Economy of the Socialist Federal Republic of Yugoslavia
Encyclopedia
Despite common origins, the economy of the Socialist Federal Republic of Yugoslavia
(SFRY) was much different from economies of the Soviet Union and other Eastern European socialist countries, especially after the Yugoslav-Soviet break-up
of 1948. The occupation and liberation struggle in World War II left Yugoslavia's infrastructure devastated. Even the most developed parts of the country were largely rural and the little industry the country had was largely damaged or destroyed.
socialist
economy and a decentralized, worker managed market socialist economy: factories were nationalized, and workers were entitled to a certain share of their profits.
Privately owned craftshops could employ up to 4 people per owner. The land was partially nationalised and redistributed, and partially collectivised
. Farmer households could own up to 10 hectares of land per person and the excess farmland was owned by co-ops, agricultural companies or local communities. These could sell and buy land, as well as give it to people in perpetual lease.
After Yugoslavia's split with the Soviet Union, the West came to Yugoslavia's aid by providing loans and military assistance.
ranked twenty-second in Europe.
With the exception of a recession in the mid-1960s, the country's economy prospered formidably. Unemployment was low and the education level of the working force steadily increased. Due to Yugoslavia's neutrality and a leading role in the Non-Aligned Movement
, Yugoslav companies exported to both Western and Eastern markets. Yugoslav companies carried out construction of numerous major infrastructural and industrial projects in Africa, Europe and Asia. In 1965, a new dinar was introduced. The previous dinar, traded at a rate of 700 to the U.S. dollar, was replaced with a new dinar traded at 12.5 to the U.S. dollar.
The fact that Yugoslavs were allowed to emigrate freely since 1960s caused many to find work in Western Europe, notably Germany. The emigration was mainly caused by force deagrarization, deruralization, and overpopulating of larger towns. The emigration contributed to keeping the unemployment checked and also acted as a source of capital and foreign currency. The system was institutionalized into the economy. From 1961 to 1971, the number of guest workers from Yugoslavia in West Germany
increased from 16,000 to 410,000.
's theory of associated labour, in which the right to decision making and a share in profits of socially owned companies is based on the investment of labour. All companies were transformed into organisations of associated labour. The smallest, basic organisations of associated labour, was roughly corresponded to a small company or a department in a large company. These were organised into enterprises, also known as labour organisations, which in turn associated into composite organisations of associated labour, which could be large companies or even whole industry branches in a certain area. Basic organisations of associated labour sometimes were composed of even smaller labour units, but they had no financial freedom. Also, composite organisations of associated labour were sometimes members of business communities, representing whole industry branches. Most executive decision making was based in enterprises, so that these continued to compete to an extent even when they were part of a same composite organisation. The appointment of managers and strategic policy of composite organisations were, depending on their size and importance, in practice often subject to political and personal influence-peddling.
In order to give all employees the same access to decision making, the basic organisations of associated labour were also introduced into public services, including health and education. The basic organisations were usually made up of dozens of people and had their own workers councils, whose assent was needed for strategic decisions and appointment of managers in enterprises or public institutions.
The workers were organized into trade unions which spanned across the country. Strikes could be called by any worker, or any group of workers and they were common in certain periods. Strikes for clear genuine grievances with no political motivation usually resulted in prompt replacement of the management and increase in pay or benefits. Strikes with real or implied political motivation were often dealt with in the same manner (individuals were prosecuted or persecuted separately), but occasionally also met stubborn refusal to deal or in some cases brutal force. Strikes occurred in all times of political upheaval or economic hardships, but they became increasingly common in the 1980s, when consecutive governments tried to salvage the slumping economy with a programme of austerity under the auspices of the International Monetary Fund
.
From 1970 onwards, despite 29% of its population working in agriculture, Yugoslavia was a net importer of farm products.
of the 1970s, the foreign debt grew massively and by early 1980s it reached more than USD 20 billion. Governments of Milka Planinc
and Branko Mikulić
renegotiated the foreign debt at the price of introducing the policy of stabilisation which in practice consisted of severe austerity measures — the so called shock treatment
. During 1980s, Yugoslav population endured the introduction of fuel limitations (40 litres per car per month), limitation of car usage to 6 days a week, based on the last digit on the licence plate, severe limitations on import of goods and paying of a deposit upon leaving the country (mostly to go shopping), to be returned in a year (with rising inflation, this effectively amounted to a fee on travel). There were shortages of coffee, chocolate and washing powder. During several dry summers, the government, unable to borrow to import electricity, was forced to introduce power cuts. On May 12, 1982 the Board of the International Monetary Fund
approved enhanced surveillance of Yugoslavia, to include Paris Club
creditors.
Yugoslavia was once a regional industrial power and economic success. In 1960, annual gross domestic product (GDP) growth averaged 6.1 percent, health care
was free, literacy was 91 percent, and life expectancy was 72 years.
The collapse of the Yugoslav economy was partially caused by its non-aligned
stance that had resulted in access to loans from both superpower
blocs. This contact with the United States
and the West opened up Yugoslav markets sooner than in the rest of Central
and Eastern Europe
. Despite Belgrade's non-alignment stance and its extensive trading relations with the European Community and the U.S., the Reagan administration
targeted the Yugoslav economy in a 1984 National Security Decision Directive (NSDD 133) classified as Secret Sensitive, titled U.S. Policy towards Yugoslavia. A censored version declassified in 1990 elaborated on NSDD 54 issued in 1982 which dealt with Eastern Europe. The latter advocated "expanded efforts to promote a 'quiet revolution' to overthrow Communist governments and parties," while reintegrating the countries of Eastern Europe into a market-oriented economy.
