Serbian Economics

A Lot of Money, a Little Goods

The chaos in the economic and the financial sphere exploded in just ten days, but the causes reach back at least ten years. The government of Serbia gave its contribution to the confusion to it when it abolished the decree on price control with the intention to create the impression in the public that this is the consequence of the change of the regime.

AIM Podgorica, October 15, 2000

(By AIM correspondent from Belgrade)

After plebiscitary vote of no confidence to the regime of Slobodan Milosevic, the people withdrew from the streets, but chaos remained in economics and finances. Although it is well known what has brought to it, the remains of the former regime are doing their best to use the economic debacle of Serbia to stir up new people's discontent which should this time be used against the winners in recent federal elections. Betting on the card of causing social unrest of the masses because of hard life is a bigger threat than the one represented by the police and the army on which the attention has been focused. It does not hurt to be cautious, especially because poverty will reflect on the disposition in police and army ranks, but connoisseurs estimate that the attention should primarily be turned towards the standard of living of the citizens which has drastically suffered in the period of election turbulence.

According to the official statistics in September living expenses have increased by 17 per cent. This refers to the first 20 days, so that the effects of the increase of prices in the past 30 days are not known yet, but this is not preventing the citizens to feel their effects on their household budgets. The chaotic situation caused by the dramatic rise of the foreign currency exchange rate and speculations in this connection have brought to a sudden rise of prices. The government of Serbia has given its contribution to this by abolishing its Decree on Price Control. Due to this move prices of all products (except for bread) and services can now be formed freely.

This move was made with the intention to cause increased chaos and discontent so that according to the danger it resulted in is equal to lighting a fire. This move of the government of Serbia was made at the moment when the amount of money in circulation is very big (about 25 billion dinars) and there is very little goods in the market. This disharmony has created a situation in which the sellers do not know the real prices and the buyers do not dare enter shops. The existing situation has exploded in only past ten days, but the causes reach about ten years back. Due to very high taxes, the economy has been brought to the verge of collapse and many factories cannot even start up their machines because they have no working capital. With the burden of about 60 per cent, Serbian economy ranks first in the world, and by its efficiency it ranks under fortieth. There is no money in the budget for meeting the needs of the bulky state apparatus, excessive police, army and other. More money is allocated for the police in Serbia than for education. Financial situation in health services is alarming. Belgrade Clinical Centre has only 1.2 million dinars at its disposal and for meeting monthly needs it needs a hundred times more. Dedinje Cardiac Institute which was until recently managed by former minister of health Milovan Bojic cannot work although three thousand patients are waiting for surgery.

The tax policy in Serbia is among the most grotesque in the world. Even consumption is taxed. Every state pursues economic policy which stimulates consumption because this creates the space for increasing production. Just the opposite is applied in Serbia. Due to such economic policy almost 50 per cent of economic activity takes place in the sphere of grey economy. Some companies operated in this sphere with the approval of the authorities because they had preferential treatment since they were exempt from paying taxes, contributions, customs, and others have decided to operate in this sphere in order to save themselves from tax collectors.

At the well-known Belgrade “flea market” only new merchandise is sold. Many enterprises sell their products there because they achieve two goals in this way: they avoid paying taxes and they get hold of cash. The regulations limited the amount of cash a company could draw from its account, while others received money straight from the money issue. Those who remained in the legal sphere, that is, those who could not count on privileges, were often visited by members of financial police whose interventions were equal to plunder. Inspectors did not dare leave a shop or a company without pronouncing a fine or confiscating goods.

Economic experts from G-17 Plus who are engaged in putting things in order in the financial field, cannot get to the bottom of problems. According to the words of Mladjan Dinkic, there is no control of the budgets, and money is leaking through numberless holes. Serbian economy and finances resemble a bullet-riddled barrel. Finances were controlled mostly by cadre of JUL, the party which presented itself as a protector of interests of the working class. All key posts, starting from the governor of the central bank, to the health insurance fund, were occupied by members of this party, labelled by their director Mira Markovic, as “clever and well brought-up guys”.

And while for realisation of the election will of the electorate just a few hours of a powerful protest was sufficient, putting Serbian economy in order will be measured in years. Drastic increase of prices among which some are too high because many are trying to fish in troubled waters, is the result of command economy which has brought about disparity of prices. Vinegar used to be twice expensive than edible oil. A kilo of imported sugar was paid 27 dinars and sold to the citizens for 8.5 dinars. The regime believed that in this way it would win the votes in the elections.

The change of the regime marks the end of the time of cheap products which cannot be found in shops. A long time will pass until the purchasing power of the citizens becomes sufficient to meet their basic needs. In this respect the new authorities are faced with extremely sensitive temptations. In economic and social sphere the test to be passed is the most difficult one because the heaviest burden was inherited in it. According to the estimates of economic experts, the economy cannot endure a burden higher than 30 per cent. On the other hand there is a large number of activities which are financed from the budget. Balancing of this disharmony will be extremely difficult and painful, so in expectations of favourable effects of the change of the regime a large quantity of patience will be necessary. The price of the transitional period can be moderated only by abundant foreign financial aid aimed primarily at the recovery of the economy.

Ratomir Petkovic

(AIM)