Communist and Post-Communist Studies 46 (2013) 263–273

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Communist and Post-Communist Studies

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Economic reasons for the break-up of Yugoslavia

Viachaslau Yarashevich a, *, Yuliya Karneyeva b
a
Belarusian State University, Department of International Relations, 20, Leningradskaya, Room 513, Minsk 220030, Belarus
b
Erasmus-Mundus MIREES, University of Bologna, Via Giovanni Fronticelli Baldelli 20-26, 47121 Forli FC, Italy

a r t i c l e i n f o a b s t r a c t

Article history: The history of Yugoslavia continues to attract academic attention more than twenty years
Available online 12 April 2013 after the violent break-up of this federative state. Analyzing why it happened can be
instructive in dealing with many unsolved problems in the region. The article will argue that
Keywords: deteriorating economics triggered all other factors leading to eventual disintegration of
Yugoslavia Yugoslavia. Specifically, during the 1980s external and internal economic imbalances, coupled
External debt
with substantial regional disparities, resulted in a situation which was no longer acceptable to
Self-management
some constituent republics, especially the wealthier ones. Unfortunately, their secession was
Unemployment
followed by a violent conflict which still resonates throughout South-Eastern Europe.
Ó 2013 The Regents of the University of California. Published by Elsevier Ltd. All rights
reserved.

The phenomenon of Yugoslavia, a multi-ethnic state of 23 million people (1989) known for its alternative socialist
development model that proved quite a success for more than 30 years, has aroused interest of many social scientists. Its
remarkable economic growth coupled with non-alignment foreign policy made this federation of Balkan people a unique case
at the time. For several decades after the Second World War Yugoslavia featured robust economic growth based on rapid
industrial development and gradual trade liberalization, at the meantime providing extensive social benefits for its citizens.
However, this federative state did not last – with the waning of communism all over Eastern Europe not only had communism
fallen in Yugoslavia, but this had also been followed by some of the most anti-human events in the postwar period, leading to
a vicious breakup of the federation into several smaller states. There are different theories attempting to explain why such a
proud and economically successful multi-ethnic country all of a sudden transformed itself into a place full of intolerance,
ethnic conflicts and violence. This paper will seek to reveal that it was economic reasons that served as a trigger in the process
of Yugoslavia collapse in the early 1990s.

1. Main approaches explaining Yugoslavia’s break-up

In the last two decades, particularly in the late 1990s, an extensive body of academic literature was produced trying to
explain the break up of Yugoslavia (Djokic and Ker-Lindsay, 2011; Dragnich, 1995; Lukic and Lynch, 1996; Rogel, 2004;
Stojanovic, 1997). Several lines of thinking could be discerned in such writings, with Dejan Jovic (2001; p. 101) from the
University of Stirling identifying as many as seven “major types of arguments” relevant in this regard:

(1) the economic argument;

(2) the “ancient ethnic hatred” argument;
(3) the “nationalism” argument;
(4) the cultural argument;
(5) the “international politics” argument;

* Corresponding author.

0967-067X/$ – see front matter Ó 2013 The Regents of the University of California. Published by Elsevier Ltd. All rights reserved.
http://dx.doi.org/10.1016/j.postcomstud.2013.03.002
264 V. Yarashevich, Y. Karneyeva / Communist and Post-Communist Studies 46 (2013) 263–273

(6) the “role of personality” argument;

(7) the “fall of empires” argument.

Despite the fact that economic argument features first in the above list, it has seldom been sufficiently emphasized in the
available English-language literature on Yugoslavia, as most authors preferred to study apparently more exhilarating argu-
ments, ranging from “ancient ethnic hatred” to the “fall of empires” as the list above suggests. While some of them, such as the
“ancient ethnic hatred” or the “fall of empires” ones, do not seem to be quite relevant for “strictly academic debates” at all,
others, such as the “nationalism”, “cultural” or “international politics” arguments appear more plausible.
In fact, all these arguments can fall into a line of thinking which emphasized political factors in the break up of Yugoslavia.
For example, Carole Rogel (2004; p. 41) suggested that political factors, that is, a dysfunctional political system, were at the core
of Yugoslav crisis. Indeed, there is some evidence showing how one-year presidencies coupled with the system of consensus
and multiple institutions were making it less and less clear who was in charge of Yugoslav politics and economics. However, if
the problem was only with the system of government – why not reform it to a more centralized one, so that everything could
become clear? Why, instead, the constituent republics wanted to be independent as the situation worsened?
Ideally, people should live in peace, hence any reasons to go for war must be strong enough to induce individuals for
violent conflicts. Such reasons must be particularly strong when there is a blood-spattered war among people who for several
decades lived in one state, spoke similar language, shared common culture and were considered a post-war socio-economic
and political success story, as seemed to be the case in former Yugoslavia. Attempts to explain the belligerent break-up of this
country in the early 1990s only by political, historical, nationalist or cultural factors, however well-grounded and logical they
may be, do not appear sufficient. For it seems that at the bottom of Yugoslavia’s crisis twenty years ago laid socio-economic
problems that developed for some time before and burst out at the time of communist disintegration in Eastern Europe.
Analyzing these socio-economic imbalances of Yugoslavia’s break-up should help to see more clearly why popular discontent
in that country had to transform into gory wars.

