Oecd Economic Surveys : Yugoslavia 1982-1983.

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by  OECD

OECD
ECONOMIC SURVEYS
1982-1983
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YUGOSLAVIA
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OECD ECONOMIC SURVEYS
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YUGOSLAVIA
JUNE 1983
ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT
Pursuanttoarticle 1oftheConventionsignedinParison 14thDecember,
1960,andwhichcameintoforceon30thSeptember,1961,theOrganisation
for Economic Co-operation and Development (OECD) shall promole
policies designed:
- toachievethehighestsustainableeconomicgrowthandemployment
andarisingstandardoflivinginMembercountries,whilemaintaining
financial stability, and thus tocontribute to the development ofthe
worldeconomy;
- 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.
TheSignatories ofthe Conventionon the OECD areAustria, 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.ThefollowingcountriesaccededsubsequentlytothisConvention(Ihe
datesarethoseonwhichtheinstrumentsofaccessionweredeposited):Japan
(28thApril, 1964), Finland (28thJanuary, 1969), Australia (7thJune,
1971) and New Zealand (29thMay, 1973).
TheSocialistFederalRepublicofYugoslaviatakespartincertainworkof
the OECD (agreement of28thOctober, 1961).
©OECD, 1983
Application forpermission toreproduceortranslate
all orpart ofthis publication should be madeto:
DirectorofInformation,OECD
2, rueAndré-Pascal, 75775 PARIS CEDEX 16, France.
CONTENTS
Introduction 7
I. Domestic developments to end-1982 8
Medium-term trends 8
Demand, output and employment 10
Inflationary developments 15
II. Balance of payments and external debt 19
Trade developments 21
Invisibles and capital movements 25
External debt 25
III. Monetary and fiscal policies in 1982 28
Monetary policy 28
Fiscal policy 31
IV. Short-term stabilisation and longer-term adjustment 34
Short-term stabilisation 35
Medium-term issues 43
V. Conclusions 48
Annex: Technical notes 51
Statistical annex 62
TABLES
Text
1. The pattern ofgrowth 8
2. Household account 11
3. Demand and output 12
4. Price developments 16
5. Average earnings 17
6. Exports and imports 22
7. Foreign trade 23
8. Balance of payments 24
9. External debt 27
10. Money supply and credit 29
11. Interest rates 30
12. The structure of deposits 31
13. Federal budget 33
14. Consolidated revenue and expenditure of the public sector 34
15. The 1983 Economic Resolution and prospects 39
16. Conjunctural indicators 40
Statistical annex
A. Social product 62
B. National product and expenditure 63
C. Gross product at factor cost by industry 64
D. Gross fixed investment 65
E. National income and the household account 66
F. Agriculture 67
G. Industrial production 68
H. Labour force and employment 69
I. Prices and wages 70
J. Consolidated balance sheet ofall banks 71
K. Imports and exports by commodity groups 72
L. Imports and exports by area 73
M. Balance ofpayments 74
DIAGRAMS
Text
1. Current economic indicators 13
2. Labour market trends 14
3. Inflation indicators 18
4. Exchange rates 20
5. International trade 26
6. Public expenditure trends 32
7. Investment pattern 47
BASIC STATISTICS OF YUGOSLAVIA
THELANDANDTHEPEOPLE
Totalarea(1000sq.km) 256 Netincreaseinpopulation, 1971-1982
Agriculturalarea(1000sq.km) 1980 99.4 (1000),annualaverage 193
Forestarea(1 000sq.km) 1978 92.4 Total paidemployment(1982, 1000) 5980
Population(31.12.1981, 1 000) 22474 ofwhich:
Republics: Industry 2313
Serbia 9332 Building 612
Croalia 4606 Agriculture(socialsector) 210
Bosniaand Herzegovinia 4136 Activepopulationinprivate
Macedonia 1919 agriculture(31.3.1971 census, 1000) 3892
Slovenia 1 893
Montenegro 586
Majorcities
(31.3.1971 census):
Belgrade 1 209
Zagreb 602
Skoplje 389
Sarajevo 292
Ljubljana 258
PRODUCTION
Grossnationalproductatfactorcost OriginofGDPin 1981
(1981,billiondinars) 2304.5 (percentofGDP):
Grossdomesticproductperhead Agriculture,forestryandfishing 13.9
(1980,US$) 3030 Miningandmanufacturing 37.2
Grossfixedcapital formation: Building 10.3
1981 (billiondinars) 685.0 Other 38.6
1981 (percentofGNP) 27.2
GOVERNMENT
Governmentconsumption Generalgovernmentrevenue,
(1981,percentofGDP) 15.8 includingsocialsecurity
(1981,percentofGDP) 33.1
FOREIGNTRADE
Structureof Structureof
exports imports
in 1982 in 1982
(percent) (percent)
Food,drinks,tobacco 11.2 5.2
Rawmaterialsand
semi-finishedgoods 39.6 64.3
Finishedmanufactures 49.2 30.5
THECURRENCY
Monetaryunit: Dinar CurrencyunitsperUSS,
averageofdailyfigures:
Year 1982 49.3
March 1983 75.22
Note:Aninternationalcomparisonofcertainbasicstatisticsisgiven inanannextable.
