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Yugoslavia Table of Contents


Overhaul in the 1960s

A movement toward greater market freedom in Yugoslavia spurred economic reforms in the 1960s. The Third Five-Year Plan, begun in 1961, was abandoned the next year because of a growing economic crisis and failure to meet any plan targets at the end of the first year. The basic goals of that plan were to increase personal consumption, production growth, and labor productivity through loosened government controls on wages and higher investment in the production of energy, steel, non-ferrous metals, chemicals, and capital equipment. Particular attention went to investment in the less developed republics and to mechanization of agriculture.

Economic planning in the 1960s strove to make Yugoslavia more competitive on the world market and to expose the economy to the beneficial influence of free international trade. A more liberal trade policy eliminated multiple exchange rates, devalued the dinar (for value of the dinar--see Glossary), and reduced tariffs and import restrictions. In addition, the Yugoslav tourist industry received government support, and Yugoslavs were allowed to work as guest workers abroad (see Guest Workers , ch. 2). Hard currency remittances from tourism and guest workers became important sources of relief for Yugoslavia's weak balance of payments. Unfortunately, these changes were poorly prepared and badly implemented. Not long after the Third Five-Year Plan was abandoned in 1962, industrial production fell to half its 1960 level, imports spiraled, exports stagnated, and inflation increased because wages increased faster than productivity.

After the Third Five-Year Plan failed, the government reverted to a system of ad hoc annual plans similar to those implemented between 1952 and 1957. Beginning in December 1962, Yugoslavia's leading economists and politicians launched a twoyear series of debates to identify and correct economic flaws, adjusting the roles of the federal government, enterprises, planning, and the market in economic growth and development policy. The conservative minority feared that decentralized control over investment and overemphasis on market forces would lead to the loss of socialist values. Liberals, on the other hand, saw decentralized decision making and a greater role for market forces as the only way out of Yugoslavia's economic stagnation.

The new constitution of 1963 introduced market socialism (see Glossary), a system that basically reflected the views of the liberals in the debates of 1962 and 1963. Decision making was decentralized, the federal government further loosened its control over investment, prices, and incomes, and market forces were allowed greater play. The federal government was only to intervene with emergency measures in times of crisis. The selfmanagement system thereby received more power and responsibility in the economic development of the country.

Data as of December 1990