Western trade barriers dramatically reduced Yugoslavia's economic growth. In order to counter this, Yugoslavia took on a number of International Monetary Fund
(IMF) loans and subsequently fell into heavy debt. As a condition of receiving loans, the IMF demanded "market liberalisation
" of Yugoslavia. By 1981, Yugoslavia had incurred $19.9 billion in foreign debt. However, Yugoslavia’s real concern was unemployment, which stood at 1 million by 1980. Real earnings in Yugoslavia fell by 25% from 1979 to 1985. By 1988 emigrant remittances to Yugoslavia totalled over $4.5 billion (USD), and by 1989 remittances were $6.2 billion (USD), which amounted to over 19% of the world's total.
In 1989, before the fall of the Berlin Wall
, Yugoslav federal Prime Minister Ante Marković
went to Washington
to meet with President George H. W. Bush, to negotiate a new financial aid package. In return for assistance, Yugoslavia agreed to even more sweeping economic reforms, which included a new devalued
currency, another wage freeze, sharp cuts in government spending, and the elimination of socially owned, worker-managed companies. The Belgrade nomenclature, with the assistance of western advisers, had laid the groundwork for Marković's mission by implementing beforehand many of the required reforms, including a major liberalization of foreign investment legislation.
This was in part muted by the spectacular draining of the banking system, caused by the rising inflation
, in which millions of people were effectively forgiven debts or even allowed to make fortunes on perfectly legal bank-milking schemes. The banks adjusted their interest rates to the inflation, but this could not be applied to loan contracts made earlier which stipulated fixed interest rates. Debt repayments for privately owned housing, which was massively built during the prosperous 1970s, became ridiculously small and as a result banks suffered huge losses. Indexation was introduced to take inflation into account, but the resourceful population continued to drain the system through other schemes, many of them having to do with personal cheques.
Personal cheques were widely used in Yugoslavia in pre-inflation times. Cheques, which were considered legal tender
, were accepted by all businesses. They were processed by hand and mailed by regular post, so there was no way to ensure real-time accounting. The banks therefore continued to deduct money from current accounts on the date they received the cheque, and not on the date it was issued. When inflation rose to triple and then quadruple digits, this allowed another widespread form of cost reduction or outright milking of the system. Bills from remote places would arrive six months late, causing losses to businesses. Since banks maintained no-fee mutual customer service, people would travel to small banks in rural areas on the other end of the country and cash in several cheques. They would then exchange the money for foreign currency, usually German mark
and wait for the cheque to arrive. They would then convert a part of the foreign currency amount and repay their debt, greatly reduced by inflation. Companies, struggling to pay their work-force, adopted similar tactics.
New legislation was gradually introduced to remedy the situation, but the government mostly tried to fight the crisis by issuing more currency, which only fuelled the inflation further. In the late 1980s, the state of the economy was commonly considered a joke. Power-mongering in big industrial companies led to several large bankruptcies (mostly of large factories), which only increased the public perception that the economy is in a deep crisis. After several failed attempts to fight the inflation with various schemes, the government of Branko Mikulić
was replaced by a new government in March 1989, headed by Ante Marković
, a pragmatic reformist. He spent a year introducing new business legislation, which quietly dropped most of the associated labour theory and introduced private ownership of businesses. While public companies were allowed to be partially privatised, mostly through investment, the concepts of social ownership and worker councils were still retained.
On New Year's Eve 1989, Ante Marković introduced his program of economic reforms. Ten thousand Dinars became one "New Dinar", pegged to the German Mark at the rate of 7 New Dinars for one Mark. The sudden end of inflation brought some relief to the banking system. Ownership and exchange of foreign currency was deregulated which, combined with a realistic exchange rate, attracted foreign currency to the banks. However, by the late 1980s, it was becoming increasingly clear that the federal government was effectively losing the power to implement its programme.
. Its tight money policy further crippled the country's ability to finance its economic and social programs. State revenues that should have gone as transfer payments to the republics and provinces went instead to service Belgrade's debt to the Paris Club
and London Club
. The republics were left on their own to survive. From 1989 through September 1990, more than a thousand companies went into bankruptcy. By 1990 annual GDP growth rate had shrunk to –7.5 percent. In 1991, GDP declined by a further 15 percent, while industrial output shrank by 21 percent.
The reforms demanded by Belgrade's creditors struck at the core of Yugoslavia's system of socially owned and worker-managed enterprises. The objective of the reforms was to privatize Yugoslav economy and to dismantle the public sector. Instead of rebuffing the reforms, Yugoslavia was desperate and could not refuse their demands. With external pressure by the West, Marković's government passed financial legislation that forced "insolvent" businesses into bankruptcy or liquidation. According to the new law, if a business was unable to pay its bills for 30 days running, or for 30 days within a 45-day period, the government would launch bankruptcy proceedings within the next 15 days.
The reforms on the socialist economy also included a new banking law designed to trigger the liquidation of the socially owned Yugoslav Bank for International Economic Cooperation (YBIEC). Within two years, more than half of the country's banks had vanished, to be replaced by newly formed independent profit-oriented institutions. The IMF package precipitated the collapse of much of Yugoslavia's well-developed heavy industry
. Other socially owned enterprises survived only by not paying workers. More than half a million workers still on company payrolls did not get regular salaries in late 1990. Some 600,000 Yugoslavs had already lost their jobs by September 1990, but that was only the beginning. According to the World Bank
, another 2,435 industrial enterprises, including some of the country's largest, were slated for liquidation. Their 1.3 million workers, half of the remaining industrial workforce, were deemed "redundant". As 1991 dawned, real wages were in free fall, social programs had collapsed, and unemployment rate rose dramatically.
