1Demos won the first Slovenian party elections in April 1990, having previously declared itself for an independent and economically autonomous Slovenia. As early as March 1990, Jože Mencinger wrote that “with the demands for the secession of Slovenia, the economy is not much discussed, but if it is, two ‘truths' are asserted. According to the first one, after the secession, Slovenia would become ‘rich and organized like Switzerland' virtually overnight, while according to the second, the secession would be an ‘economic suicide'”.90 The Demos government meant a final farewell from the socialist economy, as the economic parts of Demos' party programmes clearly aimed at the transition to a capitalist economy, primarily emphasizing the final transition to a market economy, privatization and restructuring of the economy, as well as denationalization.91 With the Demos government, the process of the actual separation of the Slovenian economy from the Yugoslav one finally began in May 1990, lasting until December 1991. This process was divided into three periods by the economic historian Jože Prinčič.92 The first period lasted from May to December 1990. During this time, the government of Lojze Peterle was not paying special attention to economic questions, did not identify them as priorities or draw up a detailed economic programme, nor did it take measures to increase the independence of the Slovenian economy. Such an attitude to economic questions was the result of a coalition government. Nevertheless, as one of the leading Slovenian economic analysts, Velimir Bole, wrote, the “expansion” of the republic's economic policy indisputably began in the second half of 1990. The latter was largely coerced due to the unfavourable economic conditions created by the federal economic policy; what was crucial was the lack of financial security of the Slovenian economy, to a greater extent also the exchange rate policy and the increased tax burden. It was made possible by political changes in Slovenia and the disintegration of the legal regulation of management. The government put three goals at the forefront of the reform agenda:
2Jože Mencinger, Deputy Prime Minister of the Demos government, responsible for the economy, presented the policy of economic “survival” as a pragmatic adaptation to political decisions, federal economic policy and events in Yugoslavia and the world. The objective of such a policy was to keep alive as many companies as possible, regardless of their results. In his opinion, this type of policy was the best choice, as the macroeconomic framework in which the Slovenian economy operated at the time was abnormal and the powers of the Slovenian government very limited. The holders of economic policy focused their energy on finding solutions and taking measures for the “survival” of the Slovenian economy. They prevented bankruptcies by postponing the payment of liabilities to the republic budget, and they solved the problem of recapitalization and republic subsidies for net exports by issuing republic bonds. The government bought part of Iraq's debt and raised additional funds to help the unemployed, it controlled wages and enabled direct borrowing by Slovenian companies abroad. It also drafted regulations to limit illiquidity and increase the competitiveness of the Slovenian economy. The government's economic policy received much criticism, however. Not even the home economic profession spared it. The latter accused the government of tackling the problem of insufficient money supply of the economy “in a highly uncontrolled and unsuccessful manner”, namely that it was too late with regards to stimulating exports, withholding the federation's revenues and dealing with the public sector spending. The government was also reproached about doing too little to reduce the burden on companies.93 The economist Aleksander Bajt acknowledged that short-term measures were necessary in view of the situation in which the Slovenian economy had found itself, but he believed that it would be misguided to imagine that these measures were sufficient and that the economic policy did its share by adopting them.94 The government also neglected to regulate “standard” areas of the republic's economic policy. No significant changes occurred in 1990 in the area of personal income, contributions of overall spending and taxes to the republican and municipal budgets. The only thing speaking in favour of the government was that they were in a restrictive mood, which was convenient for the long-term establishment of the greater price competitiveness of the Slovenian economy. One of the problems was also that due to the strong attachment of the Slovenian economy to the Yugoslav government, the government further supported Markovič's policy for a few more months and, like some political parties, advocated gradual, long-term achieving of economic independence. It was not until August 1990 that the Slovenian government requested a change in the stabilization policy for the remaining months of 1990 with the Memorandum on Economic Policy and informed the federal government that it would begin to take measures to protect its economy.
