HOW TO CREATE A COUNTRY ?
Experience of Slovenia
International conference “Building a New State”
Barcelona, October 5, 2012
Jože Mencinger
UL PF and EIPF, Ljubljana, Slovenia
CONTENT
PROCLAMATION OF INDEPENDENCE:political change in April 1990,
referendum in December 1990, proclamation of independence:June 26, 1991, short war
between Yugoslav army and Slovenian territorial defense forces and police, Brioni
ceasefire of 3 months, October 8, 1991:full independence
THE FAILURE OF REFORM ATTEMPTS IN YUGOSLAVIA; Yugoslav
economic systems and stagnation in 1980-1989, transition;
ECONOMIC BREAKDOWN IN 1990 AND CAUTIOUS POLICY
RESPONSES – EMERGENCY EXIT APPROACH: technical
preparations, reactions to economic and political development
TRANSITIONAL CONTRAVERSIES; TRANSITION AND
DEVELOPMENT: four distinctive periods, the end of the “success story”, crisis
YUGOSLAVIA AND EU: similarities and differences, brotherhood and unity, Euro,
Yugoslav syndrom
SLOVENIA IN 2012
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Surface: 20.273 sqkm, 66% forests,
Population: 2,02 millions,
Language: Slovenian; (Italian, Hungarian minorities)
Political Arrangement: parliamentary democracy, coalition governments; “left” or
“right”
History:
since 1389 a part of Habsburg dynasty empire;
until 1918 part of Austro-Hungarian empire;
1919-1941 part of Kingdom of Yugoslavia;
1941-1945 occupied by Germany, Italy and Hungary;
1945-1991 Yugoslav republic;
1990 - political transition:
1991 independence, May 2004: EU member state, January 1, 2007 EMU member;
Economy: GDP 34 billions €, GDP/capita 17.000 €, 88% of EU27 average,
- GDP growth: 4%(2008) -7.6%(2009), 1.5%(2011), -2% (2012);
- unemployment rate: 4.4%, 60000 (2008), 6.9% ,105000 8.3% (June 2012);
- inflation: 5.7 %(2008) 1%(2009), 2.3%(June 2012);
- public balance/GDP: 0.4% (2008), -5,5%(2011)
- CA/GDP: -4.5%(2008), -0.6%(2011), 0.2% (June 2012)
THE YUGOSLAV ECONOMIC SYSTEM AND ITS
BREAKDOWN
• SYSTEMIC DEVELOPMENT:
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1946-1952: administrative socialism, centralised answer to all four (WHAT, HOW, TO
WHOM, WHEN) questions, planning,
1953-1962: administrative market, WHAT and HOW- decentralized, TO WHOM and WHEN
- centralized, investment funds, dualism of prices
1963-1973: market socialism, decentralised answers to all four questions, reforms 1961, 1965
1974-1988: contractual socialism, Law of Associated Labor 1976.
1988: collapse of the system and of the country.
• STAGNATION 1980-1990
• POLITICAL DEVELOPMENT 1989-1990
• ECONOMIC COLLAPSE OF THE COUNTRY IN 1990
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collapse of the fiscal system; June 1990, October 1990;
collapse of the monetary sytem, December 1990;
customs within the country, July 1990;
appearance of different economic systems.
DIFFERENCES BETWEEN EX-SFRJ FEDERAL
UNITS
BIH
MT
CRO
MAC SLO
SR
SRpr
KOS
VOJ
Population millions
4.5
0.6
4.7
2.1
1.9
9.8
5.8
2.0
2.0
% of YU population
19.1
2.5
19.9
8.9
8.1
41.5
24.6
8.5
8.5
Natural growth
7.7
8.9
0.5
9.9
2.5
5.1
1.4
23.1
-1.6
GDP pc/(YU=100)
65
71
123
65
200
88
100
24
118
12.4
1.8
25.6
5.4
19.6
35.2
22.5
1.9
10.9
GDP growth (70-89)
3.5
3.4
3.1
3.6
3.6
3.4
3.5
3.6
3.1
Wage (YU=100)
80
74
114
76
136
93
96
53
97
Unemployment rate
21.1
22.2
9.0
23.0
5.2
19.5
16.7
38.8
17.1
People per doctor
572
542
383
398
373
400
335
868
405
Exports (mill $)
2157
640
6533
652
4904
5344
3864
220
1260
Exports/capita $
479
1067
1390
310
2581
545
666
110
630
Sales to other units
37.4
48.5
34.0
41.9
36.8
42.4
41.2
34.6
46.8
% of YU GDP
ECONOMIC POLICY OF “EMERGENCY EXIT”
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REACTIONS TO UNCERTAINTY : uncertain political decisions - confederation and
asymetric federation;
RELATIONS WITH THE FEDERAL GOVERNMENT OF MR. MARKOVIĆ: support
for his reform, disputes over fixed exchange rate, letters and negotiations, end of black
market for foreign exchange, “SISEOT šticunge”, use of Ljubljana stock exchange;
TECHNICAL PREPARATIONS FOR INDEPENDENCE: costs and benefits
calculations;
PROVISIONAL NAMELESS NOTES: printed by CETIS, meeting with de la Rue
company in London,
OCTOBER DISPUTE BETWEEN JNA AND TERRITORIAL DEFENCE: reactions of
depositors, failed attempts to create foreign exchange reserves abroad, from fixed to
floating exchange rate;
REFERENDUM ON INDEPENDENCE: December 23, 1990;
THE BREAK INTO THE MONETARY SYSTEM BY SERBIA: at the New Year 1991,
