Yugoslavia [1986-1987]

99 Pages·1987·6.475 MB·English

by  OECD

OECD
ECONOMIC SURVEYS
1986/1987
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JANUARY 1987
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YUGOSLAVIA
JANUARY 1987
ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT
Pursuanttoarticle 1 oftheConventionsignedinParison 14th December,
I960,andwhichcameintoforceon30thSeptember, 1961,theOrganisation
for Economic Co-operation and Development (OECD) shall promote
policiesdesigned:
- toachievethe highestsustainableeconomicgrowthandemployment
andarisingstandardoflivinginMembercountries,whilemaintaining
financial stability, and thus tocontribute tothedevelopment ofthe
world economy;
- to contribute to sound economic expansion in Member as well as
non-membercountries in theprocessofeconomicdevelopment; and
- to contribute to the expansion of world trade on a multilateral,
non-discriminatory basis in accordance with international obliga¬
tions.
The original Member countries of the OECD are Austria, Belgium,
Canada, Denmark, France, the Federal Republic of Germany, Greece,
Iceland, Ireland, Italy, Luxembourg, the Netherlands, Norway, Portugal,
Spain,Sweden,Switzerland,Turkey, theUnited Kingdomand the United
States.Thefollowingcountriesaccededsubsequently throughaccession at
the dates hereafter: Japan (28thApril, 1964). Finland (28thJanuary,
1969), Australia (7thJune, 1971) and New Zealand (29th May, 1973).
The Socialist Federal RepublicofYugoslavia takes part in someofthe
workoftheOECD (agreement of28thOctober, 1961).
Publiéenfrançaissouslelitre:
©OECD, 1987
Application forpermission toreproduce or translate
all or part ofthis publicationshould be made to:
Head ofPublicationsService, OECD
2, rue André-Pascal, 75775 PARISCEDEX 16, France.
CONTENTS
Introduction 7
I. Recent developments and the short-term outlook 8
Demand and output 8
Employment 10
Wages and prices 11
Balance ofpayments 13
Macroeconomic policies 17
Fiscal policy 17
Monetary policy 19
New measures 21
The Economic Resolution for 1987 23
II. Structural adjustment and long-term policies 26
Market inefficiencies 27
Long-term policies and institutional changes 29
III. Financial markets and monetary policy 32
The structure of the financial system 32
The authorities' intervention in the financial system 43
Market-oriented means of intervention 43
Selective credits and controls on interest rates 43
Controls on banks' domestic portfolio 45
The efficiency ofthe system 46
Allocation ofsavings and credit 46
The 1985 Banking Law 50
The effectiveness of monetary policy 50
The framework of monetary policy 50
Accommodating policy 51
The external constraint and the absence ofbuilt-in stabilisers 55
Alternative channels offinance 56
IV. Conclusions 58
Notes and references 62
Annexes:
I. Price-control regimes 68
II. Foreign-exchange and trade arrangements 70
III. An overview offinancial arrangements in the post-war period 72
IV. Other financial institutions 75
V. Central bank losses and purchasing-power transfers 77
VI. Inter-enterprise credit 78
TABLES
Text
1. Demand and output 9
2. Employment 10
3. Prices and wages 13
4. Balance ofpayments 14
5. Foreign trade 15
6. External debt 16
7. Federal budget 17
8. Consolidated public sector accounts 18
9. Selected monetary indicators 19
10. Economic Resolutions and outcomes 24
1 1. Medium-term trends 26
12. Household account 28
13. Comparative financial indicators 34
14. Assets of the non-financial domestic sector 35
15. Composition ofhousehold assets 36
16. Liabilities ofthe non-financial domestic sector 37
17. Balance sheet ofenterprises (socialised sector) 38
18. Balance sheet of the National Bank ofYugoslavia 40
