Balkan Strategic Studies

May 1986

Yugoslavia: Sliding Into Stagnation or Chaos?

Things are not going well in post-Tito Yugoslavia. Economic and ethnic problems are deepening. Defense & Foreign Affairs Contributing Editor Frederic N. Smith explains.

By Frederic N. Smith, Contributing Editor. The death of Marshal Josip Broz Tito in 1980 brought forth a spate of speculative articles concerning the future of socialist Yugoslavia. Most of the dire predictions set forth have yet to come true. However, instead of splitting asunder, Yugoslavia appears to be unraveling very slowly and drifting downward into a stagnant pool. On the surface, at least, the nation has held together. However, according to one observer, if economic matters do not soon improve it could become Europe's first Third World nation. Its international debt amounts to $20-billion and it allocated $4.5-billion in 1982 alone just to pay debts that were due. Communist authorities in Yugoslavia attribute these problems to "deviations in the Socialist system". Can the Yugoslav Government overhaul the economy and blunt the trend towards provincial autarky and provide the means to absorb the surplus labor drifting back into the country as a result of the slowing down of Europe's economy? All these factors have an impact on the economic health of the nation.

The economic indicators continue to be grim. Inflation is running at a rate of 80 percent and unemployment is 13 percent nationally, which is approximately 2.2-million people, out of a population of 22.4-million. The growth rate of its Gross National Product was 1.9 percent in 1983. Recent evidence of serious inflation can be noted in the fact that a new 5,000 dinar note was issued by the government bearing the likeness of Marshal Tito. This denomination is five times higher than any existing note in circulation and is worth about $16. In better times, Yugoslavia exported its surplus labor to other European nations, particularly the Federal Republic of Germany, but this has changed and all to the detriment of acquiring foreign currency in remittances from abroad. However, that acquisition still amounts to hundreds of millions of dollars a year.

Agricultural production in Yugoslavia ranges from horrible in the province of Kosovo to good in the province of Vojvodina. Partial decollectivization of farms took place in Yugoslavia in 1953. Private farms of up to 24.7 acres are permitted and they do somewhat better than the collectivized sector. However, with this sector of the economy still heavily socialized, overall performance is poor. Yugoslavia, for instance, is a leading corn producer in Europe, but its per-hectare yields are lower than those of Greece, Italy and Austria. The United States regularly grants loans to Yugoslavia so it can buy US agricultural imports. Thus, the agricultural sector is stagnant and grew only by about 0.8% in the period 1981-1985.

The current five year economic plan calls for industrial production to grow by 3%, employment by 2%, but productivity by only 1%. Tourism is expected to generate $2.1 billion, and a special bid is being made to entice the 300,000 plus US servicemen and women in Europe to cheap vacations along the shores of the Adriatic. This effort has been moderately successful. Yugoslavia is also marketing the Yugo car in the United States, an export version of the Fiat car that Italy arranged for the Soviet Union to manufacture as the Lada. This car is starting to have some sales success as a "basic car", selling for a little under $5,000 in the United States. This price is possible because Yugoslav workers receive from fifty cents to one dollar an hour on the assembly line. However, in spite of such efforts to balance its trade, the standard of living continues to drop and many people must disconnect their electricity since they are unable to afford the service. Even a Soviet visitor recently noted with dismay the falling standard of living.

In this connection, much is made of the so-called "worker management" of Yugoslav industry. This is really illusionary since the workers selected to help manage are very carefully screened by the Party to ascertain that they will conform. Further, the "appointments commission" decides not only who will serve, but is also able to overwhelm the workers by dominating and outvoting them. Some strikes do occur, however, and in 1982, 10,997 workers staged work stoppages.

Internally, the worst problem Yugoslavia has is that of its Albanian minority, largely concentrated in the provinces of Kosovo, which contains over a million Albanians. Bloody riots occured in Kosovo in 1981 and just this year some 100 "counter-revolutionaries" were arrested in that province. Neighboring Albania shows some signs of making more contact with the outside world since last year's death of Enver Hoxha, and what the policy of the new ruler Ramiz Alia will be towards Yugoslavia is not yet known. Interestingly enough, 50,000 Macedonians and 30-40,000 Montenegrins live in Albania. In order to head off this unrest, the Yugoslav Government has been trying to funnel extra development funds into Kosovo to raise its standard of living. Kosovo is not the only trouble spot. The Yugoslav Secret Police, the UDBA, have also arrested some 50 persons recently in Macedonia, to say nothing of occasional arrests in Croatia and outbreaks of nationalism in Slovenia. The authorities also complain of outbreaks of "nationalism and clerico-nationalism". Yugoslavia does not have an impressive "Gulag", but it is also noted for being "gentle" with its dissidents.