Quoted from London's Financial Times
:
Yugoslav President Borisav Jović
warned:
Governments of individual republics refused to pay federal taxes or enforce federal import fees (border police and customs services were under the jurisdiction of republics), and the government of Serbia even managed to use the federal money printing facility in Belgrade to issue itself a short-term credit. The federal government was forced to raise the exchange rate for the German Mark first to 9 and then to 13 dinars. The economic struggle also heightened already tense relations among the republics and between the republics and Belgrade.
In June 1991 Marković, who had formed his own Union of Reform Forces
political party, led the last-ditch attempt to save the federation through negotiations over federal income from customs offices in SR Slovenia, which was withholding the money. But at the same time, Slovenia joined other republics in challenging the federal government's efforts to restrict their economic autonomy. Both Croatian leader Franjo Tuđman and Serbia's Slobodan Milošević
joined Slovene leaders in railing against Yugoslavia's attempts to impose harsh reforms.
In the 1990 multi-party elections, economic policy was at the centre of the political debate as separatist coalitions ousted the communists in SR Croatia, SR Bosnia and Herzegovina, and Slovenia. Just as economic collapse spurred the drift toward separation, separation in turn exacerbated the economic crisis. Cooperation among the republics virtually ceased and, with one being at another's throat, both the economy and the nation itself embarked on a vicious downward spiral. The process sped along as the republican leadership, deliberately fostered social and economic divisions to strengthen their own hands.
The simultaneous appearance of militias loyal to secessionist leaders only hastened the descent into chaos. These militias, with their escalating atrocities, not only split the population along ethnic lines, they also fragmented the workers' movement. Slovenia, Croatia, and finally, Bosnia fought bloody civil wars against rump Yugoslavia (Serbia and Montenegro) or Serbian nationalists or both. But now, the U.S. has belatedly taken an active diplomatic role in Bosnia, strengthened its relations with Croatia and Macedonia, and positioned itself to play a leading role in the region's economic and political future.
Unemployment rate: 15% (1989)
GDP: $129.5 billion, per capita $5,464; real growth rate - 1.0% (1989 est.)
Budget: revenues $6.4 billion; expenditures $6.4 billion, including capital expenditures of $NA (1990)
Exports: $13.1 billion (f.o.b., 1988); commodities--raw materials and semimanufactures 50%, consumer goods 31%, capital goods and equipment 19%; partners--EC 30%, CEMA 45%, less developed countries 14%, US 5%, other 6%
Imports: $13.8 billion (c.i.f., 1988); commodities--raw materials and semimanufactures 79%, capital goods and equipment 15%, consumer goods 6%; partners--EC 30%, CEMA 45%, less developed countries 14%, US 5%, other 6%
External debt: $17.0 billion, medium and long term (1989)
Electricity: 21,000,000 kW capacity; 87,100 million kWh produced, 3,650 kWh per capita (1989)
, Economy of Croatia
, Economy of the Republic of Macedonia
, Economy of Montenegro
, Economy of Serbia
, Economy of Slovenia
.
The Yugoslav wars
, consequent loss of market, as well as mismanagement and/or non-transparent privatization brought further economic trouble for all former republics of Yugoslavia in the 1990s. Only Slovenia's economy grew steadily after the initial shock and slump. Croatia's War of Independence
resulted in direct damages worth $43 billion (USD). Croatia reached its 1990 GDP
in 2003, a feat yet to be accomplished by other former Yugoslav republics.
Socialist Federal Republic of Yugoslavia
The Socialist Federal Republic of Yugoslavia was the Yugoslav state that existed from the abolition of the Yugoslav monarchy until it was dissolved in 1992 amid the Yugoslav Wars. It was a socialist state and a federation made up of six socialist republics: Bosnia and Herzegovina, Croatia,...
(SFRY) was much different from economies of the Soviet Union and other Eastern European socialist countries, especially after the Yugoslav-Soviet break-up
Informbiro
Informbiro was a period in the history of Yugoslavia characterized by conflict and schism with the Soviet Union...
of 1948. The occupation and liberation struggle in World War II left Yugoslavia's infrastructure devastated. Even the most developed parts of the country were largely rural and the little industry the country had was largely damaged or destroyed.
Post-war years
The first postwar years saw implementation of Soviet-style five-year plans and reconstruction through massive voluntary work. The countryside was electrified and heavy industry was developed. The economy was organized as a mixed plannedPlanned economy
A planned economy is an economic system in which decisions regarding production and investment are embodied in a plan formulated by a central authority, usually by a government agency...
socialist
Socialism
Socialism is an economic system characterized by social ownership of the means of production and cooperative management of the economy; or a political philosophy advocating such a system. "Social ownership" may refer to any one of, or a combination of, the following: cooperative enterprises,...
economy and a decentralized, worker managed market socialist economy: factories were nationalized, and workers were entitled to a certain share of their profits.
Privately owned craftshops could employ up to 4 people per owner. The land was partially nationalised and redistributed, and partially collectivised
Collective farming
Collective farming and communal farming are types of agricultural production in which the holdings of several farmers are run as a joint enterprise...
. Farmer households could own up to 10 hectares of land per person and the excess farmland was owned by co-ops, agricultural companies or local communities. These could sell and buy land, as well as give it to people in perpetual lease.
After Yugoslavia's split with the Soviet Union, the West came to Yugoslavia's aid by providing loans and military assistance.
