From: malenovi@plains.NoDak.edu (Nikola V. Malenovic )
Newsgroups: soc.culture.yugoslavia
Subject: A Brief Review of Anti-inflation Programs (VREME NDA 13.Apr 1992)
Date: 13 Apr 92 14:34:45 GMT
Article-I.D.: plains.16726
Organization: North Dakota State University, Fargo


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     "Vreme" News Digest Agency                      No. 29, April 13 1992.
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    A Brief Review of Anti-inflation Programs
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                          THE CURSE OF DEAD PROGRAMS


    If Serbian and  military estimates that the Yugoslav  People's Army must
    remain in Bosnia & Herzegovina for another 5-8 years are translated into
    the  language of  economics, then  it becomes  clear that the hesitation
    concerning the implementation of an anti-inflation policy, allegedly due
    to the lack of an exact definition  of the territories in which it would
    be implemented, is just an excuse for Bozovic's government to go on with
    its  hyperinflationary policy.  One can  assume that  it finally  became
    clear  to everybody  that it  will not  be possible  to define the exact
    territories  which  will  be  affected  by  Yugoslavia's newest economic
    policy in the near future. That is, these territories will be defined by
    the firing range of an expensive army.

    By  increasing  the  quantity  of  already  overissued  dinars  by  85%,
    last-week's  package  of  measures  which  was  adopted  by the crippled
    Yugoslav  Parliament  demonstrates  that   nobody  is  even  considering
    opposing the  hyperinflationary policy. However, the  day is coming when
    the Serbian  government will realize that  with such a policy  it cannot
    remain  in power  and that  hyperinflation will  speed up  its fall more
    effectively  than the  opposition. And  it will  eventually have to turn
    back to the previous anti-inflationary attempts.

    The socialist  Yugoslavia, as an  unstable country, has  always suffered
    from inflation. Economists assess that  the country was pounded by "five
    waves of inflation"  since the W.W. II with  increasing average rates of
    devastation. If  the fifth wave  indicators are corrected  with the data
    from 1989, the table of inflation waves are as follows:

                   Consumer price level increase (average)

    First Wave     1956-1962 4.5%
    Second Wave    1963-1966 16.0%
    Third Wave     1967-1975 14.1%
    Fourth Wave    1976-1981 21.8%
    Fifth Wave     1982-1988 97.5%

    If we  disregard the misleading  decrease of inflation  during the third
    wave, we  can see that  the foundations for  the hyperinflation of  1989
    have been  persistently built. When Ante  Markovic finally "liberalized"
    the Yugoslav economy, prices exploded, and Yugoslavia's inflation gained
    hyperinflationary properties.

    Obviously, the  government will have to  turn to the experiences  of the
    anti inflationary attempts  of the past decade during  the course of the
    year. In June 1982, the first  document aimed at practically realizing a
    broader  stabilization  program  which  was  conceived  by the so-called
    Kraigher  commission was  called  the  "Anti-inflation Program".  It was
    written  by a  group of  experts coordinated  by Milutin  Cirovic, Ph.D.
    Because  it  had  introduced  the  concept  of  inflation  targeting  to
    Yugoslavia, some experts held that it later gave rise to the "programmed
    inflation" philosophy.

    The  main point,  of course,  is not  that this  plan had envisaged that
    inflation will be decreased from 40% in  1981 to 10% in 1985, but in the
    fact that the  cause of all later arguments and  of the breakdown of Mr.
    Cirovic's program  itself was, in  its attempt to  preserve the illusion
    that foreign  exchange and interest rates  can be a matter  of political
    negotiations and  outwitting. The Prime Minister  Milka Planinc, who was
    supposed to carry  out the program, had to promise  the IMF an immediate
    increase of discount  rates, and much more from  the Reaganomics arsenal
    of measures.

    Those  who  realized  that  the  system  was  unable  to survive without
    inflation launched their  offensive in April 1985, at  the 17th Yugoslav
    League of Communists' Central Committee (YCLCC) session, and finished it
    by  the end  of the  year at  the famous  joint session  of the  Federal
    Government and Presidency  of Yugoslavia, when both Ms.  Planinc and her
    anti-inflation policy were put on ice.

    In  May  1986,  Branko  Mikulic  became  the  new  PM.  Although  he had
    authorized  three  different  policies,  he  will  be  remembered in the
    economic history  of Yugoslavia by the  so-called "programmed inflation"
    model. Lower interest rates and  cheaper foreign currency, together with
    stricter price  regulation, resulted in  a nearly 100%  annual inflation
    rate  (the "positive  issuing" had  increased the  money stock by 109%).
    When this  positive anti-recession policy failed,  Mr. Mikulic said that
    the business sector  had rejected a helping hand.  When he realized that
    Yugoslav  capital was  beginning to  melt, following  the advice  of his
    minister  Oskar  Kovac,  he  decided  to  squeeze  the  funds which were
    necessary  for his  offensive, out   of the  economy by  introducing the
    so-called "real economics" (real price of capital). That, of course, had
    no chance of succeeding,  so he had turn again to the  IMF. Then, in the
    spring of  1988, the so-called "May  anti-inflation program" entered the
    scene, with its three "anchors" and three liberalizations.

    Everything went down the drain after the "October uprising" in Vojvodina
    and Montenegro. Slobodan Milosevic said  at the YCLCC Presidency session
    that interest rates  are wearing out the economy. In  a climate of total
    chaos,  wages  were  deregulated  and  inflation  was  just beginning to
    recede. Mr. Mikulic had to leave two months later.

    When Ante Markovic  took the Prime Minister's office,  he also continued
    with  the  same  old  promises  of  a  "positive  policy"  of support to
    manufacturers, while  in actual fact he  initiated the "deregulation" of
    the  system,  a  task  which  could  not  be  postponed  anymore.  After
    regulatory bindings have been released, the inflationary pressures which
    had accumulated over the years resulted  in a wave of hyperinflation. In
    arguments   concerning   anti-inflation   policy,   Mr.  Markovic  often
    challenged Mr. Milosevic to make his own proposal.

    Since  Mr.  Milosevic  had  already   formed  his  own  "Commission  for
    Stabilization",  he  had  to  accept  the  challenge.  So the Commission
    presented the "Serbian draft" of an anti-inflation program. It basically
    reflected  the  Serbian  regime's  fear  of  the opening of Yugoslavia's
    economy towards the world, for it could ultimately result in the loss of
    considerable  political control.  It was  also emphasized  that "drastic
    restriction of aggregate demand is out of question."

    The aforementioned  proposal was overrun by  Mr. Markovic's program. For
    brevity, our attention  should be turned to its basic  weakness - it was
    directed  towards an  economy which  was used  for conversion of foreign
    loans  into  public  property.  When  Mr.  Markovic  finally started his
    "programmed  privatization",  the  republican  oligarchies,  who all had
    visions of  a "national renaissance"  of their own,  instead of choosing
    between  a genuine  Yugoslav market  and hyperinflation,  opted for  war
    which would disguise the real causes of the economic catastrophe.

                                                            Dimitrije Boarov


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     "Vreme" News Digest Agency                      No. 29, April 13 1992.
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