May 28, 1996 Vreme News Digest Agency No 242
Dragoslav Avramovic Leaves
Time of Fair Money Is Over
by Dimitrije Boarov
The era of National Bank Governor Dragoslav Avramovic will be recorded in our economic history as a period of the relatively solid dinar which appeared after a total economic disaster. This dinar did not save us from misery and poverty, just as Avramovic did not manage to change the nature of this "non-monetary economy," but old Avram and his dinar did teach us to tell the difference between a horn and a candle
Governor Avramovic split with Slobodan Milosevic's regime and left the office honorably, which few people have done so far. Although it is too early to assess all his merits for the people of this country, we can say with certainty that he went to the "sunny side of the street" in our economic history and that he did a lot. He pulled the state out of an economic disaster and taught the people to tell the difference between real and forged money. The local political leaders learned a lot from Avramovic, but not enough. Even the most primitive and the most arrogant ones could definitely see how important a foundation the national currency is in the construction of a society, because old Avram certainly would not have gained such a high reputation among the people if he had not been understood as a savior of one of the basic values of the state - the value of money.
Avramovic's expert innovations are probably somewhat exaggerated, because he did not contribute to macro-economic policy with a cardinal conception. Pure theorists could say that he simply applied Friedman's recipe to prevent the printing of money and printed new money only if it was covered for by hard currency reserves. He carried out the task masterly with important innovations, and what is more important, contrary to his previous convictions and contrary to the socialist conservativism of his local colleagues and friends. Old Avram got the incredible task at the age of 75 and was capable not only of changing things, but also of changing his own attitudes.
Only an economist who was of the same generation and with similar theories as the writers of the economic part of the Serbian Academy of Sciences and Arts Memorandum (Kosta Mihailovic, Ivan Maksimovic, Milos Macura) which Dragoslav Avramovic was upon his return from Washington and Geneva where he spent three decades working for the World Bank and U.N. economic committees, could in late 1993 convince Serbia's belligerent leader Slobodan Milosevic of the devilish severity of the situation and that the dinar had to be saved by a radical monetary therapy. Because Avramovic himself had previously participated in the "idle building" of Serbian state economic councils (with Nikola Sainovic, under the reign of Prime Minister Radoman Bozovic) who made up stories about an "offensive developmental policy" despite all international and national circumstances, including the economic blockade and civil war in the former Yugoslavia, Milosevic could trust him when he changed his mind.
The hyper-inflation in Milosevic's Yugoslavia will enter world history and university textbooks for economists throughout the world. From 21 December 1992 to 21 December 1993 the prices in the Federal Republic of Yugoslavia went up by 352,088,324,829,858 percent. The last monthly growth of prices in 1993 was 178,000 percent. The figure was additionally increased in the last ten days of December 1993 by about one million percent. Economist Mladjan Dinkic calculated that the new 1994 started with a daily inflation rate of 62 percent, that the prices went up by 2 percent per hour and that the monthly devaluation of money in January 1994 exceeded 313 million percent. One dinar coin which appeared on 1 January 1994 was worth so little that it required 46 ten-tonne lorries to load enough one-dinar coins to pay for a single German Mark. Nebojsa Savic later rated our inflation as second in the world history, preceded only by the Hungarian in 1946. But since it continued over 25 months, with an average monthly growth of prices of 615.9 percent, it was the greatest operation of destroying the national currency of all times. The hyper-inflation dragon was created by Milosevic, Bulatovic, Djukanovic, Kontic, Sainovic, Zebic - the same people who have now dismissed Avramovic. And he was the one who halted such hyper-inflation on 24 January 1994, practically in a single day.
Only a brief reminder: Avramovic stopped the printing of the old dinar, announced that the new "superdinar" would be emitted only on the basis of hard currency reserves, at the guaranteed exchange rate of 1 dinar: 1 German Mark and that every holder of the new bank note could check this at the bank and exchange it for foreign currency. The trick was that he simply did not remove the old dinar, but did not make a bridge between the old and the new one, so all old sins continued to float with the old bank notes (the value of which was surprisingly stabilized as soon as their printing ceased, at about 12 million dinars equivalent to the new dinar. The novelty in this counter-inflation operation was that the new money was emitted through budget consumers, and withdrawn of the state, also through the budget, as it was announced that taxes had to be paid in new dinars only. Emitting the money through pensions and salaries, he skillfully avoided the machinery of the famous Government Auditing Office and its "inflatory money" channels which printed the money by a single movement of the pen. Avramovic started the operation with about 100 million U.S. dollars in his pocket, and later boasted that he had not even spent all of this because currency reserves, instead of dropping at first, started growing right away. Pragmatic in the American style, he soon abandoned his own monetary reconstruction and economic revitalization Program, which had never been published. He said that he had written only the first eight pages and he probably never read the remaining eight hundred (the "hungry" economists who were paid in German Marks put in it all they found in their drawers, including some papers on the environmental problems in Kosovo). He was well aware of the fact that if you had a patient who was run over by a street-car, and that is what all of us and the state looked like in early 1994, you could not treat the bruises, but had to keep only the most vital organs functioning. It is understandable why he did not right away try to change everything in a country where everything had to be changed. However, when late last year he assessed that we could go no further without privatization, he stumbled over Mrs. Mira Markovic and her Leftists. That was the beginning of his dismissal which was successfully completed a few days ago.
