Ivana Stankovic

Master of Science Thesis 2005/06
KTH, Stockholm
system, plunged Yugoslavia’s economy into crisis. By 1985 the deepening crisis had reduced
living standards to low 1965 levels. Tito’s successors were unable to agree on and implement
any effective response, and the economic crisis expanded into social, political, and
constitutional crises.
Between April and December 1990, pressures generated by the collapse of Communist regimes
throughout Eastern Europe, and in some cases by liberals in their own ranks, forced the
regional Communist parties to agree to multiparty elections in all six republics. Nationalist
parties won the most votes everywhere. Communists won only in Serbia and Montenegro,
where they were also Serb nationalists.
The economy of Serbia and Montenegro entered a prolonged decline in 1989. Exacerbated by
the economic embargo imposed during the Bosnian war, the Federal Republic of Yugoslavia
(FRY) economy's downward spiral showed no real sign of recovery until 1995. GDP was
nowhere near its 1991 level, but the NATO bombing in 1999 of the basic infrastructure of the
country and many factories, as well as a renewed embargo caused a further huge drop in GDP
in relation to the 1991 level. In Dec 1993 the hyperinflation reached 3000% per month. The
largest banknote in circulation had a nominal value of 500 billion dinars. The period between
1993 and 1994 is known as ‘The Worst Episode of Hyperinflation in History’ (Appendix 1).
The first sign of an economic recovery occurred in 2001 after the removal of Milosevic on
October 5, 2000. A vigorous team of economic reformers has worked to tame inflation (nonenergy
inflation is less than 9% in 2002, down from over 120% two years earlier) and
rationalize the SCG economy. GDP, although only half of its 1997 level, is projected to increase
steadily in the near future. As of January 2005 GDP has "recovered" to 55-60% of its 1990
level, due to GDP growth of 8.5% in 2004.
The Serbian economy is still a disaster but improving with economic recovery from
reconstruction projects underway from the war, foreign aid support and a new relative political
stability. Today, 30 percent of the population lives below the poverty line as the Serbian
economy is only 50 percent that of its 1990 economy output level. The transition from the
former socialist model economy under former President Milosevic to a free market economy is
in progress. Privatization and Western style economic reforms including prices being freed,
reduction in tariffs, support for open trade and international investment are vital new elements
of the Serbian economy unlike the previous criminalized economy as it slowly gets dismantled.
Economic aid has played a major role with $2 billion USD already pledged in year 2001. 11
11 Data obtained from the Internet site: http://www.bankintroductions.com/serbia.html, retrieved 2005-
12-16
Ivana Stankovic
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