A KICK ON THE WALLET OF THE CITIZENS

After the Shock on the Black Foreign Currency Market

Although the authorities are trying to explain that the latest shock on the black foreign currency market was caused by "yellow" press, "to which the naive population succumbed", the economists assert that it was induced by the regime in collaboration with the banking circles. The whole operation was performed in order to gather money for purchasing wheat. Naturally the citizens paid the bill. This economic move, which the regime had already applied several times, had tangible political consequences.

AIM Belgrade, 8 July, 1998.

The latest events on the black foreign currency market caused chaotic reactions on the already shaken economic ground in Yugoslavia. Sudden rise of the value of the German mark of 10 to 15 per cent caused confusion on all levels, from the citizens to state and political authorities. Ivica Dacic, the spokesman of the Socialist Party of Serbia in the name of the biggest party, and Vojislav Seselj in the name of the Serbian Government hurried to accuse the so-called "yellow" press, which the citizens believed, for having started a new cycle of unstabilizng the local economy by changing the exchange rate.

At the same time, Mladjan Dinkic, one of the economists from the known "Group 17" gives a completely different explanation, according to which the government itself was responsible for the chaos on the foreign exchange market, through banks which it fully controls. This economist explains that the foreign currency was first bought with the money from deposits, and then an atmosphere was created which helped the rise of its prices. After that, foreign currency was sold to the citizens and certain companies at much higher price. In those few days the illegal exchange rate used by privately-owned enterprises in business dealing increased from 6.2 to 7.5 dinars for one German mark.

The difference gained in this way was used to pay back the money taken from the deposit, and the profit is intended for purchasing wheat. This financial manoeuvre enabled the regime to get hold of a large sum of dinars without issuing money and thus remain "clean". Since in economy, every bill must be paid, this transaction of squeezing the money out of the citizens and the industry could not have been made without consequences.

The rise of the money exchange rate caused panic especially in the private business sector, which functions thanks to purchasing foreign currency on the black market. Only in Belgrade, private businessmen make 40 per cent of the social product of the city, and contribute to the profit by 60 per cent. The state did not establish an efficient tax system, to tax this profit, but resorts to speculative procedures by performing occasional shocks, and ultimately consumers pay the bill. According to the existing rules, the tax for the profit is only 25 per cent, and experts assert that this is the world lowest percentage. In developed countries this tax is 60 per cent. It is considered that the tax on profit should be at least 40 per cent. The state has decreased the tax in order to moderate the widespread custom of avoiding tax payment. It is estimated that about 90 per cent of the profit is out of reach of the tax authorities due to their inefficiency. Avoiding tax payment is the main source of great wealth of individuals. Inefficiency of the authorities is explained by the fact that they are influenced by the class of nouveaux riches.

Otherwise, the whole manoeuvre with the rise of the exchange rate on the black market contributed to the rise of prices, significantly greater than the rise of the exchange rate. Although the exchange rate decreased in the meanwhile, although not to the previous level, the prices remained high. That is how the state obtained money for purchase of wheat, and the bill was footed by the citizens, whose standard of living decreased: salaries remained nominally on the same level. Only those who possess saved foreign currency have kept their purchasing power on the previous level, but are now obliged to sell it. This was one of the intentions of the undertaken manipulation: to continue to squeeze out foreign currency savings from the citizens' pockets and moderate to some extent the state foreign currency deficit.

Decline of export was noted during the past few months, and Jovan Zebic, vice-president of the federal government admitted that Yugoslavia lost 80 million dollars, by losing the privileges in the export to the market of the European Union, the indirect loss being three times bigger. In order to pacify the produced excitement on the market, the ministers were competing in declaring that the total amount of money in circulation was not increased and that this could not have been the reason for the increase of exchange rate. Rajko Banovic, vice president of the Central Bank joined them. Although the total amount of money did not increase the regime cannot avoid the responsibility for the speculative procedure which caused the increase of foreign exchange rate on the black market. This showed that financial shocks can be provoked without issuing money. Anyway, the regime has already demonstrated a very broad and imaginative repertoire of ways how to impoverish its citizens, starting with loans for revival of Serbia to manoeuvres through private banks.

This time the main job was done in co-operation with the banks, so it is impossible to even try to lay the blame for the whole business at the door of the media and the unstable state of mind of the people. Even if this were true, the authorities should wonder how come the citizens have more confidence in "yellow" press than government representatives and media controlled by the state. Endeavour to explain the shock on the foreign exchange market by the state of mind of the citizens is another insulting act of the regime, which is in fact trying to say that nothing would have happened if the citizens had not been mentally unstable.

What the state gained by the induced confusion with foreign currency, the citizens simultaneously have lost, facing a new decrease of the standard of living. Few, but well organised circles in ministries and banks manipulate successfully millions of people, who being disoriented are an easy loot. By the way, according to the number of ministers, the government of Serbia is one of the most numerous in the world. With 36 ministers, it is twice as big as the Government of Great Britain, and Croatia and Slovenia put together have the same number of ministers as Serbia alone. The number was increased in order to satisfy the wishes of the three coalition partners each of which demanded a certain number of ministerial posts when the government of national unity was formed.

The regime had already arranged shocks on the foreign exchange black market two or three times per year. It had always afterwards promised to find the culprits and inform the public about this. But, up till now this promise has never been fulfilled. Time showed that those who were the noisiest in promising were actually the main in inducing shocks.

This time the regime did not dare to perform a bigger manipulation because it would have been dangerous for itself. That is why the federal government decided to defend the unfavourable foreign trade balance by limiting import. The intention is to make a list of goods needed on the local market the import of which would be permitted. This would lead to significant impoverishing of the Yugoslav market, on which foreign goods prevail. Local production, which is less than half of the production in 1990, is not capable of satisfying the local needs. Limiting of the import could decrease the engagement of local industry because many factories depend on the import of raw and reproduction materials.

Inducing the last disorder on the foreign currency market had political as well as economic consequences. A small number of citizens is indifferent to the awareness that they are exposed to manipulation by the regime. Their confidence in the government decreases, which is best shown by the fact that the public believes more in media than the declarations of the official government representatives.

Ratomir Petkovic

(AIM)