2. Imbalances in the postwar Yugoslav economy: external debt

Yugoslavia’s economy was in many ways unique. Formally based on Marxist ideals, in reality it was perhaps more West-
ernized than any other socialist economy, with market even accepted as “a constituent element of the economic system” in
1974 constitution, something utterly inconceivable in the case of the Soviet Union (Schrenk et al., 1979; p. 67). This might have
been the outcome of the country’s early split with the Soviet Union, but could have been also predetermined by its complex
history and national make-up, as well as personal convictions of Yugoslav leaders, notably Marshal Josip Broz Tito. At any rate,
following its independent socialist development strategy, Yugoslavia sought to maintain good relations both with the West and
the East (Woodward, 1995; p. 29). Among other things, this policy allowed the country to benefit from Western sources of
financing for its development projects despite formally socialist status. For example, as a result of the break with Cominform in
1948, Yugoslavia reportedly received as much as 2 billion USD of aid from the U.S. alone from 1949 to 1961 (Schrenk et al., 1979;
p. 218). In addition to U.S. aid, including that received through the Marshall Plan, Yugoslavia was actively importing private
capital from West European banks, as well as drew on official financial support from the World Bank (Schrenk et al., 1979; pp.
218–219). Indeed, it was noted that Yugoslav dependence on foreign capital in the 1950s and early 1960s was so high that
without it the country’s industrialization would have been much slower and far less spectacular (Dyker, 1990; Gnjatovic, 1985).
For instance, Susan Woodward (1995; p. 226) argued that ‘despite Yugoslavia’s maneuverability among global markets. the
credits, capital goods and intermediate materials on which the economy relied came largely from Western, hard-currency
market’. And it is actually in the 1960s that Yugoslavia started to experience problems on global financial markets:
In 1961 the current account deficit reached $250m. Worse was to follow as another big deficit in 1964 left Yugoslavia
unable to meet its external financial commitments. This was the first of Yugoslavia’s post-war debt-service crises. It was
not a particularly grave crisis. the total debt in 1964 was only just over $800m. But it forced Yugoslavia, not for the last
time, to go to the IMF for help (Dyker, 1990; p. 62).
During the 1970s, Yugoslavia continued to rely on Western finance to cover both its investment needs and current account
deficits. It was estimated, for example, that between 1950 and 1975, foreign credits covered nine tenths of the deficit on
current account (Gapinski et al., 1989; p. 156). But such a heavy reliance on Western finance served Yugoslavia badly in the
1980s, when borrowing terms on global financial markets were tightened as a result of neo-liberal macroeconomic turn-
around. During the decade preceding the start of the developing world debt crisis in 1982, the federation saw a nearly five-
fold increase of its external debt, which rose from 3.4 billion USD in 1972 to 16.1 billion in 1981 (World Bank, 1983; p. 284).
Whereas in the late 1960s the bulk of Yugoslav external debt was contracted from public sources on relatively favorable terms,
in 1982 the share of public sources stood only at one fifth, which meant that most of the country’s new debt commitments
came from private sources and on generally less favorable terms, which were also more sensitive to volatility on international
financial markets. For example, in 1981 the average rate of interest paid by Yugoslavia on loans from private sources reached
nearly 20%, whilst ten years prior to it was about 7% (World Bank, 1983; p. 285). As a result, total debt servicing soared from
just over 200 million USD in 1972 to as much as 4 billion USD in 1982, the latter amount split almost evenly between interest
and principle repayments (World Bank, 1983; p. 285; World Bank, 1990, p. 414). Not surprisingly, then, that Yugoslavia was
 V. Yarashevich, Y. Karneyeva / Communist and Post-Communist Studies 46 (2013) 263–273 265

hard hit by the debt crisis, which is said to have been triggered by Mexico’s sovereign default on August 12, 1982. The country
had to restructure its external debt on the terms of Paris and London clubs, and was obliged to implement arguably painful
IMF stabilization programs.
At the same time, Yugoslavia’s total external debt would not seem shocking by conventional modern measures, when
some countries, especially developed ones, carry on with relatively much bigger debts. Notably, at its worst in 1985, when
Yugoslavia was summoned to the Paris Club for the second time for debt-restructuring negotiations (the first took place one
year prior, on May 22, 1984), its debt-to-output ratio stood at 48.2% (World Bank, 1990, p. 414). This would not seem a problem
at all nowadays, when many countries have external debts exceeding their annual output, sometimes by as much as a factor of
four, as in case of Great Britain (Economist, 2011). For example, the developing world crisis in 1982 started with default of
Mexico which at the time had an external debt to GNP ratio of “just” 52.5% (World Bank, 1990; p. 238). Meanwhile, in early
2011 Greece, the major “troublemaker” on global debt markets lately, had a debt-to-output ratio of as much as 180%, or nearly
4 times the Mexico’s level in the early 1980s, but has not yet triggered a major debt crisis (Economist, 2011).

