Wheeler Dealers Return

VREME: Mr. Mijatovic how do you explain the seeming paradox that the anniversary of the launching of Avramovic's Program as a successful anti-inflation program is marked with a campaign to return prices to what they were?

BOSKO MIJATOVIC: Let's first get things clear with regard to the stabilization program as it is most often called. That program is not the same one that the economic authorities started off with in January 1994. It has changed and policies which referred to it have changed, even the logic of the program has changed. Today the program doesn't in the least resemble the one from January 1994; I might even say that that program doesn't exist any more.

The program was radically changed in June last year, when the foreign currency security of the money mass was abandoned and the exchange of dinars for foreign currency annulled. The NBJ then abandoned the strict model of creating a money mass (the model of foreign currency security) and embarked on the old socialist system of printing money for various needs. Last autumn and over the past few months we have been witnesses to the fact that other fundamental parts of the Program were being abandoned. First salaries were frozen, which doesn't make much sense, because it destroys motivation, discourages employment and encourages employment cuts in companies.

All exports have been placed under state control, i.e a system of permits. This is a scandalous solution. First, it is economically unnecessary, and secondly, it produces significant negative political and social consequences. It is economically unnecessary, since it isn't a real protection of our payments balance. Those with money, with foreign currency, import goods without endangering the state's reserves, because there are no loans for imports, so that it isn't possible to finance the deficit from foreign financial sources. On the other hand, the system of import permits is very convenient for bringing the companies into a direct dependency of the authorities. Those who are disobedient get their fingers rapped and can't get an import permit, and their existence hangs in the balance. In fact, the system of import permits will certainly be accompanied with commissions, German marks and deals, so that the officials will get rich, while the rest of us will pay for it all. The campaign for putting prices back to what they were is a definite sign that the logic of last year's program has been changed, because this is in fact an administrative way of resolving economic issues, and it has never yielded results and won't do so now.

Firms which now knock down prices by 50%-60%, which is what they have gone up in the last six months, will stop producing or they'll hide their goods (create a shortage), or they'll suffer great losses. Some will ignore appeals (I'm thinking of the private sector), the campaign is not making a mark in Montenegro, the majority are quietly doubling prices, and they will lower them with a lot of fanfare by a few percent, so that a serious, not even artificial stopping of the prices can be achieved.

At the same time it is necessary to underline the Serbian ministers' threats that those who don't behave in line with the campaign will not be given bank loans. When banks are shareholder companies and independent of the government, how can that government control their credit policy? I think that the so-called Avramovic Program is going through a degenerative period. Obviously, those who created hyperinflation in 1993 and who destroyed our economy are taking over again.

VREME: The fact that prices should be returned back to what they were is a signal that during the allegedly successful year the real sources of inflation were not dealt with...

MIJATOVIC: There are two dominant sources of inflation. The first is the inability of social and quasi-social firms to function without injections of fresh money. The other is the constant renewal of inflationary expectations. The first source is the result of the practice of proving that a socialist market economy and stable prices don't mix. Socialist firms which are not profit motivated, cannot work without loans from the NBJ (because there are no savings) and the result is inflation. This proved true here in 1994. In fact, the limitations of the stabilization program became obvious in early 1994. If we compare the two recent big programs Markovic's (Ante Markovic Socialist Yugoslavia's last PM) and Avramovic's, they show a high degree of similarity in the field of economic, anti-inflationary policy; however, they differ with regard to the goals of the reform. Ante Markovic had such a goal, while Governor Avramovic is not even thinking of a reform of the economic system.

Because the Governor himself is keeping the need for an institutional reform of the economic system on the sidelines, because he is not pressing the matter, then others are not mentioning it, and everything is as it is.

VREME: Some people close to the authorities keep saying that there is no point in privatization under sanctions, because access to foreign capital is impossible, and there is no fresh domestic capital anyway...

MIJATOVIC: That's nonsense. I believe that this period under sanctions is favorable for privatization, i.e., in such circumstances privatization is more necessary than under other circumstances.

We see now that a large segment of our economy is not working, and this is because it is socially-owned, because there is no encouragement of hard work in this sector. The old socialist directors were often incapable of taking advantage of new business opportunities. Had those firms been privatized, they would have shown more vitality, more fighting spirit when faced with the difficulties of sanctions. The story that a river of money awaits us once sanctions have been lifted, is just propaganda disseminated by the ruling structures. It is hard to believe that anyone would invest in this kind of an economy and existing firms. I don't believe that foreign capital will show any interest for investing in our big forms.

VREME: And finally, let's talk a bit about the future. What will this concept of economic policy bring us?

MIJATOVIC: The situation with the economy and the population is not at all good. I wish to recall that industrial production which everybody brags about as being the result of Avramovic's program, remained in 1994 at the level of 1993 (therefore, at the same level as during a rampant hyperinflation), while production in 1994 was at a very low level.

This simply shows that the combination of healthy money and socialism, i.e. social capital is impossible. We must get rid of one or the other. This means we either liquidate healthy money or social capital, i.e. socialism. No matter how much Governor Avramovic claims that a socialist economy can be efficient, it has been proved for the umpteenth time that this is impossible. Only the naive or those with personal interests can continue to claim this. Pressures for the printing of money are growing because production is stagnating or falling off. The pressure on the Governor is great and I am afraid that control is slowly slipping out of his hands. This was proved by the adoption of these measures which have nothing to do with his Program.

I am afraid that the inflationary tempo of the last few months will not slow down, more likely it will speed up. As far as economists are concerned this is an obvious model - inflation encourages inflation. You cannot control one level of inflation but must increase it all the time, because like it or not, all quickly adapt to inflation and cash in; the state loses the buying power it wishes to have, and prints money.

The increase of the state budget, the insolvency of banking systems show that the choice lies only between conserving an unfavorable situation with healthy money, or letting inflation loose. None of these solutions is good.