Military

DATE=10/18/00

TYPE=CORRESPONDENT REPORT

TITLE=SERBIA / MONEY (L-O)

NUMBER=2-268127

BYLINE=BARRY WOOD

DATELINE=WASHINGTON

INTERNET=YES

CONTENT=

VOICED AT:

INTRO: A leading expert on international finance, Johns Hopkins University economist Steve Hanke, says Yugoslavia's new president, Vojislav Kostunica, only has a few weeks to assure financial stability in the dominant republic of Serbia by stabilizing the inflation-prone Yugoslav dinar. V-O-A's Barry Wood spoke on Wednesday to Mr. Hanke, who recently returned from several weeks in Europe.

TEXT: Mr. Hanke says President Kostunica has only two options for achieving financial stability in Serbia. He can either abandon the dinar and adopt the German mark, as the Yugoslav republic of Montenegro has done. Or, Mr. Hanke says, Serbia can adopt a currency board system under which a new currency (probably fixed to the deutsche mark) would be issued under conditions of utmost financial discipline.

/// HANKE ACT ///

I think if Kostunica does not move in the direction within the next month decisively of abandoning the dinar completely or going to deutsche mark based currency board, where you have a foreign governor of the currency board, the chances of having economic unification in the area and economic recovery in Serbia are slim at best.

/// END ACT ///

Mr. Hanke says it is essential that President Kostunica embrace the principle of sound money, something Mr. Hanke believes is as important as the rule of law. Last week, the new acting head of the Yugoslav central bank devalued the dinar, bringing it to 30 to the dollar compared with the previous official rate of 20 to the dollar. Mr. Hanke, who regards the dinar as the world's worst currency, says the deutsche mark is becoming the de facto money in the entire Balkan region.

/// HANKE ACT ///

If they use the deutsche mark in Serbia, obviously, it would be essentially the same system they have in Montenegro. And if they have a currency board with a foreign national running the thing like Bosnia, it would essentially mean that they had a unified system with what they have in Montenegro. Because in Montenegro, they still have the deutsche mark as legal tender, but they would also use this new currency board money from Serbia. And there would be absolutely no problem. And furthermore, from a regional point of view, you would essentially have most of the Balkans in a unified currency zone because Bulgaria has a currency board linked to the deutsche mark, Bosnia has a currency board that is deutsche mark based, Kosovo has the deutsche mark, and Montenegro has the deutsche mark.

/// END ACT ///

Mr. Hanke was instrumental in developing the deutsche mark based currency systems throughout the region. Advisors to Mr. Kostunica say they are considering a currency board system for Serbia. (Signed)

NEB/BDW/TDW