Old Foreign Currency in Return for Brand New Dinars

Of the over five million citizens who hold old foreign currency savings accounts who are crediting Milosevic's Yugoslavia with 6,479 million German marks and who have been guaranteed by the law to be paid out with interest by year 2011, which should amount to a total of 7,485 million German marks, only a small number decided to approach Bank tellers on June 5, when instead of foreign currency, they at the very least got dinars promised to them by Federal Finance Minister Dragisa Pesic.  Even this small rush by foreign currency savings account holders to banks resulted in huge lineups in banks, so that the government got the signal that it had embarked upon one of its most risky operations, risky both in economic and in political terms.

The old refrain about "technical problems with withdrawal" of cash and red herrings of the sort that there is always some other branch of the given bank which has cash, and not the one where cash is being demanded, is proving that there is no limit to the money games being played here.  This regime has already been battle tested in these conditions and it seems that with the hidden devaluation of the dinar from 6 to 20 for one German mark and a domestic currency injection of 300 million, it has decided to create the illusion of being truly ready and able to return 183 million German marks to old foreign currency savings account holders - 150 per capita, starting with July 1.

BIG SECRET:  If for a moment we ignore the story of 300 million dinars which the Federal Government launched, hoping to gain some points through old foreign currency savings account holders and to marginally revive personal spending in the country, thus softening the recessionary trends in the economy, we must draw attention to the fact that the Yugoslav state has yet to face its most difficult trials.  According to the law regulating the pay-out of old foreign currency savings accounts, by the end of this year Yugoslav commercial banks would secure reserves of 55 million German marks, the Yugoslav National Bank should also secure 55 million German marks, while the Federal Government should secure 73 million German marks.  If we understood Federal Finance Minister Pesic correctly, the Federal Government secured 300 million dinars of the funds, while it is uncertain what the domestic currency reserves in commercial banks can be earmarked for this purpose - that is to say, it is unclear how much the central bank cut its reserves for this purpose, how much it cut from the state budget, and how much it cut from commercial banks, in order to carry out this political-economic operation.  However, once the withdrawal of dinars with "the black market discount" of over 10 percent for foreign currency ends (for the 3000 dinars which are being paid out now for 150 German marks of old foreign currency savings, it is only possible to purchase 130 German marks on the street) it is only a matter of time before the state will have to come out in the open with its deficit in foreign currency reserves.  It is very difficult to consider on the basis of hard evidence whether Milosevic really has 160 million German marks to deal out to all those who will accept to take dinars instead of Geraman marks, given that the information relating to FRY foreign currency reserves is a big secret (which is also the case for all other states which have similar problems).  In fact, it is more or less a simple matter to observe signs which show that the state is very limited in its foreign currency reserves, even though hope is offered to old foreign currency savings account holders with speculations that some 200 million German marks enter the country through foreign pensions, not including Montenegro and Kosovo, and this foreign currency influx supposedly will continue to be gathered through "private dealers" on the streets of Serbian cities.  However, on the other hand, this influx, according to experts, is smaller than the monthly growth of the trade deficit Serbia faces with the rest of the world, so that once again it turns out that there isn't much hope for old foreign currency savings account holders and that they should listen to Mladjan Dinkic and should "take what is offered" in dinars until inflation eats up the effects of the "silent devaluation."

PROMISES VS. REALITY:  Someone might say that the mentioned 300 million dinars, the only "public fact" about the new emissionary cycle, is rudely little to "regain the trust of citizens in Yugoslav banks," because according to the new exchange rate this only represents 15 million German marks, that is only eight percent of the total amount the state owes old foreign currency savings account holders for this year.  However, just this fact alone points to the conclusion that the government jumped the red herring wagon about returning money to old foreign currency savings account holders, while in fact, with the magnanimous generosity on the part of the government they are merely being given back their own property, and that they should return their trust to these same institutions - to domestic banks which constantly announce successful operations at their annual board meetings (playing with balances in old foreign currency savings accounts in much the same way that male children play with their puny pride).

Whether funds from real sources have been earmarked for meeting obligations in dinars toward old foreign currency savings account holders - that is to say whether this operation will have an inflationary effect - is pointless to argue over given the present policy governing "public information."  It is easy to say that in both cases inflation will speed up its tempo, and would do so without this operation anyway, for it is impossible to see real sources for buying this years agricultural crop alone.  Simply put, the sum of the Yugoslav Government's actions - renewal of the country, building of 100,000 apartments, of highways, bridges, trains, in other words "a change from a stage of renewal into a stage of development", all of which is topped by a promise of fulfilling state obligations toward old foreign currency savings account holders - is turning every economic discussion into a farce, because in a world in which everything appears possible, a dull, limiting discipline like economics appears unnecessary.