HOW TO CREATE A COUNTRY ? The Case of Slovenia

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 • • • • • • • • • • • • • • • • • •

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: • • • • •

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 -

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” • •

• • •

• • • • •

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 -

-

institutional (economic system – EU directives, monetary and fiscal policy, controls of flows) Economic - exports and imports, euro

CREATION OF SLOVENIAN CASINO CAPITALISM (2005-2008) -

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):

-

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: -

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