3. Imbalances in the postwar Yugoslav economy: self-management

If the Yugoslavia’s debt problems of the 1980s can be considered an embodiment of its external economic weakness, the
major internal economic challenge was, perhaps, the decline of the famous self-management. For Yugoslavia, self-
management had been a political economy cornerstone since the late 1940s. As a concept, it meant self-organization of
workers at enterprises, residents in local communities, and even public officials in government (Smidovnik, 1991; pp. 18–27).
In the economic sphere, self-management was characterized by public (as opposed to private) ownership and workers’
control of the means of production, perceived as ‘an embodiment of socialism as envisaged by Marx’ (Schrenk et al., 1979; p.
3). In local communities, self-management was based on a commune as a ‘basic cell of Yugoslav society, in which, in principle,
all the needs of the community members and organizations, as producers and consumers, are satisfied’ through direct
involvement and local decision-making (Dyker, 1990; p. 53; Smidovnik, 1991; pp. 25–27). As argued by James Simmie (1991;
p. 14), Yugoslav communes were ‘developed from the conceptual example of the Paris Commune of 1871 as described by
Marx’, and were originally based on old parish boundaries, with an average 42 thousand people at each of some 500 com-
munes across the country. Finally, on the government level self-management meant “decentralization” and “destatization” as
a way of managing Yugoslav ethnic pluralism in accordance with Marxism (Schrenk et al., 1979; pp. 3–4).
Indeed, some authors suggested that from the very start self-management was initiated in the quest to weaken central
control from Belgrade, and to facilitate “genuine federalization” (Lydall, 1989; p.103). Others contended that self-management
was adopted as a way of distancing from ‘Soviet influence and from the Soviet model of state administration’ following the
conflict with Cominform in 1948 (Smidovnik, 1991; p. 30). But although self-management was supposed to penetrate
Yugoslavia at all levels of social organization, making it ‘a nation of “integral” self-management’ (Smidovnik, 1991; p. 27), it
was at the level of enterprises where this concept had apparently the greatest impact.
There is a great difference in the views on the actual efficiency of economic self-management in Yugoslavia, but even those
authors who tend to emphasize its negative effects contend that it played a positive role, at least in the first two decades of its
implementation:
Judging from the current situation in Yugoslavia, it may be concluded that the self-management system, or even the idea
of self-management itself was, right from the beginning, a misconception, the very reason for the catastrophic socialist
system. Nevertheless, there are established arguments to the contrary. With the introduction of self-management in
the economy, Yugoslavia enjoyed, from 1950 onwards, a period of economic and political prosperity, and, right through
the 1970s was far ahead, in every respect, of all the other socialist states. (Smidovnik, 1991; p. 17).
Similarly, Lydall (1989; p. 236) acknowledged that despite all its problems self-management ‘was one reason for the rapid
economic progress of Yugoslavia in the 1950s and 1960s’. Dyker (1990; p. 42) also argued that self-management had ‘a real
impact’ on the Yugoslav economy, as in the 1950s and early 1960s its ‘growth record . was, indeed, one of the most
impressive in the world for that period’.
The principle of economic self-management was first introduced in 1950 by the law on the management of government
enterprises and economic associations (Schrenk et al., 1979; p. 24). It was formalized in the Yugoslav Constitution of 1953, but
was initially accompanied by ‘strict planning, government control of pricing and wages, and the centralized allocation of
investment resources’ (OECD, 1966; p. 6). Gradually, however, enterprises received more autonomy with regard to the pricing,
wages and investment, which had reportedly become complete by the early 1961 (OECD, 1966; p. 6). It was further enhanced
by the reforms of 1965, which ‘emphasized the autonomy of enterprises by shifting much decision making power from state
organs to enterprise management’ (Schrenk et al., 1979; pp. 40–41). In general, reforms of the 1965 were aimed at economic
liberalization and decentralization, and ushered in a period of so called “market socialism” in Yugoslavia. Despite their wide-
spread criticism and even reference to as a ‘turning point between the “more successful” and the “less successful” period’
(Mencinger, 1989; p. 2), in the years preceding the first oil shock of 1973 Yugoslavia had demonstrated reasonably high levels
of economic growth, which were only marginally lower than those of the 1950s and early 1960s (see Table 1).
Nonetheless, the Yugoslav authorities were reportedly not content with socio-economic performance following the mid-
60s reforms, as they might have perceived them causing what a World Bank mission’s report called ‘imbalances in the supply
and demand for commodities and financial resources’ (Schrenk et al., 1979; p. 111). Consequently, they sought to roll back the
266 V. Yarashevich, Y. Karneyeva / Communist and Post-Communist Studies 46 (2013) 263–273

Table 1
Main indicators of the Yugoslav economy, 1946–1986.

Indicator 1946–1952 1953–1962 1963–1973 1974–1986

Average annual rates of growth, %
GNP 2.3 8.2 6.5 3.5
Industry 12.9 12.2 8.6 5.4
Agriculture
3.1 9.2 3.1 2.3
Employment 8.3 6.3 2.4 3.6
Exports (US$)
3.1 12.0 14.0 11.3
Imports (US$) 3.6 10.1 16.6 10.3
Investments 11.5 5.3 0.7
Consumption 6.5 6.4 2.2
Prices 3.6 13.0 33.3

1953–1962 1963–1973 1974–1984

Ratios, %
Unemployment rate 5.0 7.6 13.3
Export/import ratio 64.4 69.4 64.0
Labor/output ratio 3.9 2.4 1.9
Capital/output ratio 2.3 2.2 2.6
Investment/GDP rate 42.0 33.9 35.2

Source: Mencinger, 1989; p. 17.

“institutional decentralization” of the economic reforms by reinstating discipline and centralized order into economic system.
As a result of legislative changes of the mid-1970s, central of them being the 1974 Constitution and 1976 Associated Labor Act,
the principle of self-management was substantially modified. It was to promote cooperation rather than competition,
through a number of new institutions. The latter involved new organizational forms, such as Basic Organizations of Associated
Labor (BOAL) as a new basic organizational unit, and Composed Organizations of Associated Labor, a unit for individual private
owners, which were supposed to enter into Self-Management Agreements (SMAs) to coordinate pooling of labor and re-
sources, another institutional novelty of the mid-1970s (Mencinger, 1989; p. 6; Schrenk et al., 1979; pp. 370–371). In addition,
the concept of the Free Exchange of Labor was introduced to deal with collective social finance needs which could not be met
through market mechanisms; and the system of social planning was given a new impetus (Mencinger, 1989; pp. 6–7). Ac-
cording to Lydall, all these legal innovations ‘weakened the competitive freedom of self-managed enterprises precisely at the
moment when they needed to draw on all their entrepreneurial resources in order to cope with a more difficult world
economic environment’ (Lydall, 1989, p. 237).

