Mrak/Rojec/Silva-Jáur
lovenia’s achievements over the past several years Slovenia have been remarkable. Thirteen years after Public Disclosure Authorized
independence from the former Socialist Federative egui Republic of Yugoslavia, the country is among the most advanced of all the transition economies in Central and Eastern Europe and a leading candidate for accession to the European Union
Sin May 2004. Remarkably, however, very little has been published Slovenia documenting this historic transition. Fr om Y In the only book of its kind, the contributors—many of them the architects
of Slovenia’s current transformation—analyze the country’s three-fold ugoslavia to the Eur transition from a socialist to a market economy, from a regionally based to a national economy, and from being a part of the Socialist Federative Republic of Yugoslavia to being an independent state and a member of the European Union (EU).
With chapters from Slovenia’s president, a former vice prime minister, Public Disclosure Authorized the current and previous ministers of finance, the minister of European affairs, the current and former governors of the Bank of Slovenia, as well as from leading development scholars in Slovenia and abroad, this unique opean Union collection synthesizes Slovenia’s recent socioeconomic and political history and assesses the challenges ahead. Contributors discuss the Slovenian style of socioeconomic transformation, analyze Slovenia’s quest for EU membership, and place Slovenia’s transition within the context of the broader transition process taking place in Central and Eastern Europe. Of interest to development practitioners and to students and scholars of the region, Slovenia: From Yugoslavia to the European Union is a From Yugoslavia comprehensive and illuminating study of one country’s path to political
and economic independence. Public Disclosure Authorized to the European Union
Editors Mojmir Mrak, Matija Rojec, and Carlos Silva-Jáuregui ™xHSKIMBy357187zv,:&:(:,:) ISBN 0-8213-5718-2 Public Disclosure Authorized
Slovenia From Yugoslavia to the European Union
Editors Mojmir Mrak, Matija Rojec, and Carlos Silva-Jáuregui
Washington, D.C. © 2004 The International Bank for Reconstruction and Development / The World Bank 1818 H Street, NW Washington, DC 20433 Telephone 202-473-1000 Internet www.worldbank.org E-mail [email protected]
All rights reserved.
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Cover photo: Dunja Wedam
Library of Congress Cataloging-in-Publication Data
Slovenia: from Yugoslavia to the European Union / edited by Mojmir Mrak, Matija Rojec, Carlos Silva-Jáuregui. p. cm. Includes bibliographical references and index. ISBN 0-8213-5718-2 1. Slovenia—Economic policy. 2. Slovenia—Economic conditions. 3. European Union—Slovenia. I. Mrak, Mojmir. II. Rojec, Matija. III. Silva-Jáuregui, Carlos. IV. World Bank.
HC406.S555 2004 330.94973—dc22 2003066135 Contents
Foreword ix Preface and Acknowledgments xi Acronyms and Abbreviations xv Overview: Slovenia’s Threefold Transition xix
Part I The Road toward Political and Economic Independence 1 Chapter 1 The Political Reasons for the Dissolution of SFR Yugoslavia 3 Janez Drnovˇsek Chapter 2 Socialism and the Disintegration of SFR Yugoslavia 15 Vladimir Gligorov Chapter 3 Independence and Integration into the International Community: A Window of Opportunity 32 Bojko Buˇcar Chapter 4 Institutional Setting for the New Independent State 53 Neven Borak and Bistra Borak Chapter 5 Transition to a National and a Market Economy: A Gradualist Approach 67 Joˇze Mencinger Chapter 6 Establishing Monetary Sovereignty 83 Andrej Rant iv Contents
Chapter 7 Succession Issues in Allocating the External Debt of SFR Yugoslavia and Achieving Slovenia’s Financial Independence 99 Mojmir Mrak and France Arhar
Part II Socioeconomic Transformation— The Slovenian Way 113 Chapter 8 Macroeconomic Stabilization and Sustainable Growth 115 Carlos Silva-Jáuregui Chapter 9 Trade Policy in the Transition Process 132 Boris Majcen and Bartlomiej Kaminski Chapter 10 Monetary System and Monetary Policy 150 Ivan Ribnikar and Tomaˇz Koˇsak Chapter 11 Exchange Rate Policy and Management of Capital Flows 170 Velimir Bole Chapter 12 Fiscal Policy and Public Finance Reforms 189 Milan M. Cvikl and Mitja Gaspari Chapter 13 Building an Institutional Framework for a 208 Full-Fledged Market Economy Rasto Ovin and Boˇstjan Kramberger Chapter 14 Privatization, Restructuring, and Corporate Governance of the Enterprise Sector 224 Marko Simoneti, Matija Rojec, and Aleksandra Gregoriˇc Chapter 15 Enterprise Restructuring in the First Decade of Independence 244 Polona Domadenik and Janez Praˇsnikar Chapter 16 The Banking Sector 263 Franjo Stiblarˇ and Marko Voljˇc Chapter 17 Capital Market Development 276 DuˇsanMramor and Boˇzo Jaˇsoviˇc Chapter 18 Labor Market Developments in the 1990s 292 Milan Vodopivec Contents v
