A Handshake Between The East And The West

The economic recovery of Slovenia and Croatia depends to a large extent on their renewed cooperation with the Yugoslav market. "The prophet" who uttered these words is not some hardened unitarian, but a distanced observer of the Yugoslav economic muddle, an analyst at the Viennese Institute for Comparative International Economic Research, Hermine Vidovic (M.A.). Her findings are based on an extensive study she has conducted on the state of the Croatian and Slovenian economies. The Austrian economy is extremely keen to establish the real state of affairs of her neighbours, who have recently gained independence. "It was said that economic links between the Yugoslav republics were not that strong, but it turned out that there exist strong historical links. It has been said that the disintegration of Yugoslavia will only harm Serbia, but this is wrong; the loss of the Yugoslav market only causes a big drop in production all round".

The two new Balkan states will have to travel sometime before they see the light at the end of the tunnel. "Bearing in mind the shortage of foreign currency, Slovenia and Croatia are faced with an enormous pay out of foreign debts and stabilization of all currencies. In addition to this, their economic future will depend on their future trade relations with former Yugoslav republics", goes the conclusion of the study.

The drastic drop in production, foreign trade, and income, the rampant inflation and the rise in unemployment characterize the present state of the Slovenian and Croatian economies. The social unrest is also rising. The rate of unemployment has by no means reached a record level.

State-owned firms are forced to lay off labour owing to the necessary process of "restructuring" and the state subsidy cuts. Private firms are too unsound financially to be able to "absorb" the labour thus freed. According to the data in this study, only a third of the unemployed in Slovenia and Croatia will be getting financial help, whereas many unemployed have been left without income for months.

The study concludes that these two new states are desperate for financial and technical help from the West. It has been stressed that "owing to the acute shortage of capital", membership in the IMF would be "essential" for overcoming "the financial difficulties". Membership in the IMF is the precondition for obtaining the credits of the World Bank, commercial banks and for starting negotiations with the Paris Club concerning the delayed pay off of current debts as well as getting new credits.

"Powerful financial infusion from abroad cannot be expected until Slovenia and Croatia have become members of the IMF. It is well known that Washington is not prepared to recognize them yet, and also how strong the American influence is in the IMF", says Hermine Vidovic. Germany and Austria, according to her, can alleviate some of the problems in their markets through goods coming from Slovenia and Croatia, but a truly free access to the European market is "a thing of the distant future". Slovenia and Croatia will be able to sell a lot of their goods only on the Yugoslav market.

In its quest of a better life Slovenia is at a much better starting point than Croatia since Slovenia has the necessary preconditions: a well developed economy as well as an experience in the Western markets. It has been estimated that, with the help of the West, Slovenia could pay off its foreign debts in the long run.

Croatia, however, is facing a much worse predicament. The study concludes: "In the next few years Croatia will have to count with a considerable economic loss - along with all the difficulties inherent in making a transition to market economy and in the shrinking of trade with the former socialist states of Central and Eastern Europe, as well as with the partners from the former Yugoslavia. It should also overcome its considerable war damage as well as the possible loss of its territories. The revival of tourism, the most important industry in Croatia (income of 2.2 billion dollars in 1990) will be slow due to political instability. The same goes for joint ventures and direct foreign investment. The Economic Institute in Belgrade has ascertained that the total economic break up of Serbia with Slovenia and Croatia would cause a drop in production of 20% and a loss of 120 000 jobs in the Serbian economy. The question remains whether the economy will be strong enough to overcome the morbid passions of the national ideology.

Economic Variables in 1990

Slovenia Croatia Yugoslavia

Population (in millions) 1.9 4.7 23.8

GNP per capita in US$ (1) 5300 2900 2200

Employment (in thousands) 851.3 (2) 1569.9 6435

Unemployment (in thousands) 55.4 195.5 1386

Trade with industrial countries

Export (in millions of dollars) 3007

1788 8561

Import (in millions of dollars)

3821 2671 12009

Gross debt (in millions of dollars) (3) 1788 2994 16295

Gross debt per capita (in dollars) 916 639 694

Number of registered joint ventures (4) 996 1232 4568

(1) Estimation;

(2) The situation found in 1989

(3) The situation found in 1990. If part of the Yugoslav debt were to be transferred to the republics, the Slovenian gross-debt would rise to 2.495 billion dollars (1278 dollars per capita) and the Croatian to 3.86 billion dollars (824 dollars per capita) (4) 1.1.1989 until 30.4.1991

Source: National statistical publications as well as the data from the Viennese Institute for Comparative International Economic Research