19. Balance sheet of banks 42
20. Indicators of the regional dispersion ofcapital productivity 48
21. Money and credit: targets and outcomes 53
Annexes
Price controls since January 1985 69
Statistical annex
A. Social product 80
B. National product and expenditure 81
C. Gross product at factor cost by industry 82
D. Gross fixed investment 83
E. National income and household account 84
F. Agriculture 85
G. Industrial production 86
H. Labour force and employment 87
I. Prices and wages 88
J. Consolidated balance sheet ofall banks 89
K. Imports and exports by commodity groups 90
L. Imports and exports by area 91
M. Balance ofpayments 92
DIAGRAMS
1. Nominal and real earnings 12
2. Interest rates 20
3. Conjunctural indicators 22
4. Savings, investment and net lending by sectors 33
5. The distribution of foreign-exchange assets 39
6. National Bank ofYugoslavia credits to banks 44
7. The anatomy of selective credits 45
8. Selective credits: interest rate differentials 49
9. Indicators of bank liquidity and reserves 52
10. Money and credit: growth rates and valuation effect 54
1 1. Money and credit: income velocity 56
12. Ml and inter-enterprise credit 57
BASIC STATISTICS OF YUGOSLAVIA
THELANDANDTHEPEOPLE
Totalarea(1000sq.km) 256 Netincreaseinpopulation, 1971-1985 (1 000),
Agriculturalarea(1 000sq,km) 1984 143.0 annualaverage 186
Forestarea(1000sq.km) 1984 92.8 Totalpaidemployment(1985, 1 000) 6516
Population(30.06.1985, 1000) 23120 ofwhich:
Republics: Industry 2529
Serbia 9597 Building 583
Croatia 4655 Agriculture(socialsector) 231
BosniaandHerzegovinia 4313 Activepopulationinprivateagriculture
Macedonia 2016 (1982, 1000) 2292
Slovenia 1926
Montenegro 613
Majorcities(1981, 1 000):
Belgrade 1470
Zagreb 856
Skoplje 505
Sarajevo 449
Ljubljana 305
PRODUCTION
Grossnationalproductatfactorcost(1985, OriginofGDPin 1985 (percentofGDP):
billiondinars) 11 365.8 Agriculture,forestryandfishing 12.3
Grossdomesticproductperhead(1985,USS) 2784 Miningandmanufacturing 42.3
Grossfixedcapitalformation: 1985 Building 7.3
(billiondinars) 2566.8 Other 38.1
1985(percemofGNP) 21.0
GOVERNMENT
Governmentconsumption (1985, Generalgovernment revenue,includingsocial
percentofGDP) 13.8 security(1985,percentofGDP) 29.2
FOREIGNTRADE
Structureof Structureof
exports imports
in 1985 in 1985
(percent) (percent)
Food,drinks,tobacco 9.1 3.2
Raw materials and semi-finished
goods 40.2 69.8
Finishedmanufactures 50.7 27.0
THECURRENCY
Monetaryunit:Dinar CurrencyuniLsperUSS,averageofdailyfigures:
Year 1985 312.50
September 1986 410.99
Note:Aninternationalcomparisonofcertainbasicstatisticsisgiven inanannex table.
ThisSurveyisbasedontheSecretariat'sstudypreparedfor
theannualreviewofYougoslaviabytheEconomicandDevelop¬
ment Review Committeeon 25th November 1986.
Afterrevisionsin thelightofdiscussionsduringthereview,
final approval ofthe Surveyfor publication was given by the
Committeeon 17th December1986.
INTRODUCTION
Developments during the past two years or so have been unsatisfactory both viewed
against official expectations and in comparison with other OECD countries. The growth of
GDP remained moderate, whereas inflationary pressures strengthened considerably not¬
withstandingthemarkeddeclineofinflationin theOECDareaandthefall inoilprices.The
rise ofconsumer prices accelerated from a year-to-year rate ofsome 50per cent in 1984 to
more than 70per cent in 1985, reaching 96per cent by mid-1986. At the same time the
external adjustment process stalled. The current account surplus with the convertible
currencyareashrankbymorethanhalfbetween 1984and 1985andturnedintodeficitinthe
first six months ofthe current year despite continued high margins ofunused capacity and
labour market slack.