We must admit that Dragoslav Avramovic had managed to make, at least for a short while, an impartial measure of value, as every hard currency is, in a country which always appreciated boasting more than hard work.
People soon found out that Dragoslav Avramovic had a high foreign-currency pension and that he did not need the office in order to steal (which the ministers here consider their right) and Avramovic, from the start invested almost Gandhian decency and behavior in the credibility of the new dinar.
Some people say that Avramovic in his policy stuck only to the simple, trivial measures which, of course, yielded effects because everything had gone to hell. This is only partly true. Besides, Avramovic himself said in an interview that economy was a simple science and that it should not be mystified. His slogans: "the principle of one price must not be deterred," "there is no playing with prices," "everything is in prices," "the price of the state is exaggerated," etc. only seem trivial and actually contain the axioms of market economy; the axioms which have not yet been quite understood by the local political quacks, social-realist and Mafia bankers, third-rate sociologists and buyers of academic and business diplomas.
The simplicity which Avramovic introduced not only in the monetary policy, but also in the promotion of the new money, are also his merit. It is a paradox to say that an old man was the first to bring to this area a modern way of communicating with the public. Before he was banned on TV, he used the direct language of interests to advertise his dinar, the language that everybody understood. At the beginning of his program, Avramovic never lost his nerve when he spoke on TV, even when the anti-inflation operation had started stumbling over the incapability of Milosevic's state apparatus to implement any decision, even the one which was a prerequisite for its survival. In the first phase, he launched only the so-called positive information, he emitted positive energy. He immediately spoke about the future and was persuading himself and others that the thing was bound to succeed. When in the past few months he realized that the bureaucratic machinery was weaving a web around him and trying to isolate him and use him as the cover-up for forged money in order to avoid changes again, he opened to the journalists the heavy doors of the National Bank and the independent press was splashed by the stinking river of lies, set-ups, corruption and all the other misery of the unlimited and essentially selfish political power.
Looking like a naive old man, Avramovic used quick wit to deal with the company. All those who thought he was senile were wrong. His tactics were quite good and he guessed correctly which of his associates were working for the other side and were doing something else. All this did not help him, because there are too many of them in the National Bank.
Avramovic's personal integrity and wide popularity could be of no use in the "institutions of the political system." When he started opening up the "Cyprus file," he touched the most painful point of the highest super-structure. As soon as he showed interest in the money flow securing the socialist leadership's retreat, it was assessed that he had gone too far and that he urgently had to be removed.
His problem was that for decades he had followed socialism and its type of rule by reading newspapers in Washington. He liked to be considered an intelligent Leftist by international institutions. He says he was attracted by the idea of social justice sixty years ago. In his childhood he lived in Ohrid (Macedonia) where his father was a teacher and later the mayor. He was embarrassed to wear nice new trousers when his schoolmates wore patched ones. However, the regime here is not troubled by the idea of social justice. Only here did Avramovic realize that there was no way without social-democrat capitalism. Because some Tomics from the Left now "live better than Wall Street." The one from "Simpo" has a private waiter and a private cellar-keeper.
The affair with the farmers and wheat in 1994, which was the first major trial of Avramovic's program, showed that he was well aware that half of the economy is psychology. What is the only thing the farmer can trust? Only "pure gold," of course. And he talked about gold and gold coins. This spring, when he was pressed to print money, allegedly for the spring sowing, he asked: "What happened to the money for the exported wheat, which had been bought for next to nothing and sold dearly?" So he gained the farmers' confidence, even though he gave them no money. And they knew that the money which the state had allegedly allowed ended up with state frauds. He showed them that he did not hesitate to say this in public.
For two years, a national economy - undeveloped and poor, blocked by the world and abused by the political Mafia, nationalized in an old-fashioned style, financially exhausted and in debts, technologically old-fashioned, poorly equipped, primitively led, inert and neglected, dirty and too heavy - had a relatively solid and mostly decent money, under the trade mark of Old Avram. Now that he is gone, we are left alone, led by a worn out, ruined political lot which relies on the police and Mafia. It seems like we have to do something ourselves.