Unrecoverable Policy

This August will be remembered by the absurd phenomenon that the Yugoslav banking system was in a "net deficit", i.e. the sum of positive balances on giro accounts of commercial banks was lower than the overall sum of negative balances. All banks are still open for business: those who have positive balances in banks, as well as those who are in debt, carry out their transactions through current payments. Unbelievable but true: it is the Yugoslav contribution to the economic theory of the impossible.

However, not all financial problems moved from the state onto commercial banks (as Dr. Miroljub Labus claims). At the end of July, Yugoslav Chamber of Commerce announced that in the first half of this year 14,000 companies employing 435,000 people had their accounts frozen, and that bankruptcy proceedings began against 12,000 companies. It should also be noted that during 50 years of socialist "non-monetary economy", only one state owned bank (Bank of Kosovo) went bankrupt, while a similar measure is being contemplated for over a year and a half regarding a large private (Dafiment) bank. Large state owned banks are treated like sacred animals, so even chronic insolvency of the largest Yugoslav bank still does not mean that something like the "Barring affair" could occur in these parts.

Figures published by the Payment Operations Office about financial transactions in the first half of this year can provide some insight into the extent of the unpunished and unpunishable insolvency. According to "Privredni Pregled" ("Economic Review", August 12-14) in the last six months 162,841 milion Dinars changed hands. Of that sum 80,300 million were earnings, and 82,400 million expenditures, which leaves a negative balance of 2.1 billion Dinars. All sectors were in the red: industry 89 million, social services 84 million, the administration 50 million, non-economic institutions 42 million, insurance companies 9.7 million, while financial transactions in banks ended with a negative balance of over 1.8 million Dinars. This is the main cause of the current "net deficits" and the widespread hunger for money as banks can not cover the negative balance of current transactions which only in June reached the figure 625 million Dinars.

While seventy or so smaller and younger banks, which are under less pressure from the state, noted a small positive balance of some 40-50 million Dinars on their giro accounts, around twenty older banks were some 70-80 million Dinars in the red, and are now excusing themselves on the grounds that they have to bare the burden of "larger systems" which do not pay their debts. The "larger systems" in question are industrial giants and large companies which the Serbian government "preserved" by refusing to sell them off to private or foreign buyers, and by keeping them alive during international sanctions. These large industrial systems were preserved by transferring their problems (debts) to their partners- banks or state infrastructural companies (for example the electric power industry which now started cutting off supplies to those industrial systems) and other suppliers.

It is also interesting that little dust has been raised this time about the restrictive nature of the monetary policy, which is further increased by the rise in the black money market. Since the beginning of the year, until the end of July, the total sum of money in circulation increased by 26%, but observed through the prism of a more realistic exchange rate, it decreased by 29%. What would have happened had the money printing-house been more generous, or rather what will happen if the government decides to carry on down that road? The question is easy to answer, we will once again find ourselves in hyperinflation. Banks would still not be saved.

The marginalization of commercial banks and the breakdown which looms over our financial system are only some of the consequences of the conflict between a relatively stable currency and an economic system that can not handle it. Insolvency began to spread at the end of last year when inflation was brought under control after printing of Dinar notes was stopped on St. Nicholas' Day. This so-called restrictive monetary policy maintained the stability of the Dinar in the past eight months but at the same time high-lighted the problems originating from a conserved state economic policy which evades any contact with the problems and abides by the principle of "flexible budget limits" (it refers to the system in which even those who have no money can spend it at everyone else's expense).

Since the real generators of the overdraft in the financial system are still successfully evading the eyes of the public, there is lot of confusion, incredible information is published daily, and everyone would like to know where the money is, and who controls the missing 2.7 billion Dinars from the money supply. Slobodan Vukcevic, chairman of the First Entrepreneurial Bank wrote in "Ekonomska Politika" (July 24) that only 2% of the overall Yugoslav money supply (more than 2.5 billion Dinars) is currently deposited in legal bank accounts. Dr. Slobodan Komazec wrote in the Novi Sad daily "Dnevnik" (August 20) that around 1.5 billion Dinars are in circulation outside legal monetary flows. Deposits in most banks halved and now present only 7-8% of their credit potential. Everybody with any money to spare will stay away from banks. For example, if 3.5 million employed and pensioners in Yugoslavia received their monthly earnings through their bank accounts, and made regular payments by direct debit, over a billion Dinars would suddenly stream into the banks, while at the end of the month some 50 million Dinars would still be deposited, which in the current shortage would be a small but much needed potential. However it is another one of those "if only" theories. The reality is that banks have been left out of the process of mutual financing of companies, so the sale of commercial bonds presents 70% of annual turnover of all financial markets. In economy, trust which is gambled away once can practically never be regained. For that to happen we need new companies and new bank owners.