Economy of SFR Yugoslavia

Economy of SFR Yugoslavia

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.

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 organised as a mixed planned socialist economy and a decentralised, 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.

1950's and 1960's

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.

With the exception of a recession in 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.

The fact that Yugoslavs were allowed to emigrate freely since 1960s caused many to find work in Western Europe, notably Germany. This contributed keeping the unemployment checked and also acted as a source of capital and foreign currency.


In 1970s, the economy was reorganised according to Edvard Kardelj'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", 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", who represent a 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-paddling.

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 just 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.

Effect of the Oil Crisis

During and after the Oil Crisis 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.

Collapse of Yugoslav economy

Yugoslavia was once a regional industrial power and economic success. Two decades before 1980, annual gross domestic product (GDP) growth averaged 6.1 percent, medical care was free, literacy was 91 percent, and life expectancy was 72 years. [ World Bank, World Development Report 1991, Statistical Annex, Tables 1 and 2, 1991. ] But after a decade of Western economic ministrations and five years of disintegration, war, boycott, and embargo, the economy of the former Yugoslavia collapsed.

Collapse of Yugoslav economy was partially caused by its non-aligned stand that had resulted in access to loans from both superpower blocs. This contact with the United States & the West opened up Yugoslavia’s markets sooner than the rest of Central and Eastern Europe. Despite Belgrade's non-alignment and its extensive trading relations with the European Community and the US, the Reagan administration targeted the Yugoslav economy in a "Secret Sensitive" 1984 National Security Decision Directive (NSDD 133), "Us Policy towards Yugoslavia." A censored version declassified in 1990 elaborated on NSDD 64 on Eastern Europe, issued in 1982. 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. [ Sean Gervasi, 'Germany, the US, and the Yugorlav Crisis,' Covert Action, n. 43, Winter 1992-93, p 42 ]

Western trade barriers, dramatically reduced its economic growth. In order to counter this, Yugoslavia took on a number of International Monetary Fund (IMF) loans and subsequently fell into heavy IMF debt. As a condition of receiving loans, the IMF demands "liberalisation" of Yugoslavia. By 1981, Yugoslavia had incurred $19.9 billion in foreign debt. However, Yugoslavia’s real concern was the unemployment rate, at 1 million by 1980.

In 1989, before the fall of the Berlin Wall, Yugoslav federal Premier Ante Markovic went to Washington to meet with President George Bush, negotiating for a new financial aid package. In return for assistance, Yugoslavia agreed to even more sweeping economic reforms, including a new devalued currency, another wage freeze, sharp cuts in government spending, and the elimination of socially owned, worker- managed companies. [ Gervasi, op. cit., p. 44 ] The Belgrade nomenclature, with the assistance of Western advisers, had laid the groundwork for Markovic'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 inflation, but old credit contracts stipulated constant interest rates. Repayments of debts for privately owned housing, which was massively built during the prosperous 1970s, became ridiculously small and 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 fueled the inflation further. In the late 1980s, the state of the economy was commonly considered a joke. Power-mongering in the big industry branch-wide companies led to several large failed investments (mostly large factories), which only increased the public perception of a deep crisis. After abortive attempts to fight inflation with various schemes, the government of Branko Mikulić was replaced by a new government, 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 by investment, the concept of social ownership and worker councils were 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 banks. Ownership and exchange of foreign currency was deregulated, which, combined with a realistic exchange rate, attracted foreign currency to the banks. In the late 1980, it was becoming increasingly clear that the federal government was effectively losing the power to implement its programme.

Early 1990s and outbreak of civil war

In the 1990s, IMF effectively controlled the Yugoslav central bank. 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 with the Paris Club and London clubs. The republics were left on their own to survive. From 1989 through September 1990, more than a thousand companies went into bankruptcy. By 1990, the annual GDP growth rate had collapsed to a negative 7.5 percent. In 1991, GDP declined by a further 15 percent, while industrial output shrank by 21 percent. [ Judit Kiss, 3Debt Management in Eastern Europe, Eastern European Economics, May June 1894, p 59 ]

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 demand. With external pressure by Western, Markovic's government passed financial legislation that forced "insolvent" businesses into bankruptcy or liquidation. Under the new law, if a business were 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 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 paychecks in late 1990. Some 600,000 Yugoslavs had already lost their jobs by September 1990, and 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 the remaining industrial workforce were "redundant". [ Already laid off and 'redundant workers constituted fully two thirds of the industrial work force. World Bank, Restructuring, op. cit., Annex I ] 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 Jovic warned:

Governments of individual republics refused to pay federal taxes or enforce federal import fees (border police and custom service 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, Reform Party, led the last-straw attempt to save the federation in negotiations over federal income from custom offices in 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 Tudjman and Serbia's Slobodan Milosevic joined Slovene leaders in railing against Yugoslavia's attempts to impose harsh reforms. [ Klas Bergman, 'Markovic Seeks to Keep Yugoslavia One Nation, Christian Science Monitor, July 11,1990, p.6. ]

In the multiparty elections in 1990, economic policy was at the center of the political debate as separatist coalitions ousted the Communists in Croatia, Bosnia 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 the republics are at one anothers' throats, 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 US 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

Fiscal year:calendar year

GDP per Republic/Country: "(source IMF/World Bank - 1990)"

The Post-War Regime

"For later developments, see: Economy of Bosnia and Herzegovina, Economy of Croatia, Economy of the Republic of Macedonia, Economy of Serbia and Montenegro, 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 reached its 1990 GDP in 2003, a feat yet to be accomplished by other former Yugoslav republics.Fact|date=September 2008


Additional reading

* [ Yugoslavia: Trouble in the Halfway House by Melvin D. Barger]
* [ 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]

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