The Street Fight Between Two Governments

Our intention was for the devaluation to make it possible for hard currency bank account owners to get dinars out of banks and, with a 10 percent loss, to buy new Deutsche marks in the street. However, already the following day, someone in Serbia printed money so that we did not succeed in this. This is how prime minister Milan Panic commented, in Novi Sad on Tuesday, the fact that the mark's black market exchange rate was tripled in November and doubled after the devaluation. Panic probably had in mind the "coincidence" of the November devaluation and the additional printing of money for the metal complex in the amount of 85 billion dinars. However, it is difficult to believe that this was the only thing the federal government had in mind. It is more likely that it too wanted to join the street fight for the citizens' remaining hard currency, so that many consider that the devaluation was also inspired by the Serbian government's decision to "devaluate" the Yugoslav currency by stimulating the buying up of socially-owned apartments for ready hard currency. In any case, after the federal devaluation, Serbian prime minister Dr.Radoman Bozovic went a step further with the "republican devaluation", so that, since Wednesday, in "his" banks, the Deutsche mark has been worth 750 dinars (which, with a 35 percent discount on the price of apartments, gives an exchange rate of over 900 dinars for a mark). It is now up to federal vice-premier, Dr.Oskar Kovac, the real creator of the "federal exchange rate", to make a move. Despite the wide-spread belief that, with the "midnight devaluation" (November 13th) when the dinar's parity to the dollar dropped by 275 percent - (one dollar - 750 dinars), federal vice-premier Kovac only tried to spoil prime minister Bozovic's business with apartment sales for ready hard currency, this operation was much more than just "revenge". Because, one could say that Dr.Kovac was not totally sincere when he said that "there actually had been no devaluation at all" in view of the fact that prices had grown by 853 percent since the last correction of the parity (July 1st) and that the mark's black market exchange rate was as much as 600 dinars (compared to the officially determined 473 dinars) on the hard currency black market. Speaking about how necessary it was to "make official" the black market exchange rate at that very moment, Dr.Radoman Bozovic said that this was a "pre-election political move", because the devaluation would "only raise social tensions and aggravate conflicts". True, the statements Dr.Kovac is making today about the devaluation differ from those he made only two months ago. In an interview to the Novi Sad daily "Dnevnik" on August 20th he said that "neither the black market, nor the official exchange rates are realistic at the moment and that a devaluation would make sense only it would throw the black market out of the game". At that moment it was Dr.Bozovic who was thrown out of the game, and there were some other effects as well.. Certain commentators have already noticed that the previous official devaluation of the dinar took place just one day after the semi-annual calculation of the financial results of banks and of the economy (July 1st), although, due to the UN sanctions, some kind of counter-program should have been adopted already on May 28th when the resolution was adopted in New York. Only with a "belated" devaluation could the Central bank and its weak commercial banks make it possible for the banking system to allegedly get through the half-year period without losses, allegedly with a capital of 950 million dollars and a profit bigger than zero and smaller than 1 percent (with the obligations towards hard currency bank account owners having been "erased"). Now, by "making the black market official", Dr.Kovac placed the "monetary mirror" in front of the economy, so that Dr.Bozovic is afraid of the ugly image that will appear on it prior to the elections. The operation was carried out by Dr.Kovac, despite the persistent objections by Vuk Ognjanovic, governor of the National Bank, who has found himself in the sad position to defend the value of the national currency by speaking about "the monetary balance" understood in a bureaucratic way (so that he had to print another 100 billion dinars) - could turn out to be two-edged. Dr.Bozovic has already said that the devaluation would stimulate inflation so that, at the end of the year, when inflation turns out to be 40 000 percent, Dr.Kovac could be "to blame" for the dinar having been officially invalidated by 25 850 percent (five corrections) in 1992. That this is not just Dr.Kovac's attempt to restore the federal state's monopoly on determining the dinar's official exchange rate, is attested to by the fact that the devaluation practically increases the dinar value of imports, which also means that it increases customs duties which provide Yugoslavia's income. This, of course, is not some large income because the registered imports have dropped by around 100 million dollars per month (and after the latest sanctions it will drop even further). However, even to this kind of income, the impoverished state (which now collects only 0.5 percent of the overall budgetary income) does not come by either easily and directly. Dr.Kovac was perhaps motivated to carry out the devaluation by the fact that federal state bonds were not being sold very well, and importers mostly pay customs duties with these bonds, apart from getting around 60 percent of interest per month. Or in other words: with these bonds Dr.Kovac also collects customs duties, thus avoiding Dr.Bozovic's apparatus which seems to be careless in fulfilling its financial obligations towards Yugoslavia, but regularly and in an unconstitutional way collects its own "customs duties" (taxes and the insurance of automobiles and freight vehicles in transit through Serbia). Therefore, after the devaluation, importers will need more bonds of the Federal Republic of Yugoslavia to pay their customs duties. However, the fact that, in the last three releases of federal securities, Dr.Kovac emitted 6.6 billion dinars, did not slip Dr.Bozovic's attention so that he immediately decided to sell 20 billion dinars worth of republican bonds. The disproportion between the federal and the republican appetites is even more visible when one knows that on November 20th a "close encounter" took place on the Belgrade money markets between the third block of the federal bonds worth 3 billion dinars and the first republican emission worth 20 billion dinars. The interests are similar. Therefore, Dr.Bozovic has shown to be clever because the bonds he is issuing will serve for paying taxes, so that he too will indirectly and more easily collect money from the weak economy. It would be much more interesting to describe all these doings if these were attempts to get real income on one side or another. However, most experts point out that even the federal securities, and this will also be the case with the republican ones, are, in fact bought with printed money (the commodity reserves are also among the buyers), because there is no other inflow. Since the industry does not work, as out of the 600 000 or so people working in production, around 400 000 people are on compulsory vacation (either every day or every third day) and since, for this reason, we have been the first in the world to create a "post-industrial society" (Bosko Mijatovic), it is normal that the redistribution of securities without backing be done through a battle over the exchange rate, interests, bonds and so on. The only bad thing is - as famous Keynes said - that, in fact, there is no uncovered state deficit because there are no real expenditures without a real backing; one cannot gain without someone else losing. Therefore, in the long run, the "street fight" between the federal and the republican governments must be understood only as a conflict "money collectors" at a high level - over the distribution of what is left of the standard of the impoverished population.