About  |   Contact  |  Mongabay on Facebook  |  Mongabay on Twitter  |  Subscribe
Rainforests | Tropical fish | Environmental news | For kids | Madagascar | Photos

Yugoslavia-THE REFORMS OF 1990





MONGABAY.COM
Mongabay.com seeks to raise interest in and appreciation of wild lands and wildlife, while examining the impact of emerging trends in climate, technology, economics, and finance on conservation and development (more)







WEEKLY NEWSLETTER
Email:


Yugoslavia Index

In December 1989, the Markovic government presented an economic reform package. The program was actually a continuation of a 1989 reform that attempted to introduce a "united market economy" compatible with the current self-management system. Of the twenty-four laws included, the Federal Assembly passed seventeen outright and six remained provisional. At the heart of the program's monetary reform was a new "heavy" dinar, worth 10,000 standard dinars, pegged to the deutsche mark, and convertible with all Western currencies.

Wages were frozen and income pegged to rates 18 to 32 percent higher than wage rates of December 15, 1989. Price controls were removed on 85 percent of commodities. The only exceptions were essential categories such as electricity, fuels, medicine, raw metals and minerals, and rail, postal, and telephone services, which remained under government control.

The program strengthened existing bankruptcy and liquidation laws forbidding state subsidy of enterprises and banks operating at a loss, and bankrupt enterprises no longer received bank loans. At the time of the 1990 reform, one-quarter to one-third of Yugoslavia's 27,600 enterprises were showing losses, and the debts of 100 Yugoslav banks totaled US$2 to US$3 billion. To mitigate the inevitable effects of massive layoffs from enterprise closings, the program allotted US$150 million in aid to the poorest regions, primarily in the south, and US$100 million for social security and unemployment compensation. An anticipated foreign loan of US$500 million was to pay for those allotments. The West contributed US$1 billion in 1989 to cancel the deficit in the banking system and implement the new reforms, and as much as US$4 billion more was promised if the program took effect.

Although Markovic's entire package was not accepted by the Federal Assembly, the new program had immediate effects and received mostly positive reactions in Yugoslav society. By April 1990, the monthly inflation rate had dropped to zero, from its December 1989 monthly rate of 64.3 percent. The revaluation of the dinar was credited with an export increase of 21 percent and an import increase of 32 percent in the first four months of 1990, as well as an increase of US$3 billion in foreign currency reserves in the first six months of 1990. By mid-1990, the government was claiming 1,200 new joint investment deals with foreign firms, worth an estimated one billion DM, and a total of 10,200 new enterprises formed. On the other hand, industrial productivity fell by 8.7 percent, because of the extreme monetary controls used to decrease the money supply and stop inflation, and because of the large number of unprofitable enterprises closed by the reform. Domestic investment slowed drastically, but the reforms brought much less civil unrest than anticipated. Some industries continued paying wages unrelated to productivity, nullifying the incentive effect of federal wage restrictions.

The initial phase of the Markovic reform package was a sixmonth preliminary step. When phase two began in mid-1990, policy makers began seeking nonmonetary controls for inflation, encouraging banks to keep interest rates down, funding an agency for development of small and medium-sized enterprises, and reshaping investment incentives. The overall goal of these steps was to mitigate the initial shock effect of the austerity program and gradually allow market forces to stimulate a new round of investment geared to private enterprise. The next round of constitutional amendments, introduced in 1990, included provisions to facilitate large-scale changes of public to private ownership, reform tax policy to encourage private investment, and create a new credit distribution role for the Yugoslav National Bank. After the first stage of reform, progress was uneven; in 1990 many industries remained under obstructionist political appointees with no stake in overall economic progress. Resistance was especially strong in Serbia, where one in three enterprises was unprofitable at the end of 1990. Even the optimistic Ante Markovic cautioned that future steps in economic reform would cause additional social discomfort, but in 1990 Yugoslav economic planning finally had made a discernible break with its ineffectual past.

*     *     *

Several useful books and essays on the Yugoslav economy are available in English. The Economy of Yugoslavia by Fred Singleton and Bernard Carter, though dated, provides a comprehensive historical and structural view of the Yugoslav economy. Harold Lydall's Yugoslavia in Crisis fully analyzes the economic situation of Yugoslavia at the end of the 1980s and the systemic problems that created that situation. Several chapters of Yugoslavia in the 1980s, edited by Pedro Ramet, analyze the economic crisis of the early 1980s, forecast future developments, and provide abundant statistics. Yugoslavia: A Fractured Federalism contains two chapters that describe the causes and results of Yugoslav politicaleconomic policymaking in the 1980s. The Statistical Yearbook of Yugoslavia (Statisticki godisnjak Jugoslavije), published in Serbo-Croatian with an English key, lists exhaustive statistics on all sectors of the economy, as well as economic indicators for the past twenty years. (For further information and complete citations, see Bibliography.)

Data as of December 1990











Copyright mongabay 2000-2013