4. Imbalances in the postwar Yugoslav economy: foreign trade

By some accounts, the Yugoslav economy began to malfunction yet in the mid-1960s, but it was not until the late 1970s
that major economic problems gradually revealed themselves. It is commonly acknowledged that these problems were
rooted in falling competitiveness of Yugoslav products due to both internal and external factors exacerbated by the oil crises
and macroeconomic problems in the West. In other words, largely due to self-management, wages were increasing faster
than productivity, while major export markets in the West were becoming less eager to buy Yugoslav manufactures. As a
result, exports were not growing as fast as desired; whereas imports skyrocketed due to higher energy costs and strong

15000 14019

12000
9633 9983
9000 7542 7697 7367 6794
5256 5668
6000 4511 4878
3253 3232 3805 4072
2874 2853
2134
3000 1474 1679 1814 2237
0
-660 -1195 -1439 -995
-3000 -1658
-2489
-3737 -3625
-6000 -4377 -4315

-9000 -7225
1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979

Merchandise exports Merchandise imports Merchandise trade deficit

Fig. 1. Foreign trade of Yugoslavia, million USD, 1969–1979. Source: OECD, 1982; p. 63.
 V. Yarashevich, Y. Karneyeva / Communist and Post-Communist Studies 46 (2013) 263–273 267

Table 2
Exchange rate and income dynamics in Yugoslavia, 1970–1979.

1970 1971 1972 1973 1974 1975 1976 1977 1978 1979
Dinar to USD exchange rate, end of year 12.5 17.0 17.0 15.6 17.1 18.0 18.2 18.4 18.6 19.2
Change to 1970, times – 1.4 1.4 1.2 1.4 1.4 1.5 1.5 1.5 1.5
Average net monthly income, USD 93.8 84.2 98.6 124.2 144.9 170.0 194.2 228.2 272.7 318.4

Sources: IMF, 1977; p. 388; IMF, 1984; p. 496; SZzS, 1989, pp. 76–77.

consumer demand, putting a strain on the balance of payments. Indeed, during the 1970s Yugoslav trade deficit increased
more than tenfold, from 660 million USD in 1969 to 7.2 billion in 1979, with the volume of imports in the latter year having
exceeded that of exports by more than twice (see Fig. 1). Admittedly, the oil crises of the 1970s played a major role in these
trade developments, for as noted by Carole Rogel (2004; p. 15), ‘for a country like Yugoslavia, which was greatly dependent on
imported fuel paid for in hard currency, the oil price crisis alone could have resulted in financial ruin’.
It is also noteworthy that while Yugoslav exports to Western markets increased by 3.6 times, from 0.8 in 1969 to 3 billion
USD in 1979, Western imports to Yugoslavia swelled by more than 6 times, from 1.4 to 8.5 billion USD, putting the country in
deficit of 5.5 billion USD against the West, or three quarters of the total trade deficit (OECD, 1982; pp. 63–64).
Worsening terms of foreign trade in the 1970s were the major cause of swelling current account deficit, which, just as in
case with merchandise trade deficit, increased tenfold in the period, from 348 million USD in 1970 to 3661 million in 1979
(Yugoslavia 1975, p. 62; Yugoslavia 1982, p. 65). The substantial devaluation of the dinar which was undertaken by the
federation’s monetary authorities to correct the balance of payments distortions seemed natural – in a decade from 1970 to
1979 the Yugoslav currency depreciated by a half compared to US dollar.

5. Imbalances in the postwar Yugoslav economy: labor market

Nonetheless, despite the aforementioned substantial dinar devaluation the value of average monthly incomes (repre-
senting largely public sector wages) expressed in US dollars had more than tripled during the 1970s, from just over 90 USD in
1970, to about 320 USD in 1979 (see Table 2).
This was most likely due to the effects of self-management, as workers, empowered by socialist ideology and 1965 re-
forms, were pressing their managers to increase wages to counterbalance inflation, but in doing so they ensured that wage
increases constantly exceeded the hikes in the living costs, especially in the late 1970s (see Fig. 2). At the same time, pro-
ductivity dynamics lagged significantly behind real wage growth, leading to a substantial productivity-earnings gap in the
late 1970s (OECD, 1975; p. 26; OECD, 1982; p. 16).
As it seems then, the Yugoslav self-management strategy that used to be one of the main drivers of the country’s
development in the 1950s and 1960s, led to controversial economic outcomes in the 1970s. On the one hand, wages were
increasing not quite proportionally to productivity and exports growth; on the other hand imports were growing propor-
tionally to wage increases, leading to substantial trade deficit and macroeconomic instability. It must also be noted that in the
1970s the Yugoslav economy had to absorb almost 2 million new workers, mostly migrants from the countryside to urban
areas, which in the absence of need for major postwar-like reconstruction was an additional challenge to self-management
and economic reforms. While most of these people were eventually employed, mostly at industrial enterprises of the so called
“social” (as opposed to private) sector, significant numbers remained unemployed, driving the rate of unemployment into
double digits in the mid-1970s (see Table 3).

700
617
600
513
474
500
424
394
400
357 345
309 299
300
250 268
216
169 178 196
200 145 149
118 128
100 100 111
100

0
1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979

Living costs Wages

Fig. 2. Indices of living costs and wages in Yugoslavia, 1969–1979. Source: OECD, 1982; p. 61.
268 V. Yarashevich, Y. Karneyeva / Communist and Post-Communist Studies 46 (2013) 263–273

Table 3
Labor market trends in Yugoslavia, 1960–1979.

