Slovenia, Serbia, Croatia - Who has the Best of a Bad Deal?

Bosnia and Herzegovina will soon have its own currency - this is apparent from the latest news about negotiations between the three national parties that are taking place there. In truth, the Serbian Democratic Party is against the establishing of monetary authorities in Bosnia and Herzegovina, i.e. it advocates the confederate concept in that area as well, but there is little likelihood that an internationally recognized B&H could function with three different currency units. Furthermore, there are no serious reasons for believing that Macedonia will stay in the "dinar" system, so that Macedonian monetary independence is a question of when and how to accomplish it.

In other words, the unravelling of the situation has begun in the area of economics as well. It would be very unfair to forecast how each will fare in the future, but it is clear that the ranking will be only in terms of bad-worse-worst which would probably have happened anyway, to almost the same extent, even if the disintegration of Yugoslavia had not been accompanied by such heavy artillery. Naturally, there is no doubt that all these new states will eventually live better than they used to before the Yugoslav war, but the question is when will that day come and how much more expensive it will be than under the lost conditions for the peaceful transition of Yugoslavia into the world of properly governed and responsible countries.

The establishing of new national currencies in the Balkans did not inspire the writing of this article only because it is the most important event of the last week. The main inspiration was provided by the fact that the attitude of the authorities towards their own currency precisely and clearly reveals the nature of the ruling regime, both in the common state affairs and in its attitude towards every citizen. It is worthwhile repeating that Joseph Schumpeter, the great economist, has always maintained that sound money is always the strongest adversary to a government and that a hard national currency represents the most unbiased and efficient opposition. The inclination of totalitarian regimes towards the usurping of currency issue is well known, although it would not be fair to attribute money manipulations solely to them, for it is in the nature of every politician to promise more then can actually be achieved.

On the other hand, it is almost impossible to outline the economic conditions in Ljubljana, Zagreb and Belgrade: communications are cut off, statistics are more or less controlled by the respective governments, sources of information unreliable, and it is also hard to distinguish who, and for what reason, is inciting the ever larger and more frequent strikes. It is clear that the lowering of the standard of living is the main reason for striking: at the end of the last year, the average wage per hour was three German marks, one and a half in Croatia, two in Serbia and half a mark in Kosovo - while workers earned 38 and 30 marks in Germany and Italy respectively. It is impossible that the situation anywhere on the Yugoslav territories has become less bad, while only in Slovenia have certain economists forecast that the depths of the crisis may be reached by the end of this year.

There is no reliable information concerning current inflation in Croatia: a Zagreb paper reported that the inflation rate was 15.8% and 15% in January and February respectively, while another announced hyperinflation, stating that the inflation rate was 17% in January and 22% in February. The governments in all three republics are telling exactly the same story. They have all won great historical battles, it is just that the malicious opposition refuses to recognize this. The people are not even mentioned in such vague speeches. But they appear where it is most important: confidence in the national currency is just another way expression the people's confidence in the policy of their government. Experts estimate that Slovenes have hidden away from their government, at home or abroad, more than US$ 2.5 billion; it is estimated that the unpatriotic in Serbia have concealed twice as much. In truth, the rational selling of state-owned apartments in Slovenia has resulted in half a billion marks revenue for the Slovenian government, which also indicates that new nationalizations are inconceivable, in contrast with Croatia and Serbia , where the selling of the apartments is everything but a wise move of the economic policy. In Croatia, for example, a little over a hundred apartments have been bought up within a six month period, and four thousand have been offered. The authorities, after offering 32 year mortgages, expect a steadier inflow of hard currency from that source.

And how does all this reflect on the position of the tolar, the Croatian and the Yugoslav dinars, which are to a greater extent protected by the customs officials than by the performance of national economies. One German mark is exchanged, according to official rates, for 50-53 tolars in Ljubljana, 70 Croatian dinars in Zagreb, and 85 "other" dinars in Belgrade. Black marketeers have been eradicated from the streets of Ljubljana, but the black market rate is some five percent higher, in Croatia 10%, while in Belgrade, the rate is rising daily by 5%, bring the German mark to 230 dinars. It is unclear, though, who is benefiting from the tremendous fall in value of the dinar: the National Bank of Yugoslavia is publicly accusing the Central Bank of Serbia of illegally raising the exchange rate for German marks to 110 dinars and that it is allowing the commercial banks to sell hard currency at much higher rates.

