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Repository. Research Institute University European Institute. Cadmus, European University Institute, Florence European Institute, University on University The Economic Costs of Disintegration Access EUI Working Paper Working Paper EUI European Open WORKING POLICY UNIT EUROPEAN EUI PAPERS M Yugoslavia: Author(s). Available ilica The U 2020. © v a u c EPU in No. No. 92/17 Library EUI the by produced version Digitised Repository. Research Institute University European European University Library University European Institute. 3 Cadmus, 0001 on individually EUI Working (e.g. individually Paper LAW No 90/1). divided into six sub-series; each sub-series is numbered Please note As As from January 1990 the EUI Working Paper Series is University Access 0013 European Open 8888 Author(s). Available 5 The 2020. © in Library EUI the by produced version Digitised Repository. Research Institute University European Ml? Institute. Cadmus, EUROPEAN UNIVERSITY INSTITUTE, FLORENCE on University BADIA FIESOLANA, SAN DOMENICO (FI) DEPARTMENT OF EUROPEAN POLICY UNIT Access The Economic Costs of Disintegration EUI Working Paper European Open M Author(s). Available Yugoslavia: il ic a t o The 2020. © Y U in v a l ic EPU Library No. 92/17 EUI the by produced version Digitised Repository. Research Institute University European Institute. Cadmus, on University Access No part of this paper may be reproduced in any form European Open Printed in Italy in November 1992 without permission of the author. I - 50016 San Domenico (FI) European University Institute Author(s). Available All All rights reserved. The © Milica Uvalic BadiaFiesolana 2020. © in Italy Library EUI the by produced version Digitised Repository. Research Institute University European will be the object of useful potential research, I leave tendencies them and to historians, conflicts, political thethe ethnic,upsurge cultural, of religiouspro-Slav issues, including and political the otherhistory movementsof diversitiesthe SlavRepublicwhich ofnations that Yugoslavia,ran and it the would birthparallel be ofnecessary the toto considerYugoslav a nationalisticstates, number of highly relevant scientists and scholars of other disciplines, who will probably find in them have a for fruitful centuries characterized the balkan nations, and so forth. While these issues for over 70 years. both history and politics in shaping the actual events). The principal economic reasons frame and scope. It focuses mainly on the most recent period, and analyses primarily area for enlightening the complex roots of disintegration of a state that had existed examines the level of which interdependencehave contributedbetween to the disintegration Yugoslav are discussed republics in sectionpreceding two.the economicSection consequencesthree of disintegration of Yugoslavia (despite the importance of I.Introduction' disintegration. The consequences of disintegration for the economies of the newly- created states in two main areas - the monetary sphere and trade - are analysed in section four. Concluding remarks are drawn in section five. Zoran Trputec for commentscomments and ondiscussion, a as wellfirst as draftto Renzoof Daviddi, the Dinko paper.Dubravcic, MarkoMario Nuti,Jaklic, Saska PavlePosarac and Petrovic, and Marjan Svetlicic provided very useful sources of information. Any errors are my own responsibility. 1. am1 grateful to the participants of the 2nd EACES Conference (Groningen, September 1992) for their Institute. In In order to understand what has happened to what used to be the Socialist Federal This paper has much smaller ambitions, as it is more limited in both its time Cadmus, on University Access European Open Author(s). Available The 2020. © in Library EUI the by produced version Digitised 2 2.Background: economic roots of disintegration Repository. The starting point for understanding the economic reasons which have contributed to the breaking up of Yugoslavia is the uneven level of development between the more 2 Research developed and the less developed republics and regions. In order to bridge the gap between the "North" and the "South", mechanisms had been devised which were to ensure Institute the continuous transfer of resources towards the less developed regions. The main channel was the Federal Fund for the Development of Less Developed Republics and Regions, to which all more developed republics had to contribute a certain percentage (less than 2%) University 3 of their respective Gross Material Products (GMP). Despite such policies, the differences in the levels of development actually widened: the gap between GMP per European capita between the most and the least developed region, Slovenia and Kosovo, increased Institute. from 5:1 in 1955 to 8:1 in 