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October 24, 1994
. Vreme News Digest Agency No 161

The Fate Of "Avram''

by Zoran Jelicic

On Wednesday evening, a man selling 100 DEM in Novi Sad had no difficulty in getting 160 new dinars for them. In previous days and weeks, the value of the German Mark stood at a steady 25%30% above the official rate given by the Yugoslav National Bank (NBJ), so that swift and great changes in the value of the dinar did not seem very likely. There is only one explanation for a 30% drop in the value of the dinar in only one day: it is the logical reaction of those with dinars to the public clash between the economic and monetary authorities, i.e., the state.

The alarm was launched last weekend when NBJ Governor Dragoslav Avramovic, during a talk with trade unionists, threatened to resign because of attacks, as he said, from all sides on the dinar's stability. Economists and journalists were listed as the dinar's enemies and it turned out that the dinar would be healthy only for as long as no one took its temperature. But, this isn't all that important. The main thing is that Governor Avramovic was quite right when he said that the dinar was being attacked from all sides; this however, can be summed up more precisely: the dinar is being attacked by only one side-the ruling regime and its economic system, its governments and assemblies, its commercial banks and central bank which are state party property through which 85% of Serbia's industry is controlled. In short, none are innocent, and all are innocent for the simple reason that they function in an environment which does not tolerate a healthy national currency, because such money implies a very efficient and very dangerous threat to the authorities.

Before the Governor's threats to resign, those who are well-informed of what is happening in the country's leadership said that the situation was being exacerbated on two fronts: between the Serbian Government and the NBJ and between the Serbian President's advisors, or more precisely between academician Kosta Mihajlovic and Governor Avramovic. According to gossip, at a private lunch some twenty odd days ago, Mihajlovic was sharply critical of Avramovic because he had included him in a working group for working out Milosevic's program (the matter concerns the two-year development program which Milosevic practically dictated to the Serbian PM and others he had invited to the meeting). Since this program is not contrary to what Mihajlovic consistently urged in earlier decades (a mixture of a growth rate, social justice and market economy) or Avramovic's recent engagements (as far away from privatization as possible, including property transition), the explanation for the clash can be reduced to a personal level, i.e. to one's place in the pecking order of authority. Those in the know claim that even top economists and members of the ruling Socialist Party of Serbia (SPS) could not get to Milosevic without going through Mihajlovic first. Mihajlovic kept his word: he did not attend the working groups formed to elaborate Milosevic's program and said in a letter to the Belgrade weekly ``NIN'' that he could not participate in such work because it didn't fit in with his method of work. It remains to be guessed what it is that doesn't agree with Mihajlovic, but is not stopping United Left (JUL) top official and President's wife Mirjana Markovic from accepting the Governor's invitation. It is difficult to perceive any difference in these disagreements with regard to the fate of a healthy dinar, the policy of a convertible domestic currency and its linking up with foreign currency.

The clash between Avramovic and the Serbian Government escalated and reached the point when Avramovic ``foresaw'' the presence of Serbian PM Mirko Marjanovic at meetings, and so stopped greeting him, which in part is not all that difficult to explain. Put banally, Avramovic started meddling in the Government's affairs and began to annoy some ministers. An ignorant observer might conclude that Yugoslavia no longer had a Central Bank Governor, because Avramovic was to be found in several places at the same time: he persuaded and berated journalists, patted passers-by in the street on the shoulder, visited factories and praised productivity and development programs, agreed with trade unionists that salaries were intolerably low, threatened to leave the electrical supply company without credit if the price of electricity went up, promised private business owners that they would be treated on an equal footing with others when asking for credit... In short, even though he soothed listeners with his promises more than with their fulfillment, Avramovic undeniably entered the sphere of Government competency, thus often supporting that which inevitably leads to inflation and the undermining of a stable dinar. On the other hand, it is also possible that some are just envious of Avramovic's popularity with the ordinary people.

Stories of the clash between Avramovic and PM Marjanovic were first confirmed publicly, although indirectly, when the SPS Main Committee gave, without any obvious reason, its support to the Serbian Government and praised its contribution to the policy of a stable dinar, and in the final sentence ordered it to continue work on the program. However, some view this order as a warning to the Government not to insist pig-headedly on a stable dinar, but to join the implementation of a new program, the two-year one which is currently being elaborated by Avramovic's team (albeit without a single member from the team of experts who had been mentioned during the year).

Viewed from aside and a step ahead of the above-mentioned and similar clashes, the following has been true of this society for a number of decades: the lower the rate of inflation, the fiercer the clashes among those in authority. The idyll, a high rate of inflation-a high degree of harmony among those in power-requires that financiers be found from time to time. The following is uncontestable: the NBJ was the first to enable a return to such a situation by loosening the purse strings, both with an overgrown money mass and by agreeing to goods as security for the ``Avram'' (new dinar, dubbed thus after Governor Avramovic). If this were not the case, the biggest commercial banks in Serbia, i.e. mostly state banks, would not appear on the Belgrade Stock Exchange after a year's absence and demand annual interest rates of up to 200% for the dinar. The Serbian Government's underscoring that there is no more deficit financing of the budget has another side to the coin. This is the greater growth of public expenditures than planned.

Experts from the Institute of Economic Sciences have calculated that the annual income quota has already been fulfilled as far as the two republican purses and the federal one are concerned, and that all further payments should be stopped or the budgets must be re balanced in order that 1.5 billion dinars might remain for the economy. Without this, public expenditure for this year will not be 41%, but 50%, of the social product. In this case, and considering the largely non-productive budget expenses, the state would inevitably encourage inflation.

And this is what will probably happen. That is why we can expect controlled inflation, or something akin to it, which will slowly push the dinar's convertibility into oblivion, but will allow the authorities to manipulate the population by manipulating the money.

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