FEAR FROM AN INSURMOUNTABLE DEFICIT

The Yugoslav Budget

The fate of Avramovic's stable dinar depends on the answer to the question whether the so called "revival of production" or some sort of " defreezing " of blocked reserves abroad will take place before everything tumbles down into budgetary deficits.

Summary: The budget of the FR of Yugoslavia for this year amounts to approximately one billion dollars, namely 9.85% of the social product. Three quarters of the budget is earmarked for the army. Is it by any chance a war budget? From the federal budget, a total amount of 1264 million dinars ( one DEM = one dinar) will flow into the treasury of the Army of Yugoslavia. Out of that amount, 250 million is envisaged for the prcurement of arms, military equipment, ammunition and fuel. ( For their armies,Croatia and Slovenia earmark twice that amount in absolute terms). Can the war be financed with that money?

The answer to this question evidently cannot be found in budgetary allocations. Primarily because the amount overflowing from the federal treasury acounts for only 7.8% of the Army requirements. It is, therefore, evident that other forms of financing exist which are hidden from the eyes of the public.

AIM, BELGRADE, March 24, 1994

When the Governor of the Central Bank, Dr. Dragoslav Avramovic, said at the end of the debate on the federal budget in the Assembly of Yugoslavia, that the state had not drawn from the Central Bank the planned credit of 147 million dinars in March, but had taken "only" 38 milion, he actually indicated that everything will be attempted to cover, to the greatest possible extent, the expected deficit of 2,550 milion dinars. Will this pace of meeting state expenses be maintained after the end of the "tax season" too, as the leader of the Radicals, Dr. Vosjislav Seselj, immediately pointed out, depends on how quickly the tax payers will recover or on how soon the American plan for Bosnia, according to which a prize has allegedly been promised in exchange for the signature of the Serbs in the form of the deblocking of state reserves abroad in the amount of about one and a half billion USD will be effectuated.

Pessimists believe both solutions to be "on a long stick", and that the dinar will collapse even before the revival of production, and before the Bosnian Serbs sign anything in front of Clinton. Actually, for the time being only the federal budget of 1,675 miion dinars or German marks is known, wherein only a small part of the expected budget deficit for this year has been subscribed. The federal state is short of about 30 percent of the approved annual expenses, meaning a lion's share of this deficit is expected to be covered by credits from new dinar issues,i.e., in the amount of 502 milion dinars, while only 4 milion dinars is to be collected through the sale of government bonds. Realistic from the point of view of the possibilies of the Yugoslav economy, but unrealistic if the survival of the "super" dinar in counted upon, namely, the survival of the established stable exchange rate vis-a-vis the German mark (one = one).

Due to these reasons, Dr. Avramovic is now while the process in underway trying to correct his monetary reconstruction plans, in the first place, by increasing state revenues. In that sense customs on imported consumer goods have been already raised to a general rate of 20.6 percent, and the police pressure on the "grey economy" has likewise been intensified ( thousands of petty black-marketeers have been banished from the Bulevar Revolucije in Belgrade).

The desperate moves follow up the second line of action, the one that is aimed at recuperating the tax payers from the economy, so that they can pay their taxes on the basis of "revived" economic activities. Actually, these customs are aimed at " making room" on the domestic market for the increased sale of domestic industry products, since the growth of the purchasing power of the population is insufficient after the feeble, realistic increase of pensions and wages.

It seems that Avramovic's idea of inciting economic activity by enhancing greater demand on the part of the population and of exploiting to that end the last state reserves, regardless of how rational,has underestimated the depth of the plundge of the industry into total paralysis.Hyper-inflation has, for example, decreased the anyhow slump industrial production, by as much as 23 percent in January (in comparison to December),so no one is actually encouraged by the signal indicating its 12 percent rise in February ( as compared to January). The problem is that the nervous pumping of cheap credits into the industry, according to the old recipe, would "revive" to a greater extent inflation than production.

In the background of such developments, regardless of how paradoxical it may sound, it would actually be difficult to say that the federal budget is too high. Is a budget of approximately one billion dollars too high for an European country with a population of 10 and half milion? Or, can it be claimed that an European budget that acounts for only 9.85 percent of the social product of the state is too great a burden for its economy? However, when the budgets of the republics are added to the federal one, then we have to speak of a burden that amounts to 52 percent of the social product. If the social product in question has been estimated, very optimistically, at about 10 billion dollars, then it is understandable why the federal budget is at the same so low and and so burdensome for Yugoslavia - which has been exhausted by the war, blocked by the UN sanctions and entangled in inner political strifes and stuck with outmoded, anachronic institutions that belong to an obsolete economic system.

