REGIONAL CONFLICTS IN YUGOSLAV ECONOMIC DEVELOPMENT

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85T00875R001600030061-1
• Release Decision: RIPPUB
• Original Classification: C
• Document Page Count: 28
• Document Creation Date: December 22, 2016
• Document Release Date: October 24, 2011
• Sequence Number: 61
• Publication Date: May 1, 1970
• Content Type: IM

Declassified in Part - Sanitized Copy Approved for Release 2011/10/31 : CIA-RDP85T00875R001600030061-1
Declassified in Part - Sanitized Copy Approved for Release 2011/10/31: CIA-RDP85T00875R001600030061-1
 Declassified in Part - Sanitized Copy Approved for Release 2011/10/31: CIA-RDP85T00875R001600030061-1
WARNING
This document contains information affecting the national
defense of the United States, within the meaning of Title
18, sections 703 and 794, of the -US Code, as amended,
Its transmission or revelation of. its contents to or re-
ceipt by an unauthorized person is prohibited by law.
("OUP I
GduJ.d Iwm U.16M01Ie
downprorrfng ,rnd
JsdoiriRtortnn
Declassified in Part - Sanitized Copy Approved for Release 2011/10/31: CIA-RDP85T00875R001600030061-1
 Declassified in Part - Sanitized Copy Approved for Release 2011/10/31: CIA-RDP85T00875R001600030061-1
CONFIDENTIAL
CENTRAL INTELLIGENCE AGENCY
Directorate of Intelligence
May 19 70
INTELLIGENCE MEMORANDUM
Regional Conflicts In Yugoslav
Economic Development
Introduction
With the question of presidential succession
simmering in the background, the hottest political
and economic issue in Yugoslavia today is "repub-
lican nationalism." The Ninth Party Congress in
March 1969 was filled with warnings: Mitja Ribicic,
the President of the Federal Executive Council,
warned that "Nationalism is growing on the soil of
our socialist relations, ... becoming more aggres-
sive," and Tito repeatedly complained that "eco-
nomic problems are clad in nationalist garb ...
there are certain elements that countenance
autarchy and localism, ... such activity is in-
creasing." Since the congress, a number of re-
gional economic disputes have confirmed these
warnings and have kept the issue of "nationalism"
on the front pages.
Most of these conflicts involve a clash of
interest between the most advanced republics --.
Slovenia and Croatia -- and the less developed
regions -- Bosnia-Hercegovina, Montenegro, Kosovo,
and Macedonia. They also reflect a basic conflict
between the government's longstanding commitment
to spur development in the backward areas and its
newer commitment (since 1965) to increased economic
decentralization. The development of backward
areas requires strong federal intervention in the
investment process, and decentralization requires
just the opposite.
Note: This memorandum was produced eoZeZy by CIA.
It was prepared by the Office of Economic Research
and was coordinated with the Office of Current In-
telligence.
CONFIDENTIAL
Declassified in Part - Sanitized Copy Approved for Release 2011/10/31: CIA-RDP85T00875R001600030061-1
 Declassified in Part - Sanitized Copy Approved for Release 2011/10/31: CIA-RDP85T00875R001600030061-1
CONFIDENTIAL
Regionalism in any form raises the question of
future political stability, after Tito's unifying
influence is no longer present. In the absence of
strong. political unifiers -- such as an outside
:threat to Yugoslav independence 'a large role
would fall to regional economic interdependence
to maintain stability. This memorandum examines
the record of regional economic policy and eval-
uates the obstacles posed by economic regionalism,
now and in the future, to Yugoslav development.
Have Versus Have-Not Regions
1. The typical Yugoslav tour director's mono-
,lggue is likely to begin with: "Yugoslavia con-
ains six republics, in which live five (main)
gtionalities, who speak four languages, have three
,:ferent religions, write in two alphabets, but
'have one desire -- independence."* Economically,
Yugoslavia is equally diverse. In the south, the
..less developed regions of Bosnia-Hercegovina, Mace-
-donia, and Kosovo bear the mark of economic neglect
under Turkish rule, which lasted for most of the
15th through the 19th centuries. Agriculture
remained primitive and mineral riches were left
untouched; the only positive economic legacies
were large trading centers, such as Sarajevo, in
Bosnia-Hercegovina. Montenegro, although never con-
quered by the Turks, was just as effectively cut
off from the fruits of economic development. Of
the lands under Turkish control, only Serbia, the
first in the 19th century to free itself, was able
to achieve significant development, aided by the
return of more progressive Serbs who had fled north
,to escape the Ottoman invasion.
2. The northern regions -- Slovenia, Croatia,
and Vojvodina --- fared better. Under Aus tro-
Hungarian rule for the better part of ten centuries
YugosZavia'ls six republics are Slovenia, Croatia,
Bosnia-ffereegovina, Montenegro, Macedonia, and Ser-
bia. In addition, Serbia is divided into three
regions, the two politically autonomous areas of
Kosovo and Vojvodina, and the rest of Serbia, gen-
eraZly known as Serbia Proper. For the locations
of these eight regions, see the map.
- 2 -
CONFIDENTIAL
Declassified in Part - Sanitized Copy Approved for Release 2011/10/31: CIA-RDP85T00875R001600030061-1
 Declassified in Part - Sanitized Copy Approved for Release 2011/10/31: CIA-RDP85T00875R001600030061-1
CONFIDENTIAL
2ngrab
VOJVO%
I) n? -Nov,
O','M A : N I A
44
Ihvilir~
Yugoslavia
International boundary
Republic boundary
Autonomous area boundary
m National capital
o Republic or autunomous
area capital
t MaJor ports
Titogrado 1 - \ I(0S0 V0 ,1
BULGARIA'
G EECE
zz
until world War I, the economies of these regions
were at least exploited, leading to the develop-
ment of transportation, coal mining, metallurgy,
forestry, and textiles. Industry in Slovenia par-
ticularly benefited because of its favorable loca-
tion between the Austrian-controlled seaport of
Trieste and the Austrian capital, Vienna.
3. The less developed regions continued to be
neglected after Yugoslavia became a separate state
in 1918. The new nation was dominated by Serbs --
under a Serbian monarchy -- which inflamed the
historical conflict between the Roman Catholic
Croats and the Orthodox Serbs. Thus preoccupied,
the leadership made no concerted attempt during
- 3 -
CONFIDENTIAL
MONTEryk
GRO 1+ J
Dubrov Ik? Priitlnao "IS
Declassified in Part - Sanitized Copy Approved for Release 2011/10/31: CIA-RDP85T00875R001600030061-1
 Declassified in Part - Sanitized Copy Approved for Release 2011/10/31: CIA-RDP85T00875R001600030061-1
CONFIDENTIAL
the interwar period to modernize agriculture,
develop mineral resources, or improve transporta-
tion in the backward areas. As a result, the more
advanced economies of Serbia, Croatia, and Slovenia
continued to outpace the rest of the country,.
leaving an.even wider gulf in living standards
than those. inherited from the years of foreign
occupation.
