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March 27, 1995
. Vreme News Digest Agency No 182
The Fate of the New Dinar

Waiting For April

by Zoran Jelicic

Even though the deadline for the implementation of intervention measures announced in December 1994 is close (March), there is no precise and complete information on what the economic and monetary authorities are preparing with regard to the upcoming conditions for doing business. The Federal Government announced on Wednesday that the foreign trade policy and non-customs taxes would be changed. Possibly, the matter concerns a liberalization of imports and exports, and a decrease of the current taxes affecting importers. But, it is not certain if, and to what extent these expectations will be fulfilled. The fact that the Federal Government has not mentioned some important conditions for doing business, above all the rate of the dinar, has attracted attention, so that the general uncertainty is greater. Some experts believe that this silence on vital measures of economic policy has already been reflected by the black market and that the street rate of the German Mark has reached the price of two dinars/DEM and three DEM in sales deals between firms. In other words, had the new economic policy been announced on time, then there wouldn't have been such a discrepancy between the official and the black market rates, i.e., the transition from total control to more or less normal conditions for doing business would have cost less.

It is understood that such a concept of economic policy, i.e. the urging of the concept of an open economy, is not the only, nor the ruling one, because we wouldn't have reached the present state of uncertainty and threats of a totally controlled national economy otherwise. The New Democracy executive committee said on Wednesday that its participation in the Serbian Government was justified by the success achieved in the first year of its mandate. At the same time, New Democracy officials underscore that the economic program will not be realized soon unless the Serbian Government "sticks to established principles, i.e. observes economic laws and the development of a market economy, private property and enterprises of all sorts." We can only guess to what this cautionary statement by a small but important coalition referred. Minister coordinator Dragan Tomic has in the meantime excluded the director of the Cacak-based firm "Sloboda" from the network of coordinating teams because he didn't lower the prices of vacuum cleaners and electric ranges to the level determined by the new central coordinating body (CK).

Judging by statements made by National Bank of Yugoslavia (NBJ) Governor Dragoslav Avramovic, the NBJ has few dilemmas in choosing between prolonging a controlled economy or returning to market principles. During last week's conference of economists on Mt. Kopaonik, Avramovic warned dramatically that there was a danger that all prices would continue to be controlled, i.e. that all that had been achieved since the curbing of hyperinflation would be lost.

Analysts of political events have noticed that the Governor's warning has been given the publicity he enjoyed during his greatest popularity (large headlines on the front pages of "Politika" and "Borba" and announcements and interpretations on the prime time News Hour on state television). It remains to be seen how Avramovic's insistence on keeping monetary taps tightly closed will be received, and his refusal to bow before the state's demands for credit especially for that part of the economy which can survive only when unlimited quantities of cheap dinars are available.

There are an increasing number of signs that there will be problems with the interests of this part of the economy and its political protectors, even though, in a large number of cases, the matter concerns an overlapping of personal and other interests. After last week's meeting of the Association of Banks at which the annual balance of commercial banking activities was analyzed, a secret state decision was leaked, whereby the state will channel all its deposits in the direction of several banks, allegedly concentrating money for the needs of the spring sowing. However, according to the calculations of some bankers, twice as much money as is really needed has been channelled towards agriculture, so that the reason for this concentration of money should be sought elsewhere. Some think that the reason lies in the fact that Beobanka is among the small number of chosen banks. There are claims that this bank has uncollectible bills totalling half a billion dinars. After the meeting there were views that the annual report on the activities of commercial banks was far from correct, i.e., that the part which claims that only a few percent of the entire amount of approved credit in 1994 (5.5. billion dinars) were uncollectible, because according to the bankers' estimates, a third of this sum is irrecoverable.

The general belief is that the greatest part of the "irrecoverable credit" went to those firms which are regarded as the pillars of the national economy. An exception to this view was voiced recently in Investbanka where director Nikola Stanic told the Governor that his bank had problems with the restitution credit approved to small and medium-sized firms, especially privately-owned ones. This meeting was also attended by academician Kosta Mihajlovic, who has recently become Serbian President Slobodan Milosevic's economic advisor. TV cameras recorded the Governor's obvious discomfort and his comment that these were very interesting facts, "if they were true".

An entirely different view was launched recently by the Beogradska bank d.d., also after the Governor's visit. The bank's president Ljubisa Igic underscored that the state must ensure the efficient protection of creditors from unconscientious debtors because the judiciary and the Public Auditing Office were compromising all the instruments for ensuring creditors. Iogic then urged the abandoning of the principle that "all and sundry should survive", i.e. he urged the abandoning of all those who don't have a future on the market, even under conditions of a limited market because of sanctions and various other circumstances. Of special interest was Igic's urging of a liberalization of foreign currency transactions instead of the present repressive measures, and the introduction of a commercial foreign currency rate based on the offer and demand of foreign currency, the free forming of interest rates, and in general, the free forming of prices - which must be a long term commitment, instead of the expulsion of directors from coordinating teams.

It will become clear to what extent the latter concept is close to the Governor's views, i.e. to those who see the Yugoslav economy's future in a return to market principles, in the first days of April. The putting off of changes, i.e. the prolonging of intervention measures, will probably mean that those urging a general nationalization of the economy have consolidated their power. The matter does not concern ideological differences between two concepts, but estimates which of the two lead inevitably towards total isolation and a long term impoverishing of the whole economy and the population.

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