Hints Of Inflation

by Zoran Jelicic

The three governments persisted in accusing commercial banks for the obstruction of the new dinar from the very moment it was introduced, while there are increasingly reliable signs that the main threat to the new dinar comes from state and political circles. This has led to talk that the greatest threat to the first phase in the stabilization of the dinar comes from the so-called second phase

The dinar will not topple spectacularly in a day or a week. It will, however, be possible to come up with a relatively precise forecast during the next week on whether the new dinar dubbed the ``Avram'' after National Bank of Yugoslavia (NBJ) Governor Dragoslav Avramovic, will remain stable or if its slow erosion will start. These forecasts will be based on the contents of the second phase of the Program for the recovery of Yugoslavia's economy, which will be launched after the Easter holidays in early May. The Federal Government will first adopt the proposed measures so that the first signs of a future course of development should be sought in statements issued after the cabinet session scheduled for Friday, April 29, and especially in the agreement or disagreement between the government's decision and the NBJ Governor's council which meets a day earlier.

The matter does not concern differences between the economic and monetary authorities inasmuch as it concerns two conflicting concepts, and is usually covered by the term ``the revival of production.''

In late December last year, VREME wrote that Serbian President Slobodan Milosevic's stand was decisive for the adoption of Avramovic's program, at a closed government session. Before Milosevic said his piece, most of those present favored a different approach in resolving the economic crises, and among them was the Federal PM Radoje Kontic and a large segment of the businessmen in Serbia. This approach took as its point of departure the fact that hyperinflation was unavoidable for the duration of the war and sanctions, and that the only possible course was to proclaim some kind of a war economy, and bring all the vital sectors under state control, from the army to medical supplies.

We all know what happened, and a rampant hyperinflation and inflation disappeared on January 24, 1994. Since then, and to this very day, there has been no general rise in prices, in spite of the fact that prices in the public sector (i.e. state sector) have gone up by 50%. It is no accident that Avramovic proposed the setting up of special committees for overseeing the price of services in the public sector. The parity of the German mark and the dinar has managed to remain stable over the past three months, while the state's foreign currency reserves have increased by 299 million German marks (this is some 50 odd million less than twothree weeks ago). In other words, political support for a stable dinar, largely because of the speedy inflow of money into the state's empty coffers, suppressed initial differences and transferred them to the ``second phase'' and the ``revival of the economy.''

Federal PM Kontic met with businessmen on Wednesday and told them that the first phase of the program of economic recovery had been completed successfully, and that it was the easier part of the job and that the real difficulties would start with the upcoming revival of production. On the same day, Avramovic said during a panel at the Association of Journalists of Serbia that a healthy national currency was the best foundation for economic expansion, either by increasing shortterm credit or financing investments, and that the correctness of such a policy was best illustrated by German and Japanese experience and success. In other words, that an efficient expansion of the economy was possible only when money was not printed excessively.

A group of republican and federal ministers visited Kragujevac two days before Kontic and Avramovic made their statements. Stands held by Serbian vice-PM Dragan Tomic and Federal vice-PM Nikola Sainovic merit attention since both men are responsible for the coordination and implementation of the program of economic recovery. According to reports in the daily papers, Tomic said that ``we have launched a great offensive aimed at encouraging business, and there is no need to repeat that we support those who produce.'' Sainovic supports monetary stability, and adds: ``We urge the spirit of free enterprise under conditions of sanctions, with a special emphasis on those firms which have been adversely affected by sanctions.'' The papers do not specify which of the two vicePMs promised support to those firms which have programs for the revival of production, but say that the federal government will draw up a ``special program'' aimed at increasing ``special production'' (arms). The `civilian' part of the ``Zastava'' automobile plant (``Zastava'' also produces weapons) has announced that it will double production compared to the first three months of 1993, i.e. that 20,000 cars will be made this year, and that 10% of the plant's capacity will be employed.

It must be added here that Dragan Tomic, the longtime director of the firm ``Simpo'' (furniture plant) from Vranje and member of the NBJ governor's council, has made his mark as Serbian vicePM, thanks largely to the organization of regular Friday round table discussions on state TV, which bring together representatives of various economic groups in order that they might discover means and ways of helping each other, and of reviving the economy with the state's help. During one of these discussions one of the directors said openly that he was glad to see the state coffers filling up since this meant more money and work for his factory.

At the earlier mentioned panel Avramovic said that the greatest problem lay in the fact that there was simply not enough money to satisfy all appetites both in the economy and the state, and that he feared that mistakes might be made in choosing measures for increasing production. Those defending a healthy dinar are backed by the fact that production grew by 12.1% in February, 21.3% in March and 23% in April, and that there are fewer demands for the payment of minimal wages because employment is slightly on the up, and that there are signs that the grey economy is returning into the legal channels of payment transactions.

Salaries and the price of money could prove the most reliable indicators of the authorities' true intentions. The same holds for ``stuzung'' or the hiking of the price of foreign currency: it is an economic consequence when the demand for foreign currency is greater than the offer, above all because the dinar is healthy only at home, or when the price of money becomes a patriotic category, so that ignoring this fact entails a certain price to be paid by all.