Trends in the Global Economy and Their Implications for Yugoslavia

International Journal of Politics, Culture and Society, Vol. II, No. 2, 1997

III. World Political Economy and Yugoslav Dilemmas

Trends in the Global Economy and TheirImplications for Yugoslavia*

Ljubisa S. Adamovich

Considering the world economy as a whole, global economic trends dur-ing the last decade of the twentieth century can be considered positive fromthe point of view of the long-term conditions for economic growth and de-velopment. But with reference to a more detailed analysis of the positionsof various regions and countries, the outlook is a more complex and mul-ticolored one which protends grey and even dark nuances for some partsof the world. The frequently cited slogan that poverty anywhere will bringpoverty everywhere is only applicable from the point of view of formal eco-nomic logic. Considering the real economic world, however, the level of itsglobalization, particularly as measured by the intensity of international eco-nomic integration, is unlikely to fulfill that logic. Disparities in the levels ofeconomic development, rates of economic growth, standards of living, andeconomic and social traditions in the modern world provide the best argu-ment that various degrees of economic prosperity are likely to be sustainedfor different areas of the world. By the same token, some parts of the worldhave their economic equilibrium at a very low level of income and employ-ment, including the extreme levels of poverty. These economic realities canbe confirmed by reference to any of the various statistical sources publishedby both national, international, official, and non-governmental institutions.

Taking the above conclusion as fait accompli raises one important issue:Is there any basis for the claim that one modern world economy is at astage of globalization? One possible answer to this question is suggestedby making an analogy between the disparities in wealth and income withindeveloped nations and the disparities in levels of economic developmentbetween developed and underdeveloped ("developing") areas of the world.

*The author thanks Professor Arthur J. Vidich for many useful comments on an earlier draft,while retaining sole responsibility for any remaining errors.

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© 1997 Human Sciences Press, Inc.

Within each of these two groups of countries (developed and under-developed) there are instances of both high levels of economic performanceand different levels of poverty ranging from "Small Tigers," newly industri-alizing countries, newly emerging profitable markets, and in developed coun-tries. In addition, a small group of countries has emerged recently whoseeconomic profile adds a new input to discussions on global economic per-formance. These are the countries which, in one way or another, are nowin transition from a planned to a market economy. The best case in pointis China. In the foreseeable future, Cuba and North Korea can be expectedto follow China's style of transition. Basically all of them are former socialistcountries, and some are still marked by a marriage of necessity betweenpolitical control in the hands of the political leadership based on socialistideology, and the growing economic power of the new capitalist class.

PAX AMERICANA WITH ONE UPPER HAND MILITARILY

A major influence on global economic trends in the decade of the1990s is the emergence of a "Pax Americana" resulting from the historicalchange from a bipolar to a unipolar global, military, political, and economicsystem. However in comparison with the earlier "Pax Britannica," Americanglobal domination is based on U.S. monopoly and leadership of the militarysector. By contrast, however, in the economic arena the U.S. does not shareGreat Britain's nineteenth century position. The military and political su-premacy of the U.S. in one contemporary global framework can be calleda monopolistic position, but in the economic arena, its position is an oli-gopolistic one due to the fact that it shares its economic leadership withAsia and Western Europe—or more precisely, with Japan and Germany.Still, in the long run, the strategic position of the U.S. economy is morefavorable in practically every economic respect than those of Japan andGermany—which together make up an economic triangle.

From its a strong position in relation to both its allies and its adver-saries, the U.S. is hastening to impose its rules of the game on the worldeconomy in preparation for the coming twenty-first century. A discrepancybetween her military advantages, however, and the need to share economicpower with other countries like Germany, Japan and, in specific forms, withChina in the not so distant future, presents the U.S. with its own problemsof adjusting to the urgent global economic condition. Playing the role ofleader in the globalization of the international economy and not being ableto impose the rules of the game for all the countries—as Britain did inthe nineteenth century and as the U.S. has done, particularly in the second

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half of the twentieth century—is one of the problems facing the U.S. lead-ership in its efforts to control the globalized economy.