Chapter 19 Social Sector Developments 315 Tine Stanovnik Chapter 20 Reentering the Markets of the Former Yugoslavia 334 Joˇze P. Damijan Part III The Quest for EU Membership 351 Chapter 21 EU Membership: Rationale, Costs, and Benefits 353 András Inotai and Peter Stanovnik Chapter 22 Slovenia’s Road to Membership in the European Union 367 Janez Potoˇcnik and Jaime Garcia Lombardero Chapter 23 Size Matters in the European Union: Searching for Balance between Formal and Actual Equality 381 Zlatko Sabiˇˇ c, Marjan Svetliˇciˇc, Dorota Pyszna-Nigge, and Wolfgang Wessels Chapter 24 Political Economy of Slovenia’s Transition 399 Janez Suˇˇ sterˇsiˇc About the Editors 413 Contributors 417 Index 421 Figures Figure 8.1 Real GDP in EU Accession Countries 118 Figure 8.2 Inflation Rate, 1987–96 119 Figure 8.3 Inflation Rate, 1997–2003 120 Figure 8.4 Inflation in EU Accession Countries, 2002 121 Figure 8.5 Current Account Balance 122 Figure 8.6 Inward Foreign Direct Investment 123 Figure 8.7 External Debt in EU Accession Countries, 2002 124 Figure 8.8 Unemployment Rate 125 Figure 8.9 General Government Fiscal Balance 127 Figure 8.10 Fiscal Balance in Selected EU Accession Countries and the European Union, 2002 128 Figure 8.11 EU Accession Countries and Maastricht Parameters, 2002 129 Figure 10.1 Structural Position of the Money Market and Net Foreign Currency Assets of the Central Bank 154 vi Contents
Figure 10.2 Structural Position of the Money Market, Required Reserves, and Net Liquidity Supply via Monetary Policy Instruments 155 Figure 10.3 Relationship of Change in Central Bank Bills Outstanding to Necessary Purchases or Sales of Foreign Exchange 167 Figure 11.1 Monetization on the Retail Foreign Exchange Market 175 Figure 11.2 Base Money and Central Bank Credits 178 Figure 11.3 Net Foreign Assets of the Central Bank 181 Figure 11.4 Difference in Expected Rates of Return on Domestic and Foreign Credits 182 Figure 12.1 Composition of General Government Expenditure 194 Figure 12.2 Composition of General Government Revenue 196 Figure 12.3 General Government Debt 198 Figure 12.4 Guarantees for Public Sector Entities 199 Figure 14.1 Ownership Structure of Privatized Companies at the Time of Completed Privatization and at End 2002 231 Figure 15.1 Ownership Structure in a Sample of Large and Medium-Size Privatized Firms, 1996–2000 251 Figure 15.2 Characteristics of Top Management in a Sample of Large and Medium-Size Privatized Firms, 1996–2000 253 Figure 18.1 Wages and Employment, 1990–2001 297 Figure 18.2 Worker Flows, 1990–2001 302 Figure 18.3 Job Creation and Destruction, 1990–2001 305 Figure 18.4 Returns to Education and Work Experience, 1987–2001 307 Figure 19.1 Employment, Unemployment, and Pension Recipients, 1990–2001 317 Figure 20.1 Trends in Slovenian Outward FDI, 1994–2001 342
Tables Table 1 Main Macroeconomic Indicators of Slovenia, 1991–2005 xxvi Table 2 Timetable of Major Components of Main Reforms xxx Table 2.1 Gross Social Product per Capita in SFR Yugoslavia 27 Table 2.2 Exports of Goods in SFR Yugoslavia 28 Table 5.1 Selected Indicators of the Slovenian Economy at Independence 73 Table 5.2 Structure of Sales and Purchases of the Slovenian Economy, 1990 74 Table 6.1 Balance Sheet of the National Bank of Yugoslavia, December 31, 1990 89 Table 6.2 Balance Sheet of the National Bank of Yugoslavia and the System of National Banks, December 31, 1990 90 Contents vii
Table 7.1 Medium- and Long-Term Convertible Currency External Debt of SFR Yugoslavia, End 1991 101 Table 8.1 GDP per Capita in Slovenia and Four Central European Countries Relative to EU Average, 1995 and 2001 118 Table 8.2 Real Net Wages, 1992–2002 126 Table 9.1 Shares of Industry and Mining Subject to Import Regimes, 1986 135 Table 9.2 Shares of Import Value and Foreign Trade Classification Codes by Import Regime, and Tariffs and Charges Paid, 1986–96 137 Table 9.3 Applied Tariff Rates in 1994 and 2001 and WTO Bound Tariff Rates 138 Table 9.4 Simple Average of MFN Tariffs by Stage of Processing, 2001 138 Table 9.5 EU and Slovenian MFN Average Tariff Rates, 2001 139 Table 9.6 Effective Rates of Protection, 1986–2001 140 Table 9.7 Major Events in Bilateral Trade Relations between the European Union and Slovenia 142 Table 9.8 Shares of EU Imports in Total Imports by Product List, and Estimated Customs Duties Levied, 1994–2001 143 Table 9.9 Bilateral Free Trade Agreements, 2001 144 Table 9.10 Collected Tariff Rates and Variable Levies, 2001 145 Table 10.1 Shares of Monetary Policy Instruments on the Balance Sheet of the Bank of Slovenia, 1992–2002 156 Table 12.1 Consolidated General Government Revenue, Expenditure, and Balance 190 Table 12.2 Structure of Fiscal Revenue in the European Union and Slovenia 195 Table 12.3 Fiscal Development, 1993–2002 197 Table 13.1 Indicators of Progress with Institutional Reform in Current EU Accession Countries 211 Table 14.1 Total Capital, Number of Companies, and Employment by Share of Insider Ownership in Privatized Companies 232 Table 15.1 Expenditure on Fixed and Soft Capital Investment 254 Table 16.1 Basic Statistics for the Banking Sector, 1991–2002 269 Table 16.2 Basic Financial Ratios for the Banking Sector, 1992–2002 270 Table 16.3 Harmonization of Slovenian Legislation with EU Banking Directives 274 Table 17.1 Selected Indicators of Capital Market Activity, 1995–2002 282 viii Contents
