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. In Yugo this got exacerbated as republic
governments pumped out subsidies for their local firms,
counting on the central government to ultimately bail them
out. This need for subsidies also exacerbated central
government budgetary problems and fed in inflation, as in
Yugo and Poland.
BArkley Rosser
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]
