EXPECTATIONS OF THE RISE OF THE "INCONVENIENCE INDEX"?

Economic Half-Year of B&H Federation

AIM Sarajevo, 21 July, 1997

The official statistical indicators of economic and social developments in the past six months in the Federation of Bosnia & Herzegovina do not deviate much from the trend registered in the course of last year. Just a slightly more detailed analysis, however, leads to the conclusion that federal economy has reached the verge of serious problems, if radical changes are not introduced, primarily in inflow of fresh capital after the donors' conference. Forecasts proved to be true that endless postponement of the donors' conference due to inter-ethnic political disagreements would bring economic complications for an indefinite time in the future. It is true that at first sight, some statistical data offer no cause of concern: industrial production has increased by 44.8 per cent in the first six months of this year in comparison with the same period last year; 6.6 per cent more land has been sown; the value of completed construction works has increased by 73 per cent; the weight of goods transported by railway has doubled; the salaries have gone up by about ten per cent...

Nevertheless, industrial production has reached only 12 per cent of the pre-war level, only one third of the area sown in 1991 has been cultivated, the number of the employed (336,000) is pretty much the same, only 6 per cent of the import has been covered by export, the average salary (362 DEM) can buy only slightly more than half of the "consumer's basket" (556 DEM) for a four-member family, the increase of retail trade prices is 11.9 and that of the cost of living 9.7 per cent...

When put in a broader context, the dry statistical indexes and percentages should provide elements for quick consideration and efficient action primarily of the government of the Federation. If not, social tensions and the political climate will proceed down the uncertain paths of economic insecurity.

The economists call it the "inconvenience index", which is an euphemism for the poverty index, or even misery. It is characteristic and constantly high in developing countries - in Africa, Asia, South America. It is calculated by summing up of unemployment rate and inflation and it reflects economic activities, that is, the fundamental problems of the economy. Such an indicator in postwar conditions of the Federation of B&H was approximately on a constant level. High unemployment rate plus inflation which equals zero provided an index which varied only insignificantly, and hardly anyone knew what it amounted toexactly, because evaluations of the number of those looking for a job ranged from 40 to 70 per cent of the population of the working age, depending on the source which the datum had been taken from.

According to the official indicators, about which the Statistics Office in its official report says that they are "by far lower than the actual situation", more than 197,000 unemployed persons have been registered. At the same time, the number of the lucky ones who have work has for months been 336,000, but as many as 90,000 are in fact on forced leave, "waiting for a job". Revival of economic activities and start-up of plants announced far and wide has not taken place in the current year, so there are no new jobs, and the army of the unemployed is not decreasing. This is understandable because there are no financial sources and no investments, and inflow of foreign capital has been interrupted due to postponement of the donors' conference. if the current economic stalemate position continues, it should be expected that the number of the employed will decrease. This would raise, although probably not much, the first component of the undesirable inconvenience index. Much greater effect will be that of the process of privatization of state-owned enterprises, the beginning of which is expected in autumn, because decline of the employment rate is unavoidable in it, regardless of the fact that the federal prime minister Edhem Bicakcic is quite unconvincingly trying to prove the opposite. As consolation, those who will have to knock at the door of the employment office will be left, at least for some time, with owners' certificates which will make them potential share-holders and recipients of dividends where and when they will be issued.

Opening of new jobs as part of the preparations for alleviation of the privatization "shock" is a very urgent task. Its realization will greatly depend on injection of foreign capital into the blood system of the economy, but only the domestic decision-makers can enable making conditions quickly. They have not acquired fame in this sphere so far, so this is an opportunity for them to make up for the previous failures.

    Experts of the International Monetary Fund and the

World Bank have for a log time been forecasting that in the course of this year the inflation rate in the Federation would be about 10 per cent, which means that it would remain within a range considered to be moderate and endurable. Such a forecast is probably founded on expectations that employment would grow and in such cases a certain inflation rate inevitably accompanies developments on the labour market, as some kind of a price of progress.

Hasan Zolic, director of the Statistics Office is trying to contradict the forecast of the international experts, by claiming that in the first six months of this year, an increase of the purchasing power of the population has been registered, in other words that there is no inflation. The indicators presented by the institution Zolic is the head of, however, show that during the first half-year in comparison with the same period last year, an increase of retail prices of 11.9 per cent has been registered, and 9.7 per cent of the cost of living. Measured by these indicators, which is customary in the world, the inflation exists although not alarming because on the annual level of five per cent it can be treated as low or creeping.

The forthcoming events might be the cause of serious disturbances. In June, a demand was sent to the government for increase of prices of electric power, increase of prices of PTT services had already been approved, apartment rent prices in Sarajevo had gone up...

The government has not approved the latest rise of prices of electric power of about 25 per cent, but there is no doubt that it will do it in a foreseeable future. It will be the first link in the inevitable row of the rise of manufacturing and retail prices, that is the rise of inflation rate. How high it will be it remains to be seen, but objectively it is possible that its limit will be just about the level forecast by the world experts. Obviously the second component of the inconvenience index might start going up. If adequate preventive steps are not taken in time, it could imply a new challenge for the population and difficulties for the government. Specific measures which will be taken will condition the trend of all indexes, the inconvenience index inclusive.

Ibrahim POLIMAC

(AIM Sarajevo)