YUGOSLAVIA: A YEAR WITHOUT TITO

Created: 4/1/1981

OCR scan of the original document, errors are possible

ear Without Tito

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This assessment was prepared by analyst* of the Office of Political Analysis and of the Office of Economic Reaeuteh. Ii was coordinatedthe National lntelli|cnce Officer for Ihe USSR and Ekstern fcuropc. Comment, may be addreucd to

A Year Without Tilothti

Kevyear-old leadership is demonstrating that ii can maintain Yugoslavia*

unique brand of vxialism and govern without Tuo's guiding hand. Dcsmicand inevitable proNerm since his death Us^ay. the party and Malemachinery ha* runciKjriwJ .tsooi My^B

Mvch of the leadership'* attention ha* focused on the troubled economy. Stabilization measures0 reduced the irudc deficit and slowed thc growth of domestic demand. Belgrade alio secured financingl' and Western governments and banks despite some initial difficulty. Thr improvement in the balance of pay menu and IMF endorsement of the stabilization program will inctca.ve the conndcr.ccof foreign lenders and make it easier for Yugoslavia to borrow1 "A

The collective leadership, ncmlhcku. Mill has to fight high inflation. Other economic problems persist: low productivity, stagnating living standards, and unemployment. Weaknesses in an economy based on self-management and decent.raIi*ation impede both efficiency and policymaking. Failure to make progress on these problems could have political repercussions. Thc leadership is stressing thc needong-term commitment to austerity and is allowing moreopen discussion of the causes and cures for Yugoslavia's economic ilk^B

Tito's heirs face potentially serious political problems as well:

Continuing nationalism in the country's six constituent republicsegions, particularly among the large Albanian minority in Kosovo Province

Indications lhal ihe Serbs may press for disproporlionalc authority at ihe federal level and Ihus upset thc sensitive nationality balance in the party

and state machinery-

signs of jiscrnvcncsi b> ihe intellectuals^

: centrifugal forces and domestic rumblings arc endemic in the Yugoslav sysicm. but thc members of the collective leadership have been willing to compromise regional and personal interests for thc good of ihe federationhole. Thc compromises have weakened policy initiatives, however, especially in the economic area. And policies decided al the federal level have been difficult to carry out in the republics- Nevertheless, an, perceived eaternal threat to Yugoslav independence would tend to silence thcimpulses and unite the nation ^fMW

Figure 1

Yugoslavia: Nationalities

Bl

SiSarta

MM* iiuiia;imi* to noo-ian? tjoft

A Year Without Tito}

Aboaf the Future'

When Josipito died last year, both the political and the economic viability of Yugoslavia were in doubt because the country had so long depended on tin leadership to develop effective policies at thc federal levels

Despite Tito's strenuous effons. deep-rootedrivalries prevented the developmentugoslav national consciousness. Indeed, the struggle of non-Scrbt against Serbian dominance, which is at the heart of ihe problem, was barely controlled, even under Tito's dominant leadership. Thc strong rivalries among Yugoslav nationalities led Tito to fashion apolitical system made op of competing, sometimes antagonistic, regional parties. Thc collegial executive system introduced in the fall* was in large measure an attempt to bridge the gap separating these disparate interest groups and to ensure that eachoice in federal affairs.So that each wouldurn at running the federal party and the slate bureaucracy, party and governmentallorganized into committees whose executives held office

for OneS

In economic policy, rapid growth had long been the overridinghe competing regional interests encouraged policies to reduce unemployment in (he poorer regions or thc country while narrowing income differentials among the regions. Tito from time to time had to accept slower growth to restrain inflation and deal with rising current account deficits. But policy shifts became increasingly difficult to carry out. in large part became of the nature of the self-managed Yugoslav eepnomy and because of the decentralized decisionmaking Tito introduced in. In the yearis- death, the inflation rate was again climbing anVIrurd currency trade deficits wereThc central government's ability to manage lis internal and external economic difficulties without Tito was at best questionable