If the status of national banks and their policies is accepted as one of the most reliable indicators of the direction in which Slovenia, Croatia and Serbia are moving, i.e. of the policy pursued by their governments, it is very reasonable to believe that Serbian citizens will face the biggest problems. In short, where Slovenia is concerned, it is worthwhile remembering that the local monetary authorities were against the government's policy of establishing an independent currency unit. The Slovenian Central Bank did not sign the decree on the creation of the tolar: it was the Ministry of Finance's money. In the mean time, the National Bank was creating foreign trade reserves, amongst other things, by going out on the streets and buying up currency before the whole business was transferred to the counters of commercial banks. Today you can see people in Ljubljana, waiting for hours for the most favorable moment to effect a currency exchange transaction (the ones who have witnessed it say that people are satisfied with rate fluctuations below 0.5%). Judging by these facts, the position of Slovenian Central Bank is stable, though that does not provide necessary grounds for economic stabilization and the beginning of economic growth.

The situation in Croatia is different. The National Bank, as in the case of Slovenia, is lead by renowned experts (its Governor, Ante Cicin-Sain was never a favorite of the people in power because he was resolute in advocating convertibility of the national currency), but is under greater government pressure than the one in Slovenia. Just some ten days ago, Central Bank experts came into the first direct conflict with the big spenders from the Parliament. The cause: the government has asked for a 3.5 billion Croatian dinars loan from the bank, thus violating the law - not because of the amount, but because of the terms of that loan. A ten year loan was requested with an annual interest rate of 1%, although the law permits one year credits only with an interest rate that cannot be lower than the discount rate (it is currently on the mark of 12.4% per month and is lower than the monthly inflation rate).

Bearing in mind the whole economic situation in Croatia and the fact that it still has to go a long way to re-establish relations with the international monetary institutions, it is clear that the above related is only the first in a series of conflicts whose outcome is extremely difficult to predict. Some observers tend to explain the strength of the National Bank and its Governor by the fact that President Tudjman has honored this institution by visiting it on the occasion when the Croatian dinar was promoted. There are, however some stronger indications that these speculations are rather superficial, namely, during his visit Mr. Tudjman, unaccompanied by the heads of the National Bank, made a tour of the vaults, expecting to find, as any simple man would, piles of dollars and marks, securities, tons of gold bullion - in a word, the whole national wealth.

In contrast to the Croatian president, Mr. Milosevic knows what money is and where the foreign trade reserves of a country are deposited (although, he is not a banking expert who went into politics, as it is often wrongly assumed, but a politician who was appointed as the head of the largest Serbian bank, where he, as testified by bankers, learned more, and quicker, than other politicians during such excursions). But unlike an ex-officer understanding that the requisitions and spending of what others have worked to earn, Mr. Milosevic knows the extent of the power of governing over the national currency. Up till there have been no signs that the Serbian authorities desire a stable national currency, the monetary authorities have said nothing, and no information concerning their activity is available to the public - neither how much the mint at Topcider is working, nor where the money that leaves in trucks goes. But, one should wait for the actual officialization of the disintegration of the country, and then, after all accounts are settled, face the government which, like those in Slovenia and Croatia, will not be able to blame its failure on the frauds committed by others.

Maybe then, when the hotheads have cooled down, everybody will be able to hear what the American ambassador Warren Zimmermann said last week in Belgrade: the USA expect the economic territory of Yugoslavia to be preserved and the National Bank of Yugoslavia to become a clearing bank, which should help in overcoming the initial differences between and fluctuations of the newly established Balkan currencies. The rate at which these words will be comprehended by some people here will probably be proportional to the rate at which eyes will be opened to the fact that Western money flows in only when international business rules are accepted.