4. The postwar Communist government, under
Tito, gave top priority to the problem of region-
alism. Tito stocked the government with solid
delegations from all republics, and both the Roman
and Orthodox churches were stripped of political
power, thereby reducing some of the sources of
former political conflict. Finally, Tito's re-
gional economic policy from the outset was ded
icated to narrowing the gap between the have and
have-not republics.
5. This last task proved to be the most dif-
ficult in the attempt to solidify the federation.
Although it could be seen that Yugoslavia's regions
complemented each other economically -- rich raw
materials in the south, manufacturing in the
north -- disunity had been deeply embedded by~
foreign rule, sharp ethnic contrasts, and even
geographic barriers. These factors had discour-
aged labor mobility and had stifled any signif-
icant movement of capital from north to south.
As a result, the gap between the incor;a levels
of the have and have-not regions was indeed wide.
In 1947 the national income per capita of the less
developed regions was 65% of the level in the more
developed areas, and the per capita national in-
come of Kosovo -- the poorest region -- was only
one-half the Yugoslav average and less than 30% of
per capita income in Slovenia -- the richest re-
public.
6. Boris Kidric, the chairman of the Federal
Economic Council, set up an economic plan in 1947
to deal with these disparities, specifying average
per capita growth rates of ll%-14% for the less
developed regions and 6%-10% for the more advanced
areas. To achieve these rates would eliminate the
difference in per capita national income by about
1964. Kidric's plan posed a major political chal-
lenge. Not only would more new factories be built
in the less developed areas than in Slovenia and
Croa;.ia, but Slovenia and Croatia would also have
- 4 -
CONFIDENTIAL
Declassified in Part - Sanitized Copy Approved for Release 2011/10/31: CIA-RDP85T00875R001600030061-1
 Declassified in Part - Sanitized Copy Approved for Release 2011/10/31: CIA-RDP85T00875R001600030061-1
CONFIDENTIAL
to foot a ,large share of the investment in other
republics. The regime ran the risk of alienating
the advanced republics,, and possibly stirring up
jealousies' among the less developed republics which
might not be satisfied with their respective shares
of federal, support once their appetite for growth :
had been activated. Nevertheless, Kidric's model
was .put into effect in the first five-year plan in
1947.
7. The regime actively pursued the policy of
rapid growth during the 1950s, pushing new capital
intensive investment in the backward areas. The
results, however, were just the opposite from
Kidric's projection; the gap in per capita national
income widened substantially. Moreover, the policy
of extensive growth produced severe inflationary
pressures and balance-of-payments difficulties.
Thus, in the mid-1960s the regime abandoned the
forced growth policy and'turned to a program which
stressed monetary restraint and more efficient
allocations of investment resources., Under this
new policy, the'gap between north and south widened
even further, as shown in the accompanying chart.
Yugoslavia: Index of Growth
of Per Capita National Income (in constant prices
- 5 -
CONFIDENTIAL
Declassified in Part - Sanitized Copy Approved for Release 2011/10/31: CIA-RDP85T00875R001600030061-1
 Declassified in Part - Sanitized Copy Approved for Release 2011/10/31: CIA-RDP85T00875R001600030061-1
CONFIDENTIAL
The Widening Gap,
8. Between 1947 and 1968,' the average per
capita income of. the backward.regions'dropped from
two-thirds 'to one-half the average in the more de-
veloped areas. Only Montenegro was able to gain
round 'on the average national income of the
an
y g
more developed areas;. and none of the backward
regions.was able to gain on the most advanced
regions -- Slovenia and Croatia. Kosovo, in fact,
fell from 30% to a mere 17% of the par capita
national income of.Slovenia, The average annual
rate of growth of per capita national income during
1948-68 was4.6%.for the less developed regions,
compared with 5.7% for. the more developed areas,
as shown below.
Percent
Average Annual
Rate of Growth
of Per Capita
Percent of
Yugoslav
Average
National income
1948-68
1947
1968
Less developed
4.6
72
62
Bosnia-Hercegovina
4.3
83
67
Montenegro
6.0
71
79
Macedonia
5.6
62
65
Kosovo
3.2
53
34
More developed
5.7
112
121
Slovenia
6.1
175
201
Croatia
6.2
107
127
Serbia Proper
5.5
96
98
Vojvodina
4.8
109
97
9. The lag of the less developed areas also
shows up in a slower growth of personal income.
Per capita personal incomes in the backward regions.
grew by 8.6% a year in the 1950s, compared with 12.5%
in the more developed areas, and the lag continued,
in the 1960s, as shown in the tabulation below.
6 -
CONFIDENTIAL
Declassified in Part - Sanitized Copy Approved for Release 2011/10/31: CIA-RDP85T00875R001600030061-1
 Declassified in Part - Sanitized Copy Approved for Release 2011/10/31: CIA-RDP85T00875R001600030061-1
CONFIDENTIAL
Less developed
Bosnia-Hercegovina
Montenegro
Macedonia
Kosovo
More developed
Slovenia
Croatia
Serbia Proper
Vojvodina
Average
of Growth
Personal
Annual Rate
of Per Capita
Income
1953-60
1961-69
8.6
6.4
10.4
5.5
13.1
7.8
6.2
8.8
8.5
7.5
12.5
13.9
7.3
12.2
8.6
11.9
10.0
12.3
5.9.
Only Montenegro in the 1950s and Macedonia in the
1960s were able to achieve a .faster increase than
the average for the more developed areas.. Similarly,
there appears to have been little if any relative
improvement in the standard of living of the, less
developed regions. The average living area of
housing per capita in 1968 was less than two-thirds
of that in more developed regions; it was the.same
share in 1950, According to rural . surveys, per
capita consumption of meat in less developed regions
was roughly two-fifths of that in more developed
areas in 1958; it is now roughly one-third.
10. Per capita differences have been compounded
by the much higher rate of population increase in
the backward regions than in the more advanced areas.
Population in the poorer regions has increased at an
average annual rate of 1.9% since World War II, com-
pared with only 0'.9%.in the richer areas, as shown
in the accompanying tabulation. The rate of popu-
lation increase has not declined in most of the
poorer areas as it has in the richer republics.