The Succession in the Go>einmeiil and the Party

Collective leadership in the Stole Presidency proved lo be surprisingly resilient in its first year. Within hours after Tito's death, the Presidency' installed VkcLazar Kolisevski as President. Less than two weeks later. Kolisevski'* tenure ended us scheduled Thc President* according to thc established formula of rotation, numed Cvijctinerb from Bosnia-Hcrcegovina. as the new President, and Scrccjlovene, as Vice President. The strict observance of the rules of collective, leadership ss laid down by Tito was calculated to project an air of confidence and continuity and succeeded in doing so

The ZViHi/raiiuf the Socialln federal Rreaiblicef Vutoilnu >

nine.miotic' imunnirw bnty RtraNntairn* til ilrf rcnuWhS

makeaand lie utfnMi*''Kt eeildcni are Nued from vcaMr ia imU'iflp

TM> (twoAcni Oaltthe dumcuie traon fictni ihe cailenl leadfifrip f'tvcti* oalk)*iH he emeodolate aawarflgf

During id- your, Itoucser. some proposed consiitU' lional amendment* lo legalize ihe collective leadership s) 'tern Tor tuie bud'c* moused publice

n tiJliM ir .

rcsrasnstoec lot his own portfolio and for effective

i'uz-yeer term of office fo> member* of ihevdiev

ne year term of uffiec for ihe President and Vkc President of thc Federal Assembly and (oiutc ihe two amon> representatives of the via republics nnd two provinces.

' >i"wesldemsof the Climbers of ibe Nationalne-year termwoyear term is being discuascd also).

I imii Cabinet ministers to four-year teems, and thcterm to either fouro years with option of another two years,ingle year

I ii t' cnht-vea' unite term of office for Const tu-tieaaal Cmrt judges

recently

AccordiDg to press reports, debate has been heated ia iheeem My's Commission for Corvsiiiunonal Question* over thc issue of ihe one-year term foe executive position* like Premier, Cabinet members, .ni judge The amendment* have only cleared Ihe committee for Assembly ecu

The lucccssion within the paly has proceeded lets unoothly than that in the government Titoneycar mandate for thc President of ihe 3Presidium of ihe League of Communists of Yugoilavia il.CYl He alone, however, chose ihe two persons who Tilled the yob during his lifetime The only Mamie relating to candidate* for the poet is that no republic or province can be represented rnore than once until all have had their turn. Unlike Ihe statethereo established order ofi among the republics andommittee now make* thc >clection, nnd last October it chose Lararacedonian Yugoslav press coverageresidium sessiunJune candidly admitted thai because of conflicilng view* within the leadershipern* porar) inodification in the party rules could be worked

Progress in Stablliiing Ihe Feoeiom* The final Year oftWga. Following two years of rapidihe economic tituation dctcrioraicd drasticany inho'* teal fall year us power. Halfhearted iteb) ml*rneasurn failed *ocurb domes:emaad aed ihe ir flat ton rate cwrnbed above JO percent, the highest raicour yearsigher oil prices coupled *ilh buoyant import demand and weak demand for Yugoslavhelped boost the current account defKil7 billion, almost triple8 level. Foreign bankers turned bearish, forcing Belgrade to lhon-tcrm borrowing and to draw Juwn officii) reserves to the equivalent of only five weehs of import* by the end of ibe year. This compares wiih reserve* worth more than three months of imponi at the end of jaa^

Li-sci Byelgrade entered tbe new ytar cklcrmiaed lostahalirc the economy Rccetonsic r foevei kraer growth target* anderc-phs'i-ed Cinaia mlraint*

tulK* *as lightened aiih publicaied ioleas rupiOly ihan social product.

credit aa* intended lo force enterprisesely on internalhcrcby curtailing invest-mem

Table I

Selected Economic Indicators

l-MlcUSIl

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i

Ollkiil rcnr-ei. namnd loiiim- US it

myu ml as.

US It

CoaxrUbk1 (pair nil

JJ "

r

i

u

U

;

Alcf^llybifidiniioMmcJpolky^jimpomdloslowrise in consumer spending.

