ABSTRACT
The current wisdom on economic transformation stresses the special role of the financial sector and monetary policy as a precondition for successful transformation and, ultimately, modern economic growth and economic convergence. Thus monetary policy is viewed as the main economic policy tool for achieving and maintaining macro-economic stability. The financial sector is given multiple roles and is seen as the sector which can accelerate transformation, institution building and the consolidation of a modern market economy. At the same time, it creates a favourable climate for investment and accumulation, in turn ensuring real economic convergence with developed economies. The stress on the importance of the financial sector and monetary policy
in this interpretation might sound extreme and could be disregarded were it not for its very important and influential backers. It has become a central part of the current ‘transition package’ of the international financial community. The economic conditions (as well as other conditions) which they can and do impose, together with the wide scope and influence of the international economy, makes this view more than academic; one should bear in mind that the international financial community has influential offices in every economy in transition. Given this strong current emphasis on the financial sector and monetary
policy, it seems worthwhile to look at its past track record. However, this chapter will not, as is often the case, look at the record in the period after the Second World War or through a cross-section of economies. Instead it will discuss the decade from 1926 to 1936 in the limited region of Croatia. This period and area are especially interesting for purposes of
comparison. The period involves multiple external shocks (the collapse of agricultural exports, the Great Depression) and internal shocks (the introduction of a dictatorship, the problem of ‘peasant debt’); a stubborn adherence to a restrictive monetary policy and exchange rate stability in the
changing environment of post-war boom, crises, depression and growth; and policies for restructuring the financial sector by establishing a state sector and tilting the playing field in its favour, selective bail-outs, rehabilitation and restructuring schemes. Furthermore, as there was a private banking sector, the reactions and behaviour of this sector can be examined. The limited area of Croatia (as opposed to the whole of Yugoslavia, of which it was part during the period) was chosen because the authors feel it is especially well suited for the purpose of the paper. At that time it had a relatively high level of monetization and financial sector development and it experienced an especially full restructuring of its financial sector. Of course, the authors are aware that monetary policy and financial sector restructuring in the decade 1926-36 are usually treated in a nationalist and ‘conspiratorialist’ framework; this approach has some validity but in this chapter it will be downplayed because the primary purpose is to discuss monetary issues. This chapter is divided into four sections. The first gives an overview of
monetary policy and financial sector developments during the period from 1926 to 1936. The second discusses their impact on the Croatian financial sector generally. The third discusses the fate of the largest bank in the country, the First Croatian Savings Bank. The final section attempts to offer some conclusions, while the Appendix explains the definition of ‘Croatia’ used here.