The discrepancy between the U.S. political and military hegemony anduneasiness about imposing its economic policy in a way that would be ac-ceptable without opposition to the rest of the world would is illustratedfrom time to time in its economic relations with Cuba, Iraq, Iran, andLibya. Despite U.S. efforts to apply its own standards and goals in foreigneconomic policy, the latter are not always acceptable to its Western Euro-pean allies and Canada. Therefore while there are many proofs that theglobalization of the economy is taking place, this process is one which willrequire time before a transition from nationally shaped rules of the gameto globally accepted ones will, if ever, be accomplished.

According to Lester C. Thurow,1 it is difficult to achieve an agreementabout the rules of the game among all the participants in internationaleconomic relations. Global capital flows are most likely to achieve agreedupon rules of the game. The international labor market and movementsof labor is on the way to reaching such agreements—even including manyillegal ways and means to achieve an equilibrium between the demand andsupply of labor. Other sectors such as goods and services production arestill under relatively strong national governmental control.

Important instances of economic globalization are found in the variousforms of subregional and regional economic integration, and in the role ofinternational economic institutions such as the World Trade Organization,World Bank, International Monetary Fund, and several other governmentaland nongovernmental institutions (NGOs). Because of the different eco-nomic, political, and cultural features of various countries, the processesof international integration—which is part of the development toward theglobalized economy—is not unitary in different parts of the world.

The most impressive and successful form of international economicintegration is that of the European Union (EU), which has been in theprocess of formation throughout the second half of the twentieth century.Without analyzing the details of the EU' s process of evolution from thecreation of the Organization for European Economic Cooperation (OEEC)to the EU's current phase (based on the Maastricht Agreement of 1991),it is necessary to underline the role of noneconomic factors as an impor-tant—and in some occasions, the most important—source of power fuelingthe process of economic integration. A divided European continent andthe long Cold War, with all its consequences, have been mole importantthan sheer economic logic in propelling the evolution of Western Europe'seconomic integration: the same or similar features can be found in variousother international integration projects. Despite the difficulties in estab-lishing regional and subregional integration, tendencies toward integration

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seem to be a "natural" process of adjustment between ever growing tech-nological change and the development of the productive capacity on onehand, and the need for creation of larger markets on the other. In whatmight be called a process of mutual feedback, the positive effects of inter-national economic integration are coming to be recognized. Support withina nation for integration of the current and/or potential country memberswill depend on the economic and non-economic effects of integration uponthe domestic consequences on nations and their economies. The relativelylong experience with Western Europe's economic integration and the muchshorter experience with the case of NAFTA (U.S., Canada. Mexico) areexamples for a strong argument in favor of integration. It does not mean,however, that the process toward economic globalization, in which regionaleconomic integration represents one of the most important features, is go-ing smoothly and without national or international opposition.

Integration has its costs, and the prices to be paid are both economicand non-economic. The higher the level of international economic integra-tion—the more difficult it is for national governments to control the flowsof trade within their economy. When losing control over of their own econ-omy, national governments must be ready to accept those rules of the gamewhich have international applicability. The fact that both positive and nega-tive effects of the processes of economic globalization are not equallyshared among regions and nations and do not take place simultaneouslymake these changes more complex and stimulates controversial responses.

From the point of view of the long term it is not difficult to securesupport for globalization processes, but in short and medium terms—par-ticularly in cases where consequences are negative processes of adjustmentbecome difficult and acrimonious. The requirement to rearrange the usesof factors of production, adjust to increased competitive pressure, preparefor more intensive competition in the broader markets, these and manyother features of the adjustment accommodation process introduce untoldcomplexities. Their solution calls for special managerial skills, additionalfinancial costs, and technical adjustments. The social and human implica-tions of this process can be even more difficult, and can contribute to po-litical tensions and social discontent if there is no social safety net to protectindustries, localities, and segments of population which are hurt in the pe-riod of transition.

THE REDISTRIBUTION OF GLOBAL ECONOMIC POWER

One of the important results of economic globalization will be a re-distribution of global economic power. Considering the fact that modern

