Better Future — In the Unforeseeable Future

The advice about packing their bags, in the subtitle of this article, is given to readers of VREME by Ph.D. Miodrag Zec, while Ph.D.’s Nebojsa Savic and Miroljub Labus are the ones advising prompt purchase of goods. Economists always think about policies in long-range and short-range terms, and these two suggestions can be divided according to such thinking. While the first advice stems from a long-range, constant and strategic choice founded in despair, the second advice deals with short-range measures.

PRICES: Anyway, since the majority of experts are advising the purchase and stashing away of foreign currency (in the mattress, where else?), let us see why Ph.D.’s Savic and Labus insist on the approach that it’s better to store up on goods, and not on foreign currency cash. They explain this approach for VREME by calling on the fact that 60 percent of the prices of goods are under some type of control, which is why, according to these two experts, the majority of those goods has still not gone up in price, even though the exchange value of the German mark has. Assuming that the beginning of price hikes is merely a question of days, they believe that in the short term, the purchase and storage of goods is a better business than foreign currency dealing. Of course, profits are realized through resale of goods after price hikes and the synchronization with the real value of the dinar.

And don’t be fooled by the general razzle-dazzle of promises by the government that prices won't go up. Only remember the summer of 1993 when Nikola Sainovic, then Premier of Serbia, held a press conference with the same hard and fast promise. Nebojsa Savic says that there is suppressed inflation in Serbia, which will come to fruition next year. One way (price hikes), or another (shortages).

However hard they try, not even our potentates will be able to beat one of the basic principles of economics: either something will cost as much as it should, or it will be cheap, but in short supply. There is no free lunch, they stand to be reminded once again by John Maynard Keynes.

FOREIGN CURRENCY: The situation is not much different with foreign currency. Their official exchange rate is artificially low, but that is why they are in short supply. So that it is quite natural that experts now unanimously support the devaluation of the dinar. On this point also the government is slow to react, promising an unchanging rate of exchange for the domestic currency. As long as it continues to do this, life is taking a completely different road. A visit to your local street dealer and to the outdoor market will offer immediate hard evidence. Ph.D. Zec believes that devaluation is inevitable, but is equally certain that the government will never yield on this point, "because all strategic goods, including foreign currency, are regulated by quotas where profits are high, and where the import lobby is exceptionally influential".

In the end there will be devaluation, or there won't be gasoline, natural gas, coffee, bananas... It is only a question of time and price. Stability of the foreign exchange rate requires adequate foreign currency reserves, and when they are absent — devaluation becomes unavoidable.

Admittedly, according to Branislav Pelevic and Branko Radulovic, both from the Economics Faculty, "the pawning of what remains of our family silver (for instance, hydro dams) would only prolong the agony, and we would probably become infected with the "Dutch virus". Explaining this for VREME, Branko Radulovic states that it was expected that the discovery of oil by the Dutch in the seventies would help them take control of their trade balance (they had a deficit just like us), while the exact opposite happened: because of additional revenues from oil, consumer demand increased, import increased, and with it the trade deficit. These experts, along with many others, are advising an introduction of flexible controls over the foreign currency exchange rate, termed crawling pag, which assumes smaller but steadier shifts in the exchange rate. For the present exchange rate policy, they say that "it is dangerous when the means becomes and end in itself, but that it is even more dangerous when such a formulated end does not choose its means".

In any case, with such authors of economic policies as we have, any shifts in the exchange rate can be predicted according to the principle which Ph.D. Zoran Popov, Economics Institute Associate, describes thus: "It’s in God’s hands".

SHARES: What’s also in store for us this year is privatization. That process won't be quick (according to certain information, only one company thus far asked for valuation of its assets for the purpose of privatization). But experts expect that many citizens will become shareholders in the coming summer. Ms. Pava Zecevic, Director of the Belgrade Stock Exchange, advises readers of VREME to try to get their hands on shares as quickly as possible. "I hope that privatization will begin successfully. Then citizens will be able to turn their attention to their shares."

Turn their attention how? "Well, they will have to see what’s happening with the company whose shares they own: whether it is operating successfully, whether it is paying out dividends, whether it is investing jointly with other investors...", Ms. Zecevic states.

Is selling of those shares expected, and what sort of prices can be expected? "I expect that at the beginning the supply will exceed demand. However, I’m certain that the price of shares will later increase", explains the Director of the Stock Exchange.

What advice is there for the population? "Even though this is not in the interest of the Stock Exchange itself, as a citizen I would advise against immediate sale of shares, except in cases where you need ready cash. I think that shares should not be sold hastily, and that it’s better to wait and see how things develop", concludes Ms. Pava Zecevic in her conversation with VREME.

REFORMS: The coming year has been called the year of reforms, but very few political and economic analysts here believe that there will be serious attempts in that direction. What can be realistically expected?

"No one knows anymore. Practically, anything can happen, while nothing can be predicted with certainty. The biggest push can be expected in the area of public spending, which is unrealistically large", Zoran Popov believes. Miodrag Zec shares a similar attitude: "Nothing new will happen. Even the government announced that it will not change anything. The period of dilapidation and minor corrections will continue. Everyone is seeking to keep their office. When patience comes to an end, the deficit will be closed by selling off property." Ms. Aleksandra Posarac, Associate with the Institute of Economic Sciences, believes that the illusion of economic renewal can persist for another one to two years, after which a price will have to be paid for it. "That is why I advise citizens to invest as much as they can into foreign currency which they should stash away in their mattresses, because they will soon need this just to survive, because the price of this illusion will be a sharp drop in domestic consumption’, claims Ms. Posarac.

Miroljub Labus still believes that reforms will be unavoidable: "The gap between the people and the government, in which the former demand, while the latter gives money which has not been deserved, must be stopped. We are playing a game in which there are no winners, which is why we must change economic foundations".

Nebojsa Savic advises the people and the politicians: reforms, reforms, reforms. "We should not be afraid of putting them into practice, because that is the only road to the improvement of the standard of living and to the democratization of society. Reforms need to be carried out though macroeconomic stability, price liberalization and microeconomic reforms which include privatization, as well as the restructuring of companies and banks".

In any case, VREME advises you to step into the New Year with the conviction voiced by Zoran Popov: "better future — in the unforeseeable future". And with the colorfully succinct advice by Miodrag Zec: "stuff your hands in your pockets, and keep your ass close to the wall".