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ZAPP: Former Yugoslavia: 24 years after the breakup

Last month, my daughter Tara and I returned to former Yugoslavia to visit old friends and assess the new economies almost a quarter century after the country of southern Slavs started to disintegrate into seven different nations.

I had written my dissertation on the Yugoslav economy, led study groups in the ’70s and ’80s and worked there as a financial consultant in the early 1990s until war destroyed the country. Tara traveled with me on most trips there and worked for the International Commission on Missing Persons in Sarajevo, Bosnia, in ’06 and ’07.

We landed in Slovenia, a country with 2 million people bordering Italy and Austria. As part of former Yugoslavia, Slovenes produced almost half of the country’s exports to the West while having only 8 percent of the population. Today they export about 60 percent of their GDP and have the highest GDP per capita of the new countries, just under $30,000 (compared to just over $50,000 in the USA).

Physically, Slovenia is stunningly picturesque. From the southern Alps to the Adriatic Sea, the countryside blends the green beauty we expect in Switzerland with the rustic villages of Italy. The capital city, Ljubljana, attracts tourists with its 12th Century castle overlooking cobblestone streets, baroque architecture and cafes along the Ljubica River.

The rosy picture, however, hides a troubled economy. Their growth of GDP averaged only 0.2 percent since 2010 (though it did increase to 2.6 percent last year). Bad loans by their largest bank forced the government into expensive bailouts, draining resources from regular government programs.

According to Jurij Kleindienst, former corporate CFO, the bank’s board adopted an incentive program which rewarded their president for expanding its assets. Consequently, the bank pushed loans on favorable terms to firms that were damaged by the global recession of ’08-’09. The bank president walked away with a million Euro bonus while the bank suffered a billion Euro loss.

Our train to Zagreb, Croatia, usually an uneventful 2.5 hours, was almost cancelled by the influx of migrants from the Middle East. Slovenia refused to send its train there in fear it would return with uninvited guests at the border.

Though critical of the harsh response by the Hungarian prime minister (who was building a barbed wire fence), many Slovenes voiced irrational fears about the invading hoards.

At the last minute, a train took us to a Slovene village near the border from which buses drove us into Croatia via a crossing south of where the migrants were massed. We did not see any of them in the Croatian capital.

Zagreb, home to more than 750,000 people, feels vibrant. Everywhere, people are in outdoor cafes socializing with friends over expresso or adult beverages. Again, the image is misleading. Dubravka Kunstek, former librarian at the Economic Institute, explained that many of these people are unemployed and sit for hours over one coffee.

Croatia’s economy has been shrinking. Since 2010 its GDP has fallen by 1.1 percent annually. Their GDP per capita is slightly more than $20,000.

The country’s primary source of foreign exchange is tourism. There may be no more beautiful place for sun, water sports, seafood and historic cities than the Adriatic coast of Croatia. George Bernard Shaw called Dubrovnik “the Pearl of the Adriatic.” Swimmers off the island of Korcula can see 20 meters below the surface.

But as all Savannahians understand, tourism pays low wages and much of the spending goes to out of town (or foreign) hotel owners. As is true with Greece, Croatia does not have major exports, so their low value currency (the Kuna) does not offer much economic stimulation.

The global recession produced budget deficits that were covered by the government borrowing from the country’s dwindling pension funds. Many large firms had been sold to friends of Croatia’s first democratically elected president, Franjo Tudzman, leaving most people with little stake in the new economy. The path to economic growth is not clear.

Our next stop was Sarajevo, known to many as the Jerusalem of Europe. The train from Zagreb to Sarajevo traverses land that experienced terrible fighting and the ethnic cleansing of the Bosnian War. Serbs forced Muslims (who call themselves Bosnians) out of the villages into Sarajevo. Their places were taken by Serbs who had been forced out of Croatia.

My first surprise was how little the countryside had changed since my time there in the 1970s. Agriculture was never collectivized under Tito. West Virginia-like topography and socialist laws, however, had kept privately owned farms small and inefficient. Other than a few newer cars and an occasional solar panel, little modernization was visible during the 10-hour ride.

We arrived after sunset in a dark train station with no shops or services available. Luckily our taxi driver worked in all currencies (at exchange rates in his favor). Our hotel sat on the Miljacka River in the old market center called Bascharsija. For an extra 10 Euros a night we had a huge balcony facing an old mosque and the high hills that circle the city.

Steps from our hotel we were surrounded by revelers celebrating the end of another Muslim fast, the second Bajram.

The crowded, narrow streets share a feeling with the French Quarter in New Orleans. Sarajevo has ten times the number of eateries and cafes I knew back in the late 1980s. My second Bosnian surprise was that half or more of these places were alcohol free. Under Tito, Muslims shared the city with Catholic Croats and Orthodox Serbs with no group dominating the others. Now they are the majority and proudly practice their religion openly.

The Muslim influence also extends to the make-up of tourists who visit the city. Two-thirds of our hotel guests came from the Middle East with most women covered head to toe.

Tara realized the hope for the future she experienced during the previous decade felt lost or on hold. We were glad to learn that Tara’s friends now travel freely to Croatia and Serbia, indicating that the cultural barriers from the wars were lessening.

The euphoria of independence and rebuilding of the city had been replaced with the realities of a weak economy that has suffered serious brain drain. Educated professional left for better opportunities elsewhere and were replaced by unskilled people from local villages. Though Bosnia has experienced modest growth of GDP since 2010 (averaging 0.8 percent annually), their GDP per capita is only slightly above $10,000, one fifth of our American level, one third of Slovenia and half of that realized by Croatia.

Much of Bosnia’s growth comes from extraction industries that are capital intensive and do not employ many people. The continued division of the country into Serbian territory (Repubika Serbska) and the Croat-Muslim federation results in governmental inefficiency and does not present the stability required to attract foreign investment.

Overall, the transition from the market socialism of Tito’s Yugoslavia to market capitalism of the new nations has had positive and negative effects. Most evidently, customer service has vastly improved. Increased competition does this. Also, young people with education and drive find professional careers as consultants and technical experts serving domestic and foreign firms alike.

Less positive are the expansion of differences among social classes and vestiges of crony capitalism that seem to plague all transitional economies. A widow we know in Croatia receives a pension of 400 Euros a month, not enough to sustain life.

The old Yugoslav proverb says “tell the truth and run.” More than ever, the nations of former Yugoslavia need to tell the truth and stay in the conversation.

 

Kenneth Zapp is a professor emeritus at Metropolitan State University and a mentor for SCORE Savannah. Contact him at Kenneth.Zapp@metrostate.edu.

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