Kosovo, in fact, has experienced a sharp rise in
population growth, mainly because of the influx of
immigrants from Albania during the 1960s.
- 7 -
CONFIDENTIAL
Declassified in Part - Sanitized Copy Approved for Release 2011/10/31: CIA-RDP85T00875R001600030061-1
 Declassified in Part - Sanitized Copy Approved for Release 2011/10/31 : CIA-RDP85T00875R001600030061-1
CONFIDENTIAL
Population
(Thousand
Persons)
-1968
Less developed
Bosnia-Hercegovina
2,564
3,799
Montenegro
377
535
Macedonia
1,153
1,574
Kosovo
733
1,183
More developed
11, 015
13,063
Slovenia
1,440
1,691
Croatia
3,780
4,364
Serbia Proper
4,154
5,079
Vojvodina '
1,641
1,929
Average Annual
Rate of Growth
(Percent)
1949-68 1949-60' 1.961-68
2.0
.1.8
1.6
2.4
0.9.
0.8 0.8. 0.8,
0.7 0.7 '0.6
1.0 1.2 0.7
0.8 0.9 0.6
11. Migration has not been sufficient to ease
the problem of population pressure in the backward
areas _ '` There has been considerable migration within
regions to new centers of industrial activity, but
this has aggravated the problems of cramped living
particularly in the case of Montenegro, Macedonia,
ll
lt
y
ura
and Kosovo, which are most separated, cu
blics
t
c
repu
hes
and physically, from the. ri
Croatia"and Slovenia.
12. Most migration from south to north has been
Serbia'Proper. This is not surprising; Croats, and
t
h
etwee
ar
"
population, and there is no language
11- MI rc has a1 Sn
he
border to - the poorer parts or Serbia Proper . Y~
--
tenegro have gone mainly to Serbia. Indeed,
Mon
of these migrants were Serbs,_ judging from the.
many
slow growth of the Serb population in. Macedonia and
d 1 09Z 1,
' 'I rmo
an
Very few emigrants have gone to Slovenia. A rough
indication of migration between-the census years of
- 8
CONFIDENTIAL
Declassified in Part - Sanitized Copy Approved for Release 2011/10/31: CIA-RDP85T00875R001600030061-1
 Declassified in Part - Sanitized Copy Approved for Release 2011/10/31: CIA-RDP85T00875R001600030061-1
CONFIDENTIAL
1953and 1961 is.provided by the following tabula-
tion, which shows the increase,'in .the number of :
persons who,lived'in the north but were born in
the south.
Slo-
venia
Serbia'
Croatia, Proper
Vojvo-
diva
Total
Shure of population
born in !the, . south,
Percent
1953
0.5
2.3
2.9
8.4
3.2'
19.61..
0.9
3.6
3.6
10.1
4.2
Increase during
1954-61'
:
in number of people
born in
Thousand Persons
Bosnia-Hercegovina
4.8
'54.9
19.7
38.3
117.7
Montenegro
Negi.
.1.5
5.1
0.8
5.8
Macedonia
0.6
2.8
5 . 1
1.8
10."3
Kosovo
05
3.1
15.0
2.9
21.5
Total .south
5 9
62.3
44.9
42 ,.,2
155.3
Effects. of Forced Growth
13. For less developed"regions -- in contrast
to ''the more advanced regions - investment.in.the
postwar,period'usually equaled or ..exceeded;.
contribution' to national income. Only.. inKosov0,
which did not increase its share of,, investment sig-
nificantly until the 1960s, can, any case be made
for :economic neglect... On 'the : other hand, the out-
lays actually required under Kidric's plan ',to nar-
`row the income gap were We 11 beyond: Yugoslavia"s
capability, unless income,. parity was to be achieved
by stifling investment and. growth in the more.ad-
vancedrepublics. The sectors 'of activity ;chosen
ror'.development in the backward areas -- electric
power, mining. an metallurgy were those with
among the lowest. yields in growth,,of output per
unit' of investment. Because such '.deveaop:nent'could
not be :undertaken simultaneously in. all backward.
areas, the government ;tried to ` alternate invest
ments in these regions
14. Early in the postwar period', huge funds
,were poured into coal and ferrous metals in. Bosnia-
Hercegovina. In 1952,' is ,:republic was absorbing
9
CONFIDENTIAL.
Declassified in Part - Sanitized Co A roved for Release 2011/10/31: CIA-R DP85T00875R0016000300 . 61-1
pY pp
 Declassified in Part - Sanitized Copy Approved for Release 2011/10/31: CIA-RDP85T00875R001600030061-1
CONFIDENTIAL
nearly 30%,of all Yugoslav investment while gener-
atirig.only about 14%, of Yugoslavia's national in-
come By the mid-1950s, however, the investment
boom in )3osiiia-Hercegovina was over, and its share
of investment fell to. 12% at the end of the 1950s,
as shown in Table 1. In the mid-1950s, it was
Montenegro ':s. turn for a steel mill. This project,
.together. with:increased spending in electric power
and nonferrous metallurgy, boosted Montenegro's
,share of investment to 5% in 1956, compared with
,only a l%` share. of Yugoslav national income. The
same pattern was repeated for Macedonia in the
first half of the 1960s . A new steel mill' at Titov
Veles, coupled with reconstruction funds to compen-
satefor the disastrous earthquake that leveled
Skopje in 1963, raised investment from 6% of Yugo-
slav investment in 1959 to nearly 13% in.lyb3-64,
when Macedonia accounted for only about 5% of the
15, The inain benefit.of capital.-intensive de-
velopment in,'the backward arias was a fairly large
inbrease' in labor productivity, often exceeding
that in the more developed areas. Except in Bosnia-
Hercegovina, industrial output per employee, did, not
begin to rise'in'theless developed areas until the
last half of.the .'1950s -- in Kosovo; not-until the
1960s. Only in Kosovo was the early stagnation of
,productivity the result of lagging output. In-
Montenegro,andMacedonia substantial increases in
output in the' early 1950s were swamped 'by new em-
ployment =- in Montenegro,. this. occurred in. coal,
nonferrous metals, wood processing,` ...and, of,, all
things',' refrigerator: production;, in Macedonia, in
refractories,. ceramics, textiles, food processing,
and `tobacco'..` Productivity did not increase greatly
in 'these republics until after substantial. invest-
ments' began to be made in electric power and ferrous.
ncietallurgy. In Bosnia-Hercegovina,, increases in..
productivity', were the highest in Yugoslavia in the
early '1950s; but were the lowest in the 1960s, _re-
.
