Copyright 1982 The Financial Times Limited   
                                    Financial Times (London) 

                                     June 1, 1982, Tuesday 

SECTION: SECTION II; Financial Times Survey; Yugoslavia III; Pg. 29 

LENGTH: 1380 words 

HEADLINE: Kosovo riots jolt the regions 

BYLINE: David Buchan / D.B. 

HIGHLIGHT: 
Problems are compounded by a lack of unity in the Yugoslav market 

BODY: 

But the nationalities issue will never be really settled until the regional problem is. With the poorest region (Kosovo) having one-sixth of the average income of the richest (Slovenia), vast differences remain. The problem is compounded by lack of unity in the Yugoslav market.

To let the nationalities "do more of their own thing," wide economic powers -- from investment planning to foreign currency allocation -- have been devolved on republics and provinces. The result is something like eight economies. This has left the federal authorities in Belgrade a thin line to tread: between appearing to hold back a relatively rich region, which sparked the 1971 outbreak of Croatian nationalism and which frets Slovenes now, and letting a poor region fall too far behind, which underlay the outburst in Kosovo last year.

Kosovo has given many Yugoslavs a nasty jolt that the nationalities-cum-regional problem may be getting worse, not better. The bloody riots that erupted in March-April 1981 in the streets of Pristina, Kosovo's capital town, have not been repeated since. But the calls by some of the province's million ethnic Albanian majority for Kosovo to be a full republic have not totally subsided either. With a couple of smaller protests this spring, police and militia are still in force there, and a total of 280 people have been locked up in the past year or so.

The elevation of Kosovo from a province loosely attached to Serbia to full republican status might seem a harmlessly small step to most non-Yugoslavs. Kosovo already largely runs itself. As a province it has slightly fewer representatives at the federal level than a republic, but has a blocking veto over most major decisions.

But fears by other Yugoslavs of such a change are also easy to see. Albania, with its powerful radio Tirana transmissions and whirring presses, has weighed in to accuse "Great Serb chauvinism" of once again trying to deny Kosovan Albanians their just rights.

This has confirmed many Yugoslavs in their suspicion that "republican" demands are the thin end of a wedge that would split Kosovo off into the waiting grasp of President Enver Hoxhas of Albania. Short of that, it is probably the case that a change in Kosovo's status would set off other centrifugal forces in Yugoslav society.

Wide gap

The root, however, of Kosovo's discontent is economic, and its plight is but the severest of these less-developed regions, which are very roughly to the south of the Sara and Danube rivers, the limit of the old Turkish occupation. Thus, Kosovo has a per capita gross national product of 31 per cent of the Yugoslav average, Bosnia-Hercegovina 66 per cent, Macedonia 65 per cent, Montenegro 80 per cent, Serbia 96 per cent. Roughly to the north of those rivers formerly under Austrian rule, is Voyvodina with 121 per cent of the national average, Croatia with 126 per cent and Slovenia with 198 per cent.

The gap was not always this wide. Between 1947 and 1980, the underdeveloped regions rose from 30 to 37 per cent of the population, but their share in national net social product (a measure of physical output that excludes services) fell from 23.4 per cent to 21.6 per cent and in per capita terms this meant a drop from 77 per cent to 58 per cent of the national average.

This is despite a transfer of resources from richer areas to poorer by means of the Yugoslav regional fund set up in 1966. All Yugoslav companies pay 1.8 per cent of their income into this fund which then backs investment projects in the under-developed regions. The federal government also creams off 0.8 per cent of republics and provinces incomes to boost social services for the poorer areas.

In fact, Kosovo's particular problems have not gone unnoticed by the regional fund's administrators who have steadily increased the share going to the province, from 30 per cent of the total in 1966-70 to 42 per cent in 1981-5. But the effort clearly failed -- for reasons, some of which are special to Kosovo and others typical of the whole underdeveloped region. In the opinion of Mr Dragan Vasiljevic, the fund's assistant director, they include diversion of capital investment funds into operating social services for an expanding population, investment into energy and extractive industries, products from which were kept artificially low in price by the federal government, and production of other goods poor in quality and design.

Perhaps another reason for Kosovo's current problems might be added. For cultural reasons relatively fewer Albanian Kosovans have felt inclined to up sticks and move to richer pastures. Migration has been Yugoslavia's traditional safety valve -- both to western Europe, and to other parts of Yugoslavia.

The biggest internal migration has, for instance, been from Bosnia to Slovenia. But there is now a net "reflow" of some 25,000 Yugoslavs a year from countries like West Germany, and with housing shortages and slowing economies, the richer Yugoslav republic no longer want fresh labour in the quantities they once did. So, if the labour cannot go to the jobs, the jobs must come to them.

But that is precisely the problem. A unified market, in terms of a free flow of capital and goods, barely exists in Yugoslavia, as countless officials and businessmen will attest. The republics and provinces have used, or misused, their economic autonomy won in the 1970s to try to create the infrastructures of mini-states.

Mr Edo Rasberger, a Slovene, for instance, says it makes sense for each region to have its own separate oil products distribution to ensure its fair share; he runs Petrol, a company that does just that for Slovenia. But he points out that it makes no sense for each Republic to try to build its own refinery, as they are doing, when the country's existing refineries are working way below capacity. Mr Ivan Racan, a leading Croatian communist, complains of the economic nationalists in his republic who wanted to build an unneeded Zagreb-Split highway (in preference to a vital new Zagreb-Belgrade route) simply because it was within Croatian boundaries. He sees in the current climate of austerity a welcome chance to axe similar prestige follies.

Dr Ljubisav Markovic, a leading federal parliamentarian, notes that republic contracts often do not get out to competitive tender but go to local companies, creating local monopolies. Mr Pavle Gazi, secretary of the federal communist central committee, says that in present circumstances, key raw materials like iron ore or coal have stopped circulating freely because some companies would rather export them than ship to another republic.

Major effort

On top of this, the country's foreign exchange market had virtually collapsed as companies hoarded foreign exchange even when they did not need it, for fear of not being able to get it back again to buy imports.

This Balkanisation of the economy has serious national consequences in terms of competitivity and inflation, and the flow of resources from "have" to "have-not" regions inside Yugoslavia.

Luckily, something is being done about it. First, there is a major effort under way to reform the foreign exchange market by requiring a compulsory pooling of foreign exchange so that the poorer regions of the country which do less exporting get some share. Second, half of the regional fund is now available on very easy terms (14 years repayment at 4.2 per cent for most underdeveloped regions and 17 years at 3 per cent for Kosovo) to back joint ventures between companies in the rich north and poor south of the country.

The aim is to get the more efficient companies from Yugoslavia's richer areas to lend a direct hand to those in Kosovo and elsewhere and in the process to get both to think more "nationally."

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