Here's another "rape" Slobo's responsible for:
WSJ
April 28, 1999
Yugoslavia Destroyed Its Own Economy
By Steve H. Hanke, a professor of applied economics at Johns Hopkins University. In 1990-91, he served as an economic advisor to the vice president of Yugoslavia.
In 1945 Yugoslavia was accepted as a charter member of the International Monetary Fund. By Dec. 16, 1992, when Yugoslavia was unceremoniously given the boot by the IMF, the wily boys in Belgrade had made hash out of the bumbling bureaucrats in Washington. Perhaps that explains why the fantastic tale about Yugoslavia's monetary mischief remains untold.
Yugoslavia got off to a fast start in its race with the IMF. By the mid-1950s, it had created the world's most complicated multiple exchange-rate system. That Rube Goldberg setup imposed some 200 exchange rates for different traded products and was administered under a licensed trading system. With an abundant supply of IMF advice, oversight and credits, things deteriorated. From 1971 to 1991, the year Yugoslavia broke apart, its annualized inflation rate was 76%; only Zaire and Brazil had higher inflation.
All that proved to be nothing but an appetizer. The main course was dished up by Slobodan Milosevic. The first of his many monetary shenanigans was uncovered on Jan. 7, 1991. That is when the Yugoslav government of Ante Markovic discovered that on Dec. 28, 1990, the Milosevic-controlled Serbian Parliament had secretly ordered the Serbian National Bank (a regional central bank) to issue some $1.4 billion in credits to friends of Mr. Milosevic. That illegal plunder equaled more than half of all the new money the National Bank of Yugoslavia had planned to emit in 1991. The heist sabotaged the Markovic government's teetering plans for economic reform and hardened the resolve of the leaders in Croatia and Slovenia to break away from Belgrade.
Without the Croats and Slovenes to fleece, Mr. Milosevic turned on his own people with a vengeance. Starting in January 1992, what was left of Yugoslavia endured the second-highest and second-longest hyperinflation in world history. It peaked in January 1994, when the official monthly inflation rate was 313 million percent. Only Hungary, in July 1946, ever recorded a higher monthly rate. The Yugoslav hyperinflation lasted 24 months, only two months shorter than the Soviet hyperinflation in the early 1920s. Yugoslavia's hyperinflation was far more virulent than the much touted 1922-23 hyperinflation in Weimar Germany.
The results were devastating. Long before NATO struck Yugoslavia, Mr. Milosevic's monetary madness had destroyed the economy. Wreck an economy, then start a war: It's an age-old power-preservation ploy.
During the 24-month hyperinflation period, per capita income plunged by more than 50%. Ordinary people were forced to deplete their hard-currency savings. People couldn't afford to buy food in the free market; they kept from starving by either waiting in long lines at state stores for irregularly supplied rations of low-quality staples, or by relying on relatives who lived in the countryside. For long periods, all of Belgrade's gas stations were closed, with the exception of one that catered to foreigners and embassy personnel. People also spent an inordinate amount of time at the foreign-exchange black markets, where they exchanged huge piles of near-worthless dinars into a single German mark or U.S. dollar note.
In what has become a common refrain, Mr. Milosevic claimed that the Yugoslavs were victims. According to him, the hyperinflation and resulting hardships were caused by the embargoes imposed by the United Nations in May 1992 and April 1993. In reality, Mr. Milosevic's money machine was put into overdrive to finance his war machine. More than 80% of Yugoslavia's budget was earmarked for the military and police forces, and by December 1993 almost 95% of all government expenditures were being financed with freshly printed dinars.
Nothing tells this horrendous story better than the devastating devaluations that repeatedly decimated the dinar. As the accompanying table shows, the Yugoslav devaluations dwarf those that have recently wrecked havoc in Asia, Russia and Brazil. Since 1991, the dinar has been officially devalued 18 times, and 22 zeros were lopped off that unit of account. The five devaluations in 1992 were too much even for the IMF, which showed Belgrade the door shortly after November's 73.3% devaluation.
In each of the past three climactic months of the hyperinflation, the dinar completely lost its value, with monthly devaluations of more than 99.99%. By December 1993, the end was in sight. The Topcider mint was working at full capacity, turning out 900,000 bank notes a month, but they were worthless before the ink had dried. On Dec. 23, 500-billion-dinar bills rolled off the press, worth 4.15 German marks when printed. But by the time they could be stuffed into pay packets, they were hardly worth spare change. The dinar was redenominated on Dec. 29; nine zeros were lopped off in the third redenomination since July 1992. Finally, the mint's physical capacity began constraining inflation. The authorities could not print enough cash to keep up. On Jan. 6, 1994, the dinar officially collapsed. The government declared the German mark legal tender for payment of all financial transactions, including taxes.
With the ultranationalist Mr. Milosevic at the controls, this monetary arrangement was bound to be short-lived. And it was. In a desperate attempt to stop the monetary chaos, the National Bank of Yugoslavia announced a major currency reform on Jan. 24, 1994. A "superdinar" was introduced, pegged to the deutsche mark at a rate of one to one. That made the superdinar worth 13 million old dinars. In less than a month, an incredible 15 zeros had been slashed from the dinar.
Shortly after the first superdinars hit the streets, I received a congratulatory phone call from Belgrade. Allegedly, the superdinar system had been patterned after the currency board blueprint in my 1991 book, "Monetary Reform and the Development of a Yugoslav Market Economy." I was incredulous. An orthodox currency board system in Mr. Milosevic's Belgrade? No way. After all, that would have required all the dinars to be fully backed by German marks and to trade freely at a fixed exchange rate with the mark. In addition, the National Bank of Yugoslavia would have to be transparent, posting its balance sheet daily. But there was absolutely no transparency in the new setup; the superdinar "currency board" was as phony as a three-dollar bill.
The bogus superdinar system did end the hyperinflation. Monthly inflation plummeted from 312 million percent in January to only 2,143% in February, and negative 6.2% in March. But by late 1995, the flaws in the phony currency-board system were there for all to see. Measured against the dollar, the superdinar was devalued by 62.6% on Nov. 26 and by 57.9% in April 1998. Today the dinar is trading on the black market at less than half its official value of six dinars to one deutsche mark. Ludwig Erhard once proclaimed that a sound currency was a basic human right. Slobodan Milosevic should be put in the dock on yet another human rights infraction.
Is there a moral in all this for Russia? The IMF granted Russia full membership on June 1, 1992. Since then, the Russians have played a cat-and-mouse game with the IMF, while citing that revered institution the way they used to cite Karl Marx. The ruble and the economy have reached depths not dreamed of in 1992, and Russian nationalism is growing. There are too many Yugoslav ingredients in the Russian powder keg for comfort.
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