`the shift in. priority to other backward,
areas Productivity. 'growth in'. the more developed
areas' has. been mar' more consistent, ." as ,shown in the
accompanying tabulation.
CONFIDENTIAL `,
Declassified in Part - Sanitized Copy Approved for Release 2011/10/31: CIA-RDP85T00875R001600030061-1
 Declassified in Part - Sanitized Copy Approved for Release 2011/10/31 CIA-RDP85T00875R001600030061-1
'CONFIDENTIAL
Bosnia-Hercegovina
Montenegro
Macedonia
Kosovo
Slovenia
Croatia
Serbia 1
per Employee
in Iria'ustrial Output.
Average Annual increases
6.3 3 8
1.2 8'2
1.8 8 0
0 7.2
4.3 4.8
3.9 6.6'.
4.4 5.L
16. High rates of productivity, however, could
not outweigh the high costs of investmvnt.in the
less developed, areas. These costs begun to show
up in the mid-1950s, when Bosnia-Hercgovina's
initially high growth rates quickly. evaporated,,.
falling even below Kosovo's in the.1960s. The
same thing might have happened to Morntenegro.and
Macedonia when It was time to invest heavily in
Kosovo and rejuvenate Bosnia-Hercegovina's economy.
Moreover, the stress on heavy industry-in the south
resulted in considerable, ; duplication of northern
facilities, particularly in ferrous metallurgy,,,
where capacity often exceeded demand during the
1950s. Cn the other hand, minimal' investments
were put into some industries having good growth
potential, such as nonferrous metals in'Bosnia-`
Hercegovina, and textiles, leather goods,and
food processing in all of the backward.' areas.
17. Lectors other than industry, and transporta-
tion were neglected. In fact, the largest part of,_,;
the lag of the less developed areas was accounted
for by the slow growth of agriculture and retail
trade relative to the developed areas.. As shown
in Table 2, the rate of growth of per capita na
tional product in agriculture averaged'2.8%.ayear
during 1953-67 in the less developed areas, com-
pared with 4.5% in the advanced areas. The slow
growth of agriculture was a major factor in the
ersonal i ncnmes and retail trade in the
' a
of
g
p
have-not areas, the latter growing by only. 6.4%,,a,.
'
8% in the. more, developed areas,.
year compared with
11 -
CONFIDENTIAL
Declassified in Part - Sanitized Copy Approved for Release 2011/10/31: CIA-RDP85T00875R001600030061-1
 Declassified in Part - Sanitized Copy Approved for Release 2011/10/31 CIA-RDP85T00875R001600030061-1
Tablel
Yugoslavians Regional Shares .
ofInvestment and'- National -Income a
Z
based - on data in=current - pr-ices . Private _ in-
a.. The- percentage shares-ate
vestment is excluded. -Because inves-tment _-data were =not- available for Kosovo
and Vojvodina for 1960 to 1964; 1959 :an-d--1965 are.: used: Because of rounding,-
components may not add to the totals shown
National'Income
1952
1956
1959`
1965 .
1968
1952 _
1956
-1959 - :1965
1968_.
Less develop e:~
39.
27
24
31
29
22
22
21 21
20
#kiosnia-
H -.-cegovina
29
14
12
13
12
''
ld_
=13
13 12
11
Mc-~teaegro
4
5
3
3
3
1
1
1 2
2
cedonia'
5
6
6
11
'.9
_5
6_
5 5
5
_ oso:~o
l
1
3
4
5
2
2
2 2-
2
More developed
61
73,
76
70
71
-78
78
79 78
80
Slovenia
11
13
12
14
13
18
16
16 15
16
Croatia
22
24
23:
23
21
26
27
27 26
27
Serbia Proper
25
28
28
24
28
25
25
25 25
27--
Vojvodina
3
8
13
9.
9
9
--10
11 12
-10
Declassified in Part - Sanitized Copy Approved for Release 2011/10/31: CIA-RDP85T00875R001600030061-1
 Declassified in Part - Sanitized Copy Approved for Release 2011/10/31: CIA-RDP85T00875R001600030061-1
CONFIDENTIAL
Yugoslavia: Average Annual Rate of Growth
of Per Capita National Product, by Sector 1
1953-67
Percent
Industry
Agriculture
and Forestry
Trans-
port
Trade and
Catering
Less developed
9.5
2.8
7.8
6.4
Bosnia-Hercegovina
8.7
1.8
6.7
6.4
Montenegro
16.1
2.9
15.4
5.0
Macedonia
11.6
4.6
8.3
7.2
Kosovo
6.1
3.5
6.2
6.1
More developed
9.7
4.5
8.1
8.0
Slovenia
8.5
2.6
9.5
9.2
Croatia
9.4
4.2
7.8
8.2
Serbia Proper,,,,
10.9
4.5
7.4
7.0
Vojvodina
11.1
6.2
10.2
8.9
Yugoslavia total
9.5
4.0
7.9
7.6
a. The percentage rates of growth are based on constant 1960
prices.
?18. Similar misallocations of resources had
occurred throughout the economy, contributing to
chronic inflation and to an excessive need for im-
ports to feed the industrialization drive. More-
over, the creation of less competitive industries --
particularly in the south -- was tending to make
Yugoslavia overly dependent on the less demanding
export markets of the Communist countries. Trade
with these countries had been cut off in 1949, when
Yugoslavia was ousted from the Cominforx, and did
not resume until the mid-1950s. By 1965, however,
the countries of the Council for Mutual Economic
Assistance (CEMA) accounted for over 40% of Yugo-
slav exports. This was dangerously close to the
50% share taken by these countries in 1948, and
too high for a country that was trying to achieve
an independent position between East and West.
19. If the regime had been willing to continue
to incur these costs, it is pcasible that the gap
.,in per capita national income eventually would
CONFIDENTIAL
Declassified in Part - Sanitized Copy Approved for Release 2011/10/31: CIA-RDP85T00875R001600030061-1
 Declassified in Part - Sanitized Copy Approved for Release 2011/10/31: CIA-RDP85T00875R001600030061-1
CONFIDENTIAL
have been narrowed. During the brief period of
1962-64, under conditions of rapid inflatiotn, the
south seamed to be gaining on the north. In 1964,
per capita national income in the pourer regions
increased by l4., compared with 10.9% for the
north. Even it this sizable advantage had been
muintaineci, however, the gap between north and
south would not have been cloned for nearly 20
years.
feform and t ecennion, 1965-67
20. inflation and trade difficulties finally
forced the leadership to give up ita obsession with
rapid growth and concentrate inatend on improving
the structure and quality of output. beginning in
1964, the government put tight controls on invent-
ment and consumer credit. The next atepe, which
came in 1965-67, were to revamp the price struc-
ture, cutting unwarranted profits in inefficient
manufacturing enterprises, and to liberalise im-
ports of many raw materials, metal products, and
consumer goods, admitting foreign eo'petition an
a larger scale. The itr-mediate result of these
measures wan a aharp drop in the rate of growth of
industrial output, which finally fell to zero in
1967.
