ABSTRACT
Branko Mikulic’s departure capped nearly a full decade of economic crisis. The crisis began in 1979, when Yugoslavia was forced to face the fact that it had accumulated an enormous foreign debt—over $15 billion—and had no prospect of repayment. Economic changes were blocked by the structure of political power, above all the one-party system; and, at the same time, economic change was greatly complicated by difficulties in stabilizing a socialist economy while simultaneously trying to reform it. Yugoslavia’s political system, based on its 1974 Constitution, relies on a very weak federation and very strong republics and provinces. Soft budget constraints also have severe negative effects on a country’s international trade position. But to understand this we must backtrack to the problem of inputs under conditions of shortage. Yugoslav firms do not, in fact, have great reason to export, and are driven to do so only by direct government coercion and the need for their own foreign exchange.
