Interview with Aleksandra Posarac, economic expert

The ``Monthly Analyses and Forecasts'' magazine, published by the Institute of Economic Sciences, drew attention to the fact that most of the loans approved to revive production have been spent on financing salaries. And while everyone is publicly praising lower public spending and the publicly flaunted separation of the state from the primary issue bank and its treasury, the social expenses incurred while keeping the Dinar stable are accumulating.

The social program which was pushed to the background in January is now surfacing. Aleksandra Posarac took part in drawing up several macro economic social programs which have to be part of any stabilization program.

VREME: The theory that social expenses incurred by this program had been paid up front was used to calm both politicians and the public at the outset. Is that theory true?

POSARAC: The toll of hyperinflation has been paid but the real social expenses of a true stabilization of the Yugoslav economy have not despite the drastic drop in living standards. The start of the stabilization program has yet to enable us to deal realistically with economic reality, in the sense of seeing who can survive and who can't.

In that sense, the theory that companies have to be saved up to the time when the sanctions are lifted is just an illusion. We shouldn't forget that their markets have been reduced from 24 to 11 million consumers in the country (and those are significantly poorer), that the economic structure in this Yugoslavia is based on the production of investment goods and that that structure is inadequate for the times that are coming, that the economy is technologically out of date and will be even more so because of a lack of funding. The formal lifting of the sanctions won't automatically mean the Yugoslav economy will regain its positions in foreign markets, exports will still be difficult and mostly unprofitable because our companies have very low efficiency. That all means that the Yugoslav industry simply can't renew its old production, with the same number of employees. The break up of the economy is shown in the research done by the Institute of Economic Sciences. The results show that the Yugoslav economy would have to raise production by an annual five percent for the next 25 years to regain the production levels achieved in 1989. What does saving companies mean in that context. I could say that it runs counter to the goals of the stabilization. Restructuring cannot be delayed and the economy has to relieved, primarily of surplus employees. Around 1.1 million employees are earning salaries for themselves and the other unprofitably employed employees.

VREME: You said there are about a million people who don't work although they are employed. Advocates of the Avramovic program spoke of 900,000. Serbian PM Marjanovic told President Milosevic there were 200,000 employees on forced vacations.

POSARAC: Every estimate has to include the fact that the Yugoslav economy had a 20% surplus of employees in 1990. I think our estimates of between 800,000 and one million are correct. It's hard to make estimates for the nonproduction sector since all schools and hospitals are working, as well as the state apparatus and the military.

We certainly can't keep the level of social services up to the standards of a larger per capita annual income since that income has dropped to 800900 dollars a year. That imposes the need for unpopular redefined rights to social services which the country will have to face. The population is already facing the costs of health care and education and anarchy means that those services cost some more than others while some pay nothing although everyone fictively has the same rights.

Our Reserve Program (published under the title Macroeconomic Stabilization, Alternative Approach) envisages the immediate transfer of 350,000 employees to state social care. Without that intervention, the inefficiency of the economy will topple the national currency even if the sanctions are lifted. You could say even because the sanctions are lifted. Experience in other countries has shown that no one managed to restructure the economy without restructuring the work force first.

VREME: Speaking of unpopular steps, you spoke several times of the unpopular assessment that pensions and salaries are too high given current circumstances although Avramovic thinks differently; that salaries should be raised to get demand going.

The figures do not show that the current salaries and pensions are too high but that they are too low to satisfy even existential needs but their current levels are endangering the stabilization.

June pensions accounted for about 75% of the funds earmarked for this year. If pensions were kept at the present level for the rest of the year, the expenses incurred in paying them would reach 1.6 billion Dinars, almost twice the planned amount. That automatically means a rise in public spending. The level of average salaries, now standing at some 150 Dinars, suggest that they are too high for the current situation, i.e. that salaries here are not an economic category. I'd just add that since February, when average salaries stood at 64 Dinars, salaries have more than doubled while prices stayed stable. This rise is not backed by a production recovery.

Because of all this, the Economic Institute suggested new mechanisms for the economic program, mechanisms to control incomes. If those mechanisms are not introduced, the Dinar will topple and hyperinflation will return.

VREME: Can this state apparatus adopt any unpopular measures for the long term national interest?

POSARAC: I'm not sure. The tragedy is that delays in solving key economic problems radically reduce maneuvering space for action and raise the cost of that action. As an economist, I see no greater national interest than economic prosperity. A key function of the state is creating conditions for that prosperity. That's what state officials are paid for. If they can't do that, they should let others step in.