21. The poorer regions had suffered tno t during
the slowdowns of 1955-5G, 1957-50, and 1961-0. The
recession in 1965-0-71 was fl? cuxeep IUf. As r-hOwr, in
the tabulation below, the tight monetary policy had
its grenteet effect oil 1fivcie 77 nt, c6na_ gr
and real personal inc a in the less de*.veloped areas.
The hardest hit were thoania-tfiercertovina and Monte-
negro, which at the pit of the recession in 197,
experienced deelinea !n industrial output of 4 and
3%, respectively. industry fared better in Mace-
donia and Eoaovo, 5o that on balance, the growth
of industry during 1965-67 was about the sate in
the less developed an in the more developed areas.
s i.1 fi ly .too-w tA_a ?.-t! .... aL ofkites drop in
QL WII14I! only vd V%r"A*.v rrv~r
output. Industrial employr-nt grew faster in the
loss developed regions, but still at a glow enough
pace relative to population growth to produce a
sharp .increase in unemployment. Unewploy? ent in
1968 wan about 8% in F.toania-Hercegovina and Monte-
negro and about 20% in Kosovo and Macedonia. Un-
employment in the north -- particularly in Slovenia
and Croatia -- won eaacd somewhat by a r i9ration of
-orkers to %'eatern Europe. Only about one-fourth
- 14 -
CONFID EN" I Al
Declassified in Part - Sanitized Copy Approved for Release 2011/10/31: CIA-RDP85T00875R001600030061-1
 Declassified in Part - Sanitized Copy Approved for Release 2011/10/31: CIA-RDP85T00875R001600030061-1
(X)N11 t)E TIAL
Of the 3G0,000 ?uyoslaVg It WeeLern fsurope in 19610
Came fro, the- $outih, ahtl nearly all of these Were
from hoshiauferc egoVitia.
AVerarle Annual
bates of 0'roatti
116S.i7
Legs t,9ore
~p~e~i3j*i?rl t)~?t3elr~ire
Industrial output 13 3.9
Industrial erp1cyr:-eht 1.9 0.5
In'.,ecUAeht (current Prices) 6.7 11.1
Real personal itiec a 3. 6.)
Congui- r credit -13.0 -11.6
22. The structures or industrial output in
t3ognia~t#etee o= iha and tehtshejro "were file tot
Vulnerable to the tt e' eeohe iL- Policy. The tots
r, $z affe s ?i by the reel#ssion -- coal and ferroiag
r,e 2.$s; t`teta$;c r~:ih~a; '+ ~.?~3Lr t it~fi, he 'tiles,
leather qo?nds, and t aceo -- adgouhteci for 70%
of indu-dtrial 4 tu.duetioh in i?oshia-Hergo"loWina and
rOk ox that in MEohtensjru. The steel at-d #,etal-
orcih~ i thi ttie icet'~s hart fitet b a the cut:ra k
+.
iti IItia~? t +en n-hd iata?r in 1? (,,7 by i?tp rt c?f-p3'd-ti
tio- follavinnri the izp rt IH2Qstalio-atien. #" a d-a-
iilt'fQ of sta'eaE o' tpTut, Ta'y' iii ita $_t.o:.ctaia~}# rc?esovitta
and -9*, in r' #tte#.et t in lit--7, =ur tiger ve-rset.d vie
t=t. gitiw(:ia 0iii ttoal pre-t t-sts" tti late f in ?osnia-
$$txt, ' ei(h had already suffered fto the
r it'tu ups f -i l ;4? a full. Textile and leath@r
ry'a'tas Arai u etr? als=o Vgr'e of feete J by itieteagetl
f r.crt i ;4rcir tc, ag ice U i a;^, 'b?bv a i l't?wlwvs'
in "r? be'?[a it't`k. Output fell for t;;uch the ,5 to
Pofi in atj alt ' h thego
; ~i F-'SaT:-~, ~. IC k ss c 7 Y v _ A ? 41x'"' "4.i of a iF s -p a~ 7'!i .d4 p r; ~ i n
1'61.
In ltacedfanla, r erg tr s lain in4ugtrles
ads up a $ar" e g3rat'??, output Uas aided by tie
startup of t're'es capacities for eteel aid chts;+"?ical 1,
and in og ro. overall in u.?t rial outpv_ %rag ?ne-
fited by t1m, d -ifa to of tk~ t~.'~+ rto c :a -_ t
inndu. tt'y f !Vro.t ! t 3?? tefo r ~.' cau !jam i t **
CONFIDENTIAL
Declassified in Part - Sanitized Copy Approved for Release 2011/10/31: CIA-RDP85T00875R001600030061-1
 Declassified in Part - Sanitized Copy Approved for Release 2011/10/31: CIA-RDP85T00875R001600030061-1
CONFIDENTIAL
export position. The latjginy itiduntties repretlentecl
a much lower share (40%-50%) of output in the more
developed regions, except in tlovenia, whose yen-
erally more efficient enterprises were better able
to Cope with the recessions
crfeets of beeentraligatt.on
24. One of the most important features or the
new econoowic policy was the gu;;stantial. decenttrali=
sattion of inveett?rent. The 'gdktial investMent funds"'
of the federal, republic, and local governments
were abolished and transferred to a revitalised
bankini system, more independent of political con-
tirol. This step gave enterprises, which were now
allowed to round banks, a much theater gay in the
distribution of invegtmeht resources ,
25. 1"ederal inveg?.r efit fell greatly in the more
developed areas, but i t still remained a large share
of the ihvest;r?ent in backward regions. In order to
provide for the poorer rections == which would ob-
vicialy fare badly without outside support -- a
federal investr..ent fund was get up, financed by
tax contributions arm the t'tiore advan,e4 tecti+ans
and administered l.aroely through the Yugoslav In-
Vestmont. Lank (forr?erly one of the three special
tedetr6l banks but now ostensibly more Independent).
in 1969, federal invest"tient et.i l l accounted for
about 'O of itlvds `"-;ant in Scinia= to ~? f?3 + a, 40%
si U_ c't- iv otici C, I.fV T ''T6.lVU e[jv
L} r l 471 4 ,f __
pared with an average or only Z#, in theo#e de=
?e.s ~~,s .va ~4s_.., sre `-cry. a.a.in ~, vrtA L2.1L1i.!!. %~!ae.. 4ffW~$i+"~.
