One Step Forward, One Step Back

However, the moment is not exactly opportune. The very fact that NBJ Governor Dragoslav Avramovic was given five minutes on the RTS primetime news hour to explain things, while the Belgrade daily ``Politika'' failed to report his TV appearance, says a lot. It is claimed that the panic over the issue of the blackmarket rate of the dinar overshadowed the 50th anniversary of Belgrade's liberation from the Germans in World War Two, which was celebrated at the luxurious ``Sava Center,'' something that ``Politika's'' editorinchief could not forgive the popular Governor for doing. However, a day later news of changes in monetary policy did appear on the daily's front page, but without the Governor's picture.

Even though some do not like it, changes by the NBJ are commendable. I believe that the wielders of monetary authority have finally abandoned the illusion that by printing extra money they will ensure the credit potential of commercial banks. A catastrophic mistake was made in May when they did not insist upon the payment of credit due in the economy. This was a signal for ordinary people to be wary of being cheated again and to think twice about keeping their money in the banks.

The NBJ tried to make up for the lack of saving accounts and a bank's healthy potential based on such assets with its credit policy. Instead of preserving the value of the dinar, it opened up credit lines through a new discount on papers of value and launched the primary issue without a foreign currency guarantee. Retribution followed swiftly. The unmet demand for foreign currency lowered the dinar's grey exchange rate by 30% to 70% and more.

Governor Avramovic contributed to the panic on the foreign currency market. His story of low salaries and pensions on one side and those of investments and public works on the other were taken by the public as a sign that the dinar would continue to be printed without restrictions. His statement that there is no credit inflation is correct in theory, but served to confirm the public in the belief that monetary control was slackening.

The dilemma faced by the NBJ is not a new one: either production will be stimulated by printing new money and inflation, or the stability of the dinar will be maintained, but by curbing production. Both the stability of the dinar and the growth of production have to be paid for one way or the other. The monetary authorities believed naively that the process of remonetarization was not over and that money could continue to be printed while keeping prices stable. They failed to take into consideration the circumstances under which the existing level of prices is being maintained and the fact that the republican governments were ``twisting the arms'' of firms ``with all available economic measures.''

The growth of production at any price is an old temptation faced by state investment funds. And when this same production reached a fantastic 17% growth rate in September, the balloon of illusions burst. Avramovic admitted that the economy was ``redhot'' and that the NBJ would withdraw around 200 million dinars from circulation!

If this is a return to pragmatism, one of Avramovic's characteristics, and if the monetary authorities are abandoning the role of credit givers and are returning to preserving the stability of the dinar as their primary legal obligation, we can forgive them their former mistakes and support their return to their true role. But, it must be borne in mind that credit for new mistakes has been used up.