RADIO FREE EUROPE ee COMMUNIST AREA yugostavia: Economics 20 April 1966 APTER THIRD PLENUM: YUGOSLAVIA AT THE CROSSROADS With President Tito and his chief lieutenants touring the country and defending before the Yugoslav public the decisions passed at the Third Plenum(1) of the Central Committee on 11 March 1966, Yugoslavia has entered a phase "in which state administration is objectively not able to solve many problems,... while enterprises, still not having authorization, keep in their hands insufficient funds: and ‘instruments’, for the functioning of a socialist market economy. (2) have found ourselves at the crossroads," said'a Party weekly. (3) Apparently, the "socio-economic reforms" have started influencing all fields of the country's life, thus placing before the state and Party apparatus dilemmas unheard of even in a country such as’ Yugoslavia which has been undergoing reforms of one sort or another since 1950. Still, a great number of encouraging signs have ‘been appearing, although they have been accompanied by efforts aimed at slowing down the pace of the liberalization. It seems unlikely that this liberalization could be stopped at its present advanced stage without endangering the very existence of the state. However, many of the existing values are now being shaken to their-foundations, so that both Party and state functionaries feel as if they are now living in limbo. The upper echelons do not yet see clearly how revolutionary are the changes taking place in the country, while the lower echelons are still waiting for more detailed instructions about what to do. In his recent speech in a Bosnian town, Tito insisted on a harmonization of work between top leaders and the people in general when he said: There are certain, how should I say, difficulties, maybe even certain mistakes. We are calling upon all of you to heip us (1) See Background Information Yugoslavia, "After the First Session of the Third Plenum of the Yugoslav Central Committee," 28 February 1966 and "Yugoslav Plenum Announces Struggle for Liberal Reforms," 13 March 1966, by 8.3. ) Komunist, Belgrade, 7 April 1966. ¢ (3) Ibia.said: J would like again®to start with the reforms. As long as I sit in Belgrade, 1 shall be horribly energetic and firm, so we shall not yield an inch. Everything which is outside the scope of ‘the Feforms and could harm the reforms must be subjugated to the reforms. (5) Tito sharply attacked people who still insist on unprofitable investments and would like to finish the construction of factories which have no future whatsoever. "You have already heard," Tito said, "at the Third Plenum that cuch people give support by their words, but they are still when it comes to acting... I think, comrades, that such attitudes are to be criticized and I have to Say in advance that we shall not remain indifferent toward such views and that we shall have to hold such people to their respon- sibility."(6) o Prevent New Inflation Because the first signs of a new inflationary trend are already visible, it is obvious that measures aimed at accelerating the implementation of the reforms have to be taken as quickly as possible. This was recently said openly in the National Assembly. Reporting from the Assembly, a Belgrade paper put things as follow: oghe deputies have noticed that, on the market, which is the mirror of production, strange things have been happening of “late. Consumption is decreasing, while inflation again shows sient) of life. The trade has a poor assortment of goods, while in production finished products are piling up. Investments are decreasing, but still on all sides all possible kinds of construc— tions are being built. After the introduction of the reforms, enterprises do business more successfully, although a selection of ‘profitable and non-profitable enterprises has, so to say, not yet started at all.(7) The economic expert of a Zagreb weekly, Kresho Dzheba, was even more critical. He revealed that "already by the end of February our dinar was valued at three per cent less than at the becinming ox tne pust year" and that "with it (i.e., with the dinar) one can today seven per cent less industrial goods than ‘mediately after the introduction of the reforms." As far as prices are concerned, Dzheba said: (4) Radio Zagreb, 11 April 1966, 1930 hrs. (5) Radio Belgrade, 10 April 1966, 1800 hrs. (6) Ibid (7) Borba, Belgrade, 8 April 1966.be Regardless of the fact that prices for 90 per cent of all items are frozen, they are still stubbornly increasing from month-to- month by one or two per cent. This shows, on the one hand, how ineffective the administrative control of prices has been, and, on the other hand, that the new dinar has not yet been sufficiently stabilized. Judging by what 1s currently