At Serbia's Stock Market, Traders Watch Inflation and Await a Crash

The collapse of Yugoslavia stopped state privatization efforts

AS the rump Yugoslav union of Serbia and Montenegro plunges to new depths of economic turmoil, Branislav Cosic is trying to keep alive a small vestige of financial sanity.

But just like Serbian President Slobodan Milosevic's New Year's pledge of better times amid hyperinflation, United Nations sanctions, mass unemployment, strikes, and power outages, the Belgrade Stock Exchange is an anachronism.

Along with the new luxury cars of war profiteers, the fantasies passed off as news by state-run media, and the regime's inept attempts at economic triage, the exchange adds to the ``Twilight Zone'' surrealism of the political and financial crisis wrought by Serb patronage of the wars in Croatia and Bosnia-Herzegovina.

``We are planning to sell our know-how to the West,'' jokes Mr. Cosic, the stock exchange director, when asked how it manages to continue operating.

His levity, however, changes to seriousness as he admits, ``By the middle of January, we will have to close down. There will be no point in trading with dinars because nobody will want them.''

Just as the dinar is now money in name only, so too is the Belgrade Stock Exchange a misnomer: There are only two firms listed, and their shares have not been traded for a year.

Nor is there the frenzy of bourses around the world, where seconds can mean fortunes won or lost.

There is no big board, opening bell, crowd-packed selling floor, or young, ambition-driven brokers searching for ``the deal'' that will rocket them into the stratified heights of big-time finance.

The Belgrade Stock Exchange is comprised of two rows of computer terminals atop a long table at which sit a dozen men and women, some clad in jeans and most with little to do but drink coffee and wait for their telephones to ring.

Ironically, their jobs as traders depend on hyperinflation, which is now almost 2 percent an hour and was set at a record-shattering 1 million percent for December alone. That forced the Milosevic regime last week to denominate the currency by knocking nine zeros off history's largest bill - the 500-billion-dinar note - which was worth less than $1.

The exchange's traders broker securities floated by state-owned enterprises and banks and a handful of privatized companies that have loads of near-worthless dinars they do not need for several days and that lose value every minute they remain unused.

An enterprise offers its paper from three to four days at state-approved interest rates significantly higher than inflation. Last week, securities were being listed in tens of trillions of dinars at interest rates of 250,000 percent.

The buyers, which also include state-run banks and enterprises, use the dinars they purchase to buy hard currency at black-market rates offered on the streets.

They then sell the foreign currency at the much higher state-set commercial rate to other enterprises and banks that are in desperate need of it, first skimming off a cut for themselves.

With the enormous profits they earn in dinars, they repay the securities. The enterprises and banks that offer the paper make enough on their idle dinars to compensate for the hyperinflation.

``People invest in securities to somehow protect their money from inflation,'' says Branislav Jorgic, a former stock exchange official who owns a private brokerage firm. ``They earn a lot of money in hard currency.''

Cosic says the exchange had worked well until recently, with between 400 and 500 firms participating in the securities business.

This year, it achieved a turnover of some 9,000 transactions worth about 110 million German marks (US$64 million), he says.

The problem is that inflation has grown so astronomical, that all trade in the dinar is quickly grinding to a halt, replaced by barter, German marks, or bankruptcy.

Some days, the exchange turnover is under $13,000 and ``its getting less and less,'' Cosic says.

``I believe that in the next few weeks, everything will go out of control, and we will no longer have the Yugoslav dinar as a national currency. We will have the German mark or something else,'' Mr. Jorgic says.

Things, of course, were not supposed to be like this. The stock exchange was started as a genuine attempt to replace the communist-style command economy with a market-driven system under reforms introduced in 1990 by the last prime minister of former Yugoslavia, Ante Markovic.

Cosic, a 41-year-old economist, and other exchange officials were recruited by the Markovic team to work with experts from the World Bank and the New York Stock Exchange in setting up the Belgrade bourse in a modernistic building of tinted glass.

The Markovic reforms, however, were sabotaged by Serbia, which made massive illegal raids into the federal money supply to bridge its chronic budget deficits, and Slovenia and Croatia, which were then firmly set on secession.

As a result, there was only a fraction of the enormous privatization required to make a stock exchange viable. The collapse of former Yugoslavia and more than two years of war have erased any hope of restarting the reform process any time soon.

``We wanted to begin handling shares in 1991. But, because privatization was so slow, we began with bonds and then with commercial paper,'' Cosic says.

With Milosevic wrestling to maintain his grip on power and preserve his ``Greater Serbia'' program amid the economic catastrophe, there is little official interest in trying to stop the stock exchange from going the way of other failed free-market reforms.

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