1In 1990, the liquidity squeeze exceeded even the extreme limits that the economy had already experienced in the 1980s. Although both the liquidity crunch and the corresponding increase in the price of money are well-known phenomena in economies trying to curb very high inflation, a radical decrease in the money supply was unexpectedly painful for the Yugoslav economy, as it had become accustomed to very mild credit and monetary policy in previous years. In 1990, it was almost entirely obvious that the reduction in the cash supply had a direct and strong effect on prices and economic activity. The deviation of economic policy-makers from the set direction in the credit and monetary policy sector significantly contributed to the rapid deterioration of the stabilization programme. The effects of the stabilization programme for 1990 confirmed that despite the strong political loosening of the legal order, i.e. regardless of the fact that normal establishment of economic ties and other economic and political instruments was becoming increasingly difficult, economic policymakers held fairly effective levers of credit and monetary policy.95 In the time when economic policy-makers became more involved in politics, both in terms of making appropriate economic and political decisions as well as promoting political programmes and parties, economic performance began to deteriorate more and more unequivocally. As Velimir Bole wrote, in the first half of 1991, economic policy-makers could make economic and political moves in the short term (several months) almost independently of the functioning of the economic mechanism and independently of political events. There were two main reasons for this: at the beginning of 1991, the foreign exchange reserves of the National Bank of Yugoslavia were still satisfactorily large, and the issuing profit was also an inviolable source of funding for the federal budget at that time. These two reasons combined enabled the state to have internal and external liquidity, and through the exchange rate also a short-term impact on the market (prices and supply) of factors and thus on the commodity markets.96 During the economic depression in the early 1990s, the production of industries in Slovenia strengthened, which were increasing the price of their goods, exporting less and being taxed more. In these industries, employment deteriorated the least. They had more highly educated professionals in the structure of employees, and their production was more profitable, as it had a higher income per employee and a faster asset turnover than producers with poorer production results. The restructuring of Slovenian industry therefore took place in conditions of a severely disrupted internal (rising prices) and external (stagnation of exports) balance. In these circumstances, however, more profitable production with better utilization of labour and capital was strengthening relatively.97
2In the autumn of 1990, Yugoslavia virtually ceased to exist as an economic community. The federal state was no longer able to collect taxes, control the printing of money and prevent both the introduction of “customs” between the republics and the emergence of different economic systems within one economy. At that time, the potential economic advantages of Slovenia's secession began to outweigh its economic and social costs. Independence proved to be an emergency exit and a condition for transforming the economic system. However, at the time, it was still uncertain and unpredictable how this would be achieved.98 In December 1990, the Government of the Republic of Slovenia, in a hopeless situation, presented a document entitled Slovenia's Independence to the Assembly, which began with a suggestive question: “To risk or agree to a complete economic collapse?” It also provided a short answer: “To risk!” The decision to separate the Slovenian economy from the Yugoslav community had in fact been maturing for several years.99 December 1990 also marked the beginning of the second and most important period of the withdrawal of the Slovenian economy from the Yugoslav system, which lasted until 25 June 1991. In the first days of December, the government discussed several reports analysing various aspects of Slovenia gaining independence. It presented the common findings in a material entitled Slovenia's Independence. Among other things, the material contained the statement that there were no more reasons to persist in the Yugoslav community and that the government had made the economic independence as their primary objective. The process of gaining actual economic independence began in January 1991, when Slovenia, by introducing its own system of direct taxes and federal budget participation fee, fiscally excluded itself from Yugoslavia and withdrew from the rehabilitation of the banking system at the federal level. With the adoption of constitutional amendments in January and February, it largely excluded itself from the federal legal system. In March, Slovenia introduced a flexible dinar exchange rate and created a temporary “quasi-foreign exchange market” by introducing the so-called registered foreign exchange positions, which were traded on the Ljubljana Stock Exchange. At the end of March, the government also adopted the budget and in April, the government coalition assessed that the preparations for independence should be accelerated, as an amicable secession was out of the question. It founded a project council, which