Belgrade's New Hero: Economist Avramovic

BELGRADE -- Dragoslav Avramovic became a household name in the former Yugoslavia when his economic recovery program ended the country's hyperinflation, the world's worst, at a stroke.


A 75-year-old grandfather, affectionately known as "Deda Avram" (Grandpa Avram), is giving Serbians hope that their days as Europe's paupers may be nearing an end.


He was named governor of the National Bank on March 2 and, after initial skepticism over his program, is turning into something of a financial cult figure.


"Everybody knows him, everybody talks about him," said Jovanka Popic, standing behind her stall at Belgrade's bustling Zeleni Venac produce market. "And most people trust him."


A Belgrade banker echoed her sentiments. "His plan hinges on confidence. He inspires that. People think he'll do what he says, unlike politicians. At 75, what has he got to lose?"


Avramovic, who worked for the World Bank in Washington for 25 years, was called out of retirement to pull rump-Yugoslavia back from economic chaos, tame inflation that ran at 313,000,000 percent a month in January, and stop the erosion of incomes which have become the lowest in Europe.


The average monthly income dropped to the equivalent of 30 marks ($17.60) by late 1993 from around 800 marks before the UN imposed trade sanctions in 1992 for the government's backing of Serbs in the Bosnian war.


"Tackling this crisis was the challenge of a lifetime," Avramovic said in an interview. "We had a complete monetary breakdown. We had inflation and deflation at the same time because prices increased so fast that no expansion of income could match that."


This meant that people rushed into the streets the moment they were paid to change their dinars into German marks, which served as an alternative currency.


That changed on Jan. 24.


"We put in a new dinar and made it equal to the mark so there would be no transition problems," Avramovic said. "We had enough foreign exchange to say 'if the population doesn't have confidence in the new dinar, we'll simply give them marks'.


"I expected we'd lose at least $100 million in currency reserves in the first two to three weeks." The expected rush failed to materialize, partly because the first new banknotes were issued to pensioners, a group not given to currency speculation, who also received an increase in their payments.


A Belgrade housewife had another explanation: "I think the superdinar works because people want to believe in it. Yes, we used the German mark as our real currency but no one liked doing that. It's a matter of pride."


According to Avramovic, central bank hard currency reserves rose by 228 million marks between Jan. 24 and March 15 -- a daily average of 4.9 million marks.


In the same period, retail prices rose by just 0.1 percent, the Statistics Bureau reported.


The main reason for the country's descent into monetary chaos was a huge gap between government spending and revenue. A lack of raw materials and spare parts forced factories to close, leaving half the workforce without work.


Within a year, the UN embargo resulted in 1.3 million workers being on paid leave or jobless, drawing unemployment benefits. The government printed money to pay for this.


Tax collection became meaningless. In the period between tax bills being issued and taxpayers settling them, payments shrank to a fraction of the originally claimed value.


But what pushed Yugoslavia over the edge, Avramovic said, was a government decision last June to freeze prices and buy up agricultural crops to ensure food for the cities.


"That led to another huge increase in money supply and, because there was no mechanism to freeze the exchange rate, the price of the German mark went through the roof."