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technology tends to be dependent on the increasing role of human intel-ligence, education and mental flexibility, the role of natural resources canbe assumed as a given. This fact will have different effects upon variouscountries in the global economy. Because they are already in the lead, itwill contribute to an even stronger leading position for the U.S., WesternEurope, and Japan. Simultaneously, it will create more difficulties for thosedeveloping nations which were relatively well integrated in the internationaleconomy on the basis of supplying it with natural resources. Among thelatter countries the energy exporting countries for the foreseeable futurewill still have a relatively better position than countries that are exportersof raw materials. But, as the experience of OPEC shows, increased foreignexchange earnings based on exporting oil are not a guarantee that therewill be self-generated economic progress in those countries. By contrastItaly and Japan, heavy importers of energy for example—particularly oil—and of raw materials, have achieved a high level of economic developmenton the strength of managerial skills. On the other hand, those large coun-tries that have been able to achieve a high level of economic growth onthe basis of large internal markets and exports, are challenged by the recentsuccesses of Hong Kong, Singapore, Taiwan, South Korea ("Small Tigers")which stand as proof that size of the country or largeness of population isnot the most important factor for economic progress. Future technologicalinventions and the increasing role of biotechnology and microelectronicswill open new possibilities for novel forms of modernization and economicand social changes which will challenge the adaptability of all nations.

But, as in the past, economic modern trends and changes in high tech-nology cannot be easily accommodated by every country. Certainly, like thebreakthrough by the "Four Tigers of Asia," that the world economy is wit-nessing, future instances may appear with different profiles and with differenttechnologies. However, in order to take advantage of the potential offeredby today's technology, there are at least two sets of conditions required:

1. Stable political institutions and a legal, administrative, and fiscalframework that is friendly, accompanied by incentives aimed tobolster economic activity;

2. The existence of a trained, educated, and well-disciplined laborforce that focuses on the growing importance of white-collarworkers.

Needless to say, not many countries outside of the currently developedworld can provide these conditions. Therefore, one of the serious negativepotentials of the role of modern high technology in development might beto make it more difficult for less developed countries to share in the pro-gress to be achieved via economic globalization; in fact, the relative share


of their raw materials export products is declining and they are not ableto participate advantageously in the structural changes marked by hightechnology in the global framework. It is possible and even likely that suchcountries may experience a diminishment of their already infinitesimallysmall share of global prosperity.

Should this scenario be fulfilled, it is possible to envision an increasein social turbulence and greater world instability, because the turbulenceconfined within the national frontiers of those countries could have inter-national ripple effects. A tangible embryo of such a development presentalready is the silent invasion into the United States and Western Europeby waves of illegal immigrants. In most cases, due to the differences inculture, education, and scale of values, this growing segment of populationhas a much higher natality rate than the population in their host country,accounting for an even stronger silent invasion over time.2 Increasing thenumber of border guards is not enough to deal with this problem. Likeany type of forceful police and/or military control, such counteraction isinadequate in dealing with a problem related to global economics. Policemeasures, even in fighting international mafia and crime, are inefficient,and have not secured satisfactory results. They are even less promisingwhen dealing with millions of people on the move. The greater the differ-ences in the distribution of wealth and income among nations, the morevulnerable will be the globalized economy of the future.

In dealing with such global changes, therefore, not only new globalapproaches will be required, but also new conceptions of fairness in incomeredistribution. The world is facing once again the fact that adoption of newtechnology is easier than adoption of new attitudes about income distribu-tion. In order to restrict the scope of the silent invasion into the rich coun-tries, an international action should take place, one that would create bettereconomic conditions in the less developed world, not via national, regional,and international public aid programs, but by improving salaries and wagesin the less developed world in order to diminish the gap between rich andpoor countries. This could be achieved in various ways of which two pos-sibilities are:

1. Since economic globalization may contribute to the further dis-location of world manufacturing sites new jobs and incomesshould be provided in third world countries;

2. By slowing down increases of wages and salaries in rich countries,part of the gross future global income might be more equitablydistributed to at least those developing countries which are"qualified" to take part in world economic development.

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Opening the prospects for opportunity and providing relatively visiblesigns of progress in some of the countries of the third world alleviate despairand desperation, and replace them with tangible hopes for a better future intheir own country reducing their potential as soldiers of the silent invasion.

GLOBALIZATION AND DISINTEGRATION

The globalization process must confront various economic and socialissues such as the movement of goods, services, capital and of labor andinformation throughout the world. Demographic pressures will mount andare not yet dealt with on a global level. Environmental problems and theprotection of the natural habitat, are being faced as a global issue. Thegrowing spread of terrorism and the fear of it provides an increasing in-centive to deal with terrorists in global frameworks in order to developmore efficient means for suppressing them.