was first headed by Lojze Peterle, then by Igor Bavčar, with Olga Jakhel as the coordinator. By the beginning of May 1991, the council had prepared an integral project of gaining independence, consisting of 14 sub-projects, which was to be implemented in three phases by 26 June. In May, the government introduced an alternative unit of account - SECU to reduce the negative effects of inflation and facilitate the introduction of Slovenia's own currency. By 25 June, the Slovenian National Assembly had adopted new regulations regarding the banking sector, foreign credit operations and the customs service, and had informed the Federal Assembly that it would begin the formal process of separation. The government adopted the Programme Theses for Slovenia's Economic Independence and prepared provisional money, i.e. vouchers, which it intended to introduce immediately after 26 June. However, as the Croatian government announced that it would not recognize them, the government decided to keep the dinars after 26 June and then exchange them with its own currency within a month or two. Mencinger prioritised the policy of “survival”, which meant adapting to the situation and finding solutions to everyday problems. The first detailed vision of economic development was presented by the government almost a year after the elections, in March 1991, in a document entitled Development Policy of Slovenia in the Early 1990s. The restructuring of the economy, the acceleration of organizational and technological renewal, the creation of new jobs and the reorganization of the economic structure were set as priorities. The government had enormous difficulties in reshaping the economic life and passing the legislation needed to transition to a market economy. At the beginning of June 1991, two analyses of the economic situation and economic flows showed that 26 June would not be the actual date when Slovenia's dream of economic sovereignty was to come true. Mencinger wrote in an expert article that the path to a full economic independence led through the resolution of economic problems and connections with other parts of Yugoslavia. The event that greatly resonated with the public was the appearance of the new Minister of Finance Dušan Šešok in the Slovenian Assembly on 5 June. He also warned the MPs that on 26 June the independence would only be “normative” and not actual, because all the conditions would not be met yet. As far as the economic field was concerned, Slovenia did not yet have its own money, sufficient foreign exchange reserves, recognition of the central bank abroad, and the division balance could also not be prepared until then. In mid-June 1991, businessmen also did not share optimism with politicians and the majority opinion. There were few who dared to claim that the revival of the Slovenian economy would begin with its independence.
3The third and final period began on 26 June 1991, when the federal authorities did not accept the decision of the Slovenian Assembly to secede from Yugoslavia, but declared it a unilateral, illegal and illegitimate act. The dark predictions came true. In addition to the material damage suffered by the Slovenian economy, economic contacts with the Yugoslav republics and foreign countries began to be severed in June 1991, which made it difficult to supply the reproductive materials, reduced foreign exchange inflows and halted production. In the following months, the economic situation worsened. Slovenia faced the accelerated loss of the Yugoslav market, the hostile behaviour of federal institutions and other republics, the hesitation of foreign economic partners and only declarative help from the foreign governments. The reasons why the economic downturn could not be stopped remained the same: reduced demand, poorer supply of reproductive materials, uncompetitive exports and rising prices, excessive tax burden on the economy and economic pessimism. The factors that contributed to the deterioration of financial results multiplied and intensified. Industrial production, investment volume, real wages, trade and links with the Yugoslav republics declined, while unemployment, inflation, the foreign trade balance deficit, the number of blocked giro accounts and bankruptcies increased. An already modest accumulation was further affected by an excessive increase in public spending. Foreign affairs greatly contributed to the fact that the Slovenian economy was drying up and becoming even more desperate in the second half of 1991.
4After the Ten-Day War and the already mentioned problems, the Brioni Declaration also had an impact on the economic field, which took more from Slovenia than it brought. Slovenia abandoned the implementation of the Declaration of Independence for three months. It therefore remained within the Yugoslav economic framework.100 It was written in the Economic Trends at the end of 1991 that “everything is not so black, but it is not certain that the government knows what it is doing.” In fact, there were some signs of recovery. Trade was satisfactory in 1991, but export competitiveness declined rapidly. The producers' prices were rising faster than retail prices. The state was not in favour of truly tightening public sector spending and stabilizing the economy. It also did not adjust the fiscal burden on the economy to its current performance. In November 1991, industrial production declined for the twelfth month in a row.101 In September 1991, Aleksander Bajt wrote an article