Enfeebled Currency Could Bring Down Milosevic

Of all the forces threatening to bring down Yugoslav President Slobodan Milosevic, the country’s weak currency may be the most powerful.

Over the past several days, the value of the Yugoslav dinar on the black market has started to drop sharply. If it collapses altogether, Milosevic--a skilled political survivor--may finally face the kind of widespread and unified dissent that could threaten his rule.

A similar currency crisis in 1993 set off months of hyperinflation so severe that prices in dinars soared by more than 1,000,000% a month, according to the respected London-based Economist Intelligence Unit. But Milosevic was rescued by a smart central banker named Dragoslav Avramovic.

Avramovic is now firmly entrenched among Milosevic’s political enemies, the country’s economic ruin is much worse after 78 days of NATO airstrikes last spring, and opposition leaders have called a general strike and daily protests to start Tuesday.

So Milosevic is likely to need more than an economic wizard to save him if the dinar’s slide leads to another crash, as several economists are warning it will.

“We are facing a big danger of hyperinflation, which could start by the end of this year or early next,” said Mladjan Dinkic, who heads an opposition movement of independent economists called the Group of 17.

1999 Inflation Will Hit 70%, Expert Says

Dinkic predicted that Yugoslavia’s annual inflation rate will hit at least 70% this year, and then worsen as the dinar’s value drops and Milosevic’s government prints more money in a desperate attempt to quell social unrest.

While prices climb in Yugoslavia, industrial production plummets. The North Atlantic Treaty Organization’s air campaign, years of international economic sanctions against the country and Milosevic’s economic mismanagement have combined to cut factory output, which has been falling for years, by an additional 36% in the first seven months of this year.

After NATO airstrikes destroyed fuel refineries in the Yugoslav republic of Serbia, gas smuggling became a way of life for many Serbs. They fill up cars and trucks from plastic soda bottles at curbside stands.

But over the past few days, police raids have forced many of the black-market gas dealers out of business, driving up fuel prices and making it even harder to find fuel.

A 45-minute search for diesel one day this week in the district of New Belgrade led to a watermelon stand where a Serbian woman, dressed in widow black and sitting in an old car seat, had a few gallons of fuel stashed among her fruit.

Milika Djokovic, who with his four Montenegrin brothers runs central Belgrade’s only legal currency exchange booth, has seen the first hints of panic in the faces of his customers, who come to buy German marks as a hedge against hyperinflation.

“People are scared that it might happen again, thus contributing to it,” said Djokovic, 26. “In this country, you never really know until it hits you.”

When hyperinflation struck six years ago, Yugoslav merchants raised prices by the minute, and most people watched their incomes drop just as quickly. The government tried to keep up by printing more cash.

One bank note, which had a face value of 500 billion dinars in 1993, is worthless today--except maybe as a souvenir of the Milosevic regime’s earlier years.

“People were trading dinars [for German marks] minutes after they got them,” Djokovic said. “Otherwise, they would be worthless. But the situation was still easier then because people had savings.”

“You’d sell 100 German marks for a sack full of money,” he added. “By the time you got it home, it was worth only 50 German marks.”

The war with NATO, with its destruction of workplaces and loss of jobs, forced so many Serbs to dig into their savings that Milosevic faces a much harder time keeping a lid on social unrest if hyperinflation strikes again.

Far short of enough cash to meet the demands of unpaid teachers, soldiers, pensioners and a growing list of other workers, the government is printing more money again, which forces down the currency’s value and drives up inflation.

At the official exchange rate, one German mark buys only six dinars. But the government has pegged the dinar’s value so unrealistically high, and hard currency is in such short supply, that a black market is thriving.

Sidewalk money changers, known as “crickets” because of the sound they make quietly chirping for customers, dropped the dinar’s value late last week from 11 to the mark to 14. Dinkic expects the dinar’s street value to shrink an additional 30% by year’s end.

Money in Circulation Is Up 15% Since War

Since Yugoslavia’s war with NATO ended three months ago, the amount of money in circulation has jumped 15% to 14.2 billion dinars, or just more than $1 billion at today’s black-market rate, Dinkic told reporters here Monday.

The government has poured 600 million dinars, or about $43 million, into the market since the beginning of this month alone.

The currency crisis is adding to fears that, after eight years of bloody disintegration, Yugoslavia may break up again.

Montenegro--the smaller republic that, along with Serbia, is all that remains of Yugoslavia--is weighing whether to dump the dinar and create its own currency pegged to the German mark.

The Montenegrins have already threatened to hold a referendum on independence if Milosevic doesn’t agree to a radically weaker federal government, which authorities in Belgrade, the Serbian and Yugoslav capital, have declared impossible.

Although Kosovo is still technically a part of Serbia, the German mark is already the currency of choice in the province, and money changers sniff at Yugoslav dinars.

Milosevic’s failed war for control of Kosovo and his nation’s continuing economic collapse should have already made the Yugoslav leader an easy target for the opposition trying to unseat him.

But Milosevic’s political enemies are feuding among themselves over tactics, leaving ordinary Serbs deeply cynical about whether any politician can peacefully lead them out of the mess.

Avramovic, the central bank chief who is credited with saving the country and Milosevic’s political skin in January 1994, is now the favorite to replace him among the opposition leaders who support a government of technocrats.

But Milosevic has ignored demands that he hand over power to an interim government and has suggested early elections instead. The opposition is split on whether to take him up on the offer or try to force him out of office.

“We don’t believe in street protests as the way to topple Milosevic,” Ivan Kovacevi, a deputy leader of Vuk Draskovic’s widely popular Serbian Renewal Movement, said Tuesday.