Market Reform in the Federal Republic of Yugoslavia: Achievements, Challenges, and Dangers
Summary of the East European Studies director's forum with Mladjan Dinkic, Governor of the National Bank of Yugoslavia.
Governor Dinkic succinctly summarized the achievements and challenges of the Former Republic of Yugoslavia in economic reform since the ouster of Milosevic in October 2000. Among some of the most important economic reform achievements over the last year, Dinkic listed: attaining durable market economic stability; lowering inflation; the reform of the banking sector; the start of serious privatization of national industries; and, the reintegration of Yugoslavia in international institutions, especially financial institutions. These successes were made possible, according to Dinkic, by the coordination of monetary and fiscal policies - a factor lacking in the previous reform attempts of the 1990s.
Some of the immediate, short-term results of this massive economic reform program include: boosting the foreign currency reserves (~$ 1 billion) to almost three times the size of the Avramovic era government in the early 1990s (~$ 550 million); concluding the first IMF Stand-by Agreement; securing a new agreement with the World Bank; obtaining an unprecedented 2/3 debt reduction from the Paris Club; and achieving a 6.5% GDP growth in 2001.
To ensure the durability of these reforms, the Yugoslav government launched a series of stabilization measures in 2001, including a very restrictive monetary policy, which basically stopped credits to banks and limited credits to the government; a tight fiscal policy to control and lower the budget deficit; price liberalization; and the opening of the country to the world through wide foreign trade liberalization.
Despite this impressive record, Dinkic cautioned that Yugoslavia faces serious challenges and dangers for the short-term duration. Among the biggest challenges are: the need to maintain the relatively high growth rate level of 5% per year, attracting foreign investment, a high level of unemployment (~20% even if one counts employment by the shadow economy), and aspiring for WTO and EU membership – made more difficult by the EU-brokered compromise between Serbia and Montenegro which calls for 2 markets, 2 currencies, and 2 tariff systems.
While underscoring the importance of cooperation with the Hague War Crimes Tribunal, Dinkic identified the unsolved economic relationship between Montenegro and Serbia and their uneven economic projected growth, as well as the possibility of premature elections - as a result of the possible break-up of the governing coalition of reform parties due to tensions between President Kostunica and prime Minister Djindjic - as the biggest problems of the fragile ruling government of Yugoslavia. Additionally, there is also the danger that international support and assistance might slacken in the near future due to the conditionality of assistance on cooperation with the Hague Tribunal. This would be devastating to the fragile successes achieved so far and is likely to set back projected goals of sustained growth. The key for Yugoslavia is not so much bilateral assistance from the U.S. or other nations but access to the enormous resources of international financial institutions like the IMF and World Bank. In any event, Dinkic expects the government of Serbia to demonstrate its willingness to cooperate with the Hague Tribunal during this coming month.
In spite of this dire outlook, Governor Dinkic remains optimistic. Serbia, unlike other East European transition economies, he says, is expected to experience two reform waves: one ongoing and a second to come, especially if the current government holds on to power and pushes through further necessary reforms.