SERBIA FACING NEW HYPERINFLATION?

After the strongest blow on the dinnar

After the strongest blow on the national currency dinnar which had lost more than 30% of its value, the Serbian regime accused the producers that their raising of prices had no economic justification. The Serbian deputy prime minister Vojislav Seselj claimed that the government had put into circulation additional 4 billion of dinnars without cover. Statements by the federal prime minister Momir Bulatovic and Central Bank governor Dusan Vlatkovic that federal authorities had not ordered the increase of th e money supply do not deny Seselj, but point to the place where this decision was made

PODGORICA, 3. 11. 1999. (By AIM correspondent in Belgrade)

The October's devaluation of the dinnar to hard currencies brought about an immense disorder in the Serbian economy, putting the exhausted population in even more difficult economic and social position. The average pension for 1.250.000 users decreased to the alarming amount of 60 DM. The rise in value of hard currencies on the black market caused drastic price increases which will double the last year's inflation rate before this year is over. There is a real danger that Yugoslavia may find itself again in the whirlpool of hyperinflation, which culminated in 1993. After the value of dinnar had been reduced by 18,4% in September, it continued to fall abruptly during the last week as well.

The course of events raised to feet the whole establishment. It launched again the campaign of threatening the price hike creators by punishments and prison sentences. The government required that the prices be returned at the level they had on October 14, but the producers did not take this official announcement seriously. Prices, in fact, are still going up, to include milk and diary products as the latest. These are now by 20 % more expensive, although the previous price increase took place less than a month ago.

The governmental anti-price hike crusade, involving market inspectors, anti-monopoly committee, and other repression bodies could not restore the tranquillity among consumers. The whole operation, in fact, leaves an impression of the action aiming to mask the actual causes of the new price increases. The governmental attempt to define the new inflationary trend as a result of the arbitrary will of producers has no economic justification. Numerous ministers' calls for a decrease in prices wer e not effective, as they tried to regain economic stability exclusively by patriotic appeals.

Inflation is a natural result of the present economic situation in Serbia. It was caused by measures taken by those who now want to present themselves as its major opponents. Therefore the governmental anti-inflation campaign resembles the action of putting down a fire by firemen who lighted the fire in the first place. In order to avert the attention from the central inflation generator, the Serbian government first blamed the rise of the black currency exchange rate on governments in Montenegro an d Republica Srpska. It is worth noting that the amount of dinnars in both of them is about 5% of the total money supply in local currency, while dinnar lost at least 30% of its value in September-October period.

There is another proof that pointing to Montenegro as a culprit is more politically than economically based: in August, the inflation rate in Montenegro was below 10 %, while in Serbia it was 13,1 %. The official explanation denying the existence of justified economic reasons for price increases was denounced by the Serbian deputy prime minister Vojislav Seselj. Appearing in an interview on television, he stated that the government had put additional 4 billion dinnars into circulation, without econ omic cover, adding that it had to be done in order to rebuild the country. The Yugoslav prime minister Momir Bulatovic rushed immediately to inform the public that the federal authorities had not printed any new money, while the Central Bank governor Dusan Vlatkovic, a high-ranking leader of YUL, claimed that the total money supply had not been increased after September.

Although contradictory at first sight, these three different statements by high regime's officials may all be true. Namely, the printing of money was probably done before September. Taking into account the usual "procedure" of decision-making in the country, the federal government did not have to order such a measure. Seselj's statement therefore only confirmed that paper notes were printed, although such an assumption already existed on the public scene. Why Seselj decided to disclose a secret of his coalition partners on the eve of forthcoming, by all appearances, early elections remains to be a mystery.

It is obvious that the regime strives hard to present rebuilding of the country as a patriotic responsibility, equalling this task with the defence of the state. In order to conceal the negative effects of rebuilding on the general economic situation, some state company directors, like the ones in "Partizanski put" and "Gosa", stated that they would accept a delay in the first instalment payment for the work done. On the other hand, a business council of the largest banking group, head by the federa l minister Borka Vucic, after analysing business success of its clients came to the conclusion that business should be relieved from tax loads and protected from the inflation blow. They asked the Central Bank to cooperate, primarily in adjusting the interest rates with real prices. Some banks increased the monthly interest rates at 15%.

Faced with these interest rates, the economy - lacking its own capital for production and development, cannot but try to cover this expenditure by a price increase. The more so, as the taxes remained the same, although the production was drastically reduced. To ask from such an economy to disregard the factors which influence the prices of its products - in the name of patriotism - equals the appeal for its self-destruction. Some companies, like Jugopetrol, found the exit in stopping to sell the pet rol for domestic currency.

In the period of a sharp political conflict, when every political party tries to establish as better position for the forthcoming election race as it could, the government is trying to present every rebuilt object as its great success, hiding the price at which this was achieved. In this way, rebuilding of the country - through inflation - is transferred for payment to the whole population. Its standard of living has additionally decreased, although ever greater part of the population had already be en falling into poverty.

In comparison with May, the production in September was increased by 89%. This was achieved by inflationary measures. By revoking the payment of pensions for three months (replacing them with coupons for paying electricity bills), the regime first succeeded in prolonging the term for covering this large expenditure at 10 and more months, and then, faced with the lack of money, decided to increase the money supply. This was shortly manifested in a sudden rise in prices. The producers, drawing on thei r experience from 1993 when they were impoverished over night, this time reacted quickly, trying to preserve their companies by higher prices.

The reaction of the trading sector to the pressure and appeals by the government for refusing the goods with considerably increased prices may bring about a decrease in offer, while the impoverished market can cause even higher price increases. This opens a lot of room for speculations, but still the evaluation that price increases are economically unjustified can hardly be verified. The Trade Union of Serbia reacted to the new situation by appealing to the Republic government to take the responsibi lity for consistent realisation of the accepted economic policy. Inflation is the result of the governmental departure from this policy. Perhaps the government was forced to this manoeuvre, but still it is difficult to defend the thesis that the price increases were caused only by speculations. This reminds of an old aphorism, made long ago by a Belgrade humorist Dusko Radovic: As much price increases make me sad, to the same degree their explanations make me laugh.

Ratomir Petkoviå(AIM)