The most delicate question is whether it is not after all a "war budget", considering that as much as 75% of federal expenses have been allocated to the Army of Yugoslavia, and so in that sense, can be qualified as an instrument of an aggressive policy, that has factually "dispensed" the living standard of its citizens ( including their children's). In this respect it is necessary to draw attention to typically Yugoslav puzzles and riddles. When the sum of 1,264 million dinars envisaged for the financing of the Yugoslav Army (7.43% of the social product) is viewed in general terms, war and armament experts consider that amount as quite modest for a country with so many "national and humanitarian" obligations towards the Serbs fighting in Bosnia and Croatia.

In absolute terms, Slovenia and Croatia earmark for their armies an amount almost twice as large. The impression that the planners of this years Yugoslav military budget have clipped the wings of the war lobby is supported by the sums of specific budgetary items. When current expenditures are subtracted from the mentioned gross amount allocated to the Army of Yugoslavia, namely 1,264 million dinars, which more or less have no connection with the war (for instance, soldiers and officers wages in the total amount of 221 milion dinars), the remaining part of the military budget could conditionally be called the "war budget" and it reaches the sum of 388 million dinars. Even within this budgetary item, titled "Programme of Transformation of the Army of Yugoslavia", only two categories of expenses "smell of gun-powder." Namely, the 127.5 million dinars earmarked for weapons and military equipment and the same amount, 127.5 million dinars, reserved for the replenishing of used up ammunition and fuel.

According to such a calculation, it would seem that the war, that has been exciting the whole world, costs Yugoslavia only 250 million dollars per year, while only the expenses of UNPROFOR are ten times as much. The calculation, however, is not correct. Before all, even in the very exposition of the military budget, it has been aknowledged that the invisaged funds for arms can cover only 7.8 percent of the needs of the Army for this purpose which have been carried over from last year. This simply means that the Yugoslav Army has taken goods from the war industry on credit and will continue to do so. Someone, of course covered and shall continue to cover the wages and other expenses of that industry. The second unknown element is hidden in the fact that no one really knows what kind of (excessive) stocks of ammunition and military equipment the Yugoslav Army disposed of at the time the civil war broke out, so that it does no have to hurry now to restock them.

Nevertheless, although these reasons give cause to doubt that all items of the federal budget have been made public, and although indications exists that apart from the budget and away from the eyes of the public, much more is being spent, anyone who knows how much only a jet fighter costs can conclude that the federal budget could not have been smaller and that actually a "poor" war is being waged in Yugoslavia, which in no way means that such wars are less bloody than "wealthy" ones. After all, the indicators of the expenses of the Army speak nothing of the costs of the Yugoslav war on the whole. Only a few days ago data has been published that the experts of the Centre for Development and Economic Policy with the federal government have calculated that the FR of Yugoslavia has lost in the last four years approximately 45 billion dollars, owing to the disintegration of the country and the world blockade, and that the total loss in the end, if it ever comes, will amount to nearly 150 billion dollars,

In spite of all this, can Avramovic's stabilization programme survive? Its author has demonstrated in the last ten weeks that he is ready to constantly adjust to the situation and has to date succeeded in creating for his dinar the image of a "hard currency". If he succeeds by leading a consistesnt tax policy to patch up the budget deficits, with a higher level of borrowing on the part of the state on the open market and with "taking some sort of tribute" from those firms that have taken their hard currency out of the country (which is to be sanctioned by the proposed federal law on " the borrowing of money abroad by the federation "), Avramovic still has a chance. If he gets the support of Milosevic's circle, who is, it seems, himself surprised by the successfull start of the "monetary reconstruction", and between good money and the uncertainty of war,the latter opts for "Earthly Kingdom", room shall be created for the rehabilitation of the Yugoslav economy and for the pacification of the war lobby. The first signal regarding either one or other direction to be pursued by the Yugoslav will certainly appear precisely in the Yugoslav budget. If a budget revision is announced, it will simply mean that once again everything has gone to the devil.

Dimitrije Boarov