A ent: by banks, thoug1I a 'itch lar(jer share or invegt;=
pent than before the tefott's. accounted tor only
j7t at the total in less c;adeloped ales:_, co pared
with ~0 in the 'gre* t1 elol cd, as shin in the
follaofny tabulati-an.
- 16 -
CONFIDENTIAL
Declassified in Part - Sanitized Copy Approved for Release 2011/10/31: CIA-RDP85T00875R001600030061-1
 Declassified in Part - Sanitized Copy Approved for Release 2011/10/31: CIA-RDP85T00875R001600030061-1
CONFIDENTIAL
Lean
Developed
More
bevo1op- d
1963
1969
1903
1969
i"edetal government
33
20
17
2
Republic and
governments
local
30
9
31
6
Enterprises
22
19
is
32
tanks
$3
37
9
54
other institutions
7
7
II
6
Twat
100
100
100
100
26. The rerortrma also tesulted in more decentrali-
nation of authority to enterprises and banks to en-
gage in foreign trade operations. Exporting enter-
prises were alicy4ed to retain a larger share of
foreign exchange earnings, although the bulk of
foreign exchange (except in enterprises exporting
most of their output) still went to the National
bank. These measurea, combined with a devaluation
of the dinar in 1965, were intended pri;rarily to
prcte greater hard currency exports. In addition,
large investj,Ants were now encouraged in tourism:
free custot ports were emtahlished along the
Adriatic, which perr?itted foreign enterprises to
set u shop on Yugoalav soil: and, In 1967# a law
was p saws allowing foreign investr-ent throughout
the country, providing it was in partn'rehip with
Yugrnla'v
27. Again, the more developed areas stood to
gain the :tat. 'these regions account for over 10i
of total Txigosiav exports and possibly even a larger
share of hard currency exports. A larger share of
exports ;.n the more advanced regions goes to 4eatern
countries than is the case in tho poorer regions.
Aithough "r`sacr-donia appears to be an exception, a
ai 3ni f scant share of its grade with the nest has
begin on clearing account with itia neighbor +Groece --
usually counted a:zong leap developed countries. A-#
would be expected, CEHA and less developed countries
account for a larger share of the exports in leas
'r a9 F Z .4%p C-2 e ?: C ft -,I- C it a b 7 s ~+i j 9'C ~ "!1 -' n-A4 n V4A.?;0,". to tieve_ .~h4 4ri# -dn r rt Cora of 4rP3eg -
17
CON 1: 1 t) N"I'I At,
Declassified in Part - Sanitized Copy Approved for Release 2011/10/31: CIA-RDP85T00875R001600030061-1
 Declassified in Part - Sanitized Copy Approved for Release 2011/10/31: CIA-RDP85T00875R001600030061-1
CONFIDENTIAL
developed regicinn than in more developed republioa,
an nhown in the following tabulation, for 1969.
Shane of Share of t N r,to,by Hevublic
Total
Yugoa lav Or= Leers
Cxport Countries / Ct134n Doyelopgrl
tioania-
tteroegovina 11
Hontonagro 2
Macedonia 4
Slovenia 19
Croatia Zit
Serbia 36
41
41
59
69
52
57
r1. cau+7Lre of Ole Oradni#ation for aonomzo Coop-
eraitvn dnd P eve tope nt l dh tnctudna Weo torn Europe,
Turkey, 'roo-ve, Japan, tce tQ11d, and N)rO Aimeriaa.
b. Isiotud',ii gc+oovo and Voavodi'u.
20. Moreover, neMrly grit of foreign tourists in
1961 went to the developed areas: Croatia alone,
with its near monopoly on Adriatic reaor; a, in-
cludin) dubrovnik, accounted for 5614 of the nwsiber.
Alront all the free ports ouch as uplit and Rijeka
are also in Croatia. rinally, moat of the trickle
t A4;4"& t y1L ma 4-" G w.M. k..... t. L1: i- 1i n.: i. s. R I .t i+Y. .f
rte: lsttb a at=~1^ t11~t fl tttCY1R tIm Irwin b;G .. alr t. raC!L6d
thua far has been in partnership with ?ir+?na in the
....+ry.we. ti ? 1""" re^ s yX??s:.r a.. fr.. v ..Fi ? j f t t
t+. tw/;C Vv. Yf~LVt.:C~ UL. ri:V~'s 'tYt YC.'. f'+C1~Vt Llt ka f~tt4iY~Tlt~ ii tr
coaea about, will be a propobed 8:aiaer=tx; ergoinvegt
joint investment in an al inue cc bine wear Hoatar
in Ucaania-lercegovina.
29. An indicated earlier, the liberali. ation of
imports of raw : ateria.la and metal and wooed protucto
also generally . avare4 the amore developed areas,
which not only could better withstand foreign corn-
petition but ntiv c sulcl. it t# t wiabud. rely on
alternative aourt:ea of the rawr and .ac ?ifinighed
gooda produced in the purer regions. The govern-
? er.t did not go nearly oo far an the yore developed
regions would have liked in liberating foreign ex-
change controls, eo that lea developed regiona
still were able to acquire gu.batantial oupplementii
10..
CONFIDENTIAL
Declassified in Part - Sanitized Copy Approved for Release 2011/10/31: CIA-RDP85T00875R001600030061-1
 Declassified in Part - Sanitized Copy Approved for Release 2011/10/31: CIA-RDP85T00875R001600030061-1
CONFIDENTIAL
to their own foreign exchange earnings. Nevdrthe-
lean, the more developed areaa, aided by earnings
from tourism and transport, obtain more of their
imports from the West and lean from the Communist
countries than do the lean develo ad areas. Monte-
negro is the exception here, but its tirade in any
case in extremely small -- lean than 2% of total
Yugoslav turnover. The regional distribution of
imports in 1969 in shown in the accompanying tabu-
lation.
lioanin-
llercegovina
Montenegro
Macedonia
Glovenia
Croatia
Serbia a/
#u 1 ti ple
destination
Share of imports
Share of
b
Republic
Total
Yugoslav
lmp_rt n_
OECD
Cogntriati
CEMA
Latin
t)eyeloped.