1989. In 1990, Slovenia with 8% of total population produced Cadmus, 16% of Yugoslav GMP and contributed over 25% of total exports and imports; while on Kosovo, representing also 8% of the population, contributed only 2% of Yugoslav GMP University and around 1% of both imports and exports (see table 1). Access At the background of these problems is a long-lasting controversy over who was European Open "exploiting" whom. On the one hand, the more developed republics felt exploited because of obligatory transfer of resources which remained outside their direct control and hence Author(s). were often used in unproductive sectors and in an inefficient way, and other policies to Available their disadvantage which had hampered their own development and growth (e.g. retention The 2020. © of foreign currency earnings from exports and tourism). On the other hand, the less in Library EUI 2. Yugoslavia was a federation composed of six republics (Bosnia and Herzegovina, Croatia, Macedonia, Montenegro, Serbia and Slovenia) and two autonomous regions (Kosovo and Voivodina) within Serbia. The the more developed regions included the republics of Croatia, Serbia, and Slovenia, and the region of by Voivodina, while the less developed the republics of Bosnia and Herzegovina, Macedonia, Montenegro, and the region of Kosovo. 3. GMP, or "social product" in Yugoslav terminology, is the value-added at market prices of the "productive sectors" of the economy, thus excluding certain "non-productive" sectors such as education, produced health, defence, banking and other services. In this sense, it is similar to the concept of Net Material Product used in other socialist countries, but differs from such a concept because it is gross of depreciation. Initially these transfers were in the form of grants, while after 1971 in the form of version obligatory credit at highly concessionary terms; from 1975 onwards the possibility was also introduced for direct investment by firms in less developed regions as part of the republican quota. Digitised 3 developed republics felt exploited, and hence thought they had the right to development Repository. aid, because of the unfavourable terms of trade deriving from the structure of their economics (a large share of production in basic industries characterized by low efficiency Research and high capital-output ratios) in combination with distortions in relative prices (more diffused price controls of basic, respect to those of processed industries, implying lower Institute prices in general). Although the debate has been going on for years, there is no clear evidence supporting either of the two views. Another factor which has contributed to disintegration of the Yugoslav economy are University existing institutional arrangements introduced by the 1974 Constitution, which transferred significant discretionary powers regarding credit allocation, fiscal policies, prices, and to a European lesser extent the use of foreign exchange to the individual republics, who had thus gained Institute. the right to "sovereignty" over their respective economies. This had reinforced a form of Cadmus, "economic nationalism", leading to uncoordinated investment strategies - unnecessary on duplication of plants in many sectors - and rising regional autarky and fragmentation of the University Yugoslav market, as evidenced by the falling share of inter-republican trade throughout the Access 1970s. Besides the fragmentation of the product market, there were also impediments to European Open the mobility of capital and labour across republican borders, and weak inter-republican 4 integration of enterprises, most operating on their own territory. Author(s). The economic crisis present since 1979, which progressively led the Yugoslav Available The economy into a deep recession culminating in 1989 with hyperinflation, had added further 2020. © impetus to regional conflicts of interests. However, it is only in 1990 that these conflicts in sharpened, primarily for political reasons. In the second half of 1990, along with political Library disagreements between the republics, there was also dissatisfaction with the continuation EUI of the federal stabilization programme (successfully implemented in the first half of 1990). the which was believed to be contrary to the interests of all: the more developed republics, as by major exporters, were affected by the fixed exchange rate and were pressing for a produced version 4. The reasons for such tendencies are multifold, and go beyond the scope of this paper; for a further discussion of these problems, see Uvalic (1983). Digitised 4 devaluation, while the less developed republics were primarily hit by monetary restrictions. Repository. This led the federal government to accept certain compromises - initially concerning