with the significant title “It Would Be About Time to Do Something for the Economy!” He believed that all production, monetary and similar problems would be attributed only to Slovenia's independence, although in reality, they would be the result of ill-conceived economic policy.102 Until the end of 1991, the government and especially its prime minister were constantly criticized. Part of the responsibility for the fact that the Slovenian economy was helpless, forgotten in the corner and waiting to undergo an extensive revision was certainly borne by the government and its economic policy.103 One of the foundations of economic sovereignty is also a country's own money. Towards the end of 1990, the Slovenian government began to seriously consider the introduction of a parallel currency and on 11 January 1991, the Assembly of the Republic of Slovenia adopted a resolution requiring the preparation of regulations to protect the Slovenian economy and population from the consequences of the Yugoslav monetary system.104 After the end of the three-month moratorium tied to the Brioni Declaration, things finally started to move forward. On the night from 7 to 8 October 1991, the Slovenian Assembly passed the Currency Unit of the Republic of Slovenia Act.105 With this Act, the seventy-year-old dinar attachment of Slovenia to Yugoslavia came to an end. Slovenia received its own currency, the Slovenian tolar and stotin. The exchange rate between the Slovenian tolar and the dinar was 1:1, and 1:32 between the tolar and the Deutschmark. The exchange of dinars for vouchers began on 10 October 1991. The introduction of Slovenian currency finally turned the Yugoslav markets into foreign ones. This also altered the relationship between the government and the Bank of Slovenia; the latter became a state bank, answering only to the Assembly, and its main task became taking care of the strength of the currency.106 A system of regulated floating exchange rates was implemented for the new Slovenian currency, but the Bank of Slovenia rarely intervened in the foreign exchange market. This enabled the immediate internal convertibility of the Slovenian tolar and thus the elimination of the black market of foreign exchange. In 1995, the Slovenian tolar officially became a convertible currency.107
5The economist Ivan Ribnikar wrote that “due to the decentralized Yugoslav central banking system, the monetary independence of Slovenia was technically a relatively simple matter”. One of the characteristics of the newly formed monetary area was certainly its smallness. At the end of 1993, for example, there were approximately 113 billion Slovenian tolars in circulation in Slovenia, which was slightly less than one billion US dollars in value. This amounted to about 1/1000th of the money circulation of the United States, where 1,058.6 billion dollars were in circulation at the end of 1992, and around 1/25th of the money circulation of Austria, where 292.6 billion shillings were in circulation in September 1993. However, this smallness of the monetary field stems not only from the small number of people who use this money or from the size of the gross domestic product (GDP), which is supposed to express the volume of transactions and thus the amount of money needed for transactional purposes. Austria's GDP was only about 14 times larger and the USA's only 462 times larger than ours. There was more than twice less money in circulation in Slovenia as would follow from the size of GDP compared to the USA and Austria. This was an expression of the well-known fact that in Slovenia, individuals, companies and others had relatively less property in the form of money.108
1With crises as an integral part of economic life, the accumulated economic imbalances are solved and they are like a divide representing either an end or a beginning of a cycle.109 If a state successfully overcomes all the trials and predicaments imposed by a crisis, it can emerge as a winner with a more successful economy than before the crisis, which was certainly the aim of the young Slovenian state as well. The “double transition” - from a socialist to a market economy and from a regional to a national economy - was accompanied by a transition from an industrial to a service economy and by the collapse of large and the emergence of smaller companies. Prior to the declaration of independence in 1991, Slovenia was part of the Yugoslav federation with an economic system that was unable to ensure sustainable economic growth. As already mentioned, it began with the boycotts of Slovenian goods and continued with the non-payment of customs duties to the federal budget by Serbia and its intrusion into the monetary system, resulting in national turmoil and the war in Yugoslavia. First, the common Yugoslav market and the League of Communists of Yugoslavia as the only allowed political party disintegrated, followed by the break-up of Yugoslavia as a state.110 After the disintegration of Yugoslavia, five different monetary areas or five different economic and political areas were created. According to Neven Borak, three phases could be observed in the transition: the phase of disintegration, the phase of consolidation and the phase of rounding off the newly formed economies. As already mentioned, Slovenia was badly hit by the loss of the markets. The last and strongest blow to the Slovenian economy was caused by the narrowing of the former Yugoslav internal market. This blow was the third in a