speeding up of preparations for independence;
THE LAST ATTEMPT OF FEDERAL GOVERNMENT IN JANUARY 1991; response
of Slovenian government on assets and liabilities;
PROCLAMATION OF INDEPENDENCE: June 26, war and ceasefire;
OCTOBER 8, 1991: independence and currency:Tolar, smooth conversion;
BASIC FEATURES OF SLOVENIAN
TRANSITION MODEL
• PRIVATISATION: specific model of decentralized, distributional and gradual
transformation of social property;
• MACROECONOMIC STABILIZATION: gradualism versus shock therapy,
floating exchange rate;
• MICROECONOMIC RESTRUCTURING: slow decentralized firing and retiring,
cautious approach to FDI;
• CREATION OF A NEW ECONOMIC SYSTEM: EU directives;
• THE KEY ELEMENTS:
• STARTING POSITION: the level of development, historical inheritance, from Maria
Theresia to Edvard Kardelj;
• POLITICAL DEVELOPMENT: softness of political and social changes. creation of a
new elite or changes in the ideology of old elite, people without ideology;
• THE BENEFITS OF IGNORING IMF AND INTERNATIONAL
FINANCIAL INSTITUTIONS: benefits of ignoring Washington consensus,
• RESPONSIBLE FISCAL AND MONETARY POLICIES
ECONOMIC DEVELOPMENT OF SLOVENIA
180
GDP index
160
gambling
gradualism
transition
140
crisis
120
100
8
%
80
4
rate of change
0
-4
-8
-12
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
ECONOMIC PERFORMANCE AND SOCIAL
COHESION (2007)
95
100-poverty rate
CS
Slovenia
Fin
90
Lux
S
H
DK
NL
A
F
B
85
CY
Lit
Lat
G
PL
UK
Est
I
80
E
Gr
Svk
Ir
P
employment rate
75
50
55
60
65
70
75
80
DEPENDENCY OF SLOVENIA ON EU15
(GDP growth rates)
8
%
Slovenia
4
0
EU15
-4
-8
-12
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
THE END OF THE SLOVENIAN “SUCCESS STORY”
AND THE ENTRY INTO THE CRISIS
DEPENDENCE OF THE COUNTRY ON EU
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institutional (economic system – EU directives, monetary and fiscal policy, controls
of flows)
Economic - exports and imports, euro
CREATION OF SLOVENIAN CASINO CAPITALISM (2005-2008)
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the roots in vaucher privatization, creation of owners of assets instead of owners of
companies; creation of investment funds;
globalization of product market leading to indirect globalization of labor market
and replacement of workers with flexible “labor force”;
gradual turning of savings to speculations, creation of virtual financial wealth;
gradual disappearance of social cohesion;
CREATION OF CASINO CAPITALISM
CREDITS AND DEPOSITS
32,000
CREDIT/DEPOSIT RATIO
1.8
m il. €
credits
credit/deposit ratio
28,000
1.6
24,000
1.4
20,000
1.2
deposits
16,000
1.0
12,000
0.8
"gambling period"
8,000
"gambling period"
0.6
2002
2003
2004
2005
2006
2007
2008
2009
2010
2002
2003
2004
2005
VIRTUAL WEALTH CREATION
2006
2007
2008
2009
2010
NET FOREIGN DEBT
14,000
12,000
SBI index
mil.€
10,000
12,000
8,000
10,000
?????
6,000
8,000
4,000
2,000
6,000
0
4,000
"gambling" period
"G AMBLING " PERIOD
-2,000
2,000
-4,000
2002
2003
2004
2005
2006
2007
2008
2009
2010
2002
2003
2004
2005
2006
2007
2008
2009
2010
MAJOR CURRENT ECONOMIC PROBLEMS
FACING THE CONSEQUENCES OF THE “GAMBLING” PERIOD
(2005-2008):
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Overheating of the economy by construction and financial sector enhanced by
investments in infrastructure;
Fiscal “gifts” in 2008 which enhanced budget deficit by 700 millions €
Creation of virtual wealth by investments in financial products (net foreign
debt from 0 to10 billions €)
Wage reform in the public sector which created permanent instability of the
system;
MAJOR CURRENT ECONOMIC PROBLEMS:
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credit addiction and mutual indebtedness of non financial corporations;
foreign indebtedness of the banking sector;
forced premature fiscal consolidation based on cuts of expenditures;
inability of the government to pass reforms (pension, labor market).
A SHORT LIFE OF A NEW BORN COUNTRY?
FROM A COUNTRY TO AN EU REGION
• Economic attributes of a country: money, taxes, rules of the game, and
borders
• From “success story” to “bankruptcy”
YUGOSLAVIA AND EU
• similarities and difference: heterogeneity,
• democracy “one man one vote” or “one state, one vote”,
• irreversibility and provisions for exit;
• crisis and Yugoslav sindrom of exploitation
PILLARS OF EU STABILITY
• Inertia
• Disregarding rules
• Democratic deficit
• Creation of institutions and empty talks