,L.J L _ L J. No, E 43 CONFIDENTIAL Th i s report is rest r i cted to those members of the staff to whose work it directly relates. 66889 INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT YUGOSLAVIA - PRELIMINARY ECONOMIC MANUAL June 3, 1949 Economic DE~partment Prepared by Cicely A. Ryshpan TABLE OF CONTENTS I Summary and Conclusions i I. Natural Resources and Economic Characteristics 1 Natural Geography 1 Natural Resources 2 Industrial Development 2 II. Current Political Situation 4 III. Current Economic Institutions 6 Agriculture 6 Industry and Transportation 8 Domestic Tfade and Distribution 8 Foreign Trade 9 Investment Financing 9 Central Planning 10 IV. The Five Year Plan 10 Agricul ture 11 Industry 11 Transportation 12 V. Postwar Economic Developments 12 National Income and Production 12 Consumption 14 Internal Financial Situation 14 Foreign Trade 16 Balance of Pa;yments and Foreign 1xchange Resources 17 Foreign Debt 18 Selected Statistics i i SUivIHARY AIID COj;~CLUS IOBS AlthoUf:,h Yugoslavia l1.!'1s just r.1ade available to the Ba:.lk and Fund !l consider?"ble amount of economic informl3~t ion ":hich he,d not '?reviously been furnished. to the :Ballk or in fact to !',ny interl1<'J,tional orglUlization, the informO-tion is still too inco!!1)lete and in some Cases too contradictor;,· to diolt! any definite a:;',Y,)l'aisal of the Yugoslav economic :picture.' There are conflicting estimates on nationt),l income, levels of investment and consump- t ion, production, :mcl :prices so that one ce,nnot yet judge the e:lctent of )rogress being made b~' Yugoslavia in the acco!rr?lishment of its Five Year Plan. In :.;>articular there is difficulty in reconciling ctvailp,ble inform- ation on Quanti1(;l "Tith that on value if the official Yugoslav indexes of ?rices are used. Therefore, functe",'TI8ntal questio:::l3 ~u.·e raised either about the quantity of :.Jroduction <"..ud investment or f'\,bout the degree of ":?rice stc-:.bility. This latter .90int. !:l.nd. the entire c.uestion of internal finan- cial stability, l:rill h:lve to be examined D.t lene::th before one c?..n judge 1,'ihether the total investment ~9rOt;;r8m :Jlp,n:'1ed by the Yugoslavs is 1.". reason- able one and t;,!hat the urgent ~9riorities are v/ithin this total. :civen Ij,t t}:ds ~Jrelimin9rJr sta::"e. hm·!ever~ investment o]nortunities a.ppear to exist in Yugoslavia in the fields of extraction a..'ld refining of minerals, food ")rocessing, tinber )roduction, ggriculture. and possibly also in the manuf8,cture of consum:)tion goods nO"1 im:.)orted from abroad. 3efore any :?riorities CM oe assiEneCi. to these res".:;ective fields of invest- ment, ho,.,ever. it ltrill be necessarJ to obtain consi(ierabl~r more information about the :?resent status of the Yu['oslav econo:ny~ A cletailed economic Cluestionlle.il'e \'If',S given to the Yugoslavs lf~st year at the time of their init i.~l SU~Jmissiol1 of the lo?,n ic[."tion but the re11y ha.s not yet been received. 11 Since the ~"13:r Yugosle.via's foreign trade has been oriented much more to\1ards Russia end Easterl1~uroJ?e th[-:',n ?re'tlar but, in the last months of 1948, follo\'Iing the Yugosl<''v split ','lith the Cominform, a substant ial redirection of tra(:l.e toward.s the ,'lest occurred. The Yugosle,v b!'l.lance of ~:)ayments ShO':1S a slight deficit on overall cm'rent aCC014'1t Bnd a 1e..rger deficit tm1ards }estern Europe gncl overse8S areas. Although there '''I'I,S a sur)lus 'lith EHstern 3u.rope in both 1947 and 19 LJ.8 , it could not be used to meet Yugosla,v needs for iI"(?orts frol'! tIle ','lest. Consequently, there llas been f\ drain on the Yugoslav gold end hard currency foreign exchange reserves which f\,re ncx>J' dmm to 9, level of less than $40 million. Yugoslavia, had a suost8Xl.ti~1 record, of dafe,ult on its foreif.!1l indebtedness )rior to the out'breal<: of :;lor10, l"lar II. AGreements have been concluded 'rd.th the U~S., U.K., r-md severp~l other countries for the com- :gensation; on ? reduced sea.le, for )ro)ert:' ex,1ro:?riated by the Yugoslav Government. Yugosl!'wic. has announced its :;,'ecognition of its obli{';a,tion to mr\ke ')8.yment