7
52
39
9
1
73
26
1
5
61
34
5
20
77
to
5
26
69
21
10
31
64
29
7
ai~js3vu .
2. including Av#vtfO d ?id
b. lrlport ti 400 eta deed wt' Ch f log 102 norc,
r UL"1i0.
30. Thuti, d1ocentralixation hen drawn an ever
sharper line between the richer and the poorer re-
gionn. The more developed areas, particularly
I-lovenia and Croatia, would like less government
control, while the poorer regions still need what
they can get in the form of price and import pro-
4oreover, it in now far easier for the more de-
veloped areas to quantify their role in the support
given to the poorer regiona than it was in the
1950n, when the federal government financed a nit-
able part of investment in all republics. The
richer republics complain that much of the support
given to backward areas has aeon wasted on inoffi-
cient prestige projects. They have aomo grounds
for quentioning the effectiveness of major projects
- 19 -
CONFIDENTIAL
Declassified in Part - Sanitized Copy Approved for Release 2011/10/31: CIA-RDP85T00875R001600030061-1
 Declassified in Part - Sanitized Copy Approved for Release 2011/10/31: CIA-RDP85T00875R001600030061-1
CONFIDENTIAL
and are increasingly disposed to auk much quentiong
in the service of their own economic interoo,tg. On
the other aide, the backward regions often grumble
about the inadequacy of federal support. oania-
ileroegovinta particularly fools alighted -- not one
major new project had boon started there since 19G4.
Recant Conflicts
31. Decentralization brought with it an atmos-
phere of more open political and economic discussion.
it has also eiponod up now regional conflicts, in
which Slovenia and Croatia usually have been pitted
against the federal government and the lean developed
regions, In the moat publicized flaroup, the Slovene
government in 1969 lambasted the federal government
for unexpectedly reversing an earlier promise and
cutting Slovenia out of funds earmarked for road
conatruction under a proposed loan from the inter-
national Bank for Reconstruction and Development
(IBi*D). The Slovene officials in turn were severely
reprimanded for engaging in "republican nationalism."
Aa it turned out, the Slovene roads had not been
eliminated but rescheduled under another loan to
be negotiated with the IBhb in 1970. Slovene offi-
cials in due course made the proper public apologias
for the outburst, and repeatedly denied the exietenco
of significant separatist .sentiment within Slovenia,
but they remain extremely sensitive to such issues.
32, Angthor ian>9n balm been nimmnr1ng in thn
more advanced regions aince the reform of the for-
aian oxchanoe nvntam in 1967, Tho Croats, in par-
ticular, have complained that, although import lib-
eralization has made it far easier for importing
enterprioeo to obtain hard currency, the amount of
foreign exchange that can be retained by oxportero
in still too small to encourage them to sock now
markets. In fact, a largo share of the available
foreign exchange goon for hard currency imports of
equipment for firma in loon developed rogiono,
ueua.lly with liLtie hope of return in the form of
hard currency exports. Am a result, while Croatia
accounted for about 28% of all co. odity exportz
(and 38% -- the largest sham -- of all foreign
exchange earnings including tourism and other aer-
vices), it accounted for only about 13% of invent-
ment in machinery imports in 1967.
20
CONFIDENTIAL
Declassified in Part - Sanitized Copy Approved for Release 2011/10/31 : CIA-RDP85T00875R001600030061-1
 sified in Part - Sanitized Copy Approved for Release 2011/10/31: CIA-RDP85T00875R001600030061-1
CONFIDENTIAL
33. Duplication of plants also results frpm re-
gional self-interest. One example in the ambitious
plan of local intoroets in Split, Croatia, to build
a giant steel mill on the Adriatic, a plan that Tito
has criticizcid strongly an costly and unnecessary.
Apparently, work on blueprints for the project in
continuing in spite of Tito's protest and in spite
of the probability that it will be difficult to
amass the necessary funds anyway.
34. Another instance of regional duplication in
reflected in a dispute, under consideration by the
federal government since late 1960, between petro-
chemical and plastics combines in Croatia, Sor :pia,
and Macedonia, which have formulated conflicting
long-range plans for development. The Croatian
firma -- OKI and INA (the large Croatian petroleum
consortium), of Zagreb, and Jugovinil, of Split --
plan to build a large polyester fibers factory,
which would be in direct competition with a similar
plant proposed by the O11IS firm in Skopje. More-
over, Jugovinil wants to quadruple its present
production of polyvinyichlorido, in conflict with
Serbian plans to build a now polyvinyl plant in
Pancovo.
35. The list of recent conflicts scams endless.
Croatia and Slovenia complain that the federal
government's longstanding refusal to raise rail
freight rates has put the railways in financial
difficulty and has only served to subsidize mar-
ginal enterprises, particularly in the lass de-
veloped art-an. Also working against Croatia and
Slovenia in a now federal law limiting the carrying
capacity of private truce to five tons. Private
truckers in these republica, with the sympathy of
republican officials, have demonstrated against the
law, and one public official -- the Mayor of Mari-
bor, Slovenia -- han privately stated that the law
in "stupid" and will not be strictly enforced in
Slovenia and Croatia.
i6. c:ueh conflicts and old ethnic rivalries,
revived now and again, an in the "nationalist" dom-
onetrationa of the large Albanian minority in Kosovo
in 1968, have prompted Belgrade to launch a now
attack on rogionaliam. Beginning in 1969, the
leadership preasod for revisions in the structures
of government, increasing the authority of the
Chamber of Nationalities and bringing some of the
21 -
CONFIDENTIAL
Declassified in Part - Sanitized Copy Approved for Release 2011/10/31: CIA-RDP85T00875R001600030061-1
 lassified in Part - Sanitized Copy Approved for Release 2011/10/31: CIA-RDP85T00875R001600030061-1
CONFIDENTIAL
more influential republican leaders to Belgrade to
so,rvo in the Federal Executive Council and in high-
level,, economic councils. In addition, a now 15
member Communist Party Executive Bureau was created,
ataffod by high-level representatives from all re-
gions. The leadership hoped that many potentially
explosive regional conflicts could be thrashed out
before they surfaced and that key republican leaders,
removed from the source of their political power,
might develop more of a "Yugoslav" outlook. Indeed,
it was Mitja Ribicic, the new head of the Federal
Executive Council, and a Slovene, who took the lead
in condemning his own republic's stand on the road
controversy.