The government's emphasis on ihe economy was underscored by ihe Presidency's unprecedemed oie of emergency kf.Klal.rve powersower ceding on0 balanee-oJ-payments delicti than (he republics wanted. 1

c Belgrade's0 began badly.pressures inherited9 were increased by the lifting of lbc temporary price freeze,n in price subsidies onconsumer foods, andleep jump in (he price ol imported crude oil. During Tito's illness, uncertainty aboutlto prompted some capital (light. Consumer demand migcdpot tat ion of higher prices, and enterprise* went ahead with new investment prowcts before luriher rfairKlionscoakl be implemenied. Wiih Tin* slill ia)Use picture, ihe ne- leadership remained tentative ua only significant acilon in the first lew months of iwasmpose additional real net Man on invcsimcnu in ihe public and Krvice sectors of the economy MM

AJltr Tito. Theprogram embodied in iheD Plan began paying off byby growing confidence in the leadership's ability to go*crn without Tito Economic activity slowed as the growth of indasirial production and new fixed invest-mini slackened Even the inflation rate showed tome signs al decelerating, andthe trade deficit was slightly lessi MM

The new collective leadership pushedh for. the* stabilization measuresidyear In eaily Junea month afler Tito'sgovern'ii devalued Ihe dinar by JO percent,artial price Irene, and reduced planned growth tar gets These measures wereave been supplemented at theeodof July with another Mabiliiaiion package -including measure*estrain investments andit was never introduced. Meanwhile, the release of the plant1lipped behind schedule, reflecting intcrrepublic and seadct-ship coavflacu over economic pobciei JjBB

Belgrade had loalter its economic program later in ihe year at severe sIn*tages of key consumer goods and industrial maierials developed. Some steps were

libit 2

nnual PercentCio-ik Real Trends in Ihe National Accr-onts

ewmpticai

I0O

U

1.5

M

i J

* 3

with reducing domestic demand. Thefor example, sought io decrease demand for goods in short supply by increasing some prices and by lifting controls on Others, including-,de range of important consumer and tndustrial products. Thisa partial victory for advocates of greater reliance on market forces. Todampen the inflationary impaci of the price rises and further restrain demand, the government also raised down-payment requirements oo consumer goods bought on credit. At the same time, however, the leadership offered consumers some re-lief-at the expense of improving the balance of paytemporarily curtailing exports of some foodstuffs and by authorizing sales of some items from commodity re

domestic consumption and investment and the June devaluation helped to reduce the trade deficit0 by more than SI billion comparedciporu were up more than JO0 percent in real terms) compared with the corresponding period9 while Imports increased by less thanercentecline of more thanercent in realecovery in receipts from Yugoslav workers abroad and increased receipts from tourism contributededuction in ihe currentillion4 billion lower thanfficial reserves rose somewhat, climbingS billion by the end of

IMO Oarium The stabilization program wis sue-ccssful in redirecting production from domestic uses to exports. Tbe growth of domestic demand was curbed as real GSP (gross social product) growth fell to 3than half tba rate of growth9 and the lowest since the.irst-ouarier surge, invenmenl grotsib slackened considerably by the end of the year, private consumption stagnated, and real incomesercent below9 level.

reatest achievement0 was lous foreign economic penmen. Slower growth of

But Inflation continued toprices wereat an annual rate of aO percent by the end0 despite the slowdown in economic activity. Although part of the rise can be attributed to underlyingforces, other special flaws share much of the blame:

petceni devaluation of the dinar In June.

percent increase in oil-product prices i0 encourage conservation.

The lifting of price controlsroad range of industrial and consumer goods.