1950s and 1960s
In 1950s socialist self-management was introduced, which reduced the state control of the economy. Managers of socially owned companies were supervised by worker councils, which were made up of all employees, with one vote each. The worker councils also appointed the management, often by secret ballot. The Communist Party was organized in all companies and most influential employees were likely to be members of the party, so the managers were often, but not always, appointed only with the consent of the party. In 1950, Yugoslavia's GDPGross domestic product
Gross domestic product refers to the market value of all final goods and services produced within a country in a given period. GDP per capita is often considered an indicator of a country's standard of living....
ranked twenty-second in Europe.
With the exception of a recession in the mid-1960s, the country's economy prospered formidably. Unemployment was low and the education level of the working force steadily increased. Due to Yugoslavia's neutrality and a leading role in the Non-Aligned Movement
Non-Aligned Movement
The Non-Aligned Movement is a group of states considering themselves not aligned formally with or against any major power bloc. As of 2011, the movement had 120 members and 17 observer countries...
, Yugoslav companies exported to both Western and Eastern markets. Yugoslav companies carried out construction of numerous major infrastructural and industrial projects in Africa, Europe and Asia. In 1965, a new dinar was introduced. The previous dinar, traded at a rate of 700 to the U.S. dollar, was replaced with a new dinar traded at 12.5 to the U.S. dollar.
The fact that Yugoslavs were allowed to emigrate freely since 1960s caused many to find work in Western Europe, notably Germany. The emigration was mainly caused by force deagrarization, deruralization, and overpopulating of larger towns. The emigration contributed to keeping the unemployment checked and also acted as a source of capital and foreign currency. The system was institutionalized into the economy. From 1961 to 1971, the number of guest workers from Yugoslavia in West Germany
West Germany
West Germany is the common English, but not official, name for the Federal Republic of Germany or FRG in the period between its creation in May 1949 to German reunification on 3 October 1990....
increased from 16,000 to 410,000.
1970s
In 1970s, the economy was reorganised according to Edvard KardeljEdvard Kardelj
Edvard Kardelj also known under the pseudonyms Sperans and Krištof was a Yugoslav communist political leader, economist, partisan, publicist, and full member of the Serbian Academy of Sciences and Arts...
's theory of associated labour, in which the right to decision making and a share in profits of socially owned companies is based on the investment of labour. All companies were transformed into organisations of associated labour. The smallest, basic organisations of associated labour, was roughly corresponded to a small company or a department in a large company. These were organised into enterprises, also known as labour organisations, which in turn associated into composite organisations of associated labour, which could be large companies or even whole industry branches in a certain area. Basic organisations of associated labour sometimes were composed of even smaller labour units, but they had no financial freedom. Also, composite organisations of associated labour were sometimes members of business communities, representing whole industry branches. Most executive decision making was based in enterprises, so that these continued to compete to an extent even when they were part of a same composite organisation. The appointment of managers and strategic policy of composite organisations were, depending on their size and importance, in practice often subject to political and personal influence-peddling.
In order to give all employees the same access to decision making, the basic organisations of associated labour were also introduced into public services, including health and education. The basic organisations were usually made up of dozens of people and had their own workers councils, whose assent was needed for strategic decisions and appointment of managers in enterprises or public institutions.
The workers were organized into trade unions which spanned across the country. Strikes could be called by any worker, or any group of workers and they were common in certain periods. Strikes for clear genuine grievances with no political motivation usually resulted in prompt replacement of the management and increase in pay or benefits. Strikes with real or implied political motivation were often dealt with in the same manner (individuals were prosecuted or persecuted separately), but occasionally also met stubborn refusal to deal or in some cases brutal force. Strikes occurred in all times of political upheaval or economic hardships, but they became increasingly common in the 1980s, when consecutive governments tried to salvage the slumping economy with a programme of austerity under the auspices of the International Monetary Fund
International Monetary Fund
The International Monetary Fund is an organization of 187 countries, working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world...
.
From 1970 onwards, despite 29% of its population working in agriculture, Yugoslavia was a net importer of farm products.
Effect of the Oil Crisis
During and after the Oil Crisis1973 oil crisis
The 1973 oil crisis started in October 1973, when the members of Organization of Arab Petroleum Exporting Countries or the OAPEC proclaimed an oil embargo. This was "in response to the U.S. decision to re-supply the Israeli military" during the Yom Kippur war. It lasted until March 1974. With the...
of the 1970s, the foreign debt grew massively and by early 1980s it reached more than USD 20 billion. Governments of Milka Planinc
Milka Planinc
Milka Planinc was an ethnic Croatian Yugoslav politician. She served as a Prime Minister of Socialist Federal Republic of Yugoslavia from 1982 to 1986. She was the first female head of government in the history of real socialism...
and Branko Mikulić
Branko Mikulic
Branko Mikulić was a communist politician and statesman in the Yugoslavia. Mikulić was one of the leading communist politicians in Bosnia and Herzegovina during the communist rule in the former Yugoslavia.-Biography:...
renegotiated the foreign debt at the price of introducing the policy of stabilisation which in practice consisted of severe austerity measures — the so called shock treatment
Shock therapy (economics)
In economics, shock therapy refers to the sudden release of price and currency controls, withdrawal of state subsidies, and immediate trade liberalization within a country, usually also including large scale privatization of previously public owned assets....
. During 1980s, Yugoslav population endured the introduction of fuel limitations (40 litres per car per month), limitation of car usage to 6 days a week, based on the last digit on the licence plate, severe limitations on import of goods and paying of a deposit upon leaving the country (mostly to go shopping), to be returned in a year (with rising inflation, this effectively amounted to a fee on travel). There were shortages of coffee, chocolate and washing powder. During several dry summers, the government, unable to borrow to import electricity, was forced to introduce power cuts. On May 12, 1982 the Board of the International Monetary Fund
International Monetary Fund
The International Monetary Fund is an organization of 187 countries, working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world...
approved enhanced surveillance of Yugoslavia, to include Paris Club
Paris Club
The Paris Club is an informal group of financial officials from 19 of some of the world's biggest economies, which provides financial services such as war funding, debt restructuring, debt relief, and debt cancellation to indebted countries and their creditors...
creditors.