Year Labor force Paid employment Industrial employment Unemployed Unemployment rate

Thousands %
1960 – 2972 1071 185 5.5
1961 – 3242 1127 233 6.0
1962 8459 3318 1165 274 7.3
1963 8578 3390 1222 229 7.2
1964 8523 3608 1319 228 6.0
1965 8571 3662 1377 267 6.6
1966 8625 3582 1358 265 7.4
1967 8678 3561 1352 292 7.8
1968 8730 3587 1349 327 8.9
1969 8780 3706 1385 316 9.1
1970 8834 3850 1438 290 8.5
1971 8890 4034 1512 290 7.4
1972 9014 4210 1591 334 7.7
1973 9034 4306 1638 399 9.1
1974 9087 4514 1726 479 10.1
1975 9147 4758 1819 584 11.6
1976 9206 4925 1874 665 13.1
1977 9242 5148 1954 717 13.9
1978 9286 5383 2022 738 13.9
1979 9324 5615 2102 775 13.9

Sources: SZzS, 1989; p. 58; Woodward, 1995; pp. 380–381, 383–384; OECD, 1972; OECD, 1982.

6. Macroeconomic performance of the postwar Yugoslav economy

Despite all its problems, however, including those related to foreign indebtedness, self-management, foreign trade and
labor market, for several decades preceding Tito’s death in 1980 Yugoslav economy seemed to develop reasonably well, at
least from a macroeconomic perspective. In particular, the average GDP growth from 1970 to 1979 was 6.1%, and from 1960 to
1969–6.6%. And while these averages were time and a half lower than 9.5% for the period between 1953 and 1959, throughout
the 1960s and 1970s there was not a single year of output contraction, with the lowest growth recorded in 1965, the year of
crucial economic reforms, at a rate of 1.9%. Similarly, inflation was relatively moderate, never exceeding 12% up until liber-
alization of 1965, and even after that staying in the range between 5 and 25% (see Fig. 3).
Indeed, even Harold Lydall (1989; p. 3) had to acknowledge in his book with quite an unambiguous title ‘Yugoslavia in
Crisis’ that despite all its inconsistencies, for most of the time from 1950 to 1980 Yugoslav economy not only survived but
“prospered”:
Real national product rose rapidly; millions of ex-peasants were given jobs in the social sector; industrial production
expanded rapidly, and exports of manufactured products came to dominate the export trade; social services were

36.0
34.6

30.0
24.4
24.0
20.5 22.8 21.0 20.4
19.7
16.3 16.6
18.0
15.9 15.6 15.0
13.5
10.312.111.4
14.3
9.7 10.6
12.0 11.6 9.7
11.9 7.9 8.1 8.1 8.5 11.6 8.0
7.8 6.9 6.9 7.0
3.9 5.2 7.6
5.8 5.5 5.0 8.0 5.6
6.0 5.0
3.2 3.4 3.7 4.2 3.6 3.9
1.9 1.9 2.3
2.7 1.6
0.0
-1.5
-6.0 -5.0
19 3
19 4
19 5
19 6
19 7
19 8
19 9
19 0
19 1
19 2
63

19 4
19 5
19 6
19 7
19 8
19 9
19 0
19 1
19 2
19 3
74

19 5
19 6
19 7
19 8
79
5
5
5
5
5
5
5
6
6
6

6
6
6
6
6
6
7
7
7
7

7
7
7
7
19

19

19

GDP change to previous year, % Consumer price index change to previous year, %

Fig. 3. GDP and inflation in Yugoslavia, 1953–1979. Source: SZzS, 1989; pp. 101, 165.
 V. Yarashevich, Y. Karneyeva / Communist and Post-Communist Studies 46 (2013) 263–273 269

1965-1973 1974-1980
0 2 4 6 8 10 12 14 0 5 10 15 20 25 30 35 40 45 50

6.2 6.4
Yugoslavia 11.7 Yugoslavia
17.9

5.2 2.6
OECD OECD
4.9 9.9

6.4 2.1
Spain 6.9 Spain 17.9

7.2 3.3
Portugal Portugal 21.7
3.6

6.7 4.0
Turkey Turkey 42.9
11.5

Output growth Inflation Output growth Inflation

Fig. 4. Yugoslav economy in comparative perspective, 1965–1980. Source: OECD, 1990; p. 34.

