April 13, 1992 Vreme News Digest Agency No 29

A Brief Review of Anti-inflation Programs

The Curse of Dead Programs

by Dimitrije Boarov

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.