The Black Market Storm

The foreign currency black market storm which whipped up a "weekend hyperinflation", brutally blew away all attempts by the Serbian Government to bring to a festive end celebrations marking "a year of success which doesn't need to be proved", and tying it all up with 28 March, Statehood Day. From Friday afternoon (23 March) to Monday evening (27 March), the black market price of the German Mark jumped from 2.20 dinars to 4-5 dinars, and then went down to around 2.50 dinars. The black market is the only political and economic "institution" in Serbia today that all trust, because it sees all, knows all and punishes all foul play mercilessly. The authorities' illusion that an administratively ordered and conducted economy can be called a stable economy, was destroyed in 100 hours. The authorities tried to push through 100 million "false dinars" (the "agricultural budget" requires 95 million dinars which are not foreseen by the Serbian budget). On Monday (27 March) something worse than what we had witnessed during hyperinflation took place. Suddenly nobody knew how much a DEM cost and everything came to a standstill - like at some big railway station when all the trains stop because the main clock has stopped.

In Novi Sad, during this dead morning, nobody wanted to buy 1,000 DEM, the smugglers moved the coffee, bananas and cosmetics from their stalls and the petrol smugglers their dirty cans. The police went out into the streets in full force in Belgrade and arrested 450 dealers (as reported by RTS), all boutiques, commission stores, and all 'Beograd' department stores closed. Goods were covered with 'Sold' notices, and tobacconists changed prices three times during the day. Everybody was wondering what had happened to the German Mark. Without a realistic (black) market rate of the German Mark in this country, there is no longer any way of calculating values, and when there is no information on the rate then the situation is worse than when it is unfavorable. The German Mark has become the basic measure of the Yugoslav economy, because dinar prices are "being coordinated", interest rates are subject to "a gentlemen's agreement, salaries are either "frozen" or "in proportion with productivity" (meaning zero) and will increase in the second quarter by 4.2% (!), customs and taxes are "in the process of protecting foreign currency reserves" or in the "process of liberalizing foreign trade", but always in the function of Federal PM Radoje Kontic's federal budget), and on top of everything, National Bank of Yugoslavia (NBJ) Governor Dragoslav Avramovic doesn't know if he still controls the dinar printing works. Allegedly no one knows who started the speculations that toppled the dinar over this unfortunate weekend, but Serbian PM Mirko Marjanovic, said clumsily during his speech in the Serbian Assembly that the matter was a "clumsy attempt"(?) at "introducing instability and psychological insecurity among the people with regard to the dinar and the economy", and that the Government "would soon bring the present situation on the market into order". And true enough, the DEM stabilized somewhat on Tuesday (28 March) at "only" 20% more than it was four days before. This leads to the conclusion that the Serbian Government does know what it is all about and who didn't succeed in doing what they had planned, and so gave up. Republican ministers didn't come up with any culprits, except that the possibility of "an incursion on the side" by some Montenegrins was mentioned. President of the Serbian Chamber of Economy Vlajko Stojiljkovic's team members were more specific. Stojiljkovic mentioned "Karic and "Delta" banks (according to some sources Credibel Bank was also mentioned), and said that dinars were being converted to DEM and taken out of the country (Beta news agency). Momir Pavlicevic, until recently a Serbian minister, and a man who is familiar with the mechanism of "making an incursion into one's own system", said that the matter concerned "a well planned and well-timed speculation" whose perpetrators must be stopped. Member of the Serbian Chamber of the Economy Presidency Predrag Domanovic of "Navip" has demanded that the NBJ announce the names of those it sold foreign currency to, etc. Economists came up with the least number of concrete thesis, but pointed out that the rate is unrealistic, the situation difficult, and that a relatively small sum 15-20 million dinars is enough to bring about destabilization (Milan Rankovic). All scenarios of the "foreign currency black weekend" say that an end to sanctions is not in sight and that all capital must be moved out, that the economy is going through a recession, that a new decision on "quarterly" economic policy was expected on 1 April, and that a devaluation was not being excluded, that an inflow of foreign currency from accounts abroad was expected so that "unfrozen" salaries could be paid out, that phantom means were starting to float through payment operations, that "something (money) had been printed" for the sowing period, that NBJ Governor Avramovic was being given less time on the "official" TV news program, that the threat of dismissal hung over his head. The scenarios do, however, differ. This is brief guide through scenarios of the "foreign currency storm", not in order of importance, but in the order in which the heroes appear on the scene.