happening, the quantity of money out in circulation and credits, which are again being granted, are stepping beyond the available funds... The greater part of money put in circulation is used for the satisfaction of the necessities of non-economic forces: the Federal Government (which in the first three months has contracted debts with the National Bank amounting to 100 billion dinar), other socio-political communities and local budgets....1t is obvious that concrete measures aimed at harmonizing the spending outside the economy with the possibilities of the latter have misfired... Moreover, even today the advocates of expenditures in the non-economic spheres are very loud, camouflaging themselves as the fighters for social and other "interest: of the working people. (8) Three Additional Unresolved Problems There are three groups of still unsolved problems which characterize this phase of the Yugoslav economic reforms: 1) prices; 2) crediting and banking system; 3) foreign trade and the utilize- tion of foreign currency. In his speech at the first session of the Central Committee on 25 February 1966, Tito said that "catastrophic consequences" would appear if currently frozen prices were to be generally freed. In his opinion, "some critical items" should remain under admini- strative control; some others should be freed. (9) It is apparent however, that without a complete freeing of prices there will ve no chauce for the reforms to succeed. The chairman of the parliamentary commission dealing with the state control of prices, Marin Cetinic, stressed recently that a new system of price control "primarily by economic methods" should be introduced. The new system should “exert influence on the market, where prices would be established freely according to the conditions of supply and demand." On the (8) Vjesnik u srijedu, Zagreb 13 April 1966. (On frozen prices, see also Milan Bajec in Borba of 3 April 1966. Bajec claims that factory prices of industrial products have increased by 2.8 per cent and retail prices even by 4.3 per cent. Moreover, Bajec reveals that, if one includes agricultural products and services, prices, after having been frvzen, have increased on the whole ‘by seven per cent. What would happen if they are freed? Borba of 30 March 1966 said that "retail prices in February 1966 were 40 per cent higher than in the same month last year." (9) Politika, Belgrade, 26 February 1966-~4- other hand, however, Cetinic said that "the compission congiders that it is necessary to proceed with a gradual unfreezing of prices, wherever the necessary conditions have been created, for individual markets and for individual products and groups of products."(10) The trouble is that nobody dares to take the necessary radical steps. People usually expect that "somebody on the top"(11) will solve the problems. Instead of acting, people discuss the problem and make speeches, while the situation is deteriorating. This is especially true in the case of price policy. As far as credit and the banking system are concerned, it is no secret that the ideas of the Federal Economic Chamber and the National 3ank of Yugoslavia "differ considerably."(12) 1t appears that banks "cfsen refuse to ¢rant credits even to those factories which are ful-y solvent," justifying their meacures by reference to "certain internal memoranda." The economy requires liberalize- ww tion of the credit policy, easier conditions for obtaining credits for daily production and for financing exports, etc. On the other hand, the Governor or the National Bank of Yugoslavia, Nikola ‘wiljanic, has stated: If imports are very high, if exports are going down and prices going up, this is only a signal that the taps should be turned off; and that there is nothing to direct us towards liberaliza- tion of credits. (13) When called upon to suggest a solution, the liational Assembly Commission for the Banking and Credit System was more inclined to retain the role of the state in the field of approprie— tion of funds for granting credit, "but only on a izgal basis."(14) This means that, in the future, nobody would be able to prescribe obligatory appropriation of funds other than on the basis of a special law. Still, definite solutions, so badly needed in a country which has been accepted as a full member of GATT, have not yet been found. e As far as the banks are concerned, the chief aim has been to make them as independentas possible. Commercial banks especially should become independent "in granting credits for stocks of goods, for purchasing goods, for exports and so forth; in all this they are to conclude proper business contracts with enterprises." (15) (10) Borba, 31 March 1960. (11) Politika, 8 April 1956. (12) Borba, 30 March 1966. (13) Ibia. (14) Borba, 2 April 1966. (15) Borba, 15 March 1966.