The world is also faced with disintegrating economic, social, and eth-nic forces. While the fear of a global war among nations and groups ofnations, particularly after the end of the Cold War, is diminishing, thereis a growing potential for wars of secession, civil wars, and various fratri-cidal wars within individual countries. Under conditions of modern systemsof communication, information distribution, and the existence of conflict-ing interests which have been suppressed during the decades of the ColdWar, these local wars could become a danger for international peace inmuch broader frameworks, and not only for the national states in whichthey occur.

The developed industrialized countries must also pay a certain pricefor globalization: the positive consequences of globalization carry with themcertain costs to social groups in developed countries. Motivated by goodintentions and associated with the advantages of free international trade,radical free-traders have mobilized the investments and pension funds (ofthe lower and middle classes in the developed countries) to invest themstructurally and worldwide in such a way as to achieve a maximum rate ofprofit. The owners who expect benefits from the investments face the un-pleasant fact of life that they may lose their jobs which have been relocatedto countries whose labor costs are ten to twenty times lower. This dimen-sion of the globalization problem has been examined by Hans-Peter Martinand Harald Schumann, who have formulated the problem in a syntagma"Society of 20 versus 80."3 By this formula, the authors project a vision ofin the relatively near future the world economy if present trends proceedunder conditions of unlimited liberalization, privatization, and deregulation.In such a case, about twenty percent of the world's highly skilled population


capable of using state of the arts technology will be able to produce world-wide most of the goods and services needed. This 20 percent of the popu-lation will enjoy a life style similar to that of the currently affluent membersof society. The remaining eighty percent of the world's population becomespart of an unnecessary "surplus": the world economy will be able to func-tion without their employment in the production process, except for theirrole as consumers.

This global tendency, according to the co-authors of "The Globaliza-tion Trap," may have parallel consequences upon the social orders of thedeveloped countries as well. The decline of roles for the middle classes indeveloped countries and an increasing number of unemployed and under-employed persons in developed nations would seem to have the characterof a secular rather than cyclical tendency.

Should such a trend persist various kinds of social turmoil can beexpected to increase in both developing and developed countries. In in-dustrialized countries that rely upon large groups of foreign laborers, thissocial turmoil and potential dissent is reflected in political pressures andprejudices against foreigners. Further tendencies in this direction will re-sult in bashing foreigners and blaming them for the negative economictendencies in the national economy will only be the beginning. Instead,internal social clashes based on "domestic" criteria and of a domestic na-ture such as regionalism, ethnicism, and negative competition betweenvarious sectors and branches of the economy etc., could become morepronounced.

While the negative implications associated with the globalization proc-ess are not to be neglected, the effort to try to cure these "illnesses" bythe retroactive use of the anti-progressive tools from the protectionist ar-senal would open up a hornets nest of even greater problems.

The above analysis of the positive results of the globalization trends,as well as some of its real and/or potential negative consequences, showsthat at every level of development of productive forces and for every posi-tive economic and social achievement there is a cost to individuals andcountries, and the international community must take adequate steps tominimize such negative effects.

THE FR YUGOSLAVIA: TRANSFORMATION VS. TRANSITION OFAN ECONOMY

In every national economy, there are vested interests acting to post-pone globalization and to preserve the privileges of certain domestic eco-

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nomic agents. But, also, in each national economy there are forces whichapprove and support globalization both internally and internationally.

The case of the Yugoslav economy presents a complex and multicol-ored problem. For the present, there is almost no real possibility for shap-ing Yugoslavia's political and economic situation to confront the mosturgent issues for and against globalization processes. Before responding tothe problems of globalization, the Yugoslav economy faces a more imme-diate task: it must deal with the transformation from a quasi market econ-omy based on workers' self-management, to a market economy basedmainly on privatized property except for some goods and services which,for now can still be reserved for the public sector.

The economy of FR Yugoslavia—as well as the economies of theother pre-secession former Yugoslav constituent republics—faces differentproblems of adjustment compared to other former command economies.The primary reason for this difference is that the former SFR Yugoslaviawas not a command economy, but a special type of socialist market econ-omy. Its economic system was based on public ownership, decentralizeddecision-making and a system which allowed for specific forms of profit(loss) sharing, and legal, financial, and marketing independence of the en-terprises. In many ways, SFR Yugoslavia had been extremely close to ful-filling the necessary conditions for acceptance into for membership in thevarious economic and political organizations of the West European coun-tries.