Scenario no.1

RUMORS OF A DEVALUATION

Federal deputy, economist and vice-president of the Democratic Party (DS) Miroljub Labus, demanded a 50% devaluation of the dinar in autumn, and voiced a similar demand on 22 March, but this time he proposed that the dinar be devalued by 100% (1 DEM = 2 dinars). At the promotion of the Market Barometer of the Economic Institute in Belgrade (some of Serbian PM Mirko Marjanovic's personal advisors come from it), Labus said that the basic precondition for a return to economic stability in Yugoslavia, the equalizing of the official and the black market rates would be brought about through devaluation. Labus is of the view that devaluation would not cause a new wave of inflation, because the costs of the black market rate have already been built into the prices. Of course, this can happen only in the event that all inflationary expectations are stopped. Labus believes that this can be achieved if the Federal Government publicly announces a series of accompanying measures. It would be necessary to undertake measures which would ensure that the money mass in the second quarter of this year were not increased by more than 3%, and then only if industrial production recovered. Labus also underscored that in the second quarter public consumption must be frozen to the nominal level of the first quarter (about one billion dinars per month). In the end, he concluded that the only alternative to devaluation was the further spreading of administrative measures in the economy, and the appearance of numerous subsidized rates for imports and exports, which only increased the power (and illegal income) of officials working in the state apparatus. There was a lot of talk about devaluation during a recent meeting of Yugoslav economists on Mt. Kopaonik (13-15 March), which was attended by NBJ Governor Dragoslav Avramovic. At Kopaonik he didn't give any views on the matter, but said that it was "an open question how things would develop after 1 April", and that he believed that we must have a "more market-oriented economy". Later, but before the "foreign currency storm", Avramovic said on television that the bankers were saying that the dinar was expensive and sought after, which could be interpreted as a denial of rumors on devaluation. Financial experts however, did not fail to notice that the Governor had admitted in the Federal Assembly last autumn in October, after the main inflationary strike, that his "strong dinar" was a bit tottery, and proposed a devaluation, or monetary restrictions and the foreign currency stimulation of exporters (the "quiet devaluation" through a double rate). Top foreign currency speculators interpreted this as the pretended sincerity of an old man, and reasoned that he who was unsure, could be tempted to allow reason to decide for once. At the meeting on Mt. Kopaonik foreign currency and foreign trade experts, Radovan Kovacevic and Mladen Kovacevic noticed that the officially overestimated dinar was destimulating exports, and making all imports unrealistically cheap, with the consequence that state foreign currency reserves were eroded further. The probability of a devaluation increased Kontic's problem of finding money for the federal budget. After the republics took away part of his sales tax income last winter, Kontic increased import taxes from an average 50% to 80%. This resulted in an avalanche of protests. When Federal Minister Djordje Siradovic announced on Saturday evening (25 March) that he was annulling import taxes, many thought that devaluation was next. Namely, federal income would increase greatly in the event of a devaluation, because the decreased import taxes and customs would be calculated on a greatly increased basis (if goods totalling 100 DEM, at a 1:1 rate, entail 80% taxes, this is the same as if taxes are decreased by 50%, and devalued by 60%, so that your basis is 160 and not 100 dinars).

Scenario no. 2

AGRARIAN MONEY

The first indication of the monetary storm over the weekend was noticed by experts who follow the money market in Belgrade. On Thursday (23 March) an enormous jump in the turnover of securities was noticed - from under 1 million dinars on Wednesday to over 15 million dinars two days later. This was a curtain raiser for Friday when a record money turnover of 9.6 million dinars was achieved, which, as the paper "Privredni Pregled" has noticed, was much greater than during the whole week. Were positions being taken for the black market foreign currency weekend? Banks suddenly became "solvent" when it was announced after the farmers' protests that money wouldn't be printed for the sowing period, but that the Serbian budget had earmarked 240 million dinars in support of agriculture, and that this sum would be increased by 95 million dinars (interview with Mirko Marjanovic in the Belgrade daily "Politika"). When these mysterious 95 million dollars which have to be found somewhere are added to 20 million dinars which were given to the banks three weeks ago to pay the farmers instead of the foodstuff industry, one reaches over 100 million dinars without a clear cover except in commodity reserves (which aren't solvent, so that monetary cover cannot be achieved with them). The average amount of money in the banks in the last week has jumped from over 40 million to 70 million dinars. This "surplus" could have gone to the black market in search of foreign currency, because it was expected that firms would withdraw part of their foreign currency stashed abroad, in order to prepare for increased salaries after they had been unfrozen on 1 April.