Collapse of the Yugoslav economy
| Year | Debt | Inflation |
|---|---|---|
| 1954 | $400 million | |
| 1974 | %20 | |
| 1980 | %27 | |
| 1982 | $16.9 billion | |
| 1988 | $21 billion | %217 |
Yugoslavia was once a regional industrial power and economic success. In 1960, annual gross domestic product (GDP) growth averaged 6.1 percent, health care
Health care
Health care is the diagnosis, treatment, and prevention of disease, illness, injury, and other physical and mental impairments in humans. Health care is delivered by practitioners in medicine, chiropractic, dentistry, nursing, pharmacy, allied health, and other care providers...
was free, literacy was 91 percent, and life expectancy was 72 years.
The collapse of the Yugoslav economy was partially caused by its non-aligned
Non-Aligned Movement
The Non-Aligned Movement is a group of states considering themselves not aligned formally with or against any major power bloc. As of 2011, the movement had 120 members and 17 observer countries...
stance that had resulted in access to loans from both superpower
Superpower
A superpower is a state with a dominant position in the international system which has the ability to influence events and its own interests and project power on a worldwide scale to protect those interests...
blocs. This contact with the United States
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
and the West opened up Yugoslav markets sooner than in the rest of Central
Central Europe
Central Europe or alternatively Middle Europe is a region of the European continent lying between the variously defined areas of Eastern and Western Europe...
and Eastern Europe
Eastern Europe
Eastern Europe is the eastern part of Europe. The term has widely disparate geopolitical, geographical, cultural and socioeconomic readings, which makes it highly context-dependent and even volatile, and there are "almost as many definitions of Eastern Europe as there are scholars of the region"...
. Despite Belgrade's non-alignment stance and its extensive trading relations with the European Community and the U.S., the Reagan administration
Reagan Administration
The United States presidency of Ronald Reagan, also known as the Reagan administration, was a Republican administration headed by Ronald Reagan from January 20, 1981, to January 20, 1989....
targeted the Yugoslav economy in a 1984 National Security Decision Directive (NSDD 133) classified as Secret Sensitive, titled U.S. Policy towards Yugoslavia. A censored version declassified in 1990 elaborated on NSDD 54 issued in 1982 which dealt with Eastern Europe. The latter advocated "expanded efforts to promote a 'quiet revolution' to overthrow Communist governments and parties," while reintegrating the countries of Eastern Europe into a market-oriented economy.
Western trade barriers dramatically reduced Yugoslavia's economic growth. In order to counter this, Yugoslavia took on a number of International Monetary Fund
International Monetary Fund
The International Monetary Fund is an organization of 187 countries, working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world...
(IMF) loans and subsequently fell into heavy debt. As a condition of receiving loans, the IMF demanded "market liberalisation
Market liberalism
The term market liberalism is used in two distinct meanings.Especially in the United States, the term is often used as a synonym to classical liberalism...
" of Yugoslavia. By 1981, Yugoslavia had incurred $19.9 billion in foreign debt. However, Yugoslavia’s real concern was unemployment, which stood at 1 million by 1980. Real earnings in Yugoslavia fell by 25% from 1979 to 1985. By 1988 emigrant remittances to Yugoslavia totalled over $4.5 billion (USD), and by 1989 remittances were $6.2 billion (USD), which amounted to over 19% of the world's total.
In 1989, before the fall of the Berlin Wall
Berlin Wall
The Berlin Wall was a barrier constructed by the German Democratic Republic starting on 13 August 1961, that completely cut off West Berlin from surrounding East Germany and from East Berlin...
, Yugoslav federal Prime Minister Ante Marković
Ante Markovic
Ante Marković was a statesman of the former Yugoslavia. He was the last prime minister of the Socialist Federal Republic of Yugoslavia.- Early life :...
went to Washington
Washington, D.C.
Washington, D.C., formally the District of Columbia and commonly referred to as Washington, "the District", or simply D.C., is the capital of the United States. On July 16, 1790, the United States Congress approved the creation of a permanent national capital as permitted by the U.S. Constitution....
to meet with President George H. W. Bush, to negotiate a new financial aid package. In return for assistance, Yugoslavia agreed to even more sweeping economic reforms, which included a new devalued
Devaluation
Devaluation is a reduction in the value of a currency with respect to those goods, services or other monetary units with which that currency can be exchanged....
currency, another wage freeze, sharp cuts in government spending, and the elimination of socially owned, worker-managed companies. The Belgrade nomenclature, with the assistance of western advisers, had laid the groundwork for Marković's mission by implementing beforehand many of the required reforms, including a major liberalization of foreign investment legislation.
This was in part muted by the spectacular draining of the banking system, caused by the rising inflation
Inflation
In economics, inflation is a rise in the general level of prices of goods and services in an economy over a period of time.When the general price level rises, each unit of currency buys fewer goods and services. Consequently, inflation also reflects an erosion in the purchasing power of money – a...
, in which millions of people were effectively forgiven debts or even allowed to make fortunes on perfectly legal bank-milking schemes. The banks adjusted their interest rates to the inflation, but this could not be applied to loan contracts made earlier which stipulated fixed interest rates. Debt repayments for privately owned housing, which was massively built during the prosperous 1970s, became ridiculously small and as a result banks suffered huge losses. Indexation was introduced to take inflation into account, but the resourceful population continued to drain the system through other schemes, many of them having to do with personal cheques.