on Yugoslav external bonds currentl~! in default but bas not yet prolJOsed terms of settlement. YUGOSLAVIA I. Natural Resources and Zconomic Chal'acteristics ?rel,rar YU€os1avia 'ltlaS one of the "~)Qorest countries in Zuroye; its national income, estiITl8,ted officially at $70 per head in 1938, 'Has roughly of the same order of nagnitude as that of R1.une.nia, :Bulgsria" and Greece, about one-third 10"ler than that of ?olt",ud a.."'ld Hungary, and e,]9roximately one-half that of Ita1~r, Czechoslova~:ia and Austria. Predominantly agric~,:ltural, like the other countries in eastern and southeastern EurO)8, it suffered like them from a consiciera,ole degree of rural overcrmding. It s mod.est industry, developing SlO\1ly t even \'1i th considerRble foreign investment relative to home investment, offered insuf- ficient enr,)loyment o!?~)ortunities for its l'a:picU;;- gro1:1ing YOl:>ulation. It t;ras self-sufficient in nost foodstuffs at a 10,\" stf'ndard, and its e:X:-Jortable surpluses of e,gricultural ::n'od\lce, timber, and minerals gave it a consistently favo1'8.'Jle trade balance. lqatural Geogra"oh.y Yugoslavir-:, borciers on the Adriatic Sea on its long Hestern frontier and on no fe"rer than eight :?olitical lmits on its three land frontiers Italy ancl the Free Territory of Trieste on the north'IJest t Austria and Hungary 011 the north, RUJlle,nic and Bulgaria on the east, Greece 0:1 the south, and Albania on the southeast. DeveJ.o)nent of [I,de('lunte land trans:,?ort f~.cil­ ities h~,s 'been irnl)eded by the difficult :)hysical terrain of l'iOst parts of the country. Except in the north "There about one-fourth of the area of the COlmtry lies in the Danube basin, YugosJ.a'Tia is very mountainov.s. -2- Natural Resources 3ecause of its m01L."ltainous character, barely one-third of the area of this )redominantly af.:ricultural country 1s arable, and a large ::?1'\l't of this arable land is concentrated in the Danube valley vhich is the 0111y ,c:enuine1y surl11us region. It :)l'oduces enoul~:h grain to feed the rest of the country Mel to leave a margin for 9X)Ort, and also has an ex-·Jort su.r)lus of :c.O{"S nnd)ou1 try. A broad belt of :1.nnd su::.'ro 1.mding the Danube be~sin, extending into ftnd incluclinrr most of f.!acedonia, is ,,,,Iso sui tnble for €,'eneral far;:1ing p~nd )Toduces suX')luses of fruit, tobacco, and livestock. l·;otmtainous eastern end southe8.steTi.'1. Yugoslavi;;. is suit!>,ble only for :'Jastora1 :ml'suits and the narro\', Dc:.lnatian const ')roduces tY')ica1 Mediterrl?..nean crops snoh e.s olives, tobacco, semitro:)ica.l fruits and medicinal plants. All of the regions e~cept the D~~ube basin have a 2rain deficit. Yugoslavia's limited resources in :.)roduct ive 18nd nre ~)artially offset by r<),ther large tir.10el' e..nd mineral 1'es:)urce8. About one-third of the cov. ntry is forested and, before the 11ar t Yugoslavia \'TP~S one of the lead- ing timber,)l'oclucers in Euro!?e. Its output of sn;;,V'n timber in 1937 exceeded that of AUstri8, by rbout So;6 t ruld. th[',t of Czechoslove.J.da by n,bout 15%. Yugoslavia hs.s fairl~7 large coal and. iron are resources, some z:langanese, some oil and natural gas. although neither has yet been extracted in auantity. In addition, it has some of the largest de:::)Osits in 2urope of nonferrous m.etallic minerals, notnbl;y cO:9')er, chro~e, lead, zinc, e.ntimony and bauxite. Little of the coal, houever, is bitu..'11inous and. none is suitable for coking. Ind.ustrial Develo;JrJent "i?re1,'lar the country I s nature,l resources 1rJere only :.lartially 6rg1oited. Agricl1.ltural techniques ~'!ere :}rimitive and yields "rere generally 1m". Out- "Jut of minerals 11Tas considerablY belo"T potential extraction :")eaks, and - J - little of the output I,'laS -Jrocessed at home. The bu11:: of the iron are and a large ~')art of the nonferrous metnls output '.'lFl's e..~)orted in crv.de form. Yugo slavia t s. heavy industry 1,IPJ3 very small. Des:?ite the avail- ability of coal and iron ore, it 11fl.d only P. modest steel industry. '.'lith a rolling ca}.')