Scenario no. 3

THE PRICE OF CIGARETTES

With the 1 April coming up, the date of the alleged change of one set of "intervention measures" with others, uncertainty grew in business circles. All the more so as the general impression was that Kontic's government was more concerned with covering up its disgrace over other people's decisions with regard to "Borba" than with attempts at preparing a new policy, and Marjanovic was more concerned with how to promote self-praise after a year's work, and show that he intended to establish a strong market rate. All this was visible in the facility with which the two governments ignored the disappearance of domestic cigarettes from the market. And it was precisely their disappearance and the approval of new prices - that main indicator which was missing for the creators of the foreign currency black market rate. Namely, those creators of the DEM's price who are not directly connected to the state and close to the street, don't follow the Belgrade stock exchange very carefully, but they do have their reliable indicators. It is a fact that the Serbian Government announced a "Decree on the introduction of a special tax on tobacco products" on Friday (24 March), and said that this tax would help pay the pensions - while at the same time the new price of domestic cigarettes was not announced. The market interpretation of the situation was simple. It meant that the Government would not announce which "internal devaluation of the dinar" it was building into the price of cigarettes before the weekend. The black market stock exchange then did so by itself, and the price of the German Mark went wild, "state dealers" didn't manage to prevent it. Since buyers are not interested in what has been built into the prices of certain goods, it turned out that "internal devaluation" built into the new price of electricity and cigarettes stood at around 70%. In this context, the foreign currency speculation does not seem too brutal.

Scenario no. 4

THE FOREIGN CURRENCY DERBY

There are different versions on where the foreign currency rate exploded first. There is the already mentioned speculation that the Montenegrins made an incursion into the payment operations with a grey issue. The hypothesis that the bank in Bijeljina was the first to start is interesting. There is widespread belief that something has finally appeared in Novi Sad, and that Yugoslavia's future Sao Paulo is dictating the German Mark's latest tour de force. Rooters who went to see the Vojvodina-Partizan football match in Novi Sad filled up their reservoirs in Belgrade with petrol for 4 dinars, or 1.5 DEM/liter. Those unlucky ones who thought of buying extra petrol in Novi Sad had to pay 7 dinars/liter. There is a theory that the Football Club Vojvodina collected money from 20,000 viewers, and while the game was still being played, put the money on the black market which made the DEM jump. Since Vojvodina lost the game on home ground 3:1, bitter domestic rooters launched the story that the game had been sold. Allegedly Serbian PM Mirko Marjanovic, until recently Partizan club president paid Vojvodina by buying another 30,000 tickets for the game. This theory gives the whole situation a more cheerful tone.

Scenario no. 5

THE JUL CONVENTION

The four already mentioned scenarios do not exhaust all the possibilities. For example, when Jimmy Carter named Paul Volker Governor, Dow Jones shares went up by 10%. It is possible that the Yugoslav foreign currency stock exchange interpreted the election of Ljubisa Ristic to the post of JUL chief in its way, because Ristic is truly a Bolshevik and leftist, so that his comrades hurried to change their dinars into German Marks and prepare to flee. Dozens of reasons like this could be found for the "foreign currency storm". The problem is that all scenarios are logical in a country which refuses to adapt to the times.

Antrfile

The price of electricity

A stable 300%

The Serbian Government's decree published in the Federal Republic of Serbia "Official Gazette", no.9, 23 March 1995, established the average selling price of electricity for households at 0.0448 dinars/kilowatt hour. The decree will go into force from 1 April 1995.

The Serbian Electrical Supply Company has established its prices - and according to "Nasa Borba" - owners of single-tariff electricity meters will pay 0.0438 dinars/kilowatt hour, those with double-tariff meters will pay the higher tariff at 0.0549 dinars/kilowatt hour, and the lower tariff at 0.0326 dinars. The average of these two figures comes out to 0.0437 dinars, a little less than the Government claimed.

Consumers should not be too happy because they have saved 0.0011 dinars/kilowatt hour, because regardless of how much electricity they have spent, their bills will be increased by 5.03 dinars for television tax, 3.09 dinars for the so-called fixed taxes and 2.06 dinars for the revival of mines in Serbia.

The household category of consumers received their last statement of account in October 1994, at the price of 0.195 dinars for the higher tariff and 0.0098 dinars for the lower tariff. It turns out that electricity during the period when the authorities were swearing that the prices and the dinar were stable, had increased at an average of 300% (281% for the higher tariff and 332% for the lower tariff). For purposes of comparison, the RTS tax per electricity meter stood at 2.40 dinars, which means that this item has gone up by 211%.

The maneuver was carried out by the back door with the introduction of block-tariffs and advance-money, and the psychological pressure of being cut off. In this darkness, the only bright spot was NBJ Governor Dragoslav Avramovic, not because he admitted sincerely that hadn't known about the electricity restrictions for days, because he had never been without electricity, but because his office issued an announcement saying that "the National Bank of Yugoslavia had agreed to increase the price of electricity for households by 16% as of April".

Those who can add, calculated that compared to present prices, this is a 74% jump. It would have been much more honest if the Governor had said again: "I don't know, my wife pays the bills!"