The political disagreements which led to secession and to civil war inCroatia and Bosnia, and the imposition in 1992 of the U.N.'s economicsanctions against FR Yugoslavia resulted in enormous economic damageand has crippled the FR Yugoslavia economy: income per capita in 1996fell to one third of the level which existed in 1991, and, in addition, createdan extremely difficult situation which adds various hurdles to the Yugoslavadjustment process.

Due to the economic and political isolation imposed by the UnitedNations, tendencies toward further marketization of the economy and de-mocratization of political life have been weakened. The disruption whichresulted from secession has been exacerbated by the economic sanctionsand political isolation, so that in 1996 the economic performance of Yu-goslavia fell to between 25 and 30 percent of its in 1990 levels. Despitethe Dayton agreement, a so called "outer wall of economic sanctions" isstill applied against Yugoslavia, postponing her economic and political re-vival in the direction of a stronger market orientation and political democ-ratization.


THE OPENING OF THE YUGOSLAV ECONOMY AS A TOPPRIORITY

Because of both international and internal circumstances, the FR Yu-goslavia economy is retrograde in its development: not only have produc-tion and employment reached the lowest level in the country's twentiethcentury history but from the point of view of its economic system, the con-sequences of secession and economic sanctions have been utterly disastrous.Changing from being the most open economy in the group of former so-cialist countries, today it is almost a closed economy. The economy is closedbecause of the insistence of the U.S. and several other countries to post-pone a lifting of the "external wall of sanctions," unless Yugoslavia acceptscertain demands which, practically speaking, are given in the form of ulti-matums. These demands are not based on the Resolution of the U.N. Se-curity Council and do not have a legal basis. They are not the less real,however, because their origin and spirit have a political form and content.Lack of legality does not mean lack of reality, especially considering thatthe main power behind these demands is the only super power in the world.

In the case of Yugoslavia, it is difficult to realistically assess the inter-nal economic and political forces which would support the opening of theeconomy and those which would not, because the leading world power,which is insists on waving the flag of free trade and globalization, supportspolicies which are against the policy of an open economy for Yugoslavia.Needless to say. an open economy is a most important condition for thedevelopment of an open and democratic society. Even without lifting andeliminating economic sanctions, however, the Yugoslav economy is poisedto adjust its economic system and be ready to join the rest of the worldonce the opportunity arises.

Considering that FR Yugoslavia has a population of only 10.5 millioninhabitants, its domestic market is insufficient for any policy of autarchyin the field of manufacturing: to accept this policy would be at a very highcost due to the inefficiency of production. Since the firms cannot be rela-tively competitive even in their internal market, it is less feasible to expectthat they might compete internationally. Therefore, the opening of theeconomy and an export promotion policy is a policy without an alternativefor the future process of the economic recovery of Yugoslav.

As far as matters of trade are concerned, all former Yugoslav repub-lics—consisting of five independent statelets—will, in the very near future,be forced to face a particular test of political maturity and economic ra-tionality, that is, to find the easiest and quickest way to recover a relativelyimportant segment of their economies by reconnecting to the former chan-nels of internal trade, now seen as new channels of international trade.

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While economic rationales for quickly opening these channels are obvious,this is not necessarily a guarantee that such a policy will be easily acceptedand pursued. Encouraging signals are indicated by incipient cooperationbetween FR Yugoslavia (Serbia and Montenegro) with the former Yugoslavrepublics of Macedonia and Slovenia. But it would require mutual eco-nomic cooperation among all the regions of former SFR Yugoslavia beforeits economic benefits, could also contribute to the improvement of politicalstability in the region.

Another important action to be expected in the foreign economic pol-icy of FR Yugoslavia is to intensify export promotion to the developedcountries. Dissolution of the former Soviet Union and the Council for Mu-tual Economic Assistance means that there are no longer any chances towhat in more markets on the basis of clearing agreements in the zone ofnon-convertible currency had been relatively large amounts of goods fromSerbia and Montenegro. Lack of non-convertible currency trading partnerswill exercise a strong, and in the long run positive, pressure upon the pro-ducers in Serbia and Montenegro to prepare themselves to sell more goodsin competitive markets of Western Europe and the United States.