Personal cheques were widely used in Yugoslavia in pre-inflation times. Cheques, which were considered legal tender
Legal tender
Legal tender is a medium of payment allowed by law or recognized by a legal system to be valid for meeting a financial obligation. Paper currency is a common form of legal tender in many countries....
, were accepted by all businesses. They were processed by hand and mailed by regular post, so there was no way to ensure real-time accounting. The banks therefore continued to deduct money from current accounts on the date they received the cheque, and not on the date it was issued. When inflation rose to triple and then quadruple digits, this allowed another widespread form of cost reduction or outright milking of the system. Bills from remote places would arrive six months late, causing losses to businesses. Since banks maintained no-fee mutual customer service, people would travel to small banks in rural areas on the other end of the country and cash in several cheques. They would then exchange the money for foreign currency, usually German mark
German mark
The Deutsche Mark |mark]], abbreviated "DM") was the official currency of West Germany and Germany until the adoption of the euro in 2002. It is commonly called the "Deutschmark" in English but not in German. Germans often say "Mark" or "D-Mark"...
and wait for the cheque to arrive. They would then convert a part of the foreign currency amount and repay their debt, greatly reduced by inflation. Companies, struggling to pay their work-force, adopted similar tactics.
New legislation was gradually introduced to remedy the situation, but the government mostly tried to fight the crisis by issuing more currency, which only fuelled the inflation further. In the late 1980s, the state of the economy was commonly considered a joke. Power-mongering in big industrial companies led to several large bankruptcies (mostly of large factories), which only increased the public perception that the economy is in a deep crisis. After several failed attempts to fight the inflation with various schemes, the government of Branko Mikulić
Branko Mikulic
Branko Mikulić was a communist politician and statesman in the Yugoslavia. Mikulić was one of the leading communist politicians in Bosnia and Herzegovina during the communist rule in the former Yugoslavia.-Biography:...
was replaced by a new government in March 1989, headed by Ante Marković
Ante Markovic
Ante Marković was a statesman of the former Yugoslavia. He was the last prime minister of the Socialist Federal Republic of Yugoslavia.- Early life :...
, a pragmatic reformist. He spent a year introducing new business legislation, which quietly dropped most of the associated labour theory and introduced private ownership of businesses. While public companies were allowed to be partially privatised, mostly through investment, the concepts of social ownership and worker councils were still retained.
On New Year's Eve 1989, Ante Marković introduced his program of economic reforms. Ten thousand Dinars became one "New Dinar", pegged to the German Mark at the rate of 7 New Dinars for one Mark. The sudden end of inflation brought some relief to the banking system. Ownership and exchange of foreign currency was deregulated which, combined with a realistic exchange rate, attracted foreign currency to the banks. However, by the late 1980s, it was becoming increasingly clear that the federal government was effectively losing the power to implement its programme.
Early 1990s and the outbreak of civil war
In the 1990s, IMF effectively controlled the Yugoslav central bankCentral bank
A central bank, reserve bank, or monetary authority is a public institution that usually issues the currency, regulates the money supply, and controls the interest rates in a country. Central banks often also oversee the commercial banking system of their respective countries...
. Its tight money policy further crippled the country's ability to finance its economic and social programs. State revenues that should have gone as transfer payments to the republics and provinces went instead to service Belgrade's debt to the Paris Club
Paris Club
The Paris Club is an informal group of financial officials from 19 of some of the world's biggest economies, which provides financial services such as war funding, debt restructuring, debt relief, and debt cancellation to indebted countries and their creditors...
and London Club
London Club
An informal group of private creditors on the international stage. Similar to the Paris Club of public lenders. London Club is not the only informal group of private creditors. Its first meeting took place in 1976 in response to Zaire's payment problems....
. The republics were left on their own to survive. From 1989 through September 1990, more than a thousand companies went into bankruptcy. By 1990 annual GDP growth rate had shrunk to –7.5 percent. In 1991, GDP declined by a further 15 percent, while industrial output shrank by 21 percent.
The reforms demanded by Belgrade's creditors struck at the core of Yugoslavia's system of socially owned and worker-managed enterprises. The objective of the reforms was to privatize Yugoslav economy and to dismantle the public sector. Instead of rebuffing the reforms, Yugoslavia was desperate and could not refuse their demands. With external pressure by the West, Marković's government passed financial legislation that forced "insolvent" businesses into bankruptcy or liquidation. According to the new law, if a business was unable to pay its bills for 30 days running, or for 30 days within a 45-day period, the government would launch bankruptcy proceedings within the next 15 days.
The reforms on the socialist economy also included a new banking law designed to trigger the liquidation of the socially owned Yugoslav Bank for International Economic Cooperation (YBIEC). Within two years, more than half of the country's banks had vanished, to be replaced by newly formed independent profit-oriented institutions. The IMF package precipitated the collapse of much of Yugoslavia's well-developed heavy industry
Heavy industry
Heavy industry does not have a single fixed meaning as compared to light industry. It can mean production of products which are either heavy in weight or in the processes leading to their production. In general, it is a popular term used within the name of many Japanese and Korean firms, meaning...
. Other socially owned enterprises survived only by not paying workers. More than half a million workers still on company payrolls did not get regular salaries in late 1990. Some 600,000 Yugoslavs had already lost their jobs by September 1990, but that was only the beginning. According to the World Bank
World Bank
The World Bank is an international financial institution that provides loans to developing countries for capital programmes.The World Bank's official goal is the reduction of poverty...