ThisSurveyisbasedontheSecretariat'sstudypreparedfor
theannualreviewofYougoslaviabytheEconomicandDevelop¬
mentReview Committee on 17th May 1983.
Afterrevisionsin thelightofdiscussionsduringthereview,
final approval ofthe Surveyfor publication was given by the
Committeeon 31st May 1983.
INTRODUCTION
Economie policies in 1982 were again very restrictive and Social Product
stagnated. The tightening of policy in the 1982 Economic Resolution and a series of
measurestakeninthecourseoftheyearcontributedtoasharpfallindomesticdemand
for the second successive year to bring the cumulative decline to 5'/2 per cent. Fixed
investmentwasparticularlydepressed,alargereductionofwhichhasbeenanimportant
policy objective since 1980._Ihe fall in domestic demand was somewhat greater than
originallyplanned butwasinlinewiththeaimtodirectsubstantial resources from the
domestic economy to the external sector in order to facilitate balance of payments'
adjustmentandreducethelong-standingdistortionsinthefunctioningoftheeconomy.
" Influenced considerably by restrictions, thevolume ofimports fell steeply, but partly
reflectingtheworldrecessionexportvolumesalsodeclinedratherthanincreasedashad
been planned. Thecurrent external deficitwas cut by halfto VA billion despite higher
payments of interest debt and Yugoslavia was also able to continue considerable
reimbursements ofcapital. The stabilisation programme, involving substantial sacrif¬
icesonthepartofthepopulation,alsocontributedtoaslowdownofinflationbutonlyto
a rate of about 30per cent which is very high.
Policy in 1983 aims to build on the achievements made in 1982 not only on
shprt^ternrstahilisation but also to improve medium-term prospects. An important
policy package in October 1982 which included a sizeable devaluation of the dinar,
measures to improve the utilisation offoreign exchange and higher interest rates will
considerably influence developments in 1983. Since then, the dinar has been further
devalued_in_anumber of steps, and interest rates raised again. At the same time,
^.agreements have been reached with the international financial community on a
( financial packa to aid the stabilisation programme. In connection with these
rëëmènts 'cy~îh 1983 is again restrictive, and ambitious targets for the main
components ofdomestic demand and the balance ofpayments have been established.
Total domestic demand is again projected to fall sharply. The authorities -reflecting
their determination to honour their external debt obligations- are aiming to achieve
approximatebalanceinthecurrentexternalaccountwiththeconvertiblecurrencyarea.
Thesubstantialsacrificesimpliedbythepolicyobjectivesinvolveafurtherlargedropin
real average earnings. An official target for inflation has not been announced, but
reflecting,amongotherfactors,thedevaluationeffectsandmeasurestaken in January
to raise substantially prices of a number of important goods and services, some
acceleration in inflation in 1983 seems probable.
Part I of this Survey briefly reviews the medium-term background to the
imbalances in the economy which the stabilisation programme is designed to correct
and,then,discussesthedevelopmentofdemand,outputandemploymentin 1982.The
balance of payments and external debt which are central to policy are analysed in
Part II while Part III contains a review of monetary and fiscal policies in 1982.
Short-term prospects and stabilisation in 1983 and a discussion of the main
medium-term issues form Part IV. The Conclusions are summarised in PartV.
I. DOMESTIC DEVELOPMENTS TO END-1982
Medium-term trends
The period between 1973 and 1979 was characterised by unusually fast and
unbalanced growth with the economy moving out of phase relative to world
developments'. After the first oil shock, adjustments to the rapidly changing world
economicconditionswerenotmadesothattheimportantgainsfromthebroadly-based
economicgrowth up tothen were notconsolidated. Whereas in the majorityofOECD
countries energy consumption was reduced and other adjustments started which
resultedinamarkeddecelerationinthetrendgrowthofGDPintheOECDareatosome
2% percent (annual rate) between 1973 and 1979, thevolumeofYugoslavoil imports
increased by about one half and the annual rate of growth of Social Product (SP)
accelerated to about 6V* per cent. These developments were accompanied by a
significant shift away from the external sector and towards increasing reliance on the
Table1. Thepatternofgrowth
1973 1979 1982
1965 1973 1979
Annualpercentagechange
OECD,totalGDP 41 23 3
OECD,EuropeGDP 43 2! 1
Yugoslavia
Socialproduct 53 61 H
Domesticdemand 53 63
ofwhich:
Fixedinvestment 6j 9 -53
Exportsofgoodsandservices (8) (1) (53)
Importsofgoodsandservices (10) (2!) (-82)
Productivity1
Total(excludingagriculture) 4 21 -13
Industry(excludingconstruction) 41 33
Costofliving 123 173 343
Average.percentofGDP
Balanceofpayments
Currentdeficit l 3 2
Tradedeficit 53 93 63
1. Perpersonemployed.
Note: Bothdomesticdemandandvolumeexportandimportdatahavebeenpartlyadjustedtoallowfor
thelargestatisticaldiscrepancy.Figuresinparenthesisdenotealargemarginoferror.