Yugoslavia's most important foreign affairs problem is certainly its relationship with the Soviet Union. However, since the death of Tito, relations appear to be somewhat warmer. This process, in fact, started even before the death of Tito with the agreement concluded between the two nations in 1974 relative to visits of the Soviet "Mediterranean Squadron" to Yugoslav ports for resupply and repair. Although the Yugoslavs place certain restrictions on the Soviet ships, such as requiring that no ship can stay in Yugoslav territorial waters more than six months at a time, this is the best arrangement the Soviets have had in the Mediterranean since they operated a submarine base in Albania during the early 1960's. There has even been some speculation that together the USSR and Yugoslavia might promote a take-over of Albania which would serve to ease Yugoslavia's most pressing minority problem and at the same time gain further access to the Adriatic for the Soviet Navy. Such a move would also upset the strategic balance in the southern Theatre of Europe to the extent of giving the Soviets direct access to Albanian ports in close proximity to nearby Italian and NATO bases.

In other respects, Yugoslavia continues to maintain a foreign policy that appears to be on both sides of the fence but basically flops into the Socialist camp on most major issues. It maintains a somewhat special relationship with the sometimes maverick of Eastern Europe -- Romania. The two nations have cooperated in the development of weapons, most recently a fighter bomber. Yugoslavia also voted for the United Nation resolution condemning continued Soviet occupation of Afghanistan.

On the international, economic front, Yugoslavia tries to secure the best of both worlds. It is included in CEMA (Council for Mutual Economic Assistance) of the Communist bloc on a limited participant basis and, in addition to the financial aid it receives from the West, has received $848-million in credits from the Soviet Union in the period from 1947-81. Yugoslavia, along with Romania, Poland and Hungary, is eligible for Export-Import Bank loans as well as United States Commodity Credit Corporation loans. Yugoslavia has also indicated a desire to participate in the EUREKA (European space-based research program).

On the one issue, however, Yugoslavia stays firmly in the Socialist camp: that of terrorism. The recent hijacking of the ship Achille Lauro brought to light the special relationship of the Palestinian Liberation Organization with the Yugoslavian Government when the supposed mastermind of that hijacking, Abdul Abbas, was offered sanctuary in Yugoslavia. Yugoslavia is also known to have harbored terrorists from the Federal Republic of Germany. "Carlos the Jackal", an infamous terrorist, was permitted sanctuary by the Yugoslav authorities at the Belgrade airport when the Federal Republic of Germany policy were searching for him and five companions in 1976. United States Secretary Schultz complained bitterly to Yugoslav authorities of their support for terrorism during his recent visit there.

On the other side of the coin, Yugoslavia plays a little known role in providing a half-way house for refugees from other East European nations. A United Nations Commissioner now works full time on the problem of operating a transient camp containing approximately 1,000 refugees at any given time. Many of them come from Romania which currently is experiencing even greater economic hardships than Yugoslavia.

The Yugoslav Armed Forces are of a very uneven quality, both in equipment and personnel. On paper, the nation can mobilize a million plus men and plans to fight a nation-wide guerrilla war if necessary. In actuality, some observers say that supplies are so limited and equipment in such bad condition that even this plan might be somewhat less than successful. Training is said to be cursory and morale low with a great deal of apathy exhibited by the soldiers. When Yugoslavia fields 1,000,000 men it includes all its reserves and a territorial militia of unknown quality. The Yugoslav Air Force consists of some 250 fighter bombers and interceptors which are considered to be capable of resisting the Soviet Air Force for only about two days. Its Navy is essentially a coastal defense force and little else. Its ground forces are weak in protection from air attack and Yugoslav armor is obsolete, consisting of some 1,600 tanks. If permitted time to mobilize, the Yugoslav forces would probably give a good account of themselves and be able to conduct some sort of guerrilla warfare, but if the nation were attacked suddenly, all bets would be off. Interestingly enough, while the Army is led by Serbs and Montenegrins, the Air Force, which attracts many Slovenes and Croats, is the most cosmopolitan since the pay in the Air Force is so much better than in the other services. Yugoslavia devotes 5.2 percent of its GNP to defense, a sizeable amount; however, this still leaves her forces technologically behind according to their own defense authorities. In an effort to improve militarily, the army is now hiring "contract" soldiers to perform tehcnical work after their draft term is completed.

In conclusion, Yugoslavia's future does not hold much promise. The economy has no immediate prospect of righting itself. In recent years, Yugoslavia appears to have lost much of its stature as a so-called leader of the non-aligned movement. Its general drift of foreign policy is edging closer to the Soviet Union. The potential for outbreaks of nationalism in any or all of the states and provinces that make up Yugoslavia remains great. A strong hand will be needed to keep the nation together. The new Prime Minister, Branko Mikulic, a hardliner, may be able to provide that leadership. Only time will tell.