OECD Economic Surveys : Yugoslavia 1978.

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by  OECD

OECD
ECONOMIC SURVEYS
YUGOSLAVIA
MAY 1978
BASIC STATISTICS OF YUGOSLAVIA
THE LAND AND THE PEOPLE
Total area (1 000 sq. km) 256 Net increase in population
Agricultural area (1 000 sq. km) 1976 99.6 1966-1976 (1 000), annual average 191
Forest area (1 000 sq. km) 1974 90 Total paid employment
Population (30.6.1976, 1000) 21 560 (1977, 1000) 5044
Republics: of which:
Serbia 8860 Industry 1 947
Croatia 4530 Building 530
Bosnia and Herzegovinia 4029 Agriculture (social sector) 244
Slovenia 1 792 Active population in private
Macedonia 1 784 agriculture (31.3.1971 census, 1 000) 3892
Montenegro 565
Major cities (31.3.1971 census):
Belgrade 1209
Zagreb 602
Skoplje 389
Sarajevo 292
Ljubljana 258
PRODUCTION
Gross national product at factor cost Origin of GDP in 1976 (per cent
(1976, billion dinars) 645.6 of GDP):
Gross national product per head Agriculture, forestry and fishing 16.5
(1976, US $) Mining and manufacturing 38.5
Gross fixed asset formation: Building 10.4
1976 (billion dinars) 203.0 Other 34.6
1976 (per cent of GNP) 34.3
1971-1976 (per cent of GNP) 31.3
GOVERNMENT
Collective consumption General government revenue,
(1976, per cent of GDP) including social security
Federal current revenue (1976, per cent of GDP) 36.8
(1976, per cent of GDP) 9.5
FOREIGN TRADE
Structure of Structure of
exports in 1977 imports in 1977
(per cent) (per cent)
Food, drinks, tobacco 11.2 8.1
Raw materials and
semi-finished goods 43.0 52.5
Finished manufactures 45.8 39.4
THE CURRENCY
Monetary unit: Dinar Currency units per US $,
average of daily figures:
Year 1977 18.30
April 1978 18.29
Note An international comparison of certain basic statistics is given in an annex table.
oecd economic surveys
Archives
f-Uf *e«e*ice*
BUREAU
YUGOSLAVIA
ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT
The Organisation for Economic Co-operation and Development
(OECD) was set up under a Convention signed in Paris on 14th
December 1960, which provides that theOECD shall promote policies
designed:
toachievethehighestsustainableeconomicgrowth andemploy¬
ment and a rising standard ofliving inMember countries,while
maintainingfinancialstability,andthustocontributetothedeve¬
lopment of the world economy;
tocontributetosoundeconomicexpansioninMemberaswellas
non-membercountriesin theprocess ofeconomicdevelopment;
to contribute to the expansion ofworld trade on amultilateral,
non-discriminatory basis in accordance with international
obligations.
The Members ofOECD are Australia, Austria, Belgium, Canada,
Denmark, Finland, France, the Federal Republic ofGermany, Greece,
Iceland, Ireland, Italy,Japan, Luxembourg, theNetherlands, NewZea¬
land,Norway,Portugal,Spain,Sweden,Switzerland,Turkey,theUnited
Kingdom and the United States.
TheSocialistFederalRepublicofYugoslaviaisassociatedin certain
work oftheOECD,particularlythatoftheEconomicandDevelopment
Review Committee.
The annual review oj Yugoslavia by the
OECD Economic and Development Review Committee
took place on 10th April 1978.
©OECD, 1978
Queriesconcerningpermissionsortranslationrightsshouldbeaddressed
to:
Director ofInformation, OECD
2, rue André-Pascal, 75775 PARIS CEDEX 16, France.