A particular difficulty for the Yugoslav economy will be found in thearea of institutional arrangements in international economic relations.While the economy of Yugoslavia between 1992 and 1996 has been isolated,new types of international arrangements dealing with the economic spherehave taken place. One of the most important is the conclusion of the Uru-guay Round of negotiations within GATT and establishment of the WorldTrade Organization (WTO) whose "rules of the game" in internationaltrade, are much broader in scope and content than those which existedunder GATT. Creation of the European Union as the largest market, notonly in Western Europe but globally will force FR Yugoslavia to make ad-ditional adjustments. Former members of the COMECON, have created anew regional group: the Czech Republic, Hungary, Poland, and Slovakiaare now members of a trade zone under the name of CEFTA (begun asthe Visegrad Group). Since these four countries have, for several decades,been important exchange partners of SFR Yugoslavia, they are of particularinterest for business firms in Serbia and Montenegro.

The creation of NAFTA introduces new competitive elements in theNorth American continent. While the western hemisphere, save for theU.S., was less important in the past, for FR Yugoslavia's foreign trade inthis region will be of growing importance in the future.

The ASEAN group has changed its name and ambitions: since 1993.It has now opted for the name of Asian Free Trade Association (AFTA),indicating its intent to reach the level of integration of a free trade areawithin the next 15 years. Economic cooperation among the Asian and Pa-


cific nations is organized within the group known as Asian and Pacific Eco-nomic Cooperation—APEC—into which, besides the countries of EastAsia, new members include Australia, Canada, Zealand, and the UnitedStates.

The growing number of regional and sub-regional economic coopera-tion groups suggests two possibilities:

1. Regionally integrated groups are a potential bridge toward fur-ther globalization of the world economy.

2. They also may divert trade from global flows toward more re-gionally oriented flows, and stimulate resistance to the globaliza-tion process.

This second possibility seems less likely if one takes into account thatseveral leading countries and their translational corporations are membersof more than one regional economic group and therefore, on the basis oftheir diversified global interest, are more likely to use regional economicgroups in order to foster globalization.

The membership lists of the regional economic groups shows that theyinclude both developed and less developed member nations. This fact raisestwo questions.

1. Does this suggest a relatively new trend towards both a horizontaland vertical structure of the international economic groups,meaning that in the same economic integration group there arecountries at various levels of economic development included inthe economic gravitational field of the leading and most devel-oped countries?

2. Does this mean that such groupings constitute a form of verticalinternational economic integration—what might be regarded asa unique form of redistribution of the zones of influence and adivision of the world economy among the leading partners?

Considering the contemporary institutional formations in the worldeconomy, the FR Yugoslavia and other countries in a similar situation doesnot have a choice but to do its best to make the necessary adjustmentsand go through the period of internal transformation to bridge the gapbetween its internal development in the 1992-1997 period and its depend-ency on the world economy. To avoid its own economic vegetation, FRYugoslavia under the new international rules has no option but to takesteps making it capable of inviting and admitting direct foreign investments.Without direct infusions of capital from abroad, the chance to revive theeconomy of FR Yugoslavia is almost zero. Remembering also Yugoslavia'shigh level of international indebtedness, direct foreign private investments

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seem to be the best and perhaps the single possible source of financing ata level which is more than a symbolic. This approach can be criticized aspolicy of capitulation to foreign capital owners at least in the area of theeconomy. The real value of this approach and/or decision, however, canonly be appraised on the basis of a comparison with its alternatives.

In the case of FR Yugoslavia, the alternative is only to prolong theagony and to opt for a long-term vegetation in poverty. The latter couldbe just another and more negative form of capitulation to a condition ofhigh unemployment and low incomes. If international capital u >ws drivenby activities of the transnational corporations seem to be the most impor-tant source of investments for economic development, there is no chancethat FR Yugoslavia can avoid opening the door to the inflow of direct for-eign investments.4 But to succeed with this policy will require not only po-litical decision, but also will require adequate preparations in various otherinstitutional areas. Foreign investments, as a rule, do not enter economieswhere there is a lack of economic stability and a legal system incapable ofguaranteeing the security of investments, and of providing conditions forfull freedom of decision-making as far as the use of capital is concerned.