Tbe raising of prices still under federal control in order to balance supply and demar

f:;

lzz75

1

naccustomed lo lenglhy per tod iclearly fell thc pinchevers!of labor unrcil were icponed. imnNyelcmaneHbe

an ecuaciiHj nlc fur ersirW* it economic decisionmaking Tnough Belgrade remained committed to stabilisation, the leadership becamenbmii introducing rr-cywrc* that would impinge further on rc.il

kjQfepi tr. despite The Tmpeerveanestt ia its eater ago] accounts.orrowing ability was induring much of thc year. In the first hai'of the year. Belgrade had difficulty gelling medium- and Jong.term financial credits and was forced to usereserves and to borrow short term. Bankers were uncertain aboutiability during Tito's illness and harbored Urtge'iog antagonism* over Belgrade's overbearing tactics inumber of loans0 million Eurocurieni) loan was. undersubscribed by0 miUionflB

After Tito's death, ihe sew leadership embarked on an aggrcsi.ve campaign to raiseymg heavily oa Western fearsack of support might destabilize post-Tito Yugoslavia Since itugoslavhat been aided hy the International Monetary Fund's endorsement of0 stabilization program, ihe June devaluation of the dinar, and renewed party and governrneet commitment toOO million baioeurrency loan signed ia late December, coupled with several tu lateral loans, helpedet through the year-ajVJV

Poeillca,nd Resnonal Rinlriea In the main, regional rivalries have not resulted in con frontal ions, with thef thcouble in Kosovo Province. External development* over which Belgrade had nothe impaci on Yugoslavia of the Soviet invasion of Afghanistan end the threatv fact intervention inprobablyarge extent account for the surprising degree of domestic cohesion im the face of varying political and economic ieeereats. Nonetihe basis for interregional jealousus over economic* a* solid as ever; the relative differences among tbe republics in terms of per capita GNP have hardly changed in the pastears. Nationalism remains a

serious problem as well,umber ol dispute*urfneed over theio*^

Th*iKmsKiiKins in March and April by ibecovntr) Urge Albanian minority in Kosovo Province pro.cn led the post-Tito leaderwith lis most serious crisis. At firsl the protestson unemployment among school graduate* bui then they took on nationalistic overtones fbe regime responded qun.hT)strongly lo clashes between sludenis and theimited form ofas declared around Prisiina. the provincial capital; addiiional security (otccs were sent to theril fiweign journal nJJ -ere banned 'ton. the

These measures have restored calm for the moment, but the political coloration of the demonstrations may heighten the hostility between the Albanian and Serb communities in Kosovo The regime is furrier worried that esents in Kosovo coukd touchhain reaction among Yugoslavia's other highly volatile nationalities, eventually upsritmg ihe delicacy* lance in the collective lea den hip system.^H

. Serbian nationalism, always Strong, ha* been more pronoussced than usual forear In particular, the Serb* chafe over the concessions the federal government has forced them lo make lo ihe Albanian* in Kosovo Province, oart of '

;or cover.

osovooice in thc Serbian parliament. Serbia hai none in the Keasovo provincial assembly Scrbsao">kUjeiieniparticularly apparent FceVgwiag the outbursts of Albanian nationalism in Koaovo0 and has probably been rekindled by the recent dernonstritir

Serbs altoeen active in maneuvering behind the scene* si the federal level For example.erb, apparently has gotten thcio agree thai high level military anrnsintmenit will be made only on hat recommendation. Early last year.

u halloaed groatd tucauieihe nice/

i rutriiieiy and Ihed Turks In IJ

Figure 3

Regions! Disparities in Per Capita CNP ma CNP

plll (AC

teis USS

,

tool

ffeulon

Yugoslavia

himCNP

Mil

|

PaaassM

Stetmiaa Grifreaeo. Jockeying for political power was well undjjfway among the regions during the months of Tilo'tfiruil .llness. The most notableof his forraef Jnnex circle to be hurt by thisisloveneeading part) Presidium metabA.UMj

DoUncentral political role in Yugoslavia throughout, and many observers viewed him as Tito's heir apparent. His prominence, more than any