[;l,city considerably in e:~cess of its bll".st furnace c!.1pacity, so that it '.'TaS forced to rel;r in part on im:)orted :,)ig iron. Very little machinery 1IIaS )roduced hOIle. It S small chemic8.1 industr~l met only i?nrt of domestic needs. Consumer goods industries ~'Tere some"fhat better clevelOi}ed, as a result of considerable ex)ru.1sion in the interuar )e1'io(t, but either failed to meet domest ic reayirements fun:,r or to utilize E\,ll availe.ble domestic 1'a1l1 materiEl,ls. The food Jrocessing il1dustr~p i-IDS not equi:~ned to )rocess the live animA,ls, fish, fruit t 1?nd vegetables )roduced or cR-pable of being :}roduced in the country. The teJ:tile il1llustr~r met onl;)r 80% of domestic needs; moreover, its '.'leaving ca:.?acit~r exceed.ed its spinning c!':(!?acity, so that it i'laS forced to rely in ::;l8xt on inrgo1'ted yaxns. Other im)ortant industries, including leather 8 ..11d leather iJl'oducts, and '!.'loodi'Torking \'lere simil~"rly in an early stage of develo~?ment. A fairl~T large fract ion of doroest io reocui:cements for consumer goods W~tl met by home and hG,ndicrRft )roduction. Natural conditions Vlere in :!.Jart res)onsible for the backltTl'xdness of the economy. Industrial development \utS impeded by the a,bsence of high-grade and coking coal. Difficulties of terrain made the creation of adequate transport facilities more costly. ':1he cm:21tr~T l".<8,d only 10,000 kilometers of railroad, of ''ihieh o!lly 7400 kilometers ',,,ere standard gauge. An articulated network existed only in the north, in the former Austro- Hungarian provinces of Slovenia, Croatia, and Voivodina; elsewhere there I - 4- \·tere mere unconnected lines. Equipment \1fl.S il1ac.equate in numbers and antiquated. Only 900 of the 34,000 }.::ilometers of high1,1ay in the country in 1939 CQuld be considered modern roads. ::;Jven mre irrr:)ortant as .'l. cause of the b;.tes mmed by business concerns, bank:s t corporations or other private enter:}rises, unless being utilized for yurposes useful to the nation. The land so ex?ropriated together \1ith exprOlJriated land taken from the German and Hungarian minor- ities was distributed ~~ong landless laborers or owners of very small )roperties. Since Yugoslavia \;ras already a h'nd of very small farms, the actual amount of land redistributed amounted to less than 800,000 hectares, t1l1o-thirds of vlhich \qere arable, or roughly 6% of the total farm land. - 7- The land reform ~;'8,S a tact ical move to \1in peasant sU:?:Jort t the Government's ultimate aim oeing collective farming on state or coop- eratively-o\med farms. Progress towards this ultimate goal r...a,g been limited, since the Government has, for ~)olitice,l reasons, been unwilling to ap?ly coercion, e,nd has had meager su:):?lies of farm e(~ui)ment to serve RS an inducement to farmers to enter cooperatives. At the end of April 1949, total holdings of state p.~d cooperative farms were only a little over one million hectares, or Rbout 7% of the total farm land. '::he rate of collectivization is reyorted to have been increasing recently, hm"iev6r, and in Voivodina, Yugoslavia's richest f?,rminrr region, coopera- tives hold ~bout 40% of the farm land. Since this region had the largest proportion of large farms before the \-Tar. the size of oyerating farm units is ~?robably little changed. Though farming is still a field for ;?rivate enter:?rise. the Government has a large de:~ee of control over it. Farmers are required to sell to the Govermnent at fixed low prices a very large proportion of all :oroduce in excess of their o\m requirements. Although they are free to sell the balAnce on the Oyen market, they are encouraged to sell it to the Goverlunent or to wholes~le cooperatives rather thBn to individ- ual consumers. Under the present marketing system, farmers selling to the Government or to \;,hole88,le cooper:;ttives a..'1Ything over required deliveries receive the fixed 10'1 price but in e,ddit ion get coupons entitling them to ~)urchf',se an equivalent value in me-n::.U'actured goods, many of which are difficult or iD)ossible to obtain in the open market. This scheme is described RS voluntn,!'y, but it is kll0'.'ln thD.t in 1948 tickets to the value of 1.5 