In view ofthese developments the Authorities have taken a number ofmeasures since
mid-1986 to bring inflation under better control and to improve the balance of payments.
However, many ofthe measures taken so far are ofa temporary or adhoc nature and are
therefore planned to be replaced or supplemented by more fundamental reforms aimed at
enhancing economic efficiency and the supply responsiveness ofthe economy. A number of
wide-ranginglegalandconstitutionalchangesarecurrentlyunderactiveconsideration atall
levels of government. Some measures have already been presented to Parliament in the
context of the Economic Resolution for 1987.
PartIofthisSurveyreviewseconomicdevelopmentssincetheendof1984attemptingto
identify the immediate causes of the present economic crisis. Part II recalls the principal
impediments to an efficient allocation of resources and the reasons for Yugoslavia's
inflation-proneness and fragile external position. It also discusses the changes made in the
institutional set-up and new policy initiatives since 1984. Part III is devoted to a critical
analysisoffinancialmarketsandtheirinter-actionswithmonetarymanagement. Bytryingto
identify weaknesses in the functioning of the financial system this special chapter may
contributetoabetterunderstandingofYugoslavia'spresentmalaise.Part IVsummarisesthe
main findings of the Survey and offers some policy considerations.
I. RECENT DEVELOPMENTS AND THE SHORT-TERM OUTLOOK
Economicdevelopmentsduring thepasttwoyears1 havebeen turbulent and maçroeco-
nomicperformanceunsatisfactory. Thefirsthalfof 1985 sawa continuation oftheprincipal
trendspredominatingsincetheearly 1980s:decliningrealearnings,adownwardtrendinfixed
investment, further consolidation ofthe current balance-of-payments surplus in convertible
currencies, and, at least until early 1985, relative stability of a high underlying rate of
inflation2. The secondhalfof 1985 wascharacterised bya strong policy-induced rebound of
domestic demand accompanied by a marked strengthening of inflationary tendencies and
strong import demand. Macroeconomic imbalances deteriorated further in the first halfof
1986 when average earnings increased at annual rates of more than 100per cent and the
current external account in convertible currencies swung back into deficit. In view ofthese
disturbingdevelopmentsthenewGovernment(formedin May 1986) hasstartedintroducing
a series of measures, with the immediate aim of reining in inflation and improving the
balance-of-payments situation.
Demand and output
Afterfouryearsofstabilisation efforts associated withdeclining living standardsand a
significant improvement of the balance of payments in 1983-1984, the 1985 Economic
Resolutionaimedatarevivalofdomesticdemandand'anaccelerationofGrossSocialProduct
(GSP)growth.Thiswasexpectedtobebroughtaboutbyasharpturnaroundoffinaldomestic
demand growth from negative during 1979-1984 to positive in 1985, with all demand
components participating in the renewed upturn. Yet, activity in the first half of 1985
continuedtodecline.Theinflationsurgehadanegativeimpactonbothconsumerdemandand
public consumption3. More importantly, fixed investment continued its downward trend
underthecombinedeffectofanumberoffactors:risingrealinterestrates;theLawrequiring
enterprisestoincreasetheirself-financingratioandtoprovidean"adequate"levelofworking
capitalbeforeundertakingnewprojects;andinclusionintaxableincomeofinterestpayments
oncredit forinvestment. For thesixth yearrunning,despitearebound ofprivateand public
consumption in thesecond halfof 1985, recordedfinaldomesticdemanddeclined markedly.
However, as in the previous few years, there was an important (probably statistically
exaggerated) positive contribution from stockbuilding4 to the growth oftotal demand. Net
exportscontinued tobean importantsourceofrealgrowth offsettingthedeclinein domestic
absorption5. GSP, excluding agriculture, grew at 1.8 per cent, the same rate as in 1984.
