Money And Privatization

A macroeconomic equilibrium cannot be achieved without privatization, nor can stable prices be maintained without privatization. The latter claim is of great importance for the present phase in the reconstruction of the monetary system.

Hyperinflation here was the result of the practice of financing public expenditure from the primary issue. Curbing the rise in prices required a decrease of public expenditure and stopping the excessive printing of money. From the technical point of view, it was possible to achieve both these tasks with privatization. The state could have sold property belonging to its firms to private persons and used the money to cover its deficit. From the practical point of view this was not possible because it required a lot of time and a complicated procedure which would deal with the revalorization of the property.

This is why the reform of the monetary system was carried out without an attempt at changing the structure of the firms. There was some economic justification for this line of thinking, but it will be very difficult to overcome the current phase in the reconstruction of the monetary system without significant and fundamental property changes. The fate of the second phase of the reconstruction of the monetary system depends on the activating of production. A further increase of budgetary deficit implies an increase of the monetary mass which is no longer based 100% on foreign currency reserves. Without an adequate increase of goods funds the relationship between the money offer and demand will be upset and there will be an increase of ``stizung'' (or the hiking of the price of foreign currency), and an increase in the price of goods and services.

A slowing down in the drop of production in February and March as compared to last year has already been recorded, but this is not enough for the entire operation. A growth of production is necessary and official economic policy is trying to achieve this by bringing pressure on banks to increase the credit mass with lower interest rates. And it is here that we come up against problems with regard to state-owned firms. They use short-term credit for the purpose of ensuring salaries, so that the necessary link between the growth of the real credit mass and a growth in production is missing. Things will go on like this for as long as there are state-owned firms. This is the reason why nobody can establish a positive link between the printing of money and the real growth of production.

No single program of macroeconomic stabilization has succeeded unless it was accompanied by structural changes in the economy. These changes take various forms and depend on the concrete situation of each individual economy. The situation here is characterized by a high deficit found in firms.

The covering of this deficit is done differently from covering public expenditure. In socially-owned firms this is done with money from the primary issue which does not serve for the financing of direct expenditure, but for the forming of the banks' credit potential. Banks do not have capital with which to credit production. Their credit potential is based on the deposits of clients. Thanks to this, the banks grant firms credit, and the latter return them irregularly or take new credit in order to repay old owings. In this way the deficit of state-owned firms is covered by bank issued credit.

Until socially-owned firms and banks are privatized, this process of credit financing of deficit incurred by firms, will not end. One of the great weaknesses of the program for the reconstruction of the monetary system, lies in changing the credit users. By insisting on the so-called goods cover for papers of value which accompany credit arrangements, the authorities are just turning a blind eye to the real problems.

It is public knowledge that a great many credit papers and documentation are falsified and that the financial police are powerless in dealing with the problem. The great demand for credit and outside pressures have forced banks to go in the red which they then covered by selling foreign currency. This is a short-term solution and one they won't be able to repeat.

Until a general privatization is carried out, there will be an unlimited demand for credit and constant pressures, threatening the stability of the dinar. (The article has been taken over from VREME's regular monthly supplement ``VREME novca,'' dealing with economic and financial issues.)