Continuing Slovenian dissatisfaction with federalpolicy also has contributed to demands thai limits be placed on Slovenia's financial conliibulion to Yugoslavia's underdeveloped regions. Sloveniaduring Tito's last days that Kosovo alone be defined as an underdeveloped region and that the

individual constituent republics negotiate assistance programs directly with Kosovo rather than with the federal government. The unfortunate timing of theTito's political heirs were trying to maintaindoubt on the premise that the Slovenes would put regional interests aside, at least in the immediate

Slovenia's challenge was also significant because it had heretoforeeading role in the nation's devel-opmeni.Slovenesare among Yugoslavia's mostbusinessmen and bankers and. more than any other nationality, have helped make the complexsystem work. Historically, the push for change and innovation in the federal politjcal and economicome from Sloven la

Tht Crewrt. source of di low profile since piessing their betweenatholic Church.

i they continue toationalists havend arc notxchange ofepublic leadership and theymptomatic of the lead* ership's nervousness over latent Croatian nationalism, which the regime charges is being encouraged by the Church hierarchy. The decision early this year to try Croatian author Franjo Tudjman and otheris further evidence of this apprchens*

The surge of terrorist activity by numerous Croatian emigre groups throughout the world that the Yugoslav leadership feared *ouid occur alkr Tito's dcuth failed toNevertheless, concernr Ihe potential tenons, ihrcals-flB

KegiWehe issue of how Yugoslavia should resolve its economic problems lias already led to political maneuvering, and two rival groups haveresidium member Gilickov and Prime Min. isterpressing for change. It has pushed through measures giving greater play to market forces, and tt supports stronger maeroeconomic decisionmaking power at the federal rather than the republic level. The group has met counterpressureonservativePresidium members Dragosavac andthat resists change and fears reliance on capitalist economicTbe conservatives want to enlist the support of regionaljealous of their hard wonof workers and managers who see, their positions atree market system.mb

But differences over how the economy is run have not been nearly as damaging as the paralysis in policy implementation that regional differences encourat

Political Dividence

Following Tito's death, the regime also encountered growing restlessness among the intellectuals:

The country's leading dissident, Milovan Djilas. continueshe Yugoslavsystemasa whole.

Sixty Slovene intdleciuals have petitioned ihe gov. crnment for greater artistic freedom, andumber of republics have petitioned for legal guarantees of free speech.

> Approximatelyroats have requested amnesty for all political prisoners.

t

At (easl iwo groups ol intellectuals have petitioned Ihe authorities for permissioniagartncs not subyect to censor* hit

Mikwan Dnlas presents the collectpecial proMcm. Hishave long attacked the socialist system Tito developed, butecently he hat beening aspeclt of the partisan effottWorld Wirin his book. Tito. Tht Siory From Inside. Bccasitr members ol tbe cedlectivt leadership owe their legit imaey to theirito and lothe system he devised, they carrot permit Drilas's attacks to go inanswered

Although Ihe regime hinted recently that Djilai is not Irving up to1 agreement to refrain fromactivity, it probably will try tolsowdown. Last year, wbe* Djilai ran into trouble because of an article he wrote for the underground journal. he was tried and fieaed. When he refused to pay

the fine, the court shied away from imprisoning him and took deductions from his pension until the fine was paid. There are limits. however, to how far Dillas can go. and ibe regime's response *ill decend on bow seriously it views Djilai'i actsons.^B

Twenty of the signatories of the Slovenian petition for greater artistic freedom are party membersood standing, and most of the rest are prominent artists This almost certainly worries the republic leadenhip. which remembers that neighboring Croatian iniellec-tuabajor role1 outburst of rdionausm in Croatia. The Slovenehe latestrowing list of studem and intellectual protests which, in iddn,on io those already mentioned, havelea by Jo Belgrade intellectuals for amnesty for all txrsoai convicted of "verbal" political

call by Croatian students for an end to aid to underdeveloped regions of and (ci Croatlaa criticism of politicalliterary and other cultural activitya Zagreb last May

Since Tito's death, debate has intensified withui the readership over the degree to which dissent is to be tolerated The pragmatic reformers have urged"differ (Filiation' between legitimatecntHiimand

antircgimc dissent that threatens ihe socialist sell-management system. The reformers, including rnmy pr; .idiam members Bakaric and Dolinc. appear tosccceedrd in moving Yugoslavia toward more Open ill IK .nr. debate, and dee laonma king With an eye on <ts relation* with the West.de*itly wants to allow an open dialogue but to keep it under controlopesalanced policy of drawing clev (Ml relatively wide limits to thc criticism it can tolerate will preclude the need fo: stronger measures.

