Counter Cycle

A few evenings ago, a renown commentator from Budapest told me that direct investments into Hungary have started to drop last year – even though the performance of the Hungarian economy was good, and the market was far from any type of satiation. He himself honestly says that he doesn’t know why that is happening.

Just like anyone who knows a lot less about something - in connection to it I am raising a rhetorical question: is that another sign that Western Europe has become bored with Eastern Europe, since it has turned out that a collapse of communism doesn’t have to be assisted (it’s going away perfectly, by itself) – and it is also being comprehended that it is pointless to spread western civilization – where it has slight chances of a quick success. Or is the developed part of the continent slowly preparing itself for a recession – since the “US locomotive” of world economy seems to be losing steam – after a decade of unbelievable pull and ascent.

Prone to always “confuse the cause and consequence”, not for a pun but because of an always interesting analysis of counter hypothesis – I ask myself whether last year’s rise in the price of oil was approved by the “seven sisters” since it was assessed that the sale of gas will start falling in the next few years, whatever the price, low or high, all the same (then it’s a lot better if it is high). An opposite thesis, which seems so logical – that recession is caused by last year’s shock of the high oil prices – doesn’t seem convincing to the experts, since this time the first to feel the brunt were the inflated prices of high technology and communication companies stocks (the market indicator of these firms, the Nasdaq – has fallen to half of last year’s level). 

However, in all of this the most important question for us is: is it convenient that the democracy in Serbia, from an economic viewpoint, is arriving “at an inappropriate moment”. In that sense, the top officials of the new government are already lamenting the slump of the prices of new mobile telephony concessions, but it would be logical for all other expectations to shrink concerning the price which can be achieved by selling large domestic firms to strategic partners from abroad.

Namely, today it is clear to everyone in the country that a sale of many of the natural and economic resources to foreigners is a necessity – but the majority here still hasn’t comprehended how much Serbia’s price has gone down, if it ever was high.

I will take only one example from neighboring Croatia, to demonstrate how much we (and they as well) can’t seem to comprehend that what we deem to be valuable – is evaluated so poorly by the international specialists, i.e. those whose profession it is to “keep their eyes open” for someone’s potential worth on the international market of capital. Therefore, the famous INA, the Croatian oil industry, which in former SFRY was deemed to be twice as large as Naftagas (which today is the Oil Industry of Serbia, i.e. NIS, strengthened by Jugopetrol), was evaluated two years ago by a Deutsche Morgan Grenfell specialist, a company which is part of the Deutsche Bank, at a total of 750 million US dollars (at the moment when the value of INA, according to its accounting, was around two billion dollars). And this company has three refineries with a capacity of processing over ten million tons per year, now with around a million tons of crude oil production per year (previously over two million tons), half of the YU oil pipeline, around 400 gas stations, along with a domestic market of 4.5 million citizens and with (previously) heavy tourist transit routes, etc. In light of these facts, which are missing many of the crucial elements from INA’s financial balance sheet, were we to evaluate, offhand, the market value of our NIS (whose due and unpaid debts, allegedly close to 400 million dollars, I won’t mention here out of patriotic reasons), someone would think that it doesn’t reach even half of INA’s aforementioned evaluation, taking into account the destruction which it had suffered during NATO’s bombardment and the technological and economic degradation it endured during the Yugoslav United Left (JUL) reign in that company in the last couple of years. Still, when you listen to the people from NIS, you have the impression that the previous, famous NIS evaluation of over five billion dollars still carries some weight and that those who would ask ten times less for this entire company – would deserve not to be thrown into prison but to be hanged.

The republic prime minister Zoran Djindjic and his authorized ministers would, on account of it all, have to urgently start “cooling” the public’s expectations that the democratic government will receive some fabulous sums from its strategic partners by selling our domestic production plants and the markets of Serbia. In actual fact, to put it more precisely, first the government members would have to pass a “sobering” course in this field – in order to view the overall problem of privatization in a more realistic way and to give up their dreams that they will take part in some sort of gigantic sales – where something might land in their pockets as well, even if many would hesitate, as experienced fighters for the public rather than private interest.

The most important thing in it all is to prevent with all means a revitalization of the state superstructures’s natural interest not to change anything – with such “low current prices” in the world capital market – and to continue with the old practice of robbing its citizens (tax payers) with “measures of economic policies” via which even the worst firms can appear profitable in the short term. That economic “perpetuum mobile” was implemented for years by the regime of Slobodan Milosevic. All of this doesn’t mean that the “counter cycle” should be ignored which is menacingly hovering over the world and Europe. This country has already tasted the price of undertaking “real measures” at the wrong moment a number of times. In that sense the most famous case occurred on St. Vitus Day in 1931, when a gold plated dinar was introduced (0.0265 gr. of gold) with the help of a French financial credit of 1825 million dinars. The captivation with the dinar as the strongest European currency (actually then third in size currency unit measured in gold) in reality lasted only 102 days, and that captivation cost the citizens and the state economy a great deal (the GDP was halved). What happened? Only a few days after passing a law on the gold dinar in Belgrade, which was proclaimed to be an “international move”, the Bank of England in London, in total contrast to the Yugoslav Central Bank, abandoned the rule of backing the pound with gold, the main Vienna banks were bankrupt, the Americans imposed a moratorium on German reparation obligations (an important foreign currency source of the Kingdom of Yugoslavia), and thus even the National Bank in Belgrade abandoned its glory – the gold dinar. In the meantime, the banks and the peasants were ruined.