A Program In Reserve

Dr. Tomislav Popovic's statement comes amid widespread assessments by the authorities that the Avramovic program's results are excellent.

VREME: Tell us about your program.

POPOVIC: Our alternative program is actually a reserve program which prevents a repeat of the chaos and a social explosion. That's its basic goal and I think that any well intentioned person who reads it, including Governor Avramovic, sees it as a source of ideas, solutions and strategic options. It allows for a change from program to program.

I must stress that stabilization, in even more complex situations, will be the main problem to the end of this decade if we're lucky and clever. We have to get used to the idea of having to go from program to program, constantly using alternative and reserve programs. This isn't an attempt to topple the Avramovic program because its achievements are exactly what we needed.

VREME: You've made several statements on the differences between what your expert team offered, initial promises and actual events.

POPOVIC: In regard to differing opinions, I'd like to draw attention to the question of a set Dinar exchange rate as the mainstay. That set rate is very precious at the start of the antiinflation operation, in the first three to six months, but it is not necessary. What Avramovic did with the money and exchange rate is majestic. But on a wider level, an inflexible exchange rate over a longer period is an introduction to catastrophe.

VREME: Let's skip the question of forming an ineffective economic structure which is inevitably based on the set rate which in turn quickly turns into a mistake. The first question then is why should a small resource such as the foreign currency reserves be subjected to direct pressure which will open it to anyone's scrutiny.

POPOVIC: I think that even a liberalization of sanctions drains the country in the long term. That liberalization is effectively underway since we're exporting at 40% lower prices and importing at 40% higher prices. We could get new people in power tomorrow, the authorities could be mixed or new, but they will face the same problems.

This is just one possibility along with other fatal consequences of a set exchange rate over the long term. Setting the Dinar's value too high simply means you're oriented towards expensive imports, burdened by high expenses with no prospects of profit. On the other hand, an expensive Dinar, because of cheap exports, drains the meager foreign currency reserves and they're already having to be saved through administrative limitations and import restrictions.

VREME: You're talking about returning to the world market although the sanctions are still in place?

POPOVIC: We can't just sit back and wait for the sanctions to be lifted. There are extremely complicated jobs waiting to be done. We are insisting on the question of the set exchange rate in regard to the Dinar's return to the world market.

The later you react, the later you prepare for trade with the world and the result is a painful devaluation or a series of devaluations. That destroys the economic structures based on the set rate.

We are practically paralyzed. Prices are high compared to West European standards and purchasing power. They are also too low to cover company expenses, salaries, taxes, imports. Interest rates have allegedly been lowered but in fact haven't.

There's a similar paradox with salaries and pensions they're too high from the point of view of economic expenses and too low to cover living expenses.

The essence of this stabilization policy is preserving social peace. That basic philosophy caused all this including the sanctions and breakup of the Yugoslav market. It threw the country into stagnation in the 80s. I think that we can survive that philosophy if the Yugoslav (Bosnia) crisis last just another two or three months. It's worth keeping quiet for that without creating the risk of new internal eruptions.

But, if we're at the start of a cycle of unrest that philosophy is extremely dangerous. I believe we're at the start of that cycle in the region, the Balkans, central Europe. The state that economically stabilizes first and normalizes its relations with the world, even at the cost of social unrest, will have the advantage over others.