Table 18.1 Selected Labor Market Indicators, 1990–2001 298 Table 18.2 Worker and Job Flows, 1990–2001 303 Table 18.3 Results of Regressions Explaining Earnings by Sex, Education, Experience, and Ownership of Employer, 1987–2001 308 Table 19.1 Expenditure on Social Benefits by Function in Slovenia, 1996–2000, and the European Union, 2000 318 Table 19.2 Concentration Coefficients and Factor Income Shares in Total Income, 1993 and 1997–99 319 Table 19.3 Incidence of Poverty, 1993 and 1997–99 321 Table 19.4 Basic Characteristics of the 1983, 1992, and 1999 Pension and Disability Insurance Acts 323 Table 19.5 Pension Expenditures, Replacement Rates, and Actual Retirement Ages, 1992–2002 326 Table 19.6 Recipients of Unemployment Benefits, 1992–2002 330 Table 20.1 Bilateral Trade between Slovenia and Other Successor Countries of SFR Yugoslavia, 1992–2002 338 Table 20.2 Estimates of Entry Costs and of the Stability of the Local Business Environment 343 Table 20.3 Main Reasons for Export Entry Mode in 2000 344 Table 20.4 Main Reasons for Investment Entry Mode in 2000 345 Table 23.1 Weights of EU Member Countries and Accession Countries in European Institutions 391 Table 24.1 Real Economic Growth in Current EU Accession Countries, 1993–2001 400 Table 24.2 Relative EBRD Transition Index for Slovenia 405 Foreword
Slovenia’s achievements over the past several years have been remark- able. Thirteen years after independence from the former Socialist Federative Republic (SFR) of Yugoslavia, the country is among the most advanced of the transition economies in Central and Eastern Europe and among the best prepared for membership in the European Union (EU), beginning in May 2004. The world has changed dramatically dur- ing these 13 years, and so has Slovenia. The process of transition to a market economy in Slovenia and the other countries in Central and Eastern Europe is unprecedented in scope. Slovenia’s transition has been threefold: from socialism to a market economy, from a regional to a national economy, and from a part of SFR Yugoslavia to an independ- ent state and member of the European Union. However, development is a long, difficult, and complex process, and Slovenia faces major eco- nomic challenges. This book represents the work of a number of analysts reviewing the lessons from 13 years of transition in Slovenia. It reflects the knowledge and experiences of policymakers and academics in Slovenia and elsewhere, many of whom played a critical role in the country’s transition. Several contributors to this book were at the cen- ter of decision-making in the process of gaining independence, dur- ing the transition, and during the process of accession to the European Union. Their policy choices changed the face and fate of Slovenia. Their reflections give us an insider’s look at the options and alternatives that policymakers face. The analysis is organized around three overarching themes. The first is Slovenia’s road toward political and economic independence, and how Slovenia succeeded in separating from SFR Yugoslavia with far less pain than any of the other successor states. The second is Slovenia’s socioeconomic transformation, and how Slovenia as an independent country chose its special transition path. The third is Slovenia’s suc- cessful quest for membership in the European Union, and the country’s path ahead. ix x Foreword
With EU membership, Slovenia will face new challenges as well as new opportunities. Slovenia is ready to face those challenges. The effort and the sacrifices made in the past are starting to pay dividends. The priority for Slovenia’s policymakers is to complete the remainder of the structural reform agenda and to accelerate growth. The future looks bright for Slovenia as it sets out to tackle this agenda. The World Bank would like to express its appreciation to the con- tributors to this study and to those who assisted in its publication.
Shigeo Katsu Vice President Europe and Central Asia Region The World Bank March 2004 Preface and Acknowledgments
With 13 years of existence as an independent country, Slovenia is still a new state on the world map, yet the story of socioeconomic and politi- cal developments in Slovenia over those 13 years is a rich one and deserves a detailed account and analysis. Publication of this book was undertaken for the following three rea- sons, among others: