At 09:48 PM 3/26/97 -0800, Rosser Jr, John Barkley wrote:
>Paul,
> Guess you don't know what a soft budget constraint is.
>These enterprises to whom the loans were being made were
>owned by the state. Thus, ultimately the state was
>responsible and the enterprises knew it. They counted on
>the state to prop them up with subsidies of one sort or
>another in the face of their indebtedness. This is
>precisely an issue in countries like Yugoslavia and Hungary
>where the central planners were NOT in control of what the
>state-owned enterprises were doing. So, the enterprises
>could run up debts that eventually landed in the laps of
>the governments. ....
1) I believe most of your interlocutors on Pen-l are quite familiar
with Kornai's work on Hungary and his concept of the soft budget
constraint as a fatal flaw in socialist planning processes (Kornai, The
Economics of Shortage, 1980). In fact I believe you will find that the
concept (using different terms) was first identified in the Soviet debates
by Liberman himself as part of his 1962 Pravda article (see Zaleski,
Planning Reforms in the Soviet Union, 1967 for an English language discussion).
2) The point I have been making about Yugoslavia is that its collapse
does *not* illustrate well any point about socialist planning models (fatal
flaws or hopeful alternatives) because it's economy became so highly
integrated into the non-socialist world. Yugo's collapse really more
parallels the lessons learned from Lat. Am.
3) As I explained in my last post, most of the enterprise foreign debt
was *not* guaranteed by the state (i.e. sovereign debt) - just as in say
Western Europe or Lat. Am., where the state did not usually guarantee
international commercial loans made to state owned enterprises (there were
quite a lot in the 80s). By 1988 (a year I happen to have handy, but not
the worst year) Yugo's its external debt stood at $21 bill. Even that late
into the debt crisis (and the forced nationalizations of international debt
that came with $1 billion in IMF loans) only $13 bill was public or
publicly guaranteed (this includes much non-enterprise debt such as lending
for state infrastructure projects, World Bank loans, the cold war loans
etc). Precisely because the debt was owed to foreign banks, the government
(pre-world debt crisis) would have had many options and sanctions - at least
in the eyes of the enterprises.
In contrast, at this time 100% of Hungary's debt or of Poland's
international debt was govt. guaranteed. Even Argentina, Mexico and Brazil
had higher percentages of govt guaranteed debt (82%, 80%, and 78%). One has
to turn to Chicago-boy Chile or oil rich Venezuela to find hard budget
comparisons - and even they are softer than Yugoslavia! (68%, and 70%
gaurenteed). For their large foreign debt, Yugoslavian enterprises faced a
harder budget constraint that most of the capitalist periphery. Only their
Bankers had it soft.
[My source tonight: the World Bank WDR 1990; but I suggest you see an
edition of the World Debt Tables from the early '80s.]
3) Let me try it another way. In 1988, about 25% of Yugo's GDP went to
exports (mostly to the non-socialist world). For Hungary: 16% (mostly to
the socialist world). Argentina and Brazil: 10%. Mexico: 16%.
You have to turn to the classic small open economies to find
comparisons with Yugoslavia's exposure to the international markets.
Finland, New Zealand and Canada also export around 25% of GDP.
4) The consequences. According to the OECD reporting system (what's
handy tonight) , OECD net private capital flows to Yugoslavia crashed from
+$1 billion a year in 1980 to minus $50 mill in '82 (things were to get
worse). Exports markets likewise crashed in the world recession. In the
1980s over 70 "developing" countries experienced negative *cumalitive*
growth. Yugoslavia was simply one of them.
>On Wed, 26 Mar 1997 17:07:35 -0800 (PST) Paul Altesman
><[EMAIL PROTECTED]> wrote:
>
>
>> Thanks for your quick response, but it leaves me a bit perplexed.
>>
>> The vast majority of Yugo's debt in the '80s was from commercial banks
>> making commercial loans to industrial enterprises (initially without
>> sovereign guarantee) - the same type loans made to Latin America and made
>> for the same reasons. How can this be the "same old soft budget constraint
>> problem" found between Socialist enterprises and their central planners for
>> natl. currency budgeting? Clearly the dynamics are different (obviously
>> the lenders' motives were profit in an overheated international lending
>> climate; the borrower certainly new that Chase Manhattan was not a soft
>> lender) and fall squarely in the classic international financial crises
>> scenario.
>>
>> The crisis for Yugoslavia (and Latin America) came precisely because this
>> was "good old hard debt" and had to be paid back in hard currency.
