Dummy Reformers

The federal government had forecast "dynamic growth under stabile conditions", and the president of Serbia promises that 1997 "will be the year of reforms, large ownership and structural changes that should enable affirmation of all those motivation mechanisms’ features inherent to the market economies...". As the Orthodox Christmas Eve is approaching, we speak with the assistant of the Belgrade School of Economics about his views of these promises.

Vreme: After several troublesome years, we have been promised that 1997 will be the year of reforms in Serbia. What is your view about it?

Mladjan Dinkic: First of all, basically, there is no reform in the economy without reforms in politics. Let me be completely clear - the transition to a market economy is impossible while the SPS is in power. That is the number one issue. Therefore, in order to start the economic reforms, actual reform, the reform of political system is necessary - the opposition must gain power.

And I don’t mean only the changes in the local level governments, since nothing could be influenced from that level, but the change of the republican government. In respect to the fact that the republic elections will be held probably at the end of the year, that means that the whole year will be lost because we will not succeed in establishing relations with international economic institutions.

How has the official currency rate defended so far?

It was defended so that the National Bank of Yugoslavia (NBJ) collected currency in various ways and sold them to the importers at the official rate. Practically, the importers bought currency at 3.5 dinars per DM, or at 3.6 with interest included. As long as the NBJ is able to sell currency at that rate, the impact on inflation is insignificant because in that case that rate is predominant. The rate of 4.1 dinars per one DM is used in the transactions with the citizens and small companies, trading... and has no significant influence on inflation. However, the big problem is about to occur because those who buy one DM for 3.6 dinars from the bank will no longer be motivated to use it for the import, but to simply sell it at 4.1 dinars per DM. There is no doubt, sooner or later that NBJ will have to suspend the sale of currency. The rate will then jump not to 3.7 dinars but straight to 4.2 dinars and that will be the beginning of the end of the dinar's stability.

..

Since the dinar was overrated, the prices went up about 60% last year, and the price of DM went up somewhat above 10%. That means that the wages in DM went up too, but less goods could be purchased for those dinars, so the real wages did not increase as the government claims. They were really lower than in 1995.

What is your estimate for the wages level in 1997?

In 1997, if there are no stabile prices and exchange rate, there will be no increase in real wages. I expect that this year will be utterly lost for development since it will be the year of the switch of government. Until then, as I have already said, nothing will happen.