency tax on leaving the country has been imposed so far (10 DM per a person and 30 DM per a car). Keeping in mind that the tax has to be paid in hard currency the Government of Federal Prime Minister Radoje Kontic will earn a place in history of those who renounced the country's monetary sovereignty and gave up their national currency.

The authors of two other projects pointed out that hyperinflation in FRY began even before the imposition of sanctions and that FRY is the only country under sanctions where hyperinflation was recorded. In other words, sanctions are by no means an excuse for monetary chaos nor a pretext for doing away with it. Both teams of experts proposed that hyperinflation is quickly curbed (one team suggests 3-5 percent, and the other 9.5 per cent growth of inflation rate in the first month of the program's implementation). The first and main move for such a policy is to put an end to the issue of money and limit public spending on the means which are really available, i.e. cutting deficit-generating financing of the budget down to few per cent. It is still questionable whether anyone could figure out what the public deficit is given the current chaos.

This catastrophic data also contains a realistic chance for quick curbing of hyperinflation (Pavle Petrovic says that this can be achieved in two weeks if the program is consistently implemented). Both projects envision internal convertibility of the dinar. A year ago at least one billion dollars in hard currency reserves would have been enecessary for this whereas now several hundred dollars would suffice since the real value of the stock of money currently in circulation has dropped in the meantime from 500 to between 30 and 40 million dollars. Another important move, which both programs imply, is to secure real sources for corresponding public spending. Both teams agree that singular taxes should be reduced by expanding the base of taxpayers, i.e. the range of taxes.

Naturally, all programs contain a series of other measures that need not be described here in detail, but some are classic state secrets (e.g. hard currency exchange rates). Nevertheless, there is a clear difference between the two approaches: one blames the international community and continues to eliminate the last remainders of the market economy, while according to the other all reasons for chaos are to be found at home and insists on all elements of the system and current policy which represent a crucial precondition for a transition of the Yugoslav economy after the lifting of sanctions. One can also learn from neighbors. Two years ago Bulgaria managed to carry out quick and energetic implementation of anti-inflation measures even without foreign aid: inflation was curbed to 2-3 per cent a month, the goods were returned to the shops and the exchange rate for hard currency became stable. Rumanians opted for a gradual process of curbing inflation, so that the growth of prices stood at 250 per cent at the end of the year.

Another dimension of a dispute is to be found in political grouping up around the offered programs. At the very end of last year Federal Prime Minister Kontic sent a letter to the world's leading monetary institutions and the United Nations Sanctions Committee where he informed them about a project to reconstruct the Yugoslav monetary system, asked advice from their experts and demanded that Yugoslav bank accounts abroad be deblocked so that funds can be used to support the project. He also pointed out, which is rather unusual, that "it was Slobodan Milosevic who had given the initiative to this activity." What is less unusual for a local political technique is that mail was late. Nevertheless, many were confused with the fact that the Federal Prime Minister waited for twenty days to send this memorandum, whose contents were really backed by the President of Serbia. Naturally, it would be naive to reduce the problem to Serbian-Montenegrin relations. Ten "giants of the Serbian economy" - eight of which are in the state ownership and the state is a co-owner of 2 - account for 50 per cent of the total losses of the Serbian economy and 56 per cent of the total foreign debt. Why would then a "successful" director so easily give up cheap money from the primary issue, the money he gets for the production of steal and yet boast of growing mushrooms?

And, finally, the biggest surprise for skeptics on the domestic political scene is that Slobodan Milosevic opted for the concept which implies a free market economy. The figures are truly convincing. But, according to experts, last year the state managed to collect about 2.5 billion US dollars from the economy and the citizens by imposing an inflationary tax. However, hyperinflation has entered its last stage where the state is by rule left both without that tacit tax and its sources of income. In other words, there is an immediate danger that the authorities will have to face dissatisfaction of main users of the budget (Krajinas, military, police, the state apparatus, and one million strong army of the unemployed), who may blend with an already huge number of those discontent. It is absurd but only at first sight that the continuation of the policy of maintaining social peace inevitably leads to a general social uprising - which experts stressed ever since hyperinflation started. The President of Serbia may have political motives to support a free market option: if he intends to get a stable parliament and a stable government (even though a minority one) there is no better option than a free market economy, which has also been principally backed by the opposition.

These are either daily or short-term calculations. Experts have warned that the program would have to be consistently implemented for at least a year in order to avoid recurring of hyperinflation. It goes without saying that such concept contains other elements besides economic measures, such as guaranteeing a series of rights -from enterpreneurship to making contracts - both for domestic and foreign partners. Let's wait for January 17 when we shall see what will begin and with whom.