series of losses - the first two were related to the disintegration of the Council for Mutual Economic Assistance (COMECON) and the Gulf War.111 The decision for independence and the loss of the Yugoslav market was initially a severe shock and a great test for Slovenia, but over time, this turned out to be the necessary and extremely wise decision. As the economic historian Žarko Lazarević wrote, Slovenia “had to first leave Yugoslavia in order to reform and restructure its economy”. Over time, however, “the competitively strengthened economy enabled the ‘re-conquest' of the markets of the former Yugoslav republics”, which, like Slovenia, became independent states.112 In the economic field, the decision for an independent and sovereign state enabled Slovenia to take the economic policy into its own hands together with the responsibility for its own economic development. In contrast to the old planned economic system, it opted for the modern social market economy and economic integration into the European economic area. The economic developments followed a typical transformation pattern - first the predominant negative consequences of the introduction of market reforms, later the positive effects of macroeconomic stabilization, restructuring and reforms at the microeconomic level. During this period, the economy of the newly founded state was under additional pressure of building its institutions and the transition to a market and open national economy.113 This meant changes in the economic space, the prevailing coordination mechanism and social relations, as well as changes in understanding the role of social policy, market laws and political ideology.114 The transition to a market and national economy after 1990 triggered profound structural changes, characterized by:
2Slovenia had quite a few advantages in establishing a normal market economy compared to other socialist economies (Eastern European and other parts of the Yugoslav economy). As part of the former communist Yugoslavia, it was the wealthiest and most open socialist republic towards the West. With just under a tenth of the population, it controlled a fifth of Yugoslavia's gross domestic product and a quarter of total exports. The Slovenian gross domestic product was thus closer to that of Greece and Portugal and was almost three times higher than that of Czechoslovakia, Hungary or Poland.116 The fact that the ideological disintegration in Yugoslavia was not as sudden as in the Eastern Europe and that it was closely connected with economic reforms is highly important. The economy had many market institutes developed, the product prices and, in part, the production factors were more or less market-oriented, economic decision-making was diversified and so on. Due to its greater openness, the technological lag of the Yugoslav economy behind the market economies was also smaller than that of other socialist economies. In foreign trade as well, the Yugoslav economy was less tied to the Eastern Europe, which was crucial at the time of the collapse of the Eastern European market. In Slovenia, however, all the listed advantages over Eastern European countries were even more pronounced than in other parts of Yugoslavia. The second set of advantages that Slovenia had in the transition to a market economy included the size structure of the industry, geographical dispersion and the associated social stability of the Slovenian society, a smaller number of fatally wrong investment decisions and smaller impact of politics on the economy. As Jože Mencinger wrote in the first half of 1991, it was uncertain whether Slovenia would be able to use these advantages and opportunities for a successful transition to a market economy.117 As for the importance of the establishment of political parties and the first democratic elections, it was also positive that the election results established a fragile balance that forced both the government and the opposition to cooperate and seek compromises. The negative side, as Božo Repe pointed out, became apparent after gaining independence. The parties began to put their interests ahead of the national ones, “resulting in particracy118 in the 1990s, which (similarly as in Italy) became one of the fundamental characteristics of the Slovenian political scene”.119
90. Mencinger, Slovensko gospodarstvo [Slovenian Economy], pp. 490-495.
91. Babič, Predvolilni gospodarski program koalicije Demos [Pre-Election Economic Programme of the Demos Coalition], p. 186-187.
92. Prinčič, Borak, Iz reforme v reformo [From Reform to Reform], p. 594.
93. Prinčič, Borak, Iz reforme v reformo [From Reform to Reform], pp. 594-613.
94. Bajt, Aleksander. Zdaj bi pa že bil čas, da se kaj stori za gospodarstvo! [It Would Be About Time to Do Something for the Economy!]. Naši razgledi [Our Views], Vol. 40, No. 17, Institute of Economics, Faculty of Law, 13 September 1991 (Hereinafter: Bajt, Zdaj bi pa že bil čas [It Would Be About Time]), pp. 478-479.
95. Bole, Velimir. Denarno povpraševanje in monetarno stiskanje. Izkušnje iz 1990. leta [Money Demand and Monetary Squeezing. Experience from 1990s]. Gospodarska gibanja [Economic Trends], No. 212, 1990/12, Institute of Economics, Faculty of Law, pp. 23-33.
96. Bole, Velimir. Ekonomskopolitični pogoji v 1991 ali podajanje v neznano [Economic and Political Conditions in 1991 or Venturing into the Unknown]. Gospodarska gibanja [Economic Trends], No. 214, 1991/2, Institute of Economics, Faculty of Law, pp. 25-39.
