The Shadow of a Humanitarian Disaster

The Yugoslav economy is on the verge of disaster once again. The consumers and the producers alike are afraid that prices will skyrocket any day now.  We all know that international sanctions have been imposed against Yugoslavia again, some more formally than others, so we remember the 1992 hyperinflation as the government's response. The all around panic is even greater now, because people have no reserves this time and they know only to well what might happen.

The very fact that retail prices have increased by 36.6 percent in the last year implies that last year's incredibly low 9.3 percent inflation rate is ancient history. Having conducted thorough research, local experts predict a very high inflation rate of about 60 percent in the coming year.

Even these worrying figures do not fully reflect the magnitude of the all around fear. People are quite understandably afraid that they will have no food, no heating, no public transport and, last but not least, no work.

Dragoslav Avramovic, the former governor of the National Bank and the instigator of a brief economic revival in 1993, says that hyperinflation is knocking at our doors once again. His prediction is based on the facts that the production rate is already as low as it was four years ago, export is dropping, unemployment is huge and the country's entire industry depends on imports. To make things worse, Russia - our biggest foreign trade partner - is going through a serious economic crisis itself. It is expected that the prices for milk, oil, sugar and communal services will double very soon.

Many local economic experts expect a steep rise in prices by the end of the year. The biggest threat to Yugoslavia's dwindling production is the foreign trade imbalance. In the first eight months of 1998, exports stood at just over 1.5 billion US dollars while imports accounted for twice as much. Even more concerning is the fact that exports dropped by 16.4 percent while imports decreased by 31.1 percent. It is quite possible that this is a result of something far more serious than the frailty of the local market. More precisely, it is the result of the "crawling sanctions" imposed on Serbia because of the Kosovo conflict.

The Kosovo conflict lies at the heart of all economic fears in Serbia. Virtually everyone here is familiar with the daily cost of the war in Kosovo, but many people are also aware of the less obvious and far more damaging costs of the conflict. The war in Serbia's southern province gives its regime yet another alibi for reverting to a wartime economy, starting with controlling prices. This time, few people will believe that the measure is aimed at making life easier for the population because so many of them know that the end result will be long queues and a shortage of the most basic victuals. What’s more, the government's attempt to lower the price of meat has failed because meat producers have shown little respect for its authority.

Everything appears to be all right for now, as much as it can be, but everyone feels that nothing is all right, and that the Yugoslav economic balloon could explode in a few days from now. The regime can make use of that fear if only it can resist the temptation to print money. Even poverty is better than chaos.