REACTIVATION OF MEMBERSHIP IN INTERNATIONALFINANCIAL INSTITUTIONS

The most important condition FR Yugoslavia has to meet in order toget full access to various forms of international cooperation is to reestablishher memberships in international financial institutions. Despite the fact thatYugoslavia was one of the 44 founding members of the United Nations aswell as the whole set of U.N. agencies including the IMF (InternationalMonetary Fund), IBRD (International Bank for Reconstruction and De-velopment—World Bank), IFC (International Financial Corporation), etc.,the FR Yugoslavia, due to the international economic sanctions is nottreated as a full member of pre-existing as well as institutions created since1992. It is to be expected the FR Yugoslavia is ready to reactivate relativelyquickly her membership in various international organizations once somebasic political conditions imposed by the U.S. (since the economic sanctionsimposed by the U.N. Security Council have been lifted) are removed.

The weight of purely political arguments in international relations istransparent from the fact that the secessionist republics whose inde-pendence was recognized by the leading Western nations immediately re-ceived membership status in the U.N. and U.N. specialized agencies, whileYugoslavia although its membership status was never revoked does not havenormal working relationships with those international institutions.


The top priority for resuming relationships with the international fi-nancial institutions is to negotiate settlements with Yugoslavia's indebted-ness to these institutions. According to data published in 1993 by the U.N.Economic Commission for Europe, the total public and publicly guaranteeddebt of SFR Yugoslavia in convertible currency is at a level of 16.5 and14.5 billions of U.S. dollars, respectively.5 This is the amount owed by theformer SFR Yugoslavia, the former five republics which a consequence ofthe secession, are new states. FR Yugoslavia is still in negotiations withthe other former republics to solve the problem of secession and the dis-tribution of assets and liabilities of former Yugoslavia. So far, repre-sentatives of FR Yugoslavia insist that FR Yugoslavia is the only successorstate of SFR Yugoslavia, while the new states and their promoters andsupporters in the West insist that all five states are equal successor statesof SFR Yugoslavia. Before this intractable political problem is solved, it isdifficult to calculate the exact amount of debt share for each state and FRYugoslavia. Taking the financial position of FR Yugoslavia into considera-tion, and the fact that during several years the debt was not serviced, thecost of the debt service in 1996, according to the calculations by O. Kovacwould reach the level of 141 percent of expected exports of goods andservices: interest payments alone would absorb 43 percent of exports ofgoods and services, or eleven percent of the GDP.6 This dimension of debtservicing is both financially and politically unacceptable. Therefore, one ofthe first steps in the process of reintegrating the Yugoslav economy intothe world economy must be to revive the relationships between Yugoslaviaand the IMF, the World Bank Group, and the WTO Before a normalizationof relationships is achieved along these lines, there are no possibilities forreconstruction of economic relations between FR Yugoslavia and the oldand new partner countries.

Taking into account the principles and policies of the leading worldfinancial institutions. FR Yugoslavia is expected to submit elaborate pro-grams on short-run as well as medium-term economic policies. The nor-malization of the Yugoslav position in the world economy can only beginafter these programs are accepted. The demands it must meet in order toget support from IMF and the World Bank are:

1. The restriction and reduction of domestic demand by the use offiscal and credit restraint policies;

2. The introduction of structural reforms in order both to stimulatea supply response and to achieve more efficient use of resources,and

3. The provision of external finances to support the program.7

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Any stabilization program, to be undertaken with the approval of theIMF, which asserts as a first economic policy step for a country involvedin it faces two basic imbalances which are the product of the overall weak-nesses of the economy:

1. balance of payments deficit;2. budget deficit.

In trying to deal simultaneously with these two deficits, a country has topreserve incentives for investments as much as possible. In other words,fiscal balance need not be achieved at the cost of a lack of a critical amountof investment activities.8

According to O. Kovac, the macroeconomic policy of FR Yugoslaviais marked with a basic orientation toward an open, export oriented econ-omy:

The main goals of economic policy have been set to:1. maintain the stability of prices and of the exchange rate;2. revive production, especially for exports and GDP growth:3. speed up structural adjustment and enterprise restructuring;4. improve standards of living and social protection of the population.9

While these features of the economic policy are in accordance withthe orientation toward an open economy, many exact figures and projec-tions being used at the time of the lifting of sanctions (November 1995)had to be corrected due to the incomplete suspensions of economic sanc-tions. Lifting of the so-called "outer sanction walls" and regulation of re-lations between Yugoslavia and the leading international financialinstitutions are still postponed. Therefore, the measures and policies of ad-justment elaborated by the Yugoslav government do not have a favorableclimate in which to function. Needless to say, the longer the postponementof elimination of the outer walls takes the deeper the disturbances facedby the Yugoslav economy will be, and the longer and more expensive willbe the process of recovery and reintegration of Yugoslavia into the worldeconomy.