Despite having lo work within an inherentlycollective system. Ibe new Yugoslavhas managed well without Trio The continuing Soviet presence in Afghanistan and the possibilityarsaw Pact intervention mperceived by Belgrade as potential threats to Yugoalavis'sshould continue to help unify the new leadership. Nonetheless, these ire signs that thismay be shortlived. The economy is far from being under control, debate over economic issues is becoming louder, and political dtssidence is likely lobe moreroblem inhan it hai bees^BB

iWag Sraa-tardi.Wmarted-step in tbe right direction. Yugoslavia still mustrolonged petiod of ecaoomtc iu*tcrity coupled with improvement in the system of self-management order to correct current economic shortcoming!

The draft planmplies that ihe new leader ship is unified on the goals of slowing Inflation and fuithcr reducing the current account deficit. These goals are to be achieved by continued efforts to hold the growth ofemand bciow thatrder to free resources for capon The annual growth of real gross flaed investment ii eipecled to drop sharply8 J, toercent The planlight increase in per capita real personal Incomes lor the nationtaoie. with ihe emphasii on improving living standards in ihe poorer republics. Private consumption is targetedrowercent annually, down appreciably fromercent growth rate of the last five yea -

Belgrade's stabilisation effivi* will not be limited to demand rest ramie leadership is alsootion, imp-ii:ion. production of nmee of iht commodities in shortore- realistic exchanje rate policy,estructuring of investment Effortsmplement thesewilMje monitored by the IMFnvcr theseveral ycin.ww

A reordering of investment priorities tu accentuate efficient} is the heart of the program. To helpshortages, funds arc lobe directed away fiom the low-yielding sectors of the economy loward suchareas us agriculture, energy, and raw materials. Belgrade will depend heavily on credit rationing. Yugoslavia's traditional tool of monetary policy. The high-priority sectors are to receive preferentialfinancing and HO percent of the receipts fromborrowing. Nonpfiority sectors wilt encounter more restrictive borrowing condiiions as well ascutbacks in investment plans. At the same time. Yugoslavia plans to use other instruments of monetary policy that have been largely neglected in the past. Belgrade plans, for ciamptc. ta push interest rates up to more realistic levels. The only step in this direction so far has been lo raise rates paid on deposits in financial institutions, forcing higher lending

Fiscal measures are also planned to help pushinto the right channels. Import taxes will be reduced and ta> exemptions increased for enterprises in the priority sectors. Belgrade alio hopes that the freeing of some prices from federal control and the raising of other administered prices will heir promote more effkicni investment

fro* anticm Ik* rVrar Trim. Before ihe polk oflan can be expected to have substantial results. bowcvcr.Tito'i successors will have toifficult transanal aw ted by high inflat ion.grumbtistf.aad ptstrtscal content ion overpoi-cy'

on term straicgy -a* reflecied iahe ausicrit* imposed0 and stresses improvements in lie key agrtcultaral and energy sectors1 plan alsoore realistic vie* of Yugoslavia's proapects. Goals lor gross

Table 3

Indicators

bo hiI

production

tiled imcomnsi

-xriunif

-no

i

product iGSPK industrial production, and farm output are less ambitious than thehe plan, moreover, did notoal for the inflation rate or ceilings for increases in moneyas was done in previous years, suggesting the prevailing uncertainly in these areas. Instead, prrccs are to rise "more slowly" thanith theercent of prices still sub)ect to control of the self-managing interest groups left to be determined by social compacts. The income policy calls merely for personal incomes to increase with enterprise netmodified by differential productivity growth and the need to peoieci the living standards of low-paid worke

