Why The New Economic Program Failed

What is the difference between Orwell's 1984 and 1994 in Yugoslavia? Orwell's book does not have a sequel. Yugoslavia does

The title of this article could give rise to misunderstandings since it speaks of the failure of the new economic program which was activated in the middle of last week. In this article we will try to set forth arguments supporting our view that the program was doomed before it was implemented.

Theory on macroeconomic stabilization requires the fulfillment of two key conditions for the successful implementation of a program of stabilization: the consensus of all fundamental factors in society and a credible economic policy.

The newspapers are full of texts expressing the hopes of ordinary people who wish to see the economic chaos in the country put into order. Individual and collective statements by businessmen made at meetings in the Chamber of Commerce express support for the program, at least that is what the papers say. At a meeting with trade union leaders, government representatives set out the basic measures contained in the new economic program.

Yugoslavia's (the former and the present) experience with regard to credible monetary policies, has always been very negative. It is incredible that with a budgetary deficit as the main cause of hyperinflation, there are no reliable data on its size and structure. Figures from 40% to a fantastic 80% of the social product are bandied about. With such great variations in estimates of the budgetary deficit, it is pertinent to question the feasibility of the program and with it the goals and instruments used by the government.

Another credibility factor (an administrative one) concerns the capability of the carriers of economic policy to introduce adequate legislature, sufficient time for the realization of the program, and the government's persistence in resisting political pressures to change it.

Bearing in mind all the conditions which must be fulfilled in order to achieve stabilization, we will put forth some facts which show why the new economic program cannot be taken seriously.

1) We believe that the key indicator is the Serbian leadership's silence on the issue. Regardless of the fact that the Federal Prime Minister has said that Serbian President Slobodan Milosevic initiated the program, it has been noticed that Milosevic has not deemed it necessary to address the nation a day ahead of the program's implementation, and call on it to support and bear the burden of the program. We believe that this failure to appear before the nation will later be interpreted as the President's timely distancing from a failed program.

2) There is no consensus of all relevant factors in society. The last elections showed that the electoral body in Serbia is divided. Ignoring the views and lacking the approval of half the population is not a good way of reaching a general consensus on the program, considering the difficulties which must be borne voluntarily during its implementation. From this point of view, the demand of various parties for the forming of a government of national salvation is understandable, since it would represent an institutional way of reaching a consensus between the ruling party and the opposition parties.

3) The existing economic policy has no credibility. Several days before the implementation of the new economic program, the Supreme Defence Council held a session and from the statement it issued, it can be discerned that the Yugoslav Army will have priority in receiving money. There is no mention of cuts in the military budget. After this statement it becomes clear that the policy of increasing the budgetary deficit will not undergo any changes, and that the burden of stabilization will not be borne by those financed from the budget, but by others. This leads to the conclusion that the measures will be of a temporary character. The expectations of the economy and the population are based on previous experience (e.g. the trust or lack of it in banks based on experience with old foreign currency savings accounts, private bankers Jezda Vasiljevic and Dafina Milanovic, the lack of ready money for the payment of salaries and pensions). This is not enough to dispel mistrust in the sincerity of the creators of the economic policy, in spite of numerous statements to the opposite by directors of firms throughout Serbia, calling on citizens to support the new economic program.

After all that has been said so far, it might sound paradoxical if we say that we expect the program to yield some results. Its role is primarily political, i.e., the authorities wish to buy time with it. The first phase, as with former Yugoslav Prime Minister Ante Markovic's 1989 program will yield positive results in the first and second quarters, i.e., on a short term basis. But, its fate will be sealed after it has made serious cuts into that part of the budget earmarked for favored users. Some long term consequences, or rather costs implied by this ``implementation'' of the program are:

1) The compromising of the idea of stabilization of the economy. It will be a long time before anyone here mentions macroeconomic stabilization (all the more so since all foreign currency reserves will be spent). Every next attempt at stabilization, if it comes about, will have to count on significantly greater costs for its implementation (because of the drop in production, the social product and increased unemployment), and a great deal of mistrust and suspicion from the population and economic factors.

2) The compromising of the idea of market mechanisms and rules of the game. This is a much more serious consequence than the previous one, all the more so, since the idea of privatization has already been greatly compromised here.

Thanks to the results of all our earlier programs of stabilization, created and carried through by the same people who have just played musical chairs in the regime, we do not expect much from the new economic program. And to end with a joke. What is the difference between Orwell's 1984 and 1994 in Yugoslavia? Orwell's book does not have a sequel. Yugoslavia does.