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Yugoslavia Historical Background
Adherence to the Soviet model after World War II meant that
foreign trade was controlled entirely by the state, contact with
the Western industrialized countries was kept to a minimum, and
domestic resources were used as much as possible in the process
of industrial development. Therefore, exports were viewed merely
as a device for obtaining essential imports, and many items were
manufactured within the country although they could have been
imported much more cheaply. In 1948 foreign trade amounted to
less than 10 percent of Yugoslav Gross National Product
(
GNP--see Glossary). Most trade activity was bilateral commodity exchange
with other socialist countries. Over two-thirds of pre-World War
II Yugoslav foreign trade had been with Western Europe, but by
1948 over 50 percent of imports and exports involved Cominform
countries.
Immediately following Yugoslavia's expulsion from Cominform
in 1948, trade with socialist countries dropped to zero. This
sudden change meant that between 1948 and 1950 the total value of
Yugoslav exports fell by nearly 50 percent, and imports by 25
percent. Yugoslavia was forced to turn to the Western
industrialized nations to obtain capital equipment, fuel, and raw
materials for the intense industrial development called for in
the first two five-year plans. Throughout the 1950s, United
States and West European credits and grants were vital in
sustaining industrial growth in Yugoslavia.
As early as 1961, new foreign exchange and foreign trade
policies stressed liberalization and decentralization. The
driving motivation of the reform of 1965 was to bring Yugoslavia
into the world market. This meant removal of foreign trade
barriers and open economic competition with foreign enterprises.
Theoretically, those developments would spur greater efficiency
in the domestic market and make Yugoslav goods more competitive
on the world market. As a result, Yugoslavia could sell its
competitive goods on the international market and halt production
of items that could be imported more cheaply. The domestic market
remained under the protection of partial government price support
until Yugoslavia could be fully transformed to a market economy
and the dinar made convertible to Western currency.
Trade in the 1970s was greatly influenced by Yugoslavia's
dependence on oil imports and a worsening balance of payments.
Increases in world oil prices in 1973 and 1979 accelerated import
costs while export growth was slow. The Fifth Five-Year Plan
(1976-80) failed to transfer emphasis to technologically advanced
industries able to replace imports and expand exports. Balance of
payments constraints slowed domestic activity in 1972, in 1975-
76, and in 1979-81. In addition, the world recession at the end
of the 1970s caused net interest payments on foreign debts to
increase considerably, net receipts from Yugoslavs working abroad
to decline, and foreign lenders to withdraw.
In 1980 Yugoslavia owed over US$18 billion to Western
creditors. Because the only way to shift the debt was to increase
exports, the slogan adopted for trade policy in the 1980s was
"Export by Any Means." Exports accelerated, and prices for them
dropped. By 1986 the Yugoslav trade deficit with the European
Economic Community
(
EEC--see Glossary) had dropped to US$1
billion from its 1980 level of US$4 billion. But this drop was
more a function of decreased non-oil imports, required to
conserve hard currency reserves, than of increased exports (see
table 15, Appendix).
Trade with the industrialized West dropped sharply in the
mid-1980s, from a 55.6 percent share in 1978 to 43.3 percent in
1984. During this period, debt owed to Western Europe reached 60
percent of the total Yugoslav debt. In response, a piecemeal
policy rescheduled some debt, sought loans from new Western
sources, and continued repayment of at least the interest on
existing debts.
After massive devaluations in the dinar in 1989, that
currency was pegged to the West German deutsche mark
(DM--see Glossary) and declared convertible in January 1990. Set at seven
to the DM, the dinar was to move parallel with the DM against
other Western currencies. This provision allowed citizens as well
as enterprises to convert dinars to Western currency upon demand.
At the beginning of the 1990s, economists predicted that the
value of Yugoslav exports would continue to rise to record levels
and the foreign debt would be manageable; in the early stages of
the reform, the "new" dinar proved more stable than most
economists had expected.
Data as of December 1990
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