The Economic Resolution for 1986 projected again a relatively rapid GSP growth of
3 percent (non-agriculturaloutputgrowth 2.4percent). Contrarytothefivepreviousyears,
onlya small contribution from thereal foreign balance was forecast (0.4 percentage points)
leaving consumption and investment as the principal sources of growth. At the same time
inflationwasestimatedtodeclineandthecurrentexternalsurplusinconvertiblecurrenciesto
reach $800million (against an outcome of $350million in 1985). Output growth was
expectedtobefavouredbyeasiersupplyconditionsofrawandintermediatematerialsandby
greater energy production.
In the first halfof 1986 all domestic demand components exceeded significantly their
targets. Fuelledbysharplyrisingrealdisposableincome,theyear-on-yearincreaseinprivate
consumption attained almost 5 per cent. Many general government agencies were boosting
consumption and embarking on investment projects notwithstanding the fiscal restraint
postulatedinthe 1986EconomicResolution (seebelow). Similarly,therewasasharprevival
in enterprise investment and strong construction activity. Domestic demand buoyancy
coupledwithshrinkingexport marketsresulted ina fall inexportvolumesandasteeprisein
import volumes. Despite this contractionary effect, industrial production in the first halfof
1986 was 5 per cent above the level ofa year earlier and GSP, excluding agriculture, 6 per
cent higher, well above the official targets.
Table 1. Demandand output'
Billiondinars
Percentagechange3
currentprices
1986
1985 1981 1982 1983 1984 1985 Official' OECD4
Consumerexpenditure 5587 -1.0 -0.1 -1.7 -1.0 0.0 2.0 4.0
Publicconsumption5 941 -4.Z -0.7 -5.1 -0.2 -0.3 2.0 8.0
Fixed investment 2567 -9.8 -5.5 -9.7 -9.4 -4.0 3.5 5.0
Finaldomesticdemand 9095 -4.5 -2.0 -4.7 -3.6 -2.4 2.4 4.7
Stockbuilding6 2365 5.5 -0.7 2.8 4.7 3.2 1.5 1.3
Totaldomesticdemand 11460 0.6 -2.7 -1.4 1.5 1.2 3.4 5.1
Exports7 2638 -0.4 -11.2 1.4 10.1 8.2 0.0 -0.5
Imports7 2774 -12.3 -13.5 -5.5 -0.4 2.3 7.0 7.0
Foreign balance6 -136 4.8 1.5 2.0 2.7 1.6 -1.9 -1.8
Statisticaldiscrepancy6 -58 -4.0 -1.5 -1.4 -2.4 -2.2 2.0 0.4
Social product 11 266 1.5 0.5 -1.3 2.0 0.5 3.7 3.7
Social sector 10090 1.3 -0.2 -0.9 2.1 1.5 3.6
Privatesector,total 1 176 2.4 5.1 -0.7 -0.2 -5.7 4.3
Excludingagriculture 332 1.4 1.2 2.6 0.0 4.4 3.9
Agricultureand forestry 1310 2.9 7.4 -0.7 2.1 -*.6 4.7 5.0
Otheractivities 9956 1.2 -0.5 -0.9 1.8 1.8 3.5 3.5
Industry 5 128 4.2 0.1 1.3 5.6 2.7 4.0 4.0
Construction 796 -5.0 -7.6 -13.2 -4.2 -1.5 2.5
Services 4033 -0.5 0.8 -0.8 -0.8 1.3 3.1
1. Yugoslavdefinitionsandconcepts.
2. Changesatconstant 1985prices.
3. Officialestimates.
4. OECDestimatesbasedonpartialindicators.
5. Publicconsumptioniscalled"generalandcollectiveconsumption"accordingtoYugoslavdefinitions.
6. Percentagepointcontributiontothegrowthofthesocialproductmeasuredbytakingthechangeinstockbuilding(foreignbalanceorstatistical
discrepancy)asapercentofGDPinthepreviousyear.
7. Calculatedattherateof234dinars-USSI.
Source: DirectcommunicationtotheOECDandOECDestimates.