billion dinars were not used by farmers because industrial su~):?lies 1./ere not available. -8- Industry and Tra.llErJortation All mineral, fuel and natur['~l l'later lJO'"ler refJources. and all means of trans:;?ort alle1 com;;1Unications 1'lere decbxed stD,te ~oro':?erty by the Constitution adoyted in 1946 anc. virtually r'vIl industrial enter:Jl'ises llave oeen n~tionalized. At yresent all estimated 90% of non-agricultural ?roductive facilities are state-01'!Ued. RI),ndicraftsmen still 02.Jer2te inde:Jendently. but they are re)ortec1..ly hnndica~T:?ed by C'n)vernment control over rm:r mater- iA-Is ~:md equi)ment. Govermaent-o'!;!l1ecl enter}rises are o2.)er1'.l.ted directly by the Gov- ernment. Their rna.naeers are directly subordin[>~te to the Einistries by "\'lhien they axe 8,",??ointed. Their ::."roductioll ~:md financial -9l::ms are develo:ped by these iUnistries anct all €Ont er )r1ses ::mst relJOrt regularly on production and financie~l results. Domestic Trade aorta. I'istribution 1'lholesn1e tra.de is entirely in the hEl~nds of the Government or coo)erat i ves, as is 8~lso a l!:':.rge )[',rt of retail trade. Since the introduction in 14(3,rch 194<3 of the system of "interde]?endentll)rices described above, retail traders in 8gricultural commodities must be licensed and are )ermitted to trade in one commodity only. Individuals are forbiddeil to buy more from a ft',l'ner than required for :~)ersollal oon- sum~)tioni a:J~)e.rently. therefore, )rivate retailers rnuGt ::)ul'chase s'x,:nlies from state or cooperative uholesalers. :Basic rations of essential c..,.oods in short s1J.;7)1;}' are macle available to all COllS11.'11erS r~,t fixed. 1m'! ~)ricee; (lUantities veery uith ty;)e of em)loyment and other SOCiD,l attributes. '.Llhe ~)rices paicl to farmers for their corrFJulsory deliveries and goods sold ,>rithin the systen of - 9- "interdependent" prices ere in general on the level of these :prices. Certain other com10dities (e.g. some veGetables, canned food, cigarettes, matches, macaroni, etc.) :=tre sold on the o:::>en market at controlled 10\" ~)rices (called ufree 101:, :..):.:1ce8"). Finally, some quantities of the goods distributed ':lithin the rationing syster:1 are solel in the free mHrket by state stores, farmers, or artisans at "free high prices", three to four times as high /'1,8 :?rices for the sP.me goods obteined on the basic ration. In 19L~t according to Yugoslav official estimates, 35% of all consunrot ion {:oocs '.1ere s"Ll:}')lied :=tt ration })rices t 40% at "free 101:1 prices", 15% ':rithin the system of lIil1ter(le~jendentll ',)rices, ane1 10% at "free high -;rices u • Foreign Trade The St['l,te exercises a corn-)lete monopoly in foreign trade, operat- ing througfl. a number of s])ecialized Or;7'allizations. Ex:?ort targets are set by the plamling authorities; the e:;.:-)ort organizations are res:JonsiOle for selling the qUDntities 'tssir;,"lled to them to secure the means of pay- ment for the imports req.uired by the production and. investment plan. Investment Financing The State controls all credit. The lT8,tionD,l 32,n1: has a near- monopoly of short-term credits, ~'!hile 13,11 long-term credits are handled by three s::>8cialized bnnks, the State Investment 3~nl'ch '\'rith many brMches. The only other banks in existence 8.re 10c1.'1.1 Jm1nici=J1;'cl savings banks. Investments e,1'e finc'.1lced mostly by grants from the state budget, ,'.lith C1, smB,ll ~Ytrt carling fro!'! the amortizat:'on funds, and an even smaller l)art from the StHte Investment :Bank. ... 10 - Central Planning Economic ~.ctivities in Yugoslavia are coordinated through the device of central :)lanning. 