CONTENTS
Introduction S
I Developments during 1977 6
II Economic policies in 1977 21
III Longer-term employment and productivity trends 27
IV Short-term prospects and policy conclusions 35
Annexes
I Public sector institutions in Yugoslavia 43
II Supporting material to part HI 45
III Chronology of main economic policy measures 1977 49
Statistical Annex 52
TABLES
Text
1 Demand and output 6
2 Household account 10
3 Prices 12
4 Foreign trade by commodities 16
5 Foreign trade by regions 18
6 Balance of payments 19
7 Money supply creation 22
8 Basic flows of reserve money creation 23
9 Interest rates of commercial banks on loans to clients 25
10 Consolidated budget of general government 26
11 Federal budget 26
12 Long-term trends in employment 29
13 Output, employment and productivity 33
14 Capital stock, labour and output in the socialised sector 35
15 Sources of growth of Yugoslav industry 36
Annexes
A Current revenues of self-managed communities of interest 43
B Current revenues of socio-political units 44
C Current revenues of specialised funds 44
D Indexes of industrial output and of factor inputs 45
E The development of job-search times 45
F Employment indicators 1955-1977; yearly averages, in thousands 46
G Regional employment indicators 47
OECD Economic Surveys
Statistical Annex
A Social product 52
B National product and expenditure 53
C Gross product at factor cost by industry 54
D Gross fixed investment 55
E National income and the household account 56
F Agriculture 57
G Industrial production 58
H Labour force and employment 59
I Prices and wages 60
J Balance sheet of the banking system 61
K Imports and exports by commodity groups 62
L Imports and exports by area 63
M Balance of payments 64
DIAGRAMS
Text
1 Output and employment 7
2 Fixed capital formation 9
3 Personal consumption indicators 11
4 Prices and costs 13
5 Geographical pattern of foreign trade 15
6 Relative cyclical position and relative export prices 17
7 Selected spot rates of the dinar and the effective rate 20
8 Money supply projections and actual developments 24
9 Emigrant labour and workers' remittances 31
10 The structure of job seekers 32
INTRODUCTION
Economie activity over the past few years has been strongly influenced by
generally weak demand developments abroad as well as important institutional
reforms and related changes in policy instruments. At the same time, there have
been marked shifts in the general stance of demand management dictated by
balance-of-payments considerations and internal price stabilisation objectives.
Against this changing environment output and employment growth has been
substantial. Between 1973 and 1977, real GDP grew at a much faster rate than
in most OECD countries and the rate of growth of dependent employment was
even higher than during the preceding four-year period. But the growth pattern
of the Yugoslav economy has continued to be uneven. A marked acceleration
of activity in 1974 was followed by a slowdown of output below potential in
1975 and 1976, giving way to a renewed strong upturn in 1977. At the same
time, the balance-of-payments has been subject to violent fluctuations with swings
in the current account from high deficit to surplus in 1972 and 1976 followed
by return to substantial deficits in 1974 and 1977. Similarly, there have been
marked changes in the inflation record: the period of excessively high price
increases in 1974-75 was succeeded by a brief spell of relative stability in 1976
followed by a reacceleration thereafter.
1977 was the second year of the current 5-year Plan. As noted in last year's
Survey, the output growth targets of the 1976-80 Plan are more modest than
those of its predecessors, while the employment objectives are more ambitious.
High priority has been attached to improving efficiency in production. To this
end, the ongoing process of increased decentralisation is to be intensified, aided
by institutional reforms aimed at strengthening financial discipline. The labour
market continues to be dominated by the problem of accommodating the desire
of those employed in the low-wage low-productivity agricultural sector to transfer
to more remunerative occupations. During the 1960s, the problem was alleviated
by large-scale emigration, to Germany in particular. The problem has been exa¬
cerbated by a return flow of these emigrants, and by demographic changes in
Yugoslavia itself. A fast sustainable growth of output in the non-agricultural
sector is thus necessary both to create new jobs on a sufficient scale and to enable
real wages to continue to grow. Such a target requires a sustained high level,
and even more importantly, an increased efficiency of investment. Though there
is no lack of desire to invest on the part of enterprises, the balance-of-payments
implications of high and growing capital goods imports combined with a rapid
expansionof real disposable incomes has resulted in recurrentbalance-of-payments
problems, notably in conditions of sluggish world trade as experienced last year.