, another 2,435 industrial enterprises, including some of the country's largest, were slated for liquidation. Their 1.3 million workers, half of the remaining industrial workforce, were deemed "redundant". As 1991 dawned, real wages were in free fall, social programs had collapsed, and unemployment rate rose dramatically.
Quoted from London's Financial Times
Financial Times
The Financial Times is an international business newspaper. It is a morning daily newspaper published in London and printed in 24 cities around the world. Its primary rival is the Wall Street Journal, published in New York City....
:
Yugoslav President Borisav Jović
Borisav Jovic
Borisav Jović is a former Serbian communist politician, who served as the Serbian member of the collective presidency of Yugoslavia during the late 1980s and early 1990s...
warned:
Governments of individual republics refused to pay federal taxes or enforce federal import fees (border police and customs services were under the jurisdiction of republics), and the government of Serbia even managed to use the federal money printing facility in Belgrade to issue itself a short-term credit. The federal government was forced to raise the exchange rate for the German Mark first to 9 and then to 13 dinars. The economic struggle also heightened already tense relations among the republics and between the republics and Belgrade.
In June 1991 Marković, who had formed his own Union of Reform Forces
Union of Reform Forces
The Union of Reform Forces is a former political party in the Socialist Federal Republic of Yugoslavia, led by Ante Marković.The party was short-lived and fairly unsuccessful, but it later served as a basis for liberal parties in Serbia and in the Republic of Macedonia The Union of Reform Forces...
political party, led the last-ditch attempt to save the federation through negotiations over federal income from customs offices in SR Slovenia, which was withholding the money. But at the same time, Slovenia joined other republics in challenging the federal government's efforts to restrict their economic autonomy. Both Croatian leader Franjo Tuđman and Serbia's Slobodan Milošević
Slobodan Milošević
Slobodan Milošević was President of Serbia and Yugoslavia. He served as the President of Socialist Republic of Serbia and Republic of Serbia from 1989 until 1997 in three terms and as President of the Federal Republic of Yugoslavia from 1997 to 2000...
joined Slovene leaders in railing against Yugoslavia's attempts to impose harsh reforms.
In the 1990 multi-party elections, economic policy was at the centre of the political debate as separatist coalitions ousted the communists in SR Croatia, SR Bosnia and Herzegovina, and Slovenia. Just as economic collapse spurred the drift toward separation, separation in turn exacerbated the economic crisis. Cooperation among the republics virtually ceased and, with one being at another's throat, both the economy and the nation itself embarked on a vicious downward spiral. The process sped along as the republican leadership, deliberately fostered social and economic divisions to strengthen their own hands.
The simultaneous appearance of militias loyal to secessionist leaders only hastened the descent into chaos. These militias, with their escalating atrocities, not only split the population along ethnic lines, they also fragmented the workers' movement. Slovenia, Croatia, and finally, Bosnia fought bloody civil wars against rump Yugoslavia (Serbia and Montenegro) or Serbian nationalists or both. But now, the U.S. has belatedly taken an active diplomatic role in Bosnia, strengthened its relations with Croatia and Macedonia, and positioned itself to play a leading role in the region's economic and political future.
Yugoslav economy in numbers - 1990
(SOURCE: 1990 CIA WORLD FACTBOOK)Unemployment rate: 15% (1989)
GDP: $129.5 billion, per capita $5,464; real growth rate - 1.0% (1989 est.)
Budget: revenues $6.4 billion; expenditures $6.4 billion, including capital expenditures of $NA (1990)
Exports: $13.1 billion (f.o.b., 1988); commodities--raw materials and semimanufactures 50%, consumer goods 31%, capital goods and equipment 19%; partners--EC 30%, CEMA 45%, less developed countries 14%, US 5%, other 6%
Imports: $13.8 billion (c.i.f., 1988); commodities--raw materials and semimanufactures 79%, capital goods and equipment 15%, consumer goods 6%; partners--EC 30%, CEMA 45%, less developed countries 14%, US 5%, other 6%
External debt: $17.0 billion, medium and long term (1989)
Electricity: 21,000,000 kW capacity; 87,100 million kWh produced, 3,650 kWh per capita (1989)
GDP per capita of major cities
| City | Residents (1991 Census) |
GDP Index (Yugoslavia=100) |
Republic |
| Belgrade Belgrade Belgrade is the capital and largest city of Serbia. It is located at the confluence of the Sava and Danube rivers, where the Pannonian Plain meets the Balkans. According to official results of Census 2011, the city has a population of 1,639,121. It is one of the 15 largest cities in Europe... |
1,552,151 | 147 | SR Serbia |
| Zagreb Zagreb Zagreb is the capital and the largest city of the Republic of Croatia. It is in the northwest of the country, along the Sava river, at the southern slopes of the Medvednica mountain. Zagreb lies at an elevation of approximately above sea level. According to the last official census, Zagreb's city... |
777,826 | 188 | SR Croatia |
| Sarajevo Sarajevo Sarajevo |Bosnia]], surrounded by the Dinaric Alps and situated along the Miljacka River in the heart of Southeastern Europe and the Balkans.... |
527,049 | 133 | SR Bosnia and Herzegovina |
| Skopje Skopje Skopje is the capital and largest city of the Republic of Macedonia with about a third of the total population. It is the country's political, cultural, economic, and academic centre... |
506,926 | 90 | SR Macedonia |
| Ljubljana Ljubljana Ljubljana is the capital of Slovenia and its largest city. It is the centre of the City Municipality of Ljubljana. It is located in the centre of the country in the Ljubljana Basin, and is a mid-sized city of some 270,000 inhabitants... |
