Distorted Reality

The Serbian Government does not have very much maneuvring space now and is mostly doing what it can, says University Professor and associate of the Belgrade Institute of Economy, Dr. Jurij Bajec, to Vreme. What is more concerning, however, is that there are no serious preparations for the post-sanctions period, says Bajec.

This year began with the Serbian Government's enterprising campaign to reduce the prices to the level at which they stood last July. Several similar attempts were subsequently made. What is happening now, with the inflation growing at the annual rate of 150%, the news which might enable the success of the Government's announcement last week to "stop price growth and reverse the trend"?

The first thing that should be borne in mind is that we have faced the constant increase in prices since last September. Meanwhile, the prices intermittently soared and halted, and another major leap of 10% was made last month. The Serbian Government has found itself in an extremely unpleasant situation because, from the viewpoint of stability and non-inflationary behavior, it is trying to resolve its problem, i.e. not to face a budget deficit and not to cause a wave of inflation. The Government has so far coped, covering its budget expenditures from its revenues; of course, it also faces the major problems with pensions and some other obligations.

What about the quasi-budget deficit, be pensions or major losses of the public economic sector in question?

The public sector has been facing losses and will continue for some time. The state has now considerably curbed the prices under its control, and I would advise it to hold on only to those aspects it can influence. This above all pertains to maintaining the budget balance and preventing various quasi-budgetary deficits from turning into pressures on prices. Also, the Government would have to implement its short-term program of stabilizing prices and supplies of ten or so key agricultural and foodstuffs products in order to prevent nervousness over actual or artificial shortages.

Many claim that the firms closest to the authorities lack financial discipline the most. It is therefore logical to presume that at least some of them making up the coordination teams are calling to arms against inflation.

Yes, one minister noted the hypocrisy of those who pledge the necessity of controlling prices and then immediately raise the prices of their firms' products. Then, there is also the non-payment of taxes and contributions and we know that the two are the cause of major pitfalls. Finally, this is how the trade union behaves: on the one hand, it is calling for stable prices, above all of the ones directly affecting the living standard, while, on the other it is not criticizing its own employees when they increase prices. In other words, the monopolistic position will be used as long as the market is closed.

The opportunity to reduce this year's inflation was not taken last year, because the average monthly salary was unfoundedly raised to 180 DM and has now been reduced to 130 DM, equalling the May 1994 average wage. Growth was not real in the meantime and had to be "blown out" through increased demand and inflation, and this, in turn, increased all the other incomes. The Government yielded to pressure from the pensioners; from the viewpoint of the economy's and national product's potential, a lot of money is being paid out. Finally, my greatest criticism of the monetary policy and everyone who had taken part in the revival program implementation last year is that they readily let the dynamics of remonetization become too rapid. The road from zero new Dinars to the present 2.7 billion Dinars has been trodden much too quickly. Had the tempo been slower, there would be less money to sweep under the carpet of various irrationalities and financing of non-disciplined behavior of the economy and the banks, which boomeranged the moment the growth of the monetary mass was stopped. There are again major pressures on issuing money in order to smooth out what was constructed badly to begin with.

A series of negative trends in Serbian economy date back to before the war and before the sanctions. Presuming there are no more sanctions and similar restrictions, the question arises whether a successful economic policy is at all possible in unchanged domestic conditions?

This is impossible without resolving the problems I have just mentioned. Also, it must be clear what this new Yugoslavia, with its market and 10 million population, is and where it stands. What markets can this economy count on? Who are our future partners, considering that a small national economy will be forced the make around 60% of its national product in exchange with other countries? I won't go on; there is a series of such extremely serious questions the resolution of which is of vital importance.