Surprising Emergence of Over Two Billion German marks

Wealthy Beggars

Bosnians and Herzegovinians have turned out to be much better off than anyone would have expected. Due to the transition to the euro, more than two billion Deutche Marks hidden beneath bed mattresses have now been brought to light. For a country of four million poverty stricken citizens that is a considerable sum

AIM Sarajevo, January 10, 2002

"The large amount of German marks flowing into the B&H payment system from the pockets of individual citizens due to the replacement of the German mark with the euro has, to be honest, surprised me too", says Peter Nichol, the governor of the B&H Central Bank. Owing to the said influx, the B&H foreign currency reserves have doubled in the course of the three closing months of the past year, totaling 2,6 billion DM at present (around 1,3 billion euro).

In the last quarter of 2001, somewhere over 1,4 billion DM suddenly emerged within the country's banking system to be converted from DM to KM (B&H hard currency). Simultaneously, there was a sharp rise in the savings deposits which, solely within the B&H Federation itself, totaled 1,1 billion DM on the very last day of last year. A year earlier, the said figure amounted to mere 462 million DM. The true reason behind this sudden increase in savings deposits certainly not being any bettering of the standard of living and the corresponding surplus in monthly earnings or an overnight change in the confidence local banks inspire in the population. The truth of the matter is that the transfer of hard currency savings kept in "home safes" for rainy days to bank savings accounts happened to be the most simple way of converting DM into euros and a free one at that. A part of the savings deposited in the form of DM was converted into KM or, through the B&H Central Bank, to the euro, meaning all such transactions were duly noted and added to the sum total of the country's foreign currency reserves. But, what complicates matters further is the fact that some banks, especially foreign ones, met the demand for euros through shipments of the currency coming from their "headquarters" abroad, making the assessment of foreign currency savings hitherto held in private hands even more difficult.

Precisely because they are foreign, local branches of some international banks grabbed the biggest slice of the foreign currency savings' cake for themselves. The ancient creed of banking according to which having the necessary capital does not necessarily spell success proved to be true in this instance as well. The final outcome of the story on foreign currency savings hidden under the mattresses of so many B&H citizens being yet unresolved, since the official "grace period" for the transaction granted by the authorities expires on February 15. Nevertheless, there is reason to believe that the bulk of the job - to the joy of bank employees concerned - has already been done, meaning that most DM savings have long since been converted to the euro. A portion of the savings in DM was converted to US dollars, Swiss francs and British pounds, the mentioned modes of conversion not being perceived as particularly lucrative forms of conversion by the population, as it seems. The one thing no one is ever likely to determine being the exact amount of individual savings within the B&H converted into euros somewhere abroad. After all, who is to be surprised if - as opposed to the practice of present B&H fiscal authorities prescribing due notation of all bank transactions surpassing the conversion of over DM 30 000 to the euro and the possible raising of "embarrassing questions" concerning their true origin - bankers in neighboring Yugoslavia which chose not to trouble themselves with such trifles, might have lured a lot of prospective clients to themselves. Its hard to believe that any B&H citizen with a considerable sum of DM in savings of suspect origin in his right mind was likely to resist such a temptation.

At the moment, the two crucial questions demanding an explanation are: where did all these Deutche marks come from and where will they end up? The impressive figure of over two billion DM saved hardly fits the reality of everyday life of a great majority of B&H citizens, barely managing to make ends meet. Average salaries of DM 430 and pensions of around DM 170 leave no room for savings. In a country with an unemployment rate of 40 per cent wherein the number of those out of work, pensioners and the disabled surpasses the number of those holding a job, wealth certainly is not made by means of hard work. A part of the explanation lies in money orders sent from abroad by the several hundred thousand ex-B&H nationals scattered throughout the globe during and after the war. Those for decades "temporarily earning a living abroad" and the many working in the gray economy sector - whether for domestic employers or for still numerous international organizations (a source not only of job opportunities, but of cash paid out for accommodation and similar services) - should also be added to the list. Finally, "dirty profits" made through contraband, tax evasion, the smuggling of people and prostitution have to be taken into account too. In the case of B&H, these are big businesses with an annual turnover of hundreds of millions of "invisible money" in hard currency. High profits made are proportional to the risks taken.

Just how much of this money, by force suddenly surfacing within the legal financial system, is to actually remain in the banks is yet to be seen. Even the diehard optimists dare not hope it will not disappear again – the only dilemma being how long it is to take before it trickles out to the "twilight zone" once more. Leaving aside the issue of "dirty money" for the moment, the whole truth is that even legally earned savings have not been kept in banks up to now, simply because people do not trust them after all the experiences with savings entrusted to the local banks in the past two decades. After the arrival of foreign banks and the guarantees given for deposits up to DM 5000 by the Federal Agency for the Protection of Hard Currency Deposits, things seem to have taken a more positive turn, with the confidence in domestic banks gradually returning. Nevertheless, winning back the trust lost requires much more time than it once took to forfeit it. After all, even if all of the deposits recently made were to remain where they are, the bankers would not know what to do with them. For quite a while now, domestic banks have had a surplus of several hundred millions in DM they have transferred abroad instead of putting them to use at home.

In a word, the situation is paradoxical: while B&H officials are at their wits' end as to the ways of securing new loans, foreign investments and donations in order to give a push to the weary economy, domestic banks have trouble dealing with the surplus of money available, primarily because investing into the local economy is a much too much big financial risk to take since the existing legal system does not offer adequately swift and effective investment protection instruments. All the threatening calls on the part of federal officials addressed to local banks calling for the investment of such funds into the domestic economy (involving lower interest rates) have, of course, been to no avail. In most instances, these appeals were addressed to private banks, meaning their owners are entitled to do whatever they chose to with their own money.

The balancing of accounts following the conversion of the DM to the euro is bound to result in the conclusion that B&H is not such a poor country after all. Yet, this does not go to say that its population is better off than the official data show. Rather, it merely means that a handful of rich people are wealthier than expected, while the great majority of mere mortals are just as poor as it seems. If the poor are to be a little less poor and the rich somewhat wealthier than they are at present, the money now available within the B&H should be put to use for investments in the business sector, production and new job openings. For this to come about, the intervention of the state is needed - not to give out or, God forbid, take away money, but to create the necessary legal, taxation and business environment. How this is to be done is a dilemma the present authorities, like the ones preceding them, have not managed to resolve as of yet. By way of a poor consolation, to the majority of the citizens who had nothing to convert into the euro, explanations coming from politicians and quasi-experts such as the one that "we have everything but the money needed" no longer hold water. For, as is obvious, there is quite a bit of money to be found, the only problem being whether this is accompanied by the necessary know-how and a genuine wish to put it to use within the country itself.

DRAZEN SIMIC

(AIM)