The developments which have led to the pick-up of economic activity in 1977
and the accompanying strains on internal and external financial stability are
reviewed in Part I of the present Survey. Part II discusses the policy measures
taken last year to achieve major economic objectives and describes also recent
institutional reforms of the financial system. Part III examines long-term employ¬
ment and productivity trends attempting to throw some light on the process of
OECD Economic Surveys
economic development and the principal sources of growth. Short-term prospects
and the official targets for 1978 are discussed in Part IV which concludes with
some policy considerations arising from the analysis presented in the Survey.
I DEVELOPMENTS DURING 1977
The years 1974 and 1975 had witnessed acute inflationary pressures and
unsustainably high external current deficits. Short-run policies were accordingly
adjusted to curb domestic demand growth and had a considerable measure of
success. Inflation rates were halved in 1976, a small current account surplus was
registered and, though there was an increase in the number of registered job
seekers, employment in the socialised sector rose appreciably. For most of the
year, however, domestic demand was rather flat. Enterprise investment was
especially subdued until the autumn, as reforms designed to enhance corporate
financial discipline had an unexpectedly powerful albeit temporary effect
on their willingness and ability to spend. For the second year in a row, the
volume growth of social product was less than 4 per cent.
The official forecasts and policy resolutions covering 1977 were drawn up
in the early autumn of 1976 when the available indicators pointed to a flat trend
in domestic activity, and a slowing down of demand in the OECD area. Though
a recovery of investment was expected, its timing and strength were uncertain.
Table 1. Demand and output1
Billion dinars, Percentage change in constant 1972 prices
current prices
1977 Out¬ Plan
Ô SNA 1976 1974 197Î 1976 Plan come* 1978
Private consumption 351.5 323.7 7.3 3.4 3.9 4.5 7.0 6
Collective c ' n 118.7 60.3 7.3 9.3 9.0 5.5 6.2 6.5-7
Gross xed investment 206.6 203.0 8.9 9.0 5.5 6.8 9.5 8
Final domestic demand 676.8 587.0 7.1 5.7 4.9 5.2 7.7 6.5
Stock building3* 25.3 31.2 4.4 -2.4 -6.3 1.0 2.1
Tolal domestic demand 702.1 618.2 11.5 3.3 -1.4 6.2 9.8
Foreign balance' -19.3 -25.6 -3.0 0.4 5.3 -0.7 -2.5 +
Exports: Goods } 129.5 120.2 1.0 -1.9 14.9 6.5 -5.3 6.0
Services
Imports: Goods ] 148.8 145.8 14.4 -2.8 -6.8 8 13.1 0.0
Services
Social product 682.8 592.6 8.5 3.7 3.9 5.5 7.3 6-7
Of which: Agriculture 97.3 6.1 -2.8 7.3 3.0 3.3 3-4
Industryandmining 227.5 10.7 5.6 3.4 6.0 9.4 7-8
Netfactorincomefromabroad 24.0
GNPmarket prices 706.8
1. Yugoslavmethodology,basedontthheemmaatteerriiaallpprroodduuccttnnaattiioonnaalliinnccoommeeaaccounting,excludesgovernmentwages