The new leadership, however, has been prompted to take additional steps against inflation in response to continuously surging prices- the cost'of-living index rose byercent in Ihe first two months of thisew self-management agreement on prices was signed in earlythree months after the previous price control legislation had expired. The new pricing measures establish the broad outline for pricing policy,perccm target for 'he cost-of-living increase this year.crgency measure, the new agreement reasserts fo .ral price controls over key items such as food stap> energy, and some services. In addition, self-mana .rig price bodies arc lo review all price hikes sinceeginning of the year and can authorize price rollbaCis forthat arc inconsistent with the new agreement. The anti-inflationary drive was buttressed at the end of ihe month with new credit restrictions. Belgrade halted

credit mi lea lor automobileside range of lusury goods aiW increased lbc minimum cash downpavtnentil other items net subiccl in the bun with the

Despite tbe recent flurry of activity, ibe specific* of pesee policy mil have to be liammered out over the neatiy federal!uthoritiesby tbe new self managing price bodies Beeaaae thaicingo be implemented through ve Ifagrccmcmubject to theitfalls that confront lucbajor itamblmiblock introng ami-inflationary policy il the loss of federal power over prices. Following ibe recent liberalization ofelgrade may be reluctant in the learfuju'centralize power over pricing policy. ^

On the connive tide. Belgrade's foreign borrowing situation looks encouraging. Although ,ti officialpitos arc undecided, iu needs should be down this year becaasc the current account deficit it pro axled to be tower Belgrade has already concluded loan agreements with West Germany and an Arab consurlium. and negotiations are under wayoan from ihe Swm. More importantly, the IMF's recent award2 billion loan lo Yugoslavia (coveting three v'ill reduce Belgrade's borrowing requirement and increase the confidence of foreign lenders who otherwise might be reluctant to lend to Yugoslavia

Belgrade's borrowing cutback could still go awry should the new leadership fail to hold the line on the trade deficit Attempt* to hold down rcnl import growth may prove incompaiibk with the projected growth in GSP And another OPEC price boost could also up-ri this year's import target. Belgrade's erode oil bill is currently running close toercent of the value of total imports. Belgrade must abo worryxl lecclcatUag inflation on ciports Rising domestic prices arc bound to mate the domesticmore at tract iveip producers and. at the same time, encourage imports. The benefits resulting from the June devaluation could well vanish quickly, prompting Bclgiooc to devalue the dinar agaia this year Real capons have already decreased byercent during the first two months of the yeat In an effort to stimulate esporti. supplementary credits for eiporls have been granied for the remaindernd

proposals have been introduced for increasing imports of goods needed by export

Despite the improvements made in the eaiernal sectorelgrade still has mcch to do to restore some balance to theconomy Ccrhing the growth of domestic demand while slimataiing production willigh ordernJ compromise among loadersrepresent different regional in-teiesis and who only recently enocu months of h'ckcr-ing over the broad out lines of future policy. In addition, the federal authorities may have toome of the power needed to execute sound policy after years of gradual erosion of their power throughiza-tion of decisionmaking to the republics.twvlikely to encounter stiff opposition not only fromauthorities but abo from bureaucrats aadwhoestedreserving the present system To dale, the only significant change made in (he pott Tito economy is tome decontrol of |

Cmmflitt Witkim iht Leadership. Argument* within the leadership over ideopollHeal and economic issues have been tent in check although the opposing posi-

' TW aat aabw aaaewcly YugoslavruuM miHr

Appendix

F.cortoniics ofio Fra

sffK of Yugatavia* current economic prob-lemi result ftom forces beyond Belgrade's coolsuch us rising worid prices and sluggisri demand in ihe Wcsi for Yugoslav exany are of domcsiic origin:

An anibiliousdcvclopmenlslralegy.

Slow and often inadequate adaptation af policies lo changing economic condilions.

