Half Karl & Half Groucho

Some Western visitors have remarked that Yugoslavia is a 100% Marxist country--50% Karl and 50% Groucho. With comic indecision, its economic planners have bobbed between ironhanded Communist controls and fleeting flirtations with capitalism. The results have not been happy. Yugoslavia's economy has been in almost constant chaos, punctuated by frequent crises of inflation, deflation and devaluation. Now it is in another economic bind. Unemployment is rising; the country is hard-pressed to meet a $1.3 billion foreign debt coming due this year, and Josip Broz Tito, the durable dictator, admitted recently that some factories are operating at only 40% to 50% of capacity. The source of these headaches is an ailment more frequently connected with capitalist than with Communist countries: inflation.

Moonlight & Shadows. From the sullen cities of Serbia and Croatia to the sunny villages of Dalmatia prices are the prime topics of conversation in Yugoslavia. Resort operators grumble that soaring costs will dampen the $90 million-a-year tourist trade. The cost of living, up 19% last year, spiraled another 9% in 1965's first quarter. The hardest hit was food, which has risen an average 30% in the past year; such items as beef, pork, apples, potatoes and top-quality slivovitz (plum brandy) have jumped between 50% and 100%. Prices have also risen for everything from haircuts to shirts. Though wages have risen by one-third (to an average $53 monthly), many people have to moonlight to make ends meet. The latest tale wagging around Belgrade's coffeehouses has a teacher asking a pupil why Tito holds three jobs, as chief of army, state and party. Answer: nobody can live off one job in Yugoslavia.

The current troubles stem largely from Yugoslavia's halfway attempts to liberalize part of its economy while tightly controlling the other part. In a move to decentralize industry, the government last year gave local managers a louder voice in making wage, price and investment decisions. The bureaucrats in Belgrade still held on closely to their control of such big and inefficient sectors of the economy as agriculture, railroads, coal and electricity. Hoping to make those sectors less unprofitable, the government boldly raised prices for their products and services. With that, the newly powerful local managers began falling all over themselves to hike their own prices--and the inflationary romp was on.

Cutbacks & Layoffs. As it often does, inflation gave the ailing economy a deceptive look of health. Last year the value of industrial production rose 16%, investment 29% and retail sales 22%, partly because consumers scrambled to convert their depreciating cash into durable goods. There has also been a burst of new building in Belgrade.

Beneath this veneer, however, Yugoslavia began to price itself out of world markets; its trade deficit rose to a record $424 million, draining off the country's scant reserves of foreign exchange. Many factories were forced to halt imports of raw materials, slow down production lines and lay off workers. Faced with creeping unemployment and mounting foreign debts, the government has turned westward for help on two fronts: it is exporting tens of thousands of workers to temporary jobs in labor-short Western Europe, and it is shopping for loans in the U.S. and elsewhere in the capitalist world.

In a belated attempt to brake inflation, the planners have recently boosted interest rates from 6% to 7% and decreed that consumers cannot carry more than one installment debt at a time. Most important, they have frozen the prices of food, most other consumer goods and industrial products. Though the bureaucrats contend that the freeze is only temporary, a bothersome question vexes Yugoslavia's liberal economists: Will the pressures of inflation give the old-line Communists an excuse to retreat to even tighter controls?

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