3Hsic economic policy is lI:dd c1Ot.'1l1 by a cabinet committee, the Federal Economic Council, composed of re)resent- ati'res of rtll economic ministries and of the ministry of Uational Defense. Responsibility for the develojJment {me. execution of the central :01an rests '-1ith the Federal ?l~nxlinfc.' Comnission, headed by a Cabinet member. The Commiss iOll su::?ervised the 2JreprJ.r1'l.t ion of the Five Year ?l~~n covering the period 1947-1951 end is res:;'Jons ible for :~)re~?aring the annual and quarterly )19.n9 im)lementing it. The six Federal Re)ub1ics (':lhich are, in reality, the provinces) also ::.)ossess Planning Com;,issions. from '·,hich extends q netl.'Tork of plan- nin{" bodies ,,,hose fin13,l link is the pbtnning section in each enter:".)rise. All l)lanning bodies are subordinate to and strictly controlled by the Federal ?lanning Commission l·rhich reviei-rs all Jll'ns to insure consistency vTith the centr~.l plan and has final res)onsibility for execution. IV. The Five Year Plan Since eEl.r1y 1947, Yugoslavia has been embarked on an ambitious ~rogram of economic deve1o:9ment l~dd doun in the Five Year ~::lqn \"hich covers the :~Jeriod 1947-19.51. 3roadly, the :21tm calls fol' &. rise in the nc:,tiona1 income by 1951 to 255 billion dinars (at 1946... 1947 ~?rices) ($.5.1 billion) cOJn')ared ,,,ith E'~ 1939 nt'1.tion:::tl income of 132 billion dinars (at 1946...1947 yrices) ($2.64 billion). The rise is to be achieved mrdn1y throw;h :>n increr::.se in industl'ial production '.,rhich is to be 223% hif~her in 1951 than in 1939; agricultur~.l production. in contrast t is to increB.se only '" .52~. This means, afcourse, that the relative importance of agriculture in the total economy \"ill be substr.ntially reduced from - 11- The increase in national income is to be achieved through en investment over the five-year period of 278.3 billion 1946-47 dinars ($.5,566 million). In 19.51 planned investment of 69.6 billion dinars '\',ill re~Jresent 27% of the n1'1tional income and it '."Till :'Jrobably represent at least as hi?,h a )l'o?ort ion of the nf'.t ionl'd income in earlier years. Of the total investment envisaged, 42% is to be directed to mining, met9.l- lurK!, manufr\cturinp and electric :'?O~'Ter ')roduction, 26~ to trrms")ort and comnnll1ications, 20% to social imJ?rovement (housin~, urban utilities, schools, other cultural institutions, public health), only 7% to agricul- ture, and the remaining 7% to forestry, trade, etc. Agriculture The planned increase in the value of 8gricultll.ra.l yroduction is to be achieved mainly by shifting :)rocluction from cereals to the more valuable industrial crops, e.g. oilseeds, fibers, tobacco, etc. The area S01iTn to grains is to be 8% smaller in 1951 than in 1939; but the area smm to industrial crops is to be increased 250%, \1ith part icularly notable increases in oilseeds. Industry In industry, r;ren.test stress is hdd 011 electrification, mineral production and met2,11urgy and the Manufacture of machinery and chemicals. Coal ~)roduct ion is to be il1creftsed t'.10 and a half times COml)ared I,d th 1939. oil ::;>roo.uction to be r"dsed from 8. negli,,,,ible (lurmtity in 1939 to 450,000 tons in 1951, production of electric energr is to be increased rtlmost four folo., ::,Jig iron :;roduction 5'~ times, steel -9roduction 3i times, nonferrous ::1etals (1,1ith the exce:)tion of cO'ner) from 4 to 7 times. • .r- Although no mo:;.'e CO:,):)81' 1.S vO be extracted than in 1939, the entire out- j)ut is to be refined at home. Fin8>11y, metal products, in particular - 12 ... heavy machinery items, the out,?ut of "lhich uas negligible before the "far, are to be :)roduced in substantial quantity. Smaller increases are l)lD.IEled for consumer goods - the 1951 ylanned output of cotton yarn, cotton fabrics. woolen fabrics. and shoes is about t,,,ice the 19.39 output. ?roduction of :,?rocessed foodstuffs is to be greatly increased, mainly for the export market. Trans'oortation The plan calls for the re·)air of all the heavy 1;(artime damage and a further ex·,Jal'J.slQn. of railroad facilities. The raihray net"rork is to be expanded to 11,750 kilometers in 1951, conr9ared "dth 969.3 kilometers in 19.39, and through modernizat ion of equbment ano. inrprovements in operat- ing effiCiency, the railroads are to be enabled to haul 10.5 billion ton kilometers of freight compared ·.dth 4.24 billions in 19.39. No extension of the high:lay system is planned, but the length of first class roads is to be increased from 900 kilomet era in 19.39 to 2500 kilometers in 1951. V. ?ost\'Tar Economic Develonments Posti1ar economic d8.ta on