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November 7, 1994
. Vreme News Digest Agency No 163
Luck and Common Sense

The Guardians of the Dinar

by Dimitrije Boarov

After seeing that the "September jitters" over the dinar's exchange rate were only increasing with October's political campaign against those who had "closed ranks in order to break everything up", the realistic Governor simply tightened all monetary controls on October 24, saying that it was necessary to "cool down an overheated economy". Even though he had allegedly thought of proclaiming a sort of state of emergency in the economy by introducing a rationed planned economy or else "liquidating the banking system", the embattled Governor opted for a package of realistic monetary measures. Faced with the dilemma of either devaluation or returning to a strict monetary policy with a fully-covered dinar, Avramovic opted for the second solution, which succeeded nicely last winter.

It turned out that those who had cautioned that this summer's wheat yield would result in the first crisis of the reconstructed "Avram", as the new dinar has been dubbed after Governor Avramovic, were right. According to calculations carried out by economist Miroljub Labus, over 550 million dinars without security have been issued in the period from June to late September. The money has not all been spent on wheat or fruit, but has been re-channelled by banks and "authorized mafiosi" for the dousing of the most dangerous sources of social rebellion and for encouraging profitable import businesses linked to consumer goods and industry. And when the time came to celebrate the results of this credit-based expansion (a production increase of 8% in August and 17% in September), the dinar tumbled on the black market. Yugoslavia's economic problems are so complex that nothing, even Avramovic's miracle, can resolve them all at once, so that the authorities should be satisfied with a "balance of poverty". However, this is something they refuse to agree to.

Even though it is perhaps too early to assess if the above-mentioned monetary brakes helped stave off a breakdown of the dinar's transactional function, Federal Vice-Prime Minister and coordinator in implementing Avramovic's program, Nikola Sainovic, is once again talking of "balanced development" (October 31). This mechanism of "development without inflation" has allegedly been constructed and achieved with the monetary program and without the help of 1.5 billion Yugoslav-owned dollars blocked abroad and just as many dollars in foreign aid, which is what the country would have received under normal circumstances from international financial institutions for such a complex and costly stabilization operation (with his statement, Sainovic clumsily suggested to more perceptive listeners that Yugoslavia's entire money mass was without any security whatsoever). But, it is precisely this illusion that a formula has been discovered for "development despite sanctions", which Serbian President Slobodan Milosevic formulated into a slogan two years ago when he said that "sanctions were a chance for development", which is the dinar's constant source of destabilization and the main force undermining its foreign exchange rate. The dinar's last big crisis in late September started when a program of "economic growth" was announced after a meeting between Milosevic and Avramovic. There isn't a person in Yugoslavia who does not realize that some kind of development at this stage is a matter of life and death; it is only within the ruling establishment that a blindness prevails with regard to the belief that the only possible development at this moment is that which can be achieved through the internal restructuring of basic economic institutions and institutes, changing the role of the state in the economy, a real restructuring of ownership and some basic habits concerning statistics and other public services. Incredible though it may sound, development is still viewed here through tons and cubic meters, and growth is usually linked to the manipulation of investment and other credit. Is this the direction which will be taken by the "growth program" currently being drafted by the working group?

Unfortunately, the only department fully prepared to deal with this future growth program is the Payments Transactions Service, which was and has remained, the main instrument of the Serbian political leadership's participation in the state's grey activities. This wonder-working service gained notoriety with its incursions into the payments system and overtime on getting company bank accounts out of the red and into the black; it has always worked "behind Governor Avramovic's back". It all started last winter when the Governor had to fight for a lowering of the abnormally high commissions and has continued to this day with the service behaving in a "usurious" manner when granting credit, i.e. by "giving deposits", or, as has been suspected by NBJ officials, by allowing certain customers to go into the red. Banks from which the state borrowed in order to "straighten out" consumer highs, and those which the NBJ subsequently brought to light through credits for solvency, were probably the ones granted the privilege of going into the red. Thus, in a roundabout way, after July 24, when the deficit financing of the budget from the primary issue was stopped, the game of flogging a dead horse continued in order that public expenditure might be covered at the expense of the future.

Instead of a concern for development and the reports of working groups dealing with salaries, taxes, pensions, banks and investments, Governor Avramovic will now have to pay more attention to the staying power of his action of October 24. If he really does withdraw around 200 million dinars from circulation, and so decreases the credit amount available to users by nearly 400 million dinars, we can expect to hear pleas for help in the payment of salaries from the greater part of industry after November 1. A greater danger lies in the fact that the Serbian Government has made arrangements with entire economic groups to refrain from raising prices - on promise of receiving credit from the primary issue, a practice which had allegedly been discontinued. It would be realistic to expect a general recession in production. This inevitable "cooling off of the infrastructure" should be followed with the "cooling" of salaries and prices - if there were market subjects here. The catch lies in the fact that nobody here pays much attention to business accounts, but all follow statistics; and they will probably publish unrealistic indicators because of the economic catastrophe which resulted with hyperinflation during autumn of last year.

In fact, along with a test of the dinar's staying power, Governor Dragoslav Avramovic's endurance will also be put to the test. In the meantime, his authority has increased with his election to the Serbian Academy of Arts and Sciences, which should add to his popularity.

Ordinary people, living in a country which has long been without luck or heart, believe that the adroit Governor will come up with something.

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