What Does New Economic Policy Offer

Flight from the Bottom

AIM Belgrade, December 8, 2000

In the competition of several projects of new economic policy the advantage is given to the concept of the group of independent experts G-17, and its leaders Miroljub Labus and Mladjan Dinkic have already taken up the ball in the federal government and the National Bank of Yugoslavia. The main financial basis of this project are donations and funds obtained from privatisation. In the next five years Yugoslavia will need 12 billion dollars of foreign investments. There will be no quick recovery and the citizens will continue to struggle with hardships but they will have hope that every year will bring at least slight relief.

With the victory of the Democratic Opposition of Serbia (DOS) in the forthcoming Republican elections in Serbia which according to all the public opinion polls nobody has any doubts about any more, the last link will be added which will enable transition from the current status of temporary economy into the waters of stable economic conditions. There are indeed still discussions about different programmes of economic recovery, but based on the personnel distribution (election of Mladjan Dinkic for the governor of the National Bank of Yugoslavia and Miroljub Labus for the vice premier of the federal government) it is quite certain that advantage will be given to the project offered by G-17.

The programme has several “fathers” and its main goal is to move Yugoslav economy from the bottom in the coming year already and to accelerate its recovery. During decline, the question that hovered in the air all the time was when the economy and the population would reach the bottom after which things would have to get better. Unfortunately, the citizens had the opportunity to see in practice during the past autumn what it is like when one actually touches the bottom. With small salaries and pensions insufficient even for the essential food, with no electricity and heating, with enormous state debts to foreign countries and its own citizens, the former regime tumbled down without “a single speck of gunpowder”.

Dinkic's assistants brought from abroad have already determined that the budgetary deficit amounts to 20 per cent of the social product, that the foreign debt exceeds 12 billion dollars, that the state owes to the citizens 7.5 billion German marks of their foreign currency savings, and that the foundations of large economic systems which were the economic basis of the former regime have knuckled under the burden of merciless exploitation that lasted for years. Yugoslavia has come among 10 most indebted countries in the world, so that every one of its citizens owes almost 2,000 dollars. The total public debt exceeds 1.5 times the annual social product.

When in 1982 the government of Milka Planinc determined that former SFR Yugoslavia owes 40 per cent of its social product, alarm was sounded in the state leadership and the domestic market was left without coffee and petroleum. Apart from Milka Planinc Branko Mikulic also had to end his term in office before it expired. Circumstances improved only when Ante Markovic became the federal prime minister who with support of foreign loans created prospects for economic recovery, but his efforts were interrupted by dissolution of the state.

Markovic's role, but in a much more difficult situation is now played by the Labus-Dinkic tandem who opened all economic and financial dubious affairs. These two, like the famous Serb politician Nikola Pasic before them keep repeating his words: “There is no hope for us but we will get out of the scrape”. The period of temporary economy is characteristic for considerable decline of the standard of living because inflation in just two months (October and November) increased to almost 50 per cent, while the increase of salaries and pensions is significantly lagging behind. Nevertheless, the people are still patient although some parties, primarily the Serb Revival Movement (SPO) and the Serb Radical Party (SRS), are using poverty as a trump card in their campaign, demanding that the salaries be increased first and the economy recovered later. Such a recipe has not been invented by anyone except the former regime.

With devastated economy the rise of the standard of living is possible only with the help of foreign donations, but strategists of the new economic policy are distributing humanitarian aid very sparingly because they think it is justified to direct a part of it into the economy. It is still a long way from receiving foreign loans for the recovery of the economy regardless of the fact that doors abroad are opening to Yugoslavia even before its representatives have had the time to knock at them.

According to the programme for reconstruction of economic activities elaborated under the guidance of Dragoslav Avramovic, who due to failing health did not have the chance to participate in its realisation in practice, in the next five years Yugoslavia will need 12 billion of dollars of foreign investments, or 2.4 billion a year. It will be very difficult to count on this sum in the first year, because before that many obstacles should be removed. First, it is necessary to end the succession process with the republics of former SFR Yugoslavia, become a member of the International Monetary Fund, reach an agreement with the Paris Club (creditor countries) and London Club (commercial banks) on writing off and postponing the debt the payment of which was due a long time ago and because of which Yugoslav debt is annually increasing by about 800 million dollars on account of interest. Privatisation of state and social property also lies ahead and amendment of legislature in the sphere of the economy.

The economic reform will be thorough. All former political structures had promised they would use the confidence entrusted in them for reforming the economy, but nobody showed real intentions to tackle the job fearing social unrest in the first place. This time, according to experts, the reform is bound to succeed because it is simply impossible to go on as before. That is why vice premier Miroljub Labus asked for support of the public in new tightening of their belts, in his very first address to the people via TV. The most threatened part of the population (about 35 per cent of the citizens) who have fallen deep into the chasm of poverty will be helped by the means from donations. The intention is to transfer the whole social policy from the economy to the state budget, and the redistribution will take place in the state cashbox.

A smaller part of the social product than before will be allocated for the army and the police, and the allocation for education and health will increase. Countries with developed social policy allocate less than 40 per cent of their social product for the purpose, but Serbia, due to the low effectiveness of its economy will have to set aside about 59 per cent of its social product. This is not enough for recovery of health services and education, but hardly anyone expects the situation to change quickly. If that were possible, the present situation would not have been so serious and difficult. The time in which the citizens will continue to struggle with hardships will last, but they will have hope that every year will bring at least slight relief.

The main material basis for implementation of the new economic policy in 2001 will consist of humanitarian aid and revenues made from privatisation with the cement factories, tobacco industry, Yugoslav Airline JAT, oil industry and electric company are the first on the list of those the parts of which will be sold. It is expected to make 350 million dollars in this way. It is also expected that difficult economic conditions will force the population to exert pressure on the new authorities to make money by confiscation or at least additional taxation of the property acquired in an illegal way.

Ratomir Petkovic

(AIM)