Sources: StatisticalYearbookofYugoslavia:directcommunicationtotheOECDandOECDestimates.
domesticmarket:theannualrateofgrowthofexports(goodsandservices)felltobarely
1 per cent between 1973 and 1979 (compared with a longer-run annual rate ofabout
8 per cent prior to 1973), while domestic demand expanded faster than SP. The
accelerationinthegrowthoffixedinvestmentfromanannualrateofabout5'/i percent
before 1973 to 9 per cent in the following six years was particularly important. Fixed
investment'sshare in SProsefrom around 30percentin 1973 tonearly 35 percent in
1. Fora detailed analysisofstructural developmentsbetween 1973 and 1979seeOECD Economic
Surveyon Yugoslavia, May 1981, pp.19-32.
1979, making it the most important factor behind the rising distortions during the
secondhalfofthe 1970s.Thegrowthofgovernmentconsumptionalsoexceededthatof
theSP.
Theinflationary effects and theotherdistortions arising fromunbalanced growth
based on import substitution took time to show up. After the first oil shock, a major
reappraisal ofpolicyobjectives was not seen to be necessary as the emerging external
constraint was hidden for a time by a number of favourable developments:
i) Worldtourismwasconsiderablylessaffectedthanworldtradewiththeresult
thatYugoslavnettouristearningsmorethandoubledduringthesecondhalf
of the 1970s. Emigrant and other remittances increased considerably.
Yugoslavia profited also from the rapid expansion of OPEC demand for
construction work.
it) Limitedimportrestrictionswereimposedsothatatleastuptoearly 1977 the
current account deficit was kept within manageable limits.
Hi) International financial markets expanded considerably during this period
facilitating and to a certain extent stimulating borrowing by industrialising
countries and the debt servicing ratio remained low partly due to relatively
low interest rates up to 1979.
Thesedevelopmentstogetherwithastrongmomentumforexpansionattherepublican
andlocallevelsandpopularaspirationstoincreaselivingstandards,madeitdifficultto
adjust policies and change the pattern ofgrowth in the wake ofthe second oil shock.
Evenaslateastheendof1979whenthemajorimbalancesintheeconomywerelargely
apparent, the Economic Resolution for 1980 had fixed a target of 5per cent for the
growth ofthe SP in 1980 with investment being the main expansionary force.
The large imbalances -reflected in the significant rise of the trade and current
accountdeficitsto 10percentand5lâ percentofGDPrespectivelyin 1979-wasmore
thancanbeexplainedbytheriseinthenetoildeficit2. Rapidlyrisingexternaldebtand
thealmosttriplingoftherateofinflationtoabout40percentinearly 1980madeurgent
the adoption of corrective measures and brought about an important change in
economic objectives and policies. Since mid-1980, the main priority has been the
reduction of the balance of payments deficit by restraining domestic demand. The
earlier trends in fixed investment and government consumption were reversed late in
1980,andpartlypolicyinducedandpartlyduetotheaccelerationininflation,therewas
a severesqueezeon realaverageearnings.Thestanceofpolicywasagain restrictivein
the 1981 Economic Resolution, with the emphasis placed on the reallocation of
resourcesinfavouroftheexternalsectorandofprofitsattheexpenseofinvestmentand
realaverageearnings,bothofwhichdeclinedsharplyforthesecondyearrunning. Asa
result,totaldomesticdemandfellin1981 which,combinedwithimportcontrols,ledtoa
markeddeclineinthecurrentexternaldeficit.Theseachievements,thoughimportantin
themselves, proved inadequate to curb inflationary forces which had gathered
momentumsince 1978.Themechanismssetinplacetomakepossiblea reallocationof
resourcesinfavourofprofitsattheexpenseofearnings(byplacingtheemphasisontheir
relative movemen s arge yexp stheaccelerationofinflation tothepeakofnearly
50percent in the first halfof 1981 before coming down to somewhat less than 40per
cent towards the end ofthe year.
Inflationand, moreimportantly, the risingexternal debtand theassociated rapid
increase in the cost of its servicing led to further tightening of policy in the 1982
Economic Resolution. The external debt had more than doubled between early 1978
2. WhilethenetimportbillforoilincreasedbyaroundS1.6billionbetween1973and1979,thecurrent
accountdeficit rose from $1.2billion toS3.7billion.