Three Governments, Two Dinars, One Deception

The new dinar will be put into circulation at the beginning of next week, even though there isn't much of a chance at resolving the dilemma how the economy will function with two domestic currencies.

The Federal Government has introduced a new dinar as a means of payment in the territory of the Federal Republic of Yugoslavia, but has also retained the existing dinar. The new dinar consists of 100 paras and will be convertible. The National Bank of Yugoslavia (NBJ) will determine, according to existing mechanisms, the rate of the new and old dinar. The old dinar will not be convertible into the new dinar, or foreign currency. All book keeping will have to be shown in new dinars (the change from old dinars to new dinars will start on the day that the new dinar is put into circulation). The prices of goods and services will be expressed in new dinars. Finally, payment transactions in Yugoslavia will be conducted in both new and old dinars, but on separate accounts.

The Federal Government has decided that the middle rate of the new dinar will be equal to one German mark.

Businessmen, at least those consulted by VREME, are confused and worried because they had expected the economic and state authorities to stop hyperinflation and protect the stability of the domestic currency. The confusion results from having to operate with two dinars, and the concern stems from not being able to discern authorities' final intentions.

The introduction of another dinar in payment transactions means that new book keeping will have to be introduced in firms, commercial banks, the payments transactions office and the NBJ. Commercial banks will be inundated with paper work, and will be forced to open up new internal banks dealing in the usual banking operations, this time in new dinars. While some are close to hysteria because of the backlog in processing citizens' current accounts, others hope that a crush will not take place immediately, because there won't be enough new dinars. The fact that the state has earmarked 250,000 US dollars with which to cover the issue of the new dinar does not mean that the entire new money mass will be put into circulation immediately. Businessmen do not know how many new dinars will be in circulation next week, nor who will have them. Judging by terse official statements it is assumed that those linked to the budget will be the first to have the new dinars. This means all those working for the state apparatus, the army, police, in health, education and other areas financed from the budget. Pensioners are also included in this group. It remains unclear what will happen to the body of two million unemployed. One thing is sure, this number will be decreased, the final figure and the tempo at which this will take place remain unclear. The sum of wages remains to be seen, as well as how much will be earmarked for those financed from the budget.

The following seems certain: those who do not get new dinarsindividuals or firms and need them, will have only one legal way of acquiring themby selling convertible currencies to the banks. This is the only way of opening an account in new dinars.

Individuals and firms will be forced to sell hard currency because the real value of old dinars will be lower and lower (if the authorities keep their promise and have definitely stopped printing them).

It still has to be seen how many dollars and German marks the economy and the population have in reserve. If it proves that only those financed from the budget will receive new dinars, it will soon become evident which firms have foreign currency reserves: namely, in order to pay their employees, they will have to sell a certain sum of foreign currency to their commercial bank and on the basis of this foreign currency they will be issued new dinars by the NBJ. Foreign currency and gold bullion remain in the state's reserves, and there will be no more credit from the primary issues. Commercial banks will be able to grant their customers credit only when one and the other fill their accounts with new dinars. For example, bakers will get the new dinars before pensioners or state employees. However, anyone with any knowledge on the scope of the national economy knows that this and such moves are too limited and slow for the functioning of the entire economy. An alternative way of accelerating things is: the selling of foreign currency reserves to the state.

The fate of those without any foreign currency reserves is a big mystery. It remains to be seen what the state will do with those firms that offer to sell foreign currency, but are not registered as companies involved in foreign trade, i.e., they don't have a legal right to foreign currency accounts. How did some firms manage to acquire foreign currency while the country is under international sanctions? Naturally these questions are just academic, all the more so if the authorities' main goal is to milk as much foreign currency out of the citizens and the economy as possible. And this is where the catch lies: if people start bringing out their hidden foreign currency reserves, the collectors of hard currency will not find it in their interests to question the origin of the money. If business transactions continue to be conducted in German marks and not in the new super dinars, in spite of draconic punishments, the authorities will have to find more subtle ways of emptying hard currency reserves, which are slim anyway. The Federal Government earmarked another 300 million US dollars on Wednesday: the NBJ has been authorized to go into debt for this sum, on the state's account, with firms and individuals for the period of one year.

Will cynics be the only ones to say that this is just another link in the well-known chain of: old foreign currency accounts and foreign currency savings accounts at private banks, like Dafiment Bank? The state is proclaiming old foreign currency savings the state's public debt; it all looks honest: the state takes on the obligation of paying back every single cent, the only condition is that savers freeze their demands for a few years. After this period the state will start paying back the debt in monthly and annual sums. In the meantime this debt with its small monthly payments will be reduced to a little over three billion dollars. There is a theory in banking circles that close to 90% of the savers own only 10% of this sum, and that they are mostly elderly people. Their quick and complete repayment seems painless, and would resolve the living expenses of a great number of people over the next few years. On the one hand, this is only 10% of the entire sum of old foreign currency savings, while on the other hand, a great number of pensioners who now receive a few pfennings or one German mark after having worked for decades, would get some kind of money.

However, the idyllic picture was marred on Wednesday when Dragoslav Avramovic, who heads the government's anti-inflationary program, refused to answer, before TV cameras, a question put to him by Director of the Institute of Economic Sciences Tomislav Popovic, concerning the fact that hyperinflation had started in Yugoslavia in summer 1992, or more specifically, with the stabilization program sponsored by Radoman Bozovic's government and drawn up by Dragoslav Avramovic himself. The picture was further spoiled by the efforts made by Serbia's state television at glossing over the fact that the entire team of experts who worked on the drafting of the anti-inflationary program (two institutes and the Faculty of Economy) have renounced their authorship in the program signed by the three governments and Mr. Avramovic. Popovic didn't comply with the wish of state sponsored television to deny the existence of a conflict between the experts and the authorities, and said that the experts supported only the program they had drawn up. He was interrupted in mid sentence.