Yugoslavia are limited in sc01)e and internally inconsistent at a number of lJoints; the ~')icture 1.1hich emerges from them is therefore necessarily sketcl~. National Income and ?roduction According to official estimates, Yugoslavia had a national income in 1948 of 191.9 billion dinars ($.3.8 billion) or something over 45% above the national income in 19.39. Accordine to the ZOE, ho\"ever, its national income \1fas 7 - 8% 10':ler than in 19.39. It is impossible, on the basis of available data, to decide ·"hich of these figures 1$ correct, although figures on production made available to the I~~ by the Yugoslav Government make some rise in national income seem likely. - 13 - DatD_ submittec. by the Yw:;oslav Government in f', fe1.'1 basic fields sho'.'1 a substa."ltial increr\se in )rocluction com)<~Ta(l '.1ith })r~,lar. Agric1).lture bJ3 a~)")arel1tl;;' fully l'ecovered fror;'! the effects of the vIal'. Crop :?roduct ion in 19Lr8 ':18,$ ~•. bove the )1'8'.12.1' i?VerD{ce and, exce)t for horses, animal numbers exceeded 1939 ficures. The Yugosl"'v Goverm'lent estimates thpt ag-.cicnltural procLuctilJn ~.S q, 1,'Thole W2.S 103.5% of 1939. According to fif,1.:cres suomi t t eo. to the Fund, t irober :Jroduct ion also 1'/M back at :.?l'eltlar levels. Inctustrial )Toc1uct ion in 1948 '\'taS above the ~Jre\"Jar level in the fields for ',1hich data ';lore submitted to the 31:'.11k [md the Fund. The YugosllEtv Government estim:::>ted that total :}rod.uction vIas t 1 -Tlce as great in 1948 as in 1939. but the basis for tIlis claim is not clear. Their fit,'UI'es shm,] that cO['.l }Jrocluction ~\ln.s 75% hi[:;h8r than in 1939, iron production almost three times as high, steel :)1'oduction 60% higher, electric :;Ql.-Jer ')roduction at least 33;6 hisher (on the b8,sis of 1939 out:;)Ut figures submitted to the Il'lF by the Yugoslav Government, the increftse HaS 80%), cement )roc1uction almost t"rice as high, textile :::roduction Lf6% l'mc1 shoe 'Jrocluction 15% higher. It is not kno\'ll1 to loJhe.t extent increases "Tere due to creat ion of ne1'1 fncilities rather t:1an to the fuller utilization of existing ca:9- acity. There are no data on tl1e out:put of metal ?roducts, and. eS:':Jecially machinery, for ';lhieh n6' ,'1 ')lant ':!Quld be required since their ~)re1.1ar out)ut ~1as so small. In basic imlustries for 1.'1hieh 1·re do have data, a large )art of the increase in Qut::)Ut is a:;narently due to fuller ut ilizat ion of existing ca)[wity. In 1947, before any substantial Ilnonnt of 1181" capacity could have come 'into use, )roductiol1 vIas already 'veIl PQove prei'lar levels. - 14- Although the ~ost Mprked increases in ?roduction occurred in heavy industry, in line "lith the objectives of the Five Year ?lan, the ·Yugoslav Government estimates tnat increases in the production of con- surners' goods have already made possiole Q rise in per capita consw~9tion of 8.6% (1948 cOJnya.red \1ith 1939). This estimate is illconsi~tent 1.11th estimates by the 30E. As in the ca~.e of national income, it is im-)ossible to determine from available data 1'.That the true situation vlaS. Internal Financial Situation There is some evidence of internal inflation, the magnitude of ,·,hich cannot be detel-'mined. The infl!".tionp,ry :?ressure has not arisen from an unbalanced budget. The Government had a revenue su.r:Cl1us both in 1947 and 1948, des:'?ite the fact that it assumed most of the burden of internal investment, '.-,hlch eJ!lounted to close to 50% of budgeted ex- penditures in both years. In 1947, the bu(iget surylus ,'las 7.7 billion dinars, or 9% of total expenditures. :Budgetary results for 1948 are not yet available, but the evidence )oints to another surplus. In the first half of the year, revenues exceeded exyenditures by 7.4 billion dinars, and government deposits with the National Bank rose from 9.2 billion dinars at the close of December 1947 to 1).8 billions at the close of June 1948. In the last half of 1948, Government de::Josita at the lfational Bank continued to rise, reaching 18 8 billion d.inars at the close of 0 November 1948. The source of the inflat1on.ary lJreSSure has ay)s,rently