For A Fistful Of Dinars

The Serbian Government has requested a general price freeze of four months for agricultural products and two for everything else, as of August 1st. This is Serbian Prime Minister Nikola Sainovic's idea of introducing some kind of order on the hard currency market. Those who are well informed say that it all started a few days ago when Serbian President Slobodan Milosevic said: "Enough of this chaos!" The machinery was immediately set in motion. President of the Serbian Chamber of the Economy kept repeating on Friday 3:20 p.m. - let's banish the Deutsche Mark!

Those familiar with the situation can't stop laughing. The foreign currencies are now being banished by those who banished the dinar from the domestic economy and the state, in the first place! Experts agree that the current authorities created this chaos with their unlimited printing of dinars. They also scoff at the announced banishment of the mark and the dollar, because these currencies have already been banished, or more precisely, spent. Bankers say that the purchase and sale of foreign currency dropped to ten percent in less than a year. Before sellers used to chase bankers, now banks beg for only a few tens of thousands of DM. This is because the offer has been significantly reduced. At the same time, those who have small hard currency reserves have reduced their standard of living to bare survival. They have given up gasoline and similar "luxury" products in fear that, as soon as tomorrow, they will need marks and dollars to buy flour. Why, then, the ban on the work of exchange offices? Why the ban on buying foreign currency at the so called "giro" exchange rate?

An explanation should be sought in the excessively fast multiplication of these "little Dafinas" (notorious bank owner), so fast that they got out of control and stopped supplying the state with foreign currency reserves. Few believe that, at least in the beginning, the purchase of hard currency at higher, giro exchange rates, was not in the state's interests. Many believe that the day-to-day announcements of the closure of these exchange offices, had one goal: to stimulate those who have DM to sell them as soon as possible, and as much as possible at "excellent" rates. If this was the case - it was successful. This could be plainly seen: last week there were queues everywhere in Belgrade, similar to those in front of Dafiment Bank once. It must not be forgotten that the work of exchange offices has been banned temporarily. There will be a fifteen day inspection of their work (even though they never worked on the basis of positive regulations at all, just like Dafiment, Jugoskandik and similar "banks"), so that it can be expected that after the authorities have discovered who is working for them, they will prolong their existence. These speculations are supported by the fact that, even after the latest devaluation of the dinar (since July 23, one Deutsche Mark costs 8 million dinars, and one US dollar = 13.6 million dinars, which is fairly long period without changes).

State banks still don't have any dinars, not even for buying foreign currency. Perhaps the state has more faith in street dealers whom it promises to get rid of. But, if this is not a question of faith, then the only thing that comes to mind is the easy way of concealing foreign currency transactions when the money originates from the "street" and not from state-owned banks. Regardless of what they may be like, state banks do keep records of what they do. The governments and the monetary authorities are once again announcing daily changes of hard currency exchange rates - a single one this time, and this is, one must admit, one of their rare good moves. No one mentions the stock exchange. For this reason one should place one's bet on the experts who forecast that the new official exchange rate will be on a par with the black market rate for ten days at the most. If for no other reason, but because exchange rate growths and price hikes have kept alternating so far. At the moment, prices in stores are going up. The latest announcements of the Serbian government's measures reflect an unbelievably unprofessional and even irresponsible approach. Not a week has passed since people bought almost everything that could be found in the shops - just because the government "held the prices" in the midst of hyper-inflation. Sainovic's government insisted on a new freeze of everything except salaries. (This should also be considered a "plus" for the Serbian government, since salaries have really become negligible and, therefore, their contribution to inflation is insignificant).

One of the rare points of dispute between the federal and the Serbian governments is, allegedly, the scope of the freeze, since Federal PM Radoje Kontic is not in favour of putting everything on ice. The federal government favours a "mini stabilization program" proposed by a group of experts. But, bearing everything in mind, and especially the present mechanism of power in Belgrade, Kontic's government has been left with a "mini term in office". Didn't Serbian Radical Party leader Vojislav Seselj announce the overthrow of the federal government last September? Didn't Serbian Prime Minister Nikola Sainovic praise the new governor of the National Bank of Yugoslavia on Thursday in Kragujevac, and at the same time criticize the dismissed Ognjanovic?

The new measures once again bypass the main causes of the economic collapse, what an economist described last week as the impossibility of conducting big politics on the basis of a small economy. In other words, big politics have destroyed the Serbian economy which wasn't insignificant, and reduced it to the level of the poorest African economies. The national income per capita has dropped from almost 3,000 USD before the war to around 350 dollars, said Prime Minister Kontic. The average salary has dropped from approximately 900 DEM to some ten marks (while official salaries account for less and less of the overall earnings). Those worst off are people working for state-owned firms and pensioners, that is, all those whose salaries are determined on the basis of the official average salary in the economy.

These, however, are the consequences. The Serbian government is dealing with them, if it deals seriously with anything at all, other than introducing new smoke screens every two weeks. While the main printing works keep churning out fresh money, we need not expect to see the light at the end of the tunnel soon. Life in the Federal Republic of Yugoslavia is now based on printing money which has no economic backing. Before the war the difference between the budgetary income and expenditures was almost negligible. The expenditures are now five times higher than the income. While this is so, that is, while undefined and illegal "higher" goals have priority, no economic policy stands a chance of succeeding.