>>
>> Of course the *Banks* were treated to a sort of "soft budget constraint":
>> debtor governments succumbed to pressure to nationalize the debt guarantees,
>> eliminating the option of bankruptcy protection; lender cartels were formed,
>> eg the London Club, which helped block default as an option; and finally
>> some of the Bank's funds were replaced with IMF, World Bank and U.S Treasury
>> guarantees. All this ensured that any lender default would confront most of
>> the private and public power of the Western world. Can this unprecedented
>> pressure - leading to an unprecedented squeeze - really be called a soft
>> budget constraint?
>>
>> I agree that the foreign aid loans of the '50s, made to the Yugo govt, are
>> another matter, but by the '80s the remanent of these loans were a tiny
>> fraction of debt (they were never very large). Isn't it a critical point
>> that whatever its internal and intra-firm arrangements, in its international
>> economic arrangements (and its large international debt) Yugo had become a
>> full fledged member of the periphery - and was crushed by the usual forces?
>>
>> Paul Altesman
>>
>>
>>
>> At 03:07 PM 3/26/97 -0800, Rosser Jr, John Barkley wrote:
>> > The question of Yugoslav indebtedness is a complex one
>> >with Susan Woodward/Louis Proyect being at least partly
>> >correct that a lot of easy credit was given in the 50s
>> >essentially to pay Tito off for Cold War reasons and that
>> >the conditions of that changed later. However, the
>> >indebtedness continued to rise afterwards as well, and many
>> >argue that this is a tendency that can happen in market
>> >socialist economies. It is essentially the old soft budget
>> >constraint problem, which both Poland and Hungary
>> >experienced as well. State-owned firms that are not
>> >subject to central command planning find it easy to borrow
>> >from abroad, and may do so in large amounts, with the state
>> >as a whole owing this debt. In Yugoslavia this tendency
>> >became even more exaggerated as policy control became more
>> >decentralized to the republics over time, but ultimate debt
>> >responsibility remained centralized.
>> >Barkley Rosser
>> >On Wed, 26 Mar 1997 14:44:07 -0800 (PST) Paul Altesman
>> ><[EMAIL PROTECTED]> wrote:
>> >
>> >
>> >> At 09:40 AM 3/26/97 -0800, [EMAIL PROTECTED] wrote:
>> >>
>> >> >.....
>> >> >Re the analysis of Yugoslavia outlined by Louis, it certainly doesn't
>> >> >appear much like what I saw in Yugoslavia over the last 10 or so
>> >> >years. Ferfila and I give a much different interpretation in our
>> >> >book *The Rise and Fall of the Third Way: Yugoslavia 1945-1991*. In
>> >> >fact, one of the causes we cite for the collapse of the country was
>> >> >the imposition of utopian schemes by the top theoreticians (e.g.
>> >> >Kardelj in particular) rather than working through praxis to modify
>> >> >the system. However, the whole argument is too long to present here.
>> .....
>> >>
>> >> I find your analysis of present day Slovenia interesting, but when
>> >> discussing the former Yugoslavia most analysts seem to forget that through
>> >> the 80s the then Yugoslavia was among the "10 most debt-distressed"
>> >> countries - and received even less debt relief than most others.
Virtually
>> >> all of the "top 10" suffered a massive economic collapse that lasted
longer
>> >> and deeper than the Great Depression of the '30s. Surely Yugo.'s economic
>> >> collapse had much to do with the way the international system "worked" to
>> >> impose deflationary solutions - rendering the wisdom or folly of national
>> >> policy an academic question.
>> >>
>> >> In most of the debt-stricken countries the economic collapse put enormous
>> >> pressure on the political systems (sometimes not for the worse). But
IMHO,
>> >> for Yugoslavia the callousness of the intl. system and the economic
collapse
>> >> contributed directly to the rise of virulent ethnic nationalism and human
>> >> tragedy. Sadly, most of the media played to "ancient rivalries" as an
>> >> explanation (for Africa they say "tribal conflict"), but in truth this is
>> >> not the first time Europe has seen ruinous neo-classical "solutions"
produce
>> >> murderous nationalist regimes.
>> >>
>> >> Paul Altesman
>> >>
>> >> (P.S. I recall that a while back Diane Flahrety an useful article in the
>> >> Camb. J. of Eco. on policy errors of the Yugo models - a yet different
>> >> interpretation of the various approaches tried and their failures.)
>> >>
>> >
>> >--
>> >Rosser Jr, John Barkley
>> >[EMAIL PROTECTED]
>> >
>> >
>> >
>>
>
>--
>Rosser Jr, John Barkley
>[EMAIL PROTECTED]
>
>
>
