Return of the "Stizung"

It is a fact that after nearly 40 days of restrictive monetary measures, the most important goal has not been achieved - the elimination of "stizung". This points to the conclusion that the measures are not being applied consistently or that a solution must be sought elsewhere. This is why those upholding this thesis demand stricter financial discipline or new measures by the monetary authorities, such as devaluation, a return to a floating dinar rate or even a complete change of existing dinar bills in order to get the cash back into the legal channels of payments transactions. However, all agree with the assessment that the "ailing" dinar should be prescribed a new therapy in order to cure it of a chronic fever.

Last Thursday, Yugoslav National Bank (NBJ) Governor Dragoslav Avramovic's dinar celebrated 10 months in circulation, during which it suffered several heart attacks. Each attack left aftereffects. The last attack on the stability of the national currency has not been neutralized, even though the state did react by stepping up measures. On October 21, the NBJ stopped all credit activities and withdrew a considerable amount of money from the banking and economic systems in an attempt to eliminate "stizung" and the foreign currency black market, because the dinar's fixed rate is the nominal anchor of Avramovic's program of monetary reconstruction and economic recovery.

The first days saw the implementation of new measures aimed at eliminating "stizung", so that the black market rate of the DEM dropped from 2 to 1.30 dinars. However, the black market rate "recovered" swiftly and the DEM's current value is between 1.40 and 1.60 dinars. According to official data, the money mass currently stands at 2.3 billion dinars. Governor Avramovic believes that neither does it contain an inflationary germ nor is it the cause of "stizung". Considering that this year's social product is estimated to be close to 20 billion dinars, it is easy to figure out that the money mass is only about 12% of the social product. Under normal circumstances, such a relation would enable further monetary expansion without the danger of inflation getting out of hand. But the situation here is still far from normal and who knows when it will be normal.

Thanks to restrictive monetary measures, the dinar has lately become a very sought-after commodity. On the money market and the market for short-term papers of value, the demand for dinars in Belgrade is 20 times greater than the supply. This is the worst rate in the past 10 months, worse even than at the start of the program of stabilization when there weren't enough dinars for purely technical reasons - they hadn't been printed on time. At the same time, the solvency of the banking system has greatly decreased, and in the first days of November dropped at the rate of 10 million dinars per day, so that all 105 Yugoslav banks now have only 30-40 million dinars in their accounts. To make matters worse, every day about thirty odd banks, including some of the biggest, show a negative balance, while another 10-20 banks don't have even money to cover loose expenses. But regardless of the shortage of dinars, the black market has not been eliminated. "Stizung" continues to be a regular phenomenon and the hunger for money has resulted in something that those in charge of the NBJ and all of the governments so far could not have foreseen: the appearance of the dinar "stizung". One can get 115 dinars on one's account for 100 dinars in cash. In the background lies the illegal foreign currency trade, because dealers now sell DEM and dollars for cash only, so that all those who wish to make transactions must first obtain cash. Instead of eliminating the "stizung" of foreign currency, the new measures have succeeded in creating a dinar "stizung". This example illustrates the complexity of the problem, so that some classical economic or monetary measures based on domestic back-up are not producing the earlier well-known and usual effects.

Bearing all this in mind, the bankers have proposed to replace the dinar bills with new ones for the umpteenth time in the last few years. This time the goal would be to return the cash, which makes up nearly 45% of the money mass, to the legal channels and thereby leave the "grey economy" high and dry, i.e. leave it without capital, for a little while at least. But the long-term effect of this very expensive operation is not certain, since there are no guarantees that the new dinars will not be transferred to the black market in order to avoid taxes and other state excises. Those opposed to this measure caution that it would be much better to step up financial control and discipline.

Some experts believe that the dissolving of Avramovic's working groups for investments would be the best way to eliminate "stizung". They believe that this would be an indication that the new dinar will not be printed in order to finance dubious projects and that it would have a therapeutic effect on the foreign currency market. They also believe that "investment experts" are the ones spreading panic and not the journalists and economists who cite recent events in Russia when the rouble lost a third of its value in just one day because of growing stories of new investments. As soon as the state made it clear that the big investment cycle was just a joke, everything fell into place again, but the central bank governor had to resign.

With this example in mind, Avramovic should get rid of his big investment experts and wait to see the effects of other monetary measures. There are special state services in this country that are paid to take care of investments. The Governor's primary interest should be the stability of the national currency. However, Avramovic keeps promising his collaborators new credit for reviving this or that firm or branch of the economy. Luckily, he is not all that generous when it comes to loosening the purse-strings. Several months ago he promised consumer credit to the textile and shoe-making industries whose directors, however, claim that they still haven't seen a penny.

Many firms can't repay their loans, or even the interest, and they will bring the banks that fell for the propaganda trick of "reviving" production at any price into an unenviable situation. Something that is dead cannot be brought back to life even with the most up-to-date equipment. The banks made a mistake when they didn't dump these "corpses" on time or leave them to the care of the state. It would have been much better if they had lent the money to those to whom Avramovic is now promising money - the small firms.

Practically half of the credits will not be returned, at least not in the near future. This automatically leads to the conclusion that there won't be any dynamic economic growth in the next period, as republican Vice-Prime Minister Dragan Tomic is trying to convince us with stories of a double digit growth rate next year too. The October industrial production growth rate of 14% is a belated reaction to credit from the previous period, while those segments of the economy that do not have their own working capital cannot produce without loans.

The price of food has gone up to such an extent that the greater part of the citizen's salaries are spent on food. This development has caused anxiety and disquiet and it has resulted in a faster turnover of money. The dinar is no longer saved as it was in February and March. The creators of economic policy should take this as a signal that "there's something rotten in the state". And that something is rotten was shown by the artificial shortage of cooking oil. Most Belgrade shops are now filled with oil while some twenty days ago the people were fighting over two bottles. This could happen with any other article tomorrow. In that case, a stable market as the prerogative for stable prices will just continue to be a pipe dream.