been the erpansion of short-term credit and the resulting increase in note circulation. Short-term credits extended by the National Bank to finance current production and inventories have increased sharyly - from 22.6 billion dinars in June 1947 to 59.3 billion d.inars in 1:Tovember 1948, or - 15 - over 160% in 17 months. Hotes in circulation rose from 20.6 billion dinars a,t the close of 1946 (over t~'lice the 1939 circulation of 9.8 billion dinars) to 29.5 billion dinars at the close of 1947 and 35.6 billion dinars in lTovember 1948. Although the increase in the money sup ,:>ly ,..ras y?xl;Illeled by some rise in :?roduct 1011 and goods available for consum-Jtion. there is evidence, on the basis of :rices - ration prices and so-called 11101;1 free l:>rices". The cost of living index haa covered all l;rices - so-called IIhigh free :?rlces l1 as \'.7ell as r~:'tt1on B.nd "10\" free :oriess lf - since the close of 1947. but its movements are dampened by the inclusion of services - rent, utilities, etc. - i1/'hich move only sluggishly. Although official prices have remained fairly stable, there is evidence that free prices have risen considerably in the past year. The cost of living index, des?ite the fact that it includes relatively stable prices for services t \..ras 10% higher at the clos e of 1948 than the close of 1947. Since, according to the Yugoslav Government, only 10.5% of all cOlmnodlties moved at high "free -ense of 'Jestern 3w;oye. There is t ho"[ ever t already an indicl?,t ion of ~ change in this situation in the last quarter of 1948, resulting from the bre~{ \.rith the Oominform. Eastern 3urope J s share in Yugoslav ex)orts decline(\, from .52.4-% in the first nine months to 43.1% in the last three months j its share in Yugoslav im:?orts dro~J}ed from 47.9% to 32.3%. The recent shift in the direction of Yugoslav trade from eastern 3urope to \'1estern ::ur01Je and overseas countries may mitigate some of its balE'.J,1ce of payments :Jroblems. In 19L~8, Yugoslavia's ex:}orts to eastern Juro:}e exceeded. its im:9orts by .592 billion dinars ($11 0 8 million). If it can divert this eX'gort surplus to l,-restern '::urope and overseas countries, it may he able to reduce its unfavorable trade balance 1:1i th these !?vreas (amount ing to ~)28. 2 million in 1948) and thus reduce the drain on its gold end convertible currencies. BI:tl:~nce of ?a;.rn;.;mts ~,ncL J'oreign ZXch~tnfe Resources Yugoslavia hnd p..,n unfr VOi.'r,IJle balance of :,?a~lJlel'it8 in 1948 1;1h1ch, 1rhile not large, necessitated a reduction in its alre<",dy s),,)£1,ll monet[l,ry reserves, end ':laS the ;,ore serious in that its deficit '"ith 'iestern :;urope rulcl ovel~seas countries \'las greater th2..n its overall deficit. Its overall trade deficit ':TaS $14.9 million, its trade deficit "lith "[estern Juro)e and overseas cO~.mtries J $28.2 million. Fi!2.ures 011 en.rnings and ~Ja~rments 011 account of tourist 13,11(1 transit trade, Government ~~)el1ditures E',broad, etc. ::11'8 110·t yet ava i l 2..0 Ie , but in 1947, Yugoslavia had a deficit of about $3 million on these itel"ls. The combined deficit l'1aS )robably offset in )art by c~osh remittances, l",h10h a;'llounted to about $10 • .5 million in 1947. If service items uere the same in 1948 as in 1947, Yugoslavia's overall deficit on current account i'Tas about - 18- $7-$8 l1illion, end its deficit ':lith \'restern :;urope and overseas countries something over $20 million. In the course of the year, it,)aid nbout $17 million (in gold ~reviously blocked in the U.S,) in settlement of U.S. claims !"nel made some ~)ayments to cOID:)ense.te foreign n",tionals ':lhose "}ro:pEll'ty had been e.i~)ro:?riated. To cover its current deficit, these forei:~n claims, ".Del [:),dvance ~)ayments for goods ordered abroad, it ':Tas com- pelled to reduce its l),onetary reserves .. Avail-tole fif:,ures indice,te thp,t its gold holdings declined from $62.1 million (incluo.ing ~,bout $47 million blocked in the U.S.) I"',t the close of December 1947 to $32.3 million Qt the close of ::ovember 1948, <", decline of $29 .. 