326,133 | 260 | SR Slovenia |
| Novi Sad Novi Sad Novi Sad is the capital of the northern Serbian province of Vojvodina, and the administrative centre of the South Bačka District. The city is located in the southern part of Pannonian Plain on the Danube river.... |
299,294 | 172 | SR Serbia |
| Niš Niš Niš is the largest city of southern Serbia and third-largest city in Serbia . According to the data from 2011, the city of Niš has a population of 177,972 inhabitants, while the city municipality has a population of 257,867. The city covers an area of about 597 km2, including the urban area,... |
253,124 | 110 | SR Serbia |
| Split | 221,456 | 137 | SR Croatia |
| Banja Luka Banja Luka -History:The name "Banja Luka" was first mentioned in a document dated February 6, 1494, but Banja Luka's history dates back to ancient times. There is a substantial evidence of the Roman presence in the region during the first few centuries A.D., including an old fort "Kastel" in the centre of... |
195,692 | 97 | SR Bosnia and Herzegovina |
| Pristina Pristina Pristina, also spelled Prishtina and Priština is the capital and largest city of Kosovo. It is the administrative centre of the homonymous municipality and district.... |
155,499 | 70 | SR Serbia |
| Kragujevac Kragujevac Kragujevac is the fourth largest city in Serbia, the main city of the Šumadija region and the administrative centre of Šumadija District. It is situated on the banks of the Lepenica River... |
144,608 | 114 | SR Serbia |
| Rijeka Rijeka Rijeka is the principal seaport and the third largest city in Croatia . It is located on Kvarner Bay, an inlet of the Adriatic Sea and has a population of 128,735 inhabitants... |
143,964 | 213 | SR Croatia |
| Podgorica Podgorica Podgorica , is the capital and largest city of Montenegro.Podgorica's favourable position at the confluence of the Ribnica and Morača rivers and the meeting point of the fertile Zeta Plain and Bjelopavlići Valley has encouraged settlement... |
136,473 | 87 | SR Montenegro |
The post-war regime
For later developments, see: Economy of Bosnia and HerzegovinaEconomy of Bosnia and Herzegovina
This page discusses the Economy of Bosnia and Herzegovina since Bosnia and Herzegovina's declaration of sovereignty in October 1991 and the declaration of independence from the former Yugoslavia on 3 March 1992.-Overview:...
, Economy of Croatia
Economy of Croatia
Economy of Croatia is a service-based economy with the tertiary sector accounting for 70% of total gross domestic product . Croatian GDP in 2010 was 335.5 billion Croatian Kuna and contracted by 1.4% year-on-year...
, Economy of the Republic of Macedonia
Economy of the Republic of Macedonia
The breakup of Yugoslavia in 1991 deprived the Economy of the Republic of Macedonia, then its poorest republic , of its key protected markets and large transfer payments from the center...
, Economy of Montenegro
Economy of Montenegro
Economy of Montenegro is mostly a service based economy, currently in process of economic transition. Economy of this small Balkan state is recovering from impact of Yugoslav Wars, decline of industry following the breakup of SFRY, and UN economic sanctions....
, Economy of Serbia
Economy of Serbia
Serbia's economy is based mostly on various services , industry , and agriculture . In the late 1980s, at the beginning of the process of economic transition from a planned economy to a market economy, Serbia's economy had a favorable position, but it was gravely impacted by economic sanctions from...
, Economy of Slovenia
Economy of Slovenia
Slovenia today is a developed country that enjoys prosperity and stability, as well as a GDP per capita at 88% of the EU27 average.-History:Although it comprised only about one-thirteenth of Yugoslavia's total population, it was the most productive of the Yugoslav republics, accounting for...
.
The Yugoslav wars
Yugoslav wars
The Yugoslav Wars were a series of wars, fought throughout the former Yugoslavia between 1991 and 1995. The wars were complex: characterized by bitter ethnic conflicts among the peoples of the former Yugoslavia, mostly between Serbs on the one side and Croats and Bosniaks on the other; but also...
, consequent loss of market, as well as mismanagement and/or non-transparent privatization brought further economic trouble for all former republics of Yugoslavia in the 1990s. Only Slovenia's economy grew steadily after the initial shock and slump. Croatia's War of Independence
Croatian War of Independence
The Croatian War of Independence was fought from 1991 to 1995 between forces loyal to the government of Croatia—which had declared independence from the Socialist Federal Republic of Yugoslavia —and the Serb-controlled Yugoslav People's Army and local Serb forces, with the JNA ending its combat...
resulted in direct damages worth $43 billion (USD). Croatia reached its 1990 GDP
Gross domestic product
Gross domestic product refers to the market value of all final goods and services produced within a country in a given period. GDP per capita is often considered an indicator of a country's standard of living....
in 2003, a feat yet to be accomplished by other former Yugoslav republics.
Yugoslav hypothetical economy in numbers - 2011
This section is intended to give us an idea how the Yugoslav economy might have looked like if the country never broke up. Yugoslavia was slated to join the EEC by 1992 and that would've put Yugoslavia ahead of countries like Poland in joining the European Union's precursor. We are assuming that with a market liberalisation and open market access for Yugoslav goods the country gained an average GDP growth of 7% a year. The figures would put Yugoslavia's GDP at $548 billion and the GDP per capita at $20,400 by 2011.Additional reading
- Yugoslavia: Trouble in the Halfway House by Melvin D. Barger
- SELF-MANAGEMENT AND REQUIREMENTS FOR SOCIAL PROPERTY: LESSONS FROM YUGOSLAVIA by DIANE FLAHERTY
- Damachi, U.G. & H.D. Seibel (Eds.) Self Management in Yugoslavia and the Developing World. London, Macmillan, 1982
- This Was My Yugoslavia By Vladimir Unkovski
- Yugoslavia (former) Banking