Yugoslavia already had a hybrid economic system, and was aiming to move further towards a more decentralised and market economy while maintaining self-management, but changeover to conventional banking system and monetary policy was erratic and difficult. Adjustments to exchange rate to preserve competitiveness and recurring monetary expansions led to inflation-depreciation spiral which eventually became uncontrollable.
|Years||Targets and attainment||Classification|
|1974-87||economic arrangements sometimes described as ‘market socialism’ with elements of centralised planning, direct controls, self-management (strengthened under new more federal constitution 1974) and free markets; after bank reforms of 1971-2, central bank at federal level plus national banks in each republic with some autonomy, plus ‘business banks’; monetary policy focused on both growth and inflation; main instruments are selective credit controls, together with reserve requirements, liquidity ratios, and rediscount ceilings, but planned transfer of lending from central to business banks is difficult and monetary control poor; decentralisation restricts scope for fiscal policy; controlled forex market from mid-1973, exchange rate set, with frequent changes and without announced margins, at ‘realistic’ level by central bank in relation to USD and/or DM, at varying rates that imply occasional breaks in cross rates; 1974-5 attempts to transfer credit decisions to business banks in absence of capital market; 1976-7 major banking reforms, with continued emphasis on credit growth; credit ceilings reintroduced 1978; credit and monetary control remain poor, recurring problem of inflation (related to wage setting and lack of financial discipline in firms) countered by depreciation aimed at stabilising real exchange rate in terms of producer prices (which typically rise less rapidly than retail), e.g. in 1981 and again in 1982; more emphasis on interest rates from 1982, but real rates mostly negative; rising levels of external borrowing; growing importance of remittances from expatriate workers; monetary policy complicated by valuation effects from frequent exchange rate changes and by interenterprise credit; 1986 forex market reform, more active exchange rate policy; bank-by-bank credit targets remain main instrument, backed up by rediscount limits, reserve requirements and, less important, central bank bills sold to banks; over 1980s focus on growth and poor financial discipline (with banks owned and managed by their main company borrowers) make for rising inflation and continuous depreciation||loosely structured discretion LSD|
|1988-91||1988 credit ceilings abolished, reserve requirements (in 1988 imposed on credits as well as deposits) become main instrument, policy eased despite stabilisation programme; 1989 further banking reform, end of price controls, some wider liberalisation and large devaluation, monetary policy accommodating; end-1989 currency made convertible and pegged temporarily to DM, moves to establish interbank money market; 1990 new stabilisation plan, initially successful but not sustained, inflation-depreciation spiral resumes from mid-late 1990; 1991-2 republics secede and Yugoslavia dissolves, armed conflicts and hyperinflation||unstructured discretion UD|
Selected IMF references: RED 1973 pp20-2, 44; RED 1974 pp52-4; RED 1975 pp27-31, 47-8; RED 1977 pp43-9, 77-8, 91; Yugoslavia – Exchange and Trade System, 1978, pp9, 13; RED 1979 pp34-5, 96-104; RED 1980 pp38-41, 52, 66-7; RED 1982 pp28-33, 65; SR 1982 pp8-9; RED 1983 pp9-11, 19-20; SR 1983 p8; RED 1985 pp43-5, 64-5; SR 1985 pp13-15; RED 1986 pp41-2, 125-6; RED 1987 pp1-2, 70-5, 150-5; SR 1987 pp13-6, 18-19; RED 1988 pp32-3, 37, 51-2; RED 1988 pp1-2, 38-41, 59-60; SR 1988 pp7, 9-11; RED 1991 pp1-2, 26-31, 37. [no further IMF reports available] Other references: Lahiri (1991).