The Yugoslav economy in 2001 and stability in
south-east Europe
UNECE releases its first 2001 Economic Survey of Europe
Geneva, 4 May 2001
"The new, democratically elected government of Yugoslavia is
facing one of the most complex and serious set of economic problems to be faced by any
transition economy since 1989." stresses Dr. Danuta Hübner, Executive Secretary of
the United Nations Economic Commission for Europe (UNECE) commenting the latest issue of
the Economic Survey for Europe, just released by the UN/ECE. "The 1980s were
already problematic for the former SFR of Yugoslavia, a lost decade in terms of
development; but the 1990s were disastrous, a decade of economic regress."
Yugoslavias GDP per head was some 46 per cent of the EU average
in 1980; in 1990 it had fallen to some 34 per cent, and rough estimates put it at somewhat
under 25 per cent in 2000. Devastated by a series of wars
culminating in the Kosovo conflict of 1999, by the chronic misallocation of resources
under authoritarian rule, by economic sanctions and isolation from the international
community, and debilitated by extensive corruption among the ruling elite which
appropriated a considerable proportion of the states resources to itself, the
present government is faced with an economy wracked by macroeconomic imbalances which are
far greater than those encountered in any other transition economy, including Russia. Many
of these imbalances were hidden by the previous regime in the form of suppressed inflation
and hidden subsidies to the enterprise sector.
An enormous quasi-fiscal deficit swollen by the losses of
publicly owned firms, which amounted to 123 per cent of GDP at the end of 1998 has
accumulated as an alternative to confronting the structural causes of the hyperinflation
of 1992-1994 and is the largest single imbalance facing the government. The government
debt and the countrys foreign debt, which amounts to some $12.2 billion, are both
equivalent to well over 100 per cent of GDP. But attempts to correct these imbalances
quickly run into a series of connected problems. Dealing with the stock of enterprise debt
will require large-scale public funding to restructure their balance sheets, while
stopping the further accumulation of debt will require hard budget constraints in a market
environment. But hard budget constraints will threaten at least 30 per cent of the total
employed labour force, which are estimated to be underemployed in state owned firms, in a
country where registered unemployment is already running at some 27 per cent of the labour
force. Enterprise restructuring, in turn, will require a reform of the complicated system
of social and public ownership, and the highly distorted structure of relative prices will
have to be liberalized if there is to be any significant movement to a more efficient
allocation of resources.
At the same time the government will have to confront two other major
tasks: the reform of the public finances and of the tax system, and the restructuring of
the banks. The net worth of the banks is dramatically low and so huge amounts of fresh
funds will be needed to recapitalize them.
The government must attempt to introduce this major programme of reform
in a country where the population, after more than a decade of drastically falling living
standards and the loss of a major part of its savings through hyperinflation and
government sequestration, has little or no confidence in the countrys financial
institutions, is distrustful of state institutions, and is resentful of what it sees as
excessive foreign interference. Whatever reforms are introduced further hardship for many
groups in the society seems inevitable. In these circumstances it may be dangerously
counter-productive to withhold assistance to the Yugoslav government until international
demands are met for the former President to be handed over to the International War Crimes
Tribunal in The Hague. As stressed in previous issues of this Survey, the economic
recovery of Yugoslavia is essential for the peace, prosperity and stability of south-east
Europe as a whole. The stability of the region remains highly fragile as recent events in
The former Yugoslav Republic of Macedonia and Bosnia and Herzegovina have underlined.
Without in any way compromising Yugoslavias legal obligations to the Tribunal in The
Hague, the immediate priority is for the Yugoslav government to get a comprehensive
programme of reforms underway and to bring about some improvement in the living standards
of the population. But it will not be able to do this without massive help from abroad.
There are signs that the international financial institutions are now acting more rapidly
and effectively in south-east Europe than they did in central Europe in the 1990s, but
they are unlikely to be able to provide all that is needed. A large and generous
and prompt effort will also be required from the EU, which should include a
significant proportion of non-debt finance in its assistance, as well as efforts to
prepare Yugoslavia for eventual accession to the Union. A rescheduling and reduction of
the countrys foreign debt is also urgent. So far the sums being discussed by the
international community fall far short of the Yugoslav governments estimates of its
needs. "With speedy and adequate assistance" stresses Dr. Hübner,
"there is a chance that the support for the Governments liberal reforms will
not evaporate into outright opposition and that the economy will embark on a steady path
of growth and reform."
For further information please contact:
Economic Analysis Division
United Nations Economic Commission for Europe (UNECE)
Palais des Nations
CH - 1211 Geneva 10, Switzerland
Tel: (+41 22) 917 27 78
Fax: (+41 22) 917 03 09
E-mail: [email protected]
Website: http://www.unece.org/ead/ead_h.htm
Ref: ECE/GEN/01/09