37. An important element in the government's
now regional economic policy is the push to inte-
grate enterprises, and especially across republican
boundaries. But most intrarepublican mergers thus
far have been among firms or banks in the more de-
veloped areas. Two important mergers have occurred
in Macedonia, where the FIAT-sponsored Crvena
Zastava automobile factory of Serbia has estab-
lished a component parts subsidiary and Rade Koncar
of Croatia has absorbed both a refrigerator plant
and an electrical equipment factory.
Prospects
38. Tito -- and his successors -- will try 10
steer a middle course between the competing Bern nds
of the north and south, in the attempt to,further
tha national Yugoslav interest. The north will be
favored by continued efforts to increase hard cur-
rency exports, including the provision of added
incentives to enterprises through gradual 3ecen
tralization. The south will be favored by con-
tinued large federal investments and continued
efforts to promote mergers with the more estab-
lished northern firms. Kosovo recently has been
singled out for special federal attention, in-
cluding help in obtrining credits to bail out
firms in debt. Thdre will be setbacks to these
policies in the short run. The Yugoslav economy,''
still is highly vulnerable to inflation and balance-
of-payments crises, which periodically will force
the government to step in with.def lationary controls
on imports, prices, investment, and consumer spending.
- 22 -
CONFIDENTIAL
Declassified in Part - Sanitized Copy Approved for Release 2011/10/31: CIA-RDP85T00875R001600030061-1
 Declassified in Part - Sanitized Copy Approved for Release 2011/10/31: CIA-RDP85T00875R001600030061-1
CONFIDENTIAL
39. As in the past, the rich probably will get,.
richer in spite of federal support to the backward
areas. Yugoslavia's backward regions are in much
the same position relative to Slovenia and Croatia
as these republics are in relation to Western Europe.
The soik;h, in effect, is a microcosm of most less
developed countries, having the same dim prospects
of'catching up. The north will be favored to the
extent to which the government maintains its cur-
rent stress on decentralization and efficiency.
Moreover, the south is particularly vulnerable to
recession and stands to be hurt more than the north
during periods of retrenchment brought on by infla-
tion and balance-of-payments problems.
40. On the other hand, the incomes of the back-
ward areas will not stagnate. Given the current
emphasis on efficiency, investments even in the
poorer areas will be allocated to more profitable
uses -- agriculture, food processing, and nonferrous
metals -- as well as to transportation and housing.
A particularly bright spot is Montenegro, where
large funds will be spent in developing tourism,
supported by large expenditures in agriculture, all
as part of the United Nations South Adriatic Project.
Moreover, integration and business dealings in-gen-
eral between more and less developed areas really
seem 'to be on the rise.
41. Regional disputes are unavoidable. The
north will continue to press for greater liberali-
zation in the struggle to become more competitive.
The south, as revealed in recent statements by
leaders there, will try to use local resources to
create new manufacturing industries, which will
continue to encourage demands for federal price
and import protection. The government that suc-
ceeds Tito, struggling to gain acceptance, probably
will have more difficulty in juggling regional con-
flicts. Moreover, these conflicts are a natural
target for any attempt by the USSR to increase its
influence in Yugoslavia.
- 23 -
CONFIDENTIAL
Declassified in Part - Sanitized Copy Approved for Release 2011/10/31: CIA-RDP85T00875R001600030061-1
 Declassified in Part - Sanitized Copy Approved for Release 2011/10/31: CIA-RDP85T00875R001600030061-1
CONFIDENTIAL
42. Yugoslavia has come 'a lon? way as a state
and may have developed the, cohesiveness to withstand.
,regional disputes. As the President of the Chamber
of Nationalities, Mika Spiljak, puts it, "less than
25 years ago Yugoslavs were killing each other.
There are Serbs and Croats in public life today
whose relatives were murdered by. each other. We
can stand these inefficiencies of mixing together
for 'a few years more."
Conclusions
43. In two decades, Tito's.Communist regime has
tried and failed to narrow the economic gap between
the more developed northern part of Yugoslavia and
the less developed south. Indeed, differences in
output, and income per capita have increased, and
.what is more, the economic objectives of the north
and south have diverged. The north is pressing for
more decentralization of federal economic control;
the south still relies heavily on direct federal
support and federal protective controls. Regional
economic conflicts, together with the historical.
rivalry among the several nationalities -- Serb-
Croat rivalry is not dead .-- pose a challenge to
the leadership unique for a country of Yugoslavia's
size. With the question of succession becoming
increasingly important, regionalism now has become
the, most publicized issue in Yugoslavia.
44. The attempt made in the 1950s to narrow re-
gional economic differences was just a beginning,
and an expensive one, since most investment in the
south was in capital-intensive sectors -- road-
building, electric power, mining, and metallurgy.
A continuation of the forced growth policies of the
1950s, with continued preferential treatment of the
south, probably would have eventually reduced the
gap, though very slowly, especially in view of the.
cultural barriers to south-north migration. But
thispolicy had to be given up in the mid-1960s
because it had resulted in chronic inflation,
severe deficits in the.hard currency balance of
payments, andexcessive dependence on the export
deflationary`; policy adopted in the mid-1960s tended
to discourage. development in the south. The. less
efficient, protected industries. of the south, such
Declassified in Part - Sanitized Copy Approved for Release 2011/10/31: CIA-RDP85T00875R001600030061-1
 Declassified in Part - Sanitized Copy Approved for Release 2011/10/31: CIA-RDP85T00875R001600030061-1
ahead on national policy objectives. The middle
course between efficiency and equalization --
between decentralization and control -- will likely
as stool, col.ild only lose from the steps taken to
curtail now irivestmsnts and encourage hard currency
exports, which largely come from the north.
45. Even though the current national policy
continues to favor the north, the government will
maintain its commitment to help the backward regions.
This dual policy -- a political necessity'-- will
mean slower progress in raising efficiency through-
out the economy as a whole, and continued direct
federal economic influence and control in the econ-
omy. Although fed, a], investment in the south prob-
ably will be put t6 better use, local resources are
likely to go into new manufacturing industries which
duplicate those in the north and create demands for
federal price and import control. The south, in
effect, will be an obstacle to northern demands for
more decentralization particularly a reduction
in federal foreign exchange controls which would
prod enterprises to export.
46. Tito's unifying influence has so far been
sufficient to dampen conflicts that could break up
the federation. To provide for the. day when he is
gone, Tito has set up-,.a strong Party Presidium made
up of key republican leaders, hoping thaw: at least
some regional disputes can be settled betore they
inflame public opinion. Nevertheless, the leaders
who follow Tito will have far more di:fitulty in
satisfying competing regional demands while moving
Declassified in Part - Sanitized Copy Approved for Release 2011/10/31: CIA-RDP85T00875R001600030061-1