Institutional problems largely associatedthe unique features of ihe seir-msnaged Yugoslavand the decentralizing reforms introduced by Tito inf>.JJJ^

r.mphasi) on Rapid Gro-tfa

icby unj"

i:"AW

The major goal of economic policy in the Tito era was rapid economic growth. Political needs gave impel us to expansionary policies slaved at minimUingimproving living standards, narrowing income differentials, and prornoting development of the poorer regions or thc country. During Tito's last decade in power, Yugoslav economic growth was impressive. Cross social product rose byear with the upswing inierrapted only twice,nd again. Excess demand arising largely from buoyant investment fueled by expansionary monetary policy and rapid advances in wages aod (he prices of goods that Yugoslavia must import generated rapid Inflation as consumer prices rose by anaverage ofear during thc seventr

On thc external side, poor export performance com' bined with surging imports to widen the foreign trade lexotericui shocks contributed to the

i Montenegro earthquakePEC oil price boosts are two-fared better than manyil price jump. Moteovcr.indered by iluggisheil and increasing Western trade protectionin theaffected commoditiesignificant portion of Yugoslav exports^l

apid grow th policy. however, dcr much of Ihe blame foe thc poor forcion iradc pcrformancc in ihe tatter half of the decade Strongdemand fostered strong import demand, particularly for raw materialsifinishedharply rising domestic prices also provided Yugoslav enterprises with attractive markets, thus diverting goods from thc export rnarket. Indeed, buoyantdemand over the years has essentially gulledtoajor export sectoij

Rising receipts from tourism and from funds sent home by Yugoslav workers abroad provided some cushion against thc worsening trade deficit, but substantial recourse was made io foreign borrowing to finance rapid growth. Increased liquidity in internationalmarkets meant thai Yugoslavia had reasonably easy access to funds. Asa result. Yugoslavia'scurrency debt increased almost sevenfold over the decade of, fromillion at theend93 billion at the end

Stop-Co Adjustment Policy

Despite chronic economicevidenced by accelerating inflation in thewas slow to introduce stabilization measures. The govern-only when external financialevere, slamming on the brakes when foreign borrowing was not sufficient to cover current account deficit* and when Yugoslavia's international reserves were drawn down to uncomfortably tow levels fas, With prodding by the party apparatus and Tito, Belgrade tightened importimposed credit controls, and froze prices. These restraints reduced real growth abruptly and also slowed inflation. Belgrade also devalued the dinar twice during the decade,1 andn order to help reduce trades soon as the balance of payments improved, however. Belgraderapid growth policies Inflation would then accelerate, eroding the benefits of the dcvaluuiicn.fl

huhind the ugnaturio tgoscr nment organisations, cntc rpcua-s, ami trjOc iiiutM io lake certainrder lo

SociaUwmpacii require length) ncgoliali.tn Bccauupo'trs measures were often noi run of ihe commas, republics enjoy considerable discretion, resulting ino puien-orkrom republic to republic. Investment decisions have been ruorly coordinated, and considerable over investas otxurrod because sell-management agreementsenicrpriscs in the samere used instead of efficiency criteria in allocating investment. Some self-management agreements may indeed have ted to monopoli /at son of certain markets along product lines and within Individual republics^

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Sdf-manifcaKMweed by torn-menl ortiMia lions, cntcrpruex. sad trade uaiorafor the realiutes ot ime.fi* policy ac-ieeiiva. If cue or nureparttdpsau (ill v> wi iheH ccairacijil-otriitilkn the -HScn can seek recoursepecial

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Theook mi impeding rational investment de* cissons. however, continue to be thc lackeveloped capital market, thc reliance on bank credits toigh Moportion of investment, and negative real interestombination of central bank controls and agreements among banks and enterprises has kept interest rates below those that would result from the interaction of market forces. Iflessding rates arc too low. worker-managed enterprises tend not to save and instead scramble for bank credits. Low interest rales also discourage saving by workers, widening thebetween savings and investment in the economy. Use of social compacts for setting prices has allowed firms to pass on their higher labor costs, thus hinderurb Ihe inflationary wage-price spiral.

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