== On the other hand, since the National Bank of Yugoslavia must first regularize its relationships with the commercial banks, it goes almost without saying that even this type of credit will not be easy to get.(16) In the foreign trade system, a new draft law was adopted by the Assembly commission dealing with socio-economic relations which abolishes the present monopolies of a very limited number of enterprises in various business operations. One of the most important innovations is that individual enterprises will have the right to participate independently in foreign trade. In this way, foreign trade will be liberalized and freed "from interference by executive political and administrative organs."(17) Thus far, enterprises have been obliged to obtain necessary permission from the government. According to the new draft, the future enterprises "will acquire the right to deal with foreign trade business as soon as they fulfill the required conditions and are registered with the Economic Court."(18) Discussing the new development, Mijalko Todorovic, the Chairman of the Federal Chamber of the National Assembly, said recently that "it is impossible to introduce convertibility to liberalize foreign trade -- if no internal stability is achieve and vice versa."(19) Todorovic added: For a country such as ours, it is absolutely impossible to create stable internal relations without free foreign trade and a higher degree of currency convertibility. We are such a small producing community that in no case can we provide a full assortment and quantity of goods if we do not integrate much more decisively into the world market. (20) (16) On 28 January 1966, representatives of 372 Yugoslav enterprises gathered in Belgrade to found the Yugoslav Bank for Foreign Trade. They invested 743 billion dinars in the new bank. Its new Director, Djordje Strizhak, stated--according to Borba of 29 January 1966--that the new bank has first to regulate its relations with the National Bank and then "to see what the new (government) regulations would be." _Privredni Pregled of 23 February 1966 (a Belerade economic daily) reported that "by the end of March" 100 commerical banks were to be founded (59 were founded by the end of January). Their chief aim is to allow a free flow of funds "throughout the whole territory of our country, which is met by the opposition of various communes. On the other hand, a large number of newly founded banks are, at the same time, founders of other banks. Enterprises also invest or deposit their money in several banks at the same time. (17) Borba, 30 March 1966. (18) Borba, 30 March 1966. (19) Borba, 31 March 1966. (20) Ibia.a sBc~ Yugoslavia -- Full Member of GATT At the 23rd session of the General Agreement on Tariffs and Trade (GATT) held in Geneva on 6 April 1966, the member countries unanimously approved a decision to admit Yugoslavia as a full-fledged member of GATT. According to the rules of GATT, Yugoslavia ’s acceptance will be considered valid as soon as Belgrade concludes tariff negotiations with GATT member countries which have already started in Geneva. The economic analyst of a Zagreb daily, M. Baletic, wamed his countrymen that "it would be mistaken in this moment to .hink only of the advantages and forget about all the obligations which will be imposed on the Yugoslav economy" after having joined GATT.(21) But, one should not forget that more than 70 per cent of the Yugoslav foreign trade is directed toward GATT countries. While it 1s true that Yugoslavia will have possibilities to benefit from the GATT membership, on the other hand it will be compelled to open its market to foreign goods. This is good, Baletiqy said, because the Yugoslav economy will be directly confronted with foreign producers which means its enterprises will have to produce at lower production costs. It is to be assumed that, in the course of the implementa- tion of the reforms, Yugoslavia’s gates will be opened to both Eastern and Western influences. Several days ago Tanjug announced that foreign newspapers and magazines will be freely sold all over the country, which thus far was not the case. Also a number of other measures are being introduced which indicate that Tito is serious when stating that he will be "horribly energetic" in not allowing anti-reformist people to sabotage the reforms. He is also correct in claiming that this year is a critical year. It is necessary to overcome the existing stagnation yet avoid chaos simultaneously. Whether this will be possible without the removal of people who are against the reforms is difficult to answer now. In any case the developments in Yugoslavia at the moment show more encouraging than discouraging signs. 9 (21) Viesnik, 8 April 1966.