andsalaries,theliberalprofessions,andcertainotherservicesfromsocialproduct
2. Estimates.
3. Includingstatisticaldiscrepancy.
4. Contributiontosocialproductgrowth.
Sources:SaopstenjaSZS,No.317;directcommunicationtotheOECD,
Yugoslavle
Diagram I Oat-pot and
Year-on-year percentage changes; 3 month moving averages
%
16
14
12
10
S
6
4
2
0
-2
Z%
INVENTORIES OF INDUSTRIAL GOODS, TOTAL
30
25 25
20 20
15 15
10 10
5 5
0 0
-5
Z%
7
6
5
- 2
0 i i i 11 i I I I . I I I i 11 i I i I I I . I I . I I . . I I i I I n
ii in Il m II III II III IV I II III IV
1973 1974 1975 1976 1977
Source: OECD, MEL
It was also desired to prevent a resurgence of inflationary pressures and a return
to high external deficits. For these reasons, policies were designed to ensure that
domestic demand growth, led by fixed investment, would gradually replace net
exports as the source of economic expansion in 1977. Some deterioration in the
current external balance was considered acceptable for a country in Yugoslavia's
stage of economic development. Social product volume was forecast to grow
more slowly than the 7 per cent average target of the 1976-1980 medium-term
Plan, and it was hoped to keep the rise in the cost of living during 1977 down
to the 12 per cent recorded during 1976.
OECD Economic Surveys
Strong revival of domestic activity
By early 1977, it became clear that a vigorous revival of investment and
production had been under way since the previous autumn. Indeed, the carry¬
over into 1977 was so large that the target of about 6 per cent year-on-year rise
in industrial output could have been achieved with no further growth during 1977
itself as was pointed out in last year's OECD Survey. Output growth continued
at a fast rate in the first few months of the year, but flattened out after the spring.
Late in 1977 and in the first two months of 1978, there were signs of a return
to somewhat faster growth. Year-on-year, industrial production increased by
9h per cent. Particularly large gains were made in industries such as pulp and
paper, rubber, petroleum and chemicals. Only shipbuilding suffered a decline
in output. The fast growth in output was accompanied by an even faster increase
in imports, while merchandise exports actually declined. The consequent negative
swing in the real foreign balance was of the order of 2\ per cent of social product,
which advanced year-on-yearbyover 7 percent, according toprovisional estimates.
Consumer prices rose more quickly than in the previous year, but apparently
more because of increases in indirect taxes and removal of subsidies than because
of an acceleration in cost pressures.
Domestic demand components
Fixed investment was expected to be the driving force for the revival of total
activity in 1977, rising by some 7 per cent. The medium-term Plan envisaged
rapid investment as a condition for desired structural changes and for the deve¬
lopment of priority sectors1. As 1976 was a year in which investment demand
by enterprises was very cautious due to new measures affecting enterprise account¬
ing2, it was reasonable to expect that many investment decisions would be realised
in 1977. These expectations provedjustiSedr---Fixed investment volume rose
by 9.5 per cent. According to flc-w~offunds dataVpriority sectors were the main
beneficiaries of investment expansion: TTfe energy sector (hydro and thermo-
electrical plants, distribution network) increased its value share in total fixed invest¬
ments in the socialised sector from about 14 to more than 18 per cent, and
transportation also increased its share. Investment in some priority sectors
lagged behind the Plan, however. Ferrous metals, agriculture and tourism did
not increase their investment as expected. The official estimate of the increase
in housebuilding, at 8 per cent, was rather less than laid down in the Plan4. The
rapid advance of investment demand during 1977 effectively offset the subdued
trend of 1976, but the average for the two years was still below the target of the
1 These sectors, it may be recalled, are: energy production and distribution, ferrous
and non-ferrous metals, basic chemicals, machinery, shipbuilding, agriculture, transportation
and tourism.
2 See the 1977 Economic Survey of Yugoslavia, Part II, for a description of these
ne\y measures.
/ T> The Social Accounting service records all financial transactions by enterprises,
identifying them by source of finance and type of expenditure. Data in investment spending
arising in this way is in value terms, and do not necessarily correspond to national income
concepts. The discrepancies between payments data and real investment were probably
particularly large in 1976 and 1977 because ofthe effects of the new accounting laws.
4 The 8 per cent estimate may be on the high side. Data on starts and completions,
and surface area constructed suggest that there was little or no increase in residential
construction in the socialised sector. Precise data for the private sector, which accounts
for over half of house-building, are not available. But it is known that there were shortages
of constniction materials, notably cement, and the picture of less than buoyant residential
construction is lent support by stagnant sales and rising stocks of furniture. Furthermore,
about 80 per cent of private investment is residential, and private investment is estimated
to have increased by less than 9 per cent.