extended and improved; supplies of consumer goods increased; and Yugoslavia’s prestige in the outside world,
especially as one of the leaders of the ‘non-aligned’ countries, became considerable.
Yugoslav economic performance in the 1960s and 1970s also looked quite positive when compared to OECD and countries
at similar level of development, both before and after the first oil shock in 1973 (see Fig. 4).
Starting from the 1980, however, Yugoslavia’s economy seemed to have plunged into perpetual decline, which is evident
from deterioration of key macroeconomic indicators, but especially from a downward trend of output dynamics (see Fig. 5).
For example, in 1980 the rate of GDP growth collapsed by three times compared to its value in the previous year, in 1981 – by a
half, and in 1982 by another three times, going into negative ‘territory’ in 1983. Indeed, in ten years from 1980 to 1989 there
were in total three years of GDP contraction, while the best growth rate was recorded in 1986 at 3.6%, which in preceding
decades would be considered among the lowest. In 1989 Yugoslav output registered its last positive reading of 0.8% before the
country’s break-up in 1991. In comparative perspective, the average GDP growth from 1981 to 1989 was about 0.6%, which
was ten times less than the average for the preceding two decades, and five times less than the OECD average for the same
period (OECD, 1990; p. 34).
The anemic output growth during the 1980s was accompanied by rampant inflation. Indeed, from 1980 to 1989 consumer
prices in the country swelled by a shocking 1,5 thousand times, for the second time in the postwar period forcing authorities
to introduce a new dinar worth 10,000 old ones on December 18, 1989 (the first nominal value reduction of dinar took place
during the price reform of 1965, with 100 old dinars being replaced by 1 new one) (OECD, 1966; p. 8; OECD, 1990; p. 7). Of
course, the major outburst of inflation took place in 1989, but prices were rising faster than ever before throughout the 1980s
(see Table 4).
The average rate of inflation in Yugoslavia from 1981 to 1989 stood at staggering 209.2% (virtually meaning a tripling of
consumer prices every year), compared to just 5% for the corresponding OECD average, 9.5% for Spain, 17.9% for Portugal, and
43.5% for Turkey in the same period (OECD, 1990; p. 34). Even if one excluded 1989 from the average, and took a period from
1980 to 1988, the average annual rise of consumer price index would still be very high, at 74.8% (see Table 4). Not surprisingly,
then, that the Yugoslav currency saw a substantial depreciation in the 1980s, falling down in value from about 30 dinars per

4.0 3.6

3.0
2.3
2.0
2.0 1.4

1.0 0.8
0.5 0.5

0.0

-1.0
-1.0 -1.1
-2.0 -1.7
1980 1981 1982 1983 1984 1985 1986 1987 1988 1989

GDP change to previous year, % Trend for GDP dynamics

Fig. 5. Dynamics of Yugoslavia’s GDP, 1980–1989. Sources: OECD, 1990; p. 17; SZzS, 1989; p. 101.
270 V. Yarashevich, Y. Karneyeva / Communist and Post-Communist Studies 46 (2013) 263–273

Table 4
Inflation in Yugoslavia, 1980–1989.

1980 1981 1982 1983 1984 1985 1986 1987 1988 1989
Consumer price index change, % 29.9 39.8 31.5 40.2 54.7 72.3 90.0 120.5 194.0 1240.2

Sources: IMF, 1984; p. 496; IMF, 1987; p. 542; IMF, 1992; p. 566.

USD in 1980, to as much as 118,160 dinars per USD in 1989. It should also be noted that just as in case with inflation, this
devaluation peaked in 1989, but was actually taking place throughout the 1980s at a rate far higher than inflation, and also
unseen in previous decades (see Table 5).
As a result of this hyperinflation and devaluation, net monthly incomes expressed in foreign currency literally collapsed by
the end of the decade – from about 250 USD in 1980, to just over 80 USD in 1988, and perhaps to as low as 20–30 USD in 1989
(see Table 5; exact statistical data for 1989 was unavailable). In other words, if during the 1970s dollar-denominated wages
more than tripled, during the 1980s the reverse process, on the same scale, took place. And it was not just the extent of
monetary instability in the 1980s that put it in contrast with that of the 1970s, but also the fact that unlike in the previous
decade, inflation (or rather hyperinflation) was no longer consistently compensated by accelerating wage growth. Indeed,
during the 1980s nominal wages were in most years lagging behind price hikes, undoubtedly contributing to discontent
among workers and eroding their faith in the self-management system (see Table 6).
Workers’ disillusionment with self-management in the 1980s might have been also fueled by growing job insecurity
sentiments, as the number of unemployed rose by half a million during the decade, driving the rate of unemployment to 15% in
1989, more than half of them being younger than 25 years old (Socialist 1995, pp. 384, 387). Admittedly, the number of people
in paid employment continued to increase in the 1980s, but whereas during the 1970s it was augmented by nearly 2 million
workers, the 1980s added only half that number of new jobs, but around the same half a million jobseekers (see Table 7).
And just as monetary instability in Yugoslavia was getting harsher on the country’s workers during the 1980s, so was
unemployment: notably, it was becoming long-term while remaining predominantly young. Indeed, if during the 1960s most
of the unemployed could get a job within half a year, during the 1970s – within 9 months, in the 1980s most unemployed
could not get a job for more than a year. Specifically, in 1989 there were close to a million unemployed for longer than 1 year,
including nearly half a million unemployed for longer than 3 years, and that is in a country with about 7 million paid jobs in
total (Woodward, 1995; pp. 380–381).
Arguably it was in the 1980s that both external and internal problems of Yugoslav economy amalgamated to produce a
situation which was no longer tolerated by constituent republics, particularly the better-off ones. While the internal economic
problems caused by malfunctioning self-management prepared the background for the eventual brutal breakup of the
federation, it might have been official reaction to external economic challenges that triggered the process. Indeed, struggling
with its external financial obligations, in the early and mid-1980’s Yugoslavia, agreed to follow some IMF recommendations
and implement stabilization programs to normalize its balance of payments. All in all, during the 1980s the country had five
stand-by arrangements, one enhanced surveillance procedure with the IMF, one structural adjustment loan with the World
Bank, as well as several debt rescheduling arrangements with both official and private creditors. These relentless ‘commit-
ments with the Bretton Woods institutions’ and leading debt clubs (Paris and London ones) had reportedly helped with
‘strengthening the external balance and in reducing foreign indebtedness’, but they did not do much for spurring economic
growth (OECD, 1990; pp. 33–34). Quite to the contrary, the austerity measures adopted by authorities as part of such
“commitments” might have further choked internal demand, stalling both investment and employment. And their efficiency
with regard to inflation control was compromised both by the Western-backed liberalization drive and self-management still
performing its function at least as far as wage demands were concerned. As a result, from the macroeconomic point of view
the 1980s clearly looked like a period of stagflation in Yugoslavia (Rogel, 2004, p. 15).