97. Križanič, France. O zastoju gospodarske dejavnosti v Sloveniji [On the Stagnation of Economic Activity in Slovenia]. Gospodarska gibanja [Economic Trends], No. 225, 1992/2, Institute of Economics, Faculty of Law, pp. 23-41.
98. Mencinger, Deset let pozneje [Ten Years After], pp. 27-28.
99. Prinčič, Gospodarski vidiki [Economic Aspects]. In: Perovšek et al. (ed.), Slovenska osamosvojitev [Slovene Independence], pp. 33-56.
100. Prinčič, Borak, Iz reforme v reformo [From Reform to Reform], pp. 594-613.
101. Gospodarska gibanja [Economic Trends], No. 223, 1991/12, Institute of Economics, Faculty ofLaw, pp. 5-22.
102. Bajt, Zdaj bi pa že bil čas [It Would Be About Time], pp. 478-479.
103. Šušteršič, Politično gospodarski cikli [Political and Economic Cycles], pp. 222-232.
104. Borak, Neven. Denarne reforme [Monetary Reforms]. Ljubljana: Cankarjeva založba, 1998, pp. 245-252.
105. UL RS [Official Gazette of the Republic of Slovenia] (Hereinafter: Official Gazette of the Republic of Slovenia), 17I/1991-I.
106. Prinčič, Borak, Iz reforme v reformo [From Reform to Reform], pp. 611-612.
107. Pančur, Andrej. Uvedba slovenske denarne enote [Introduction of the Slovenian currency].In: Čepič, Zdenko et al. (ed.). Slovenska novejša zgodovina 2, Od programa Zedinjena Slovenija do mednarodnega priznanja Republike Slovenije 1848-1992 [Slovenian Contemporary History 2, From the United Slovenia Programme to the International Recognition of the Republic of Slovenia 1848-1992]. Ljubljana: Mladinska knjiga/Institute of Contemporary History, 2005, pp. 1361-1363.
108. Ribnikar, Ivan. Denar, denarna politika in bančni sistem [Money, Monetary Policy and the Banking System]. In: Splošni pogoji za gospodarski razvoj [General Conditions for Economic Development]. Ljubljana: Institute of the Republic of Slovenia for Macroeconomic Analysis and Development, 1995, pp. 235-248.
109. Lazarević, Plasti prostora in časa [The Layers of Space and Time], p. 237.
110. Urad za makroekonomske analize in razvoj - UMAR [Institute of Macroeconomic Analysis and Development - IMAD], Workbook (Hereinafter: IMAD, Workbook), No. 3, Vol. VIII, 1999, p. 3.
111. Borak, Spočetje ekonomske samostojnosti [Conception of Economic Independence], p. 203.
112. Lazarević, Žarko. Prostor, gospodarstvo in razmerja. Jugoslovanski ekonomski prostor in razmerja [Space, Economy and Relations. Yugoslav Economic Space and Slovenians]. Prispevki za novejšo zgodovino [Contributions to Contemporary History], Vol. XLIX, No. 1, p. 291.
113. IMAD, Workbook, No. 3, Vol. VIII, 1999, p. 5.
114. Borak, Neven. Slovenske transformacije: kontinuiteta v spremembah [Slovenian Transformations: The Continuity of Changes]. In: Borak, Neven, Lazarević, Žarko (eds.). Gospodarske krize in Slovenci [Economic Crises and Slovenians]. Ljubljana: Institute of Contemporary History/Association of Economists of Slovenia, 1999, pp. 261-276.
115. Zavod za makroekonomske analize in razvoj - ZMAR [Institute of Macroeconomic Analysis and Development - IMAD], Workbook (Hereinafter: IMAD, Workbook), No. 6, Vol. III, 1994, p. 2.
116. Kovač, Obsojeni na uspeh? [Doomed to Success?], p. 34.
117. Mencinger, Jože. Makroekonomske dileme Republike Slovenije [Macroeconomic Dilemmas of the Republic of Slovenia]. Gospodarska gibanja [Economic Trends], No. 217, 1991, Institute of Economics, Faculty of Law, pp. 25-35.
118. Particracy - a form of social regulation in which the parties have extensive control over the resources and decision-making processes.
119. Repe, Slovenci v osemdesetih letih [Slovenes in the 1980s], p. 81.