Prime Minister Defeats Theory

There is a joke about statisticians that when you ask them how much is two plus two, they answer: "on that average, four."  Well, if it that were not true, it would not be possible for Serbian Prime Minister Mirko Marjanovic to brag about the Serbian economy having registered deflation in December (i.e. a drop in retail prices), and that there will not be any inflation in this year, while economist state for a poll VREME conducted that we are facing "permanent and alarming" price hikes and that it will be a real success if the government manages to keep inflation in the coming year below 150 percent.  Perhaps every housewife could give a better opinion on the matter, especially those who did not know that Marjanovic only lowered the price of 125g packages of margarine (11.3 dinars), and they instead bout the common 250g package and paid 30 dinars.

Professor at the Faculty of Economics and Advisor to Prime Minister Marjanovic, Ph.D. Danijel Cveticanin tells VREME that "the whole story about the prices" should not be ascribed only to state statisticians.  His colleague, Ph.D. Danica Popovic agrees with him also, stating that the State Institute for Statistics has specific stores in which it checks prices, and that prices in those stores were dropped one day before the statisticians got to registering price changes.  For this reason the State Institute for Statistics (SZS) cannot be criticized for its accuracy and that is why its possible for everyone to be saying the truth.

FINE TUNING: What did the State Institute for Statistics do?  "Fine tuning" already began with the November prices, when the SZS moved up its deadline for registering prices in order to note the effects of the decision adopted by the Serbian Government for putting prices back to where they were previously and for extending the list of goods whose price is subject to state control.  In December, statisticians simply did not go into any privately run stores, but merely noted prices prescribed by the Serbian Government, and which were only honored by state run stores, which do not carry those good, especially not at frozen prices.  Thus official state statistics registers a price for one liter of cooking oil at ten dinars, while everyone is buying it at 25 to 30 dinars.  The same holds true for milk products, and meat prices are subject to same interpretation as a matter of course.
"The naked eye tells us that a worrisome rise in prices is happening from one month to the next which is why I'm surprised that state statisticians did not verify their data prior to publishing their findings," states Ph.D. Ljubomir Madzar.  He asks what is the point of registering the prices of goods which cannot possibly bought at such prices, and can certainly not be bought at the places where those prices were noted, certainly not at the prescribed state prices.  "Those same statisticians announced that the monthly price hikes are just below ten percent.  Well, an economy which can shift from such monthly inflation to deflation simply does not exist," states Ph.D. Madzar.

Madzar's colleague, economist Ph.D. Jovan Rankovic states that "Marjanovic does not know what deflation is."  "Price control is one of the factors which contributed to such a piling up of losses that in the economy that the final score will show that we did not produce anything in the year 1999.  Simply put, if statistics were what it should be, our GNP would be negative, because our losses exceed the value of everything we managed to produce," explains Ph.D. Rankovic.

Economists who were polled by our magazine say that it is sufficient to look at the "price of all prices," that is to say the exchange rate of the German mark which effects how much we will pay for what, in order to get a good picture of inflation.  We began last year with a German mark that was worth eight dinars, and we ended that year with a price of 20 dinars for one German mark.  Already at the beginning of year 2000, the price of the German mark jumped to 22 dinars, while traders have been dealing at an exchange rate of 23 to 26 dinars for one German mark for over two weeks already.  This is a foreign currency exchange rate that is accounted in the largest percentage of retail prices, with the opinion of experts being that this is where the reason for the lull in the prices of domestic goods and products should be sought.  But not in the long term.  Namely, the whole of last year inflation lagged behind the exchange rate of the German mark, with the time for that adjustment being inevitable.  "Looked at in the long-term, prices always meet up with the currency exchange rate.  That is a rule which no one has managed to fudge, and even our statisticians will have to honor it," Ph.D. Danica Popovic warns.

RENEWAL OF THE COUNTRY IS COSTLY: According to Ph.D. Popovic, hikes in prices and the currency exchange rate are some of the reasons that will not permit Marjanovic's plan for year 2000 to hold true as the year without inflation.  "I state that Marjanovic will be able to say that his government was successful if it manages to hold inflation at 150 percent for this year.  Firstly, the state plans to continue with public works and with the renewal of the country.  Secondly, the number of pensioners is on the increase, and their income will have to increase and will have to be more frequent than thus far, especially if we consider that this is an election year, which is another inflation instigator, because the printing of money appears to me to be the only source for covering those expenditures.  Furthermore, it should be kept in mind that state income will be reduced because everyone taking part in the renewal of the country has been freed from taxes, with the budget deficit being there even without this," Ph.D. Popovic states the reasons why we should fear inflation.  Furthermore, there is even a simple theoretical reason for this - a country which managed to lower one hundred percent annual inflation to zero annual inflation does not exist in practice.

Ph.D. Rankovic states that Marjanovic offered predictions based on hope that the government will manage to get around two billion German marks this year from abroad, therefore a little more than the money that came with the sale of Serbian Telekom a while back.  "Publicly owned retail space which is just beginning to be sold off is worth precisely this much.  But it is a question whether the people who presently rent that space will have the money to buy it.  I know that the state is expecting that private entrepreneurs will dip into their savings in order to purchase retail space, as well as citizens who cannot live on an average monthly salary of 59 German marks.  But this is simply not the stuff serious economic policy is made of," Ph.D. Rankovic explains.

Finally, there is nothing that can be added to the statement given in VREME's poll by Ph.D. Cveticanin.  "It is true that it is possible to live without inflation.  Such countries do exist.  But whether this is realistic in our conditions is another issue altogether."