7. Regional imbalances in the postwar Yugoslav economy

Yugoslav economic grievances were aggravated by substantial differences in the level of development among the con-
stituent republics. Analyzing the federation’s economic statistics in the regional breakdown, a huge discrepancy between
more and less developed republics could be effortlessly observed, with Croatia, Serbia and Slovenia being in the former group,
and Bosnia-Herzegovina, Kosovo, Macedonia and Montenegro in the latter. For example, in 1987, the latest year for which data
was available both in the regional and sector breakdown, the difference between the highest and lowest regional output per

Table 5
Exchange rate and income dynamics in Yugoslavia, 1980–1989.

1980 1981 1982 1983 1984 1985 1986 1987 1988 1989
Dinar to USD market exchange rate, end of year 29.3 41.8 62.5 125.7 211.8 312.8 457.2 1244.0 5210.8 118160
Change to 1980, times – 1.4 2.1 4.3 7.2 10.7 15.6 42.5 177.8 4032.8
Change to previous year, % 52.9 42.7 49.5 101.1 68.5 47.7 46.2 172.1 318.9 2167.6
Average net monthly income, USD 251.5 235.6 200.7 126.2 107.7 130.0 185.2 139.8 83.5 –

Sources: IMF, 1987; p. 542; IMF, 1992; p. 566; SZzS, 1989; p. 77.
 V. Yarashevich, Y. Karneyeva / Communist and Post-Communist Studies 46 (2013) 263–273 271

Table 6
Wage dynamics in Yugoslavia, 1980–1989.

1980 1981 1982 1983 1984 1985 1986 1987 1988 1989
Nominal wage growth, change to previous year, % 22.0 37.0 27.7 27.4 45.3 77.2 105.0 112.7 170.6 1585.8
Increase/decrease over inflation, %
7.9
2.8
3.8
12.8
9.4 4.9 15
7.8
23.4 345.6

Sources: IMF, 1984; p. 496; IMF, 1987; p. 542; IMF, 1992; p. 566.

Table 7
Labor market trends in Yugoslavia, 1980–1989.

Year Labor force Paid employment Industrial employment Unemployed Unemployment rate

Thousands %
1980 9768 5798 2162 789 13.8
1981 9870 5966 2242 833 13.8
1982 9974 6105 2313 888 14.4
1983 10079 6223 2374 916 14.9
1984 10270 6355 2445 1013 15.7
1985 10398 6516 2529 1064 16.3
1986 – 6716 2625 1085 16.6
1987 – 6866 2706 1087 16.1
1988 – 6884 2716 1173 16.8
1989 – – – 1245 14.9

Sources: Woodward, 1995; pp. 381, 384; OECD, 1982; p. 97.

capita figures in USD was a staggering 8 times, with the wealthiest Slovenia on the one side, at more than twice above the
Yugoslav average, and the poorest Kosovo on the other, at nearly 4 times below that average. Similar pattern could be
established with regard to industry and agriculture production, as well as investment per capita (see Fig. 6).
Indeed, one could distinguish two regional groupings similar in terms of population shares, but very different in terms of
economic role. On the one hand, there were Croatia and Slovenia, which with less than a third of total Yugoslav population
made up close to a half of the country’s output, whereas on the other hand, there were Kosovo, Macedonia and Montenegro,
with nearly the same share in population, but making up just over one tenth of the total output. The likewise divergence
between these two groupings could be observed in all other key economic areas, with agriculture being perhaps the only area
where the less developed grouping outperformed the more developed one in combined per capita terms as measured by USD
at current market exchange rates (see Table 8).
Just as was different the economic role of every constituent republic, so were the major economic problems faced by each
of them, notably unemployment. Indeed, for Croatia and Slovenia this particular problem might have barely existed, while for
all less developed republics it became paramount during the 1980s (see Table 9).
And on top of that, throughout the 1980s economic links among the republics had reportedly remained very limited, if one
to judge them by mutual trade, which stood at about 20% of total, having suffered a major deterioration during the 1970s. This
had arguably resulted from ‘the interest of local political forces to maintain control over economic activities – for ideological
and/or more practical reasons’ (OECD, 1990; pp. 41–42). Consequently, competition from outsiders was restrained, and local
enterprises, particularly large public ones, also received direct financial support from local political bodies and banks. The
latter, by the way, were also regional, and played an important role in the ‘fragmentation of the Yugoslav market’ (OECD, 1990;
p. 41).

Yugoslavia

Slovenia

Serbia

Montenegro

Macedonia

Kosovo

Croatia

Bosnia-Herzegovina

0 500 1000 1500 2000 2500 3000 3500 4000

Output Industrial production Agriculture production Investment

Fig. 6. Main economic indicators by region in Yugoslavia, per capita USD at market exchange rates, 1987. Sources: IMF, 1987; IMF, 1992; SZzS, 1989.
272 V. Yarashevich, Y. Karneyeva / Communist and Post-Communist Studies 46 (2013) 263–273

Table 8
Main economic indicators by region in Yugoslavia, 1987

Population Output Industrial production Agriculture production Investment

Thousand people USD per capita at current market exchange rates

Yugoslavia 23,417 1689 765 180 343
Bosnia-Herzegovina 440 1188 570 91 259
Croatia 4673 2172 860 206 377
Kosovo 1848 483 223 92 137
Macedonia 2065 1038 532 134 163
Montenegro 626 1202 451 92 263
Serbia 9716 1417 627 228 326
Slovenia 1937 3881 2027 156 754
Croatia þ Slovenia 6610 6053 2886 362 1131
Kosovo þ Maced. þ Mont. 6387 3206 1428 410 700