CONCLUSIONS

1. Trends in the world economy marked with globalization as well asregional disintegration, with the unknown results about the character andtiming of synergy of these processes, is imposing serious problems for allcountries who are not pace setters, but rather barely able to become pacetakers. In the case of FR Yugoslavia, this is particularly visible due to the


specific accumulation of negative economic and political characteristics ina small country.

2. As a result of a specific socialist but not command economy system,and having enjoyed many privileges and advantages of economic and po-litical character in comparison with the former command economy coun-tries, SFR Yugoslavia has been behind in the transition process. As a matterof fact, many goals of transition in former centrally planned economies hadbeen achieved in SFR Yugoslavia even during the Cold War.

3. The process of secession and internal conflicts, including the civilwar in Croatia and Bosnia-Herzegovina, has had tragic economic and po-litical consequences upon the Yugoslav economy and society after the se-cession (Serbia and Montenegro). That is equally visible in both theinternal and external theater of operations.

4. For the performance of Yugoslavia in the global economy, the mostimportant negative influence and serious damage to the economy—andeven biological survival for particular categories of people (children, seniorcitizens)—was effected by international economic sanctions. Unfortunately,despite the legal lifting of sanctions by the Resolution of the Security Coun-cil of the U.N., the policy of the U.S. to apply the outer wall of sanctions,although illegal in stricto sensu, represents a real threat to the process ofeconomic rehabilitation and reconstruction of the Yugoslav economy.

5. Partial responsibility for the current problems and difficulties facedin the process of reintegration into the world economy certainly lies onleading political forces in Yugoslavia. One of the most important issueswhich is not being appropriately addressed is the issue of privatization. Fornot dealing with this problem, the Yugoslav government deserves criticism;neither big powers nor any external and/or international source of influencecan be blamed.

6. The process of reintegration of Yugoslavia into the world economyis not going to be quick and easy. It will depend upon the following factors:

a. More flexible and understanding positions of those countries whoare insisting on illegal—based on political and not on legal argu-ments—preservation of the external walls of economic sanctions;

b. Clear vision by the government of Yugoslavia about the trendsand dynamics in international economic and political relations,making proper adjustment to minimize the losses of economicand political nature; and

c. The Yugoslav government has to provide opportunities to pro-fessionals, and talent in general, to stimulate entrepreneurshipand create a business-friendly economic system for full use of hu-man and other forms of capital which still exist in the country

Adamovich298

but must be given opportunities for its efficient use in the processof adjustment of the Yugoslav economy to global economictrends.

ENDNOTES

1. Lester C. Thurow. "Testing the System." Der Spiegel. November 7 1996.2. Particular pressure of illegal immigration is felt in those developed countries which are

geographically closer to the poor nations. In some cases, even countries which are notin the group of those most developed are exposed to strong waves of silent invasion; likeItaly, Russia, and Greece.

3. Hans-Peter Martin and Harald Schumann. "Globalisierungsfalle" ("The GlobalizationTrap"). Published by Rowolht, Reinbeck bei Hamburg, 1996.

4. Mile Njegovan. "Otvaranje privrede kao pretpostavka za transformaciju." Ekonomskapolitika, 2325, October 28, 1996, Belgrade.

5. United Nations Economic Commission for Europe, Economic Survey for Europe, 1993,p. 124.

6. Oskar Kovac. "Reintegration of Yugoslavia into the World Economy," Serbian ScientificSociety, Belgrade, 1996, p. 7.

7. S. Schadler. "How Successful are IMF-Supported Adjustment Programs?" Finance andDevelopment, June 1996.

8. E. C. Offerdal. "The Response of Investment and Growth to Adjustment Policies,"Finance and Development, June 1996.

9. O. Kovac. Ibid., p. 4.


Documents

Trends in the Global Economy and Their Implications for Yugoslavia