Prices Are Threatening The Program

So as not to reveal the business secrets of some of our banks, I will take as an example the consumer credit. If you wish to buy new furniture, you will get a 20% discount for a cash payment. If you opt for a six months' credit, you will have to add only 4% to the whole sum. Isn't this proof that things have taken a turn for the bettercredit has been introduced again, and with low interest rates!

Perhaps this is good news for the consumers. For students of Economy, however, this is an exam question on interest rates, which, as they will say, always contain a catch. And the catch lies in how the real interest is disguised. In the above given example, the real annual interest rate is 53.8%if we add the expenses of approving the credit, or 44% without them.

This is an illustration of the cost of special purposes credit. All banks have formally lowered their interest rates to 9%, but the real interest rates are between 40%50% per year. Bankers arrive at this by shortening the credit period, adding expenses over the organization of the credit and by not financing the shortterm cycle of production.

The current rate of inflation is now zero, which means that the real annual interest rate is between 40%50%. Of course, it is a good thing that there is no inflation, but for how long can the present prices sustain the impact of costs? The Government's appeals to businessmen to voluntarily refrain from increasing prices sound patriotic, but do not reflect the true economic situation.

However, it is not just the price of capital that is growing. Average net salaries in April stood at 116 dinars. Under the Program for the reconstruction of the monetary system it was foreseen that average salaries would total 80 dinars/month in the first half of the year. At the same time it was estimated that the social product would increase by 3.7% in comparison with the same period last year.

It is true that from February to April, industrial production has increased each month. And this must be applauded. But, it must not be forgotten how bad things were in January, and that the entire industrial production in the JanuaryApril period of this year, is 20% less than in the same period last year.

Bearing all this in mind, the overall impression is that the Program for the reconstruction of the monetary system is not being realized and that the pressure of the cost of work on the prices is growing.

Newspapers are preparing to raise prices because the price of newsprint has gone up. Businessmen say that the price of other raw materials is also going up. They still don't forecast a general rise of prices of industrial products, but it is just a matter of days before this topic comes up for discussion. The prices of many products were inflated in comparison to those on the world market before the introduction of the Program for monetary reconstruction. It was said then that the German Mark had an inflationary spiral here. In the meantime we have exchanged DEM for dinars and the prices are now given in dinars. The prices continue to be stable, but the costs are growing, so that the initial advantage of the very high prices has disappeared.

Businessmen can now save only on the costs of infrastructure services. So far the Government has managed to keep these prices far under market parity, but the first test of this policy will be the Government's reaction to a demand for a 20% increase on the price of electricity. The arguments used by those working in the energy supply industry are convincing. The price of industrial electricity is seven times below parity, and 15 times lower for households. The Government's argument that this would be tantamount to an ``electric shock'' to the stability of prices, is also understandable. A general growth of prices however, seems inevitable. No one has yet managed to control prices without curbing the costs of production, and they are growing slowly and stubbornly.