%
Yugoslavia 100 100 100 100 100
Bosnia-Herzegovina 18.8 13.2 14.0 9.5 14.2
Croatia 20.0 25.7 22.4 22.8 21.9
Kosovo 7.9 2.3 2.3 4.0 3.1
Macedonia 8.8 5.4 6.1 6.6 4.2
Montenegro 2.7 1.9 1.6 1.4 2.1
Serbia 41.5 34.8 34.0 52.6 39.5
Slovenia 8.3 19.0 21.9 7.2 18.2
Croatia þ Slovenia 28.2 44.7 44.3 30.0 40.1
Kosovo þ Maced. þ Mont. 27.3 11.8 12.3 16.0 12.6

Sources: IMF, 1987; IMF, 1992; SZzS, 1989.

Table 9
Unemployment rate in Yugoslavia’s regions, 1980–1989.

1980 1981 1982 1983 1984 1985 1986 1987 1988 1989
Yugoslavia 13.8 13.8 14.4 14.9 15.7 16.3 16.6 16.1 16.8 14.9
Bosnia-Herzegovina 16.6 16.7 17.9 20.3 23.0 24.4 24.3 23.1 24.1 20.3
Croatia 5.7 6.1 6.9 7.4 7.7 7.9 7.9 7.8 8.5 8.0
Kosovo 39.0 39.1 41.0 44.5 49.9 54.2 57.1 57.0 57.8 36.3
Macedonia 27.9 29.0 28.1 26.4 26.7 27.6 27.7 27.3 27.1 21.9
Montenegro 17.5 18.1 19.3 21.6 23.5 24.6 24.6 23.6 26.3 21.6
Serbia 19.4 18.7 19.1 19.1 19.5 20.2 20.8 20.3 20.8 17.6
Slovenia 1.4 1.6 1.7 2.0 1.9 1.8 1.7 1.8 2.5 3.2

Source: Woodward, 1995; p. 384.

8. Conclusion

All in all, by the end of the 1980s it became clear that Yugoslavia was facing a severe economic crisis. The economy
stagnated, inflation soared, and unemployment remained very high, while regional disparities increased. It was attempted to
show that these problems were ultimately rooted in malfunctioning self-management system and deteriorating external
financial position of Yugoslavia. As people were losing the sense of economic security, political discontent was growing,
particularly in the more developed Croatia and Slovenia, which were not willing to subsidize the less developed regions any
more. In fact, this could already be established from the relative looseness of the Yugoslav tax and budget system: ‘Federal
receipts in terms of GSP [gross social product] were on average only slightly above 6 per cent in the second half of the 1980s,
lower than in any of the decentralized OECD countries’ (OECD, 1990, p. 45).
Collapsing federal macroeconomics, notably hyperinflation of 1988–1989, might have been the final straw that pushed
more prosperous Croatia and Slovenia to secession. Indeed, with a federation in charge of the monetary policy, it was easy to
blame Belgrade for hyperinflation and devaluation, especially if there was a sense of one’s own relative economic superiority,
apparently present in both Croatia and Slovenia. By breaking away from Yugoslavia (Croatia was indeed the first one to
proclaim independence on 25 June 1991, followed by Slovenia the day after), they could be seen as trying to get out from the
macroeconomic “mess” in the federation.
Nevertheless, a wave of secessions that took place from June 1991 to March 1992 (Macedonia declared independence on
25 September 1991, and Bosnia-Herzegovina – on 3 March 1992) should not be considered simply as a reaction to federal
macroeconomic disaster. It was based on more complex economic conflicts that built up throughout the postwar period, and
were arguably ignored following the adoption of the 1974 federal constitution:
On the economic front, conflicts occurred because of the economic system and the economic policy of the federal
government. Conflicting economic interests (which had been ignored by the constitution since 1974 within the
 V. Yarashevich, Y. Karneyeva / Communist and Post-Communist Studies 46 (2013) 263–273 273

institutions of the ‘consensual economy’: self-management agreements, social compacts, social planning, etc.) caused a
collapse in the unity of the Yugoslav market. By the end of the 1980s the breakdown was clearly visible. (Zizmond,
1992; p. 110).
There are numerous theories to explain why Yugoslavia eventually broke up, some of them focusing on nationalism and
other political issues, others – on cultural and historical aspects. Undoubtedly, they can help in understanding the modern
history of this in many respects unique political entity in Europe, but it is plausible to assert that it was economic difficulties
which were at the core of Yugoslavia’s break-up. Based on the analysis of the economic situation in Yugoslavia before its
break-up it can be argued that it was the economic drama which triggered other disintegrating factors. Indeed, when the
Yugoslav economy was growing fast in the 1950s, 1960s and even in the 1970s, delivering welfare to wide masses of working
people, nationalist sentiments were put down and separatist aspirations simply did not stand a chance to win popularity. As
Yugoslav postwar economic success was largely attributable to self-management and export-led industrialization strategy, it
is not surprising that when these two economic drivers stopped working properly in the 1980s, Yugoslavia went into freefall.
Caught in the circle of hyperinflation and economic stagnation, the peoples of Yugoslavia channeled their discontent along
nationalist and separatist lines that ended up in one of the most gruesome conflicts in the postwar European history, which
continues to resonate until the present day.

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