8 l1illion of ",rhich $12.8 million \n"',s used noatly for ~)rel)ayment of I;oods ol'clered e,brorcd and to fiuFmce the current deficit ill the be,lance of l)I'Wments, nnd $17 million for settlement of U.S. claims. Its ho10.in;~;;s of convertible currencies (U.S. t de,te amounted to .... 19 ... $84 million, of 1:1hich $.50 • .5 million "le.S long-term and $33.6 million short-term. This represents only a fraction of Yugoslavia's foreign public debt outstanding n.t the outbreft~: of the "far, includineo; inter-govern- mental debt s contre.cted during ;iorld. :1ar I. Ho'·rever. all the foreign public debt has been in )artip..l def9.1..1.lt since 1932, '.'lith actual payments only a small ~Jart of contractual obligations, and in comlJlete def.:mlt since 1941. Direct foreign investments ill Yugoslavia in 1939 have been estimated at bet"reen $120 IUld $140 million. Agreements h[l.ve been con- cluded ifith the U.S., Great 3ritain, 5"reden, end Switzer18nd for the com- pensation, on a grea.tly reduced scale, of their np.tione.ls for :~)ro:~)erty expropriated. by the Yugoslav Government since the close of the ':rar. From availR,ble informat ion, i t n:p~)ears that p~ments "rill be made over a short period, end \'Till therefore re~~resent a short-term 2)rob1em of some magnitude. i YUGOSLAVIA Selected Statistics Note: The following statistics, as well as those used in this report, are data supplied by the Yugoslav Government to lAW and lBRD. On the basis of preliminary examination, substantial inconsistencies in the data are apparent so that the reliability of national income, production, and investment figures as well as the reliability of price indexes is in question. Area -;) Total (sq. kms.) 249,226 (1939) 256,588 (1949) b) Distribution (prewar) 31% arable 10% orchards and vineyards 31% forests 28% unforested mountains, undrained ~ramps, and unirrigated pastures and wastelands Population a) Total (millions) 15.5 (1938) 15.8 (1948) b) Population in cities over 10,000 14% (1931) 17?{, (1948) c) Literate 55% (1931) d) Agricultural 76% (1931) 72% (1948) Rate of exchange 50 dinars ::; $1 National income (at 1946/47 prices) Planned 1939 1951 a) Total (in billion $) 2 .. 6 5,,1 b) Per capita ($) 170 310 Production (1939 =100) Planned 1947 1948 1951 Industrial production 167 200 323 Agricultural production 88 103.5 152 Budget (in billion dinars) 1942 1947 Jan.-June 1948 Revenues 27~0 93~6 4509 Expenditures 33~ 85!2. 38 5 0 Surplus or deficit -6.0 ~7.7 f7.4 -·ii Money Supply 1939 1945 1946 1947 Nov. 1948 Notes in circulation 9.8 17.8 20.6 29 .. 5 35.6 State credit balances 9.2 18.7 Other demand liabilities 3.6 19 6 t 38 .. 5 41,,8 Total 2104 40.2 77.2 96.1 Prices (1938 = 100) vYholesale Prices Retai 1 g;';:r;';;'i~cu::":;:ftural Industriai - - -•...;.:.;;il.~., Prices Cost of General Products Products ~ 1939 = -100 ) Living Decenber 1946 242 256 217 292 196 December 1947 242 254 220 315 Y 230 December 1948 238 246 223 322 253.Y ]j !tHigh free prices 11 included. Foreign trade (million dollars) Average 1935-39 1947 1948 Exports 122 172.8 301.8 Imports 108 288.7(a) 316.7 (a) Commercial imports - 165.4; UNRRA - 63.0; reparations - 1+4.2; gifts in kind - 16.1 Fore~gn trade by are~ (percent of total) 1938 1947 Jan.-Dec. 1948 Jan.-Se12 t • Oct.-Dec. Exports Eastern Europe 14.9 L~9.1 50.0 52.4 4301 'Western Europe 7305 44.3 42.3 40.2 47,,0 Non-European 11.6 6.6 7.7 704 909 Impor~ Lastern iurope 17.7 52.2 44.0 47Q9 3203 Western Europe 66.1 37.4 49,,4 43.0 5504 l~on-European 16.2 10c4 6.6 9.1 12.3 111 Balance of Payrr.ents (million dollars) 1938 1948 Exports 114.0 301 .. 8 Imports 11205 316 .. 7 Export surplus 1.5 -14.9 Emigrants remittances 6.8 Freight and transit 9.3 Tourist trade 2.3 Service of foreign capital (interest and amortization) -17.6 Net current balance 203 Monetary reser~ (million dollars) Gold Holdings Convertible Currencies December 31, 1947 62,,8Y 8.. 4 September 30, 1948 49.,1 .5.8 November 30, 1948 32(>3 ~ Including about ~47.0 million blocked in the U.S. Foreign debts a. Governraental debt, reported to IEF, lJlay 10, 1947 (million dollars) Total 84 Long-term - .50 •.5 Short-term - 33.6 b. Direct foreign invest~~ 1939 Estimated - ~120-140 million