To send content items to your account,
please confirm that you agree to abide by our usage policies.
If this is the first time you use this feature, you will be asked to authorise Cambridge Core to connect with your account.
Find out more about sending content to .
To send content items to your Kindle, first ensure firstname.lastname@example.org
is added to your Approved Personal Document E-mail List under your Personal Document Settings
on the Manage Your Content and Devices page of your Amazon account. Then enter the ‘name’ part
of your Kindle email address below.
Find out more about sending to your Kindle.
Note you can select to send to either the @free.kindle.com or @kindle.com variations.
‘@free.kindle.com’ emails are free but can only be sent to your device when it is connected to wi-fi.
‘@kindle.com’ emails can be delivered even when you are not connected to wi-fi, but note that service fees apply.
In October 1991, Slovenia launched its new currency. High inflation was immediately attacked by drawing money out of the economy. Stabilization policy was implemented with restrictive monetary policy and fiscal policy of a balanced budget. Stabilization policy went hand in hand with a restructuring of the real and financial sectors and permanent sterilization efforts. In addition to a wholesale reshaping of the economy, a voucher system of privatization was introduced.
Stabilization resulted in a steady calming inflation. By the end of 1995, it had dropped to around 0.7 percent per month. The economy started to pick up; after the first two years of stabilization, it started to grow at around 4 percent per year. The economy ran high surpluses in current account till 1995; afterward current account balance became negligible. Foreign-exchange reserves increased even more because of significant inflows of foreign capital. The policy makers were mostly concerned by pressure from costs of wages and interest rates; those costs were high permanently. Wages increased over 29 percent in real terms (GDP only 12%) to 1996, while interest rates started to fall from the level of around 15 percent for real lending interest rates only after the first half of 1994. Stubbornly high real interest rates are known in other stabilization episodes. In Chile, for example, interest rates soared in real terms to over 48 percent per year during the financial liberalization period; in Israel, the marginal real interest rate attained over 35 percent, on average, during the first two years of stabilization. Rocketing of real interest rates was especially pro- nounced in the economies where stabilization was combined with massive deregulation and the opening of the financial sector.
Immediately before Slovenia introduced its new currency in October 1991, the country faced huge internal and external disequilibrium as well as complete monetary disorder. Inflation was running about 20% per month, while production was plummeting 12% per year. The collapse of the Yugoslav market cut total sales by over 15%, while political risks blocked access to foreign credits. Hence, before “standard” steps toward transition to a private market economy could be taken, macroeconomic stabilization measures were badly needed to stop runaway inflation and mitigate effects of the collapse of Slovenian markets.
Macroeconomic stabilization is usually given the highest priority in the context of sequencing considerations (see Fischer and Gelb 1990). In the case of Slovenia, the paramount role of price stabilization was reinforced by the fact that creation of a new currency was the very process of establishing the credibility of a new state. Nevertheless, price stabilization was only one of two basic objectives of the monetary reform and foreign exchange–regime changes adopted in October 1991.
After the Yugoslav market fell apart, the Slovenian economy became highly open. Its foreign trade ratio climbed over 1.15, and imports of raw material alone exceeded 25% of GDP! In September 1991, with foreign exchange reserves (net of short-term debt) for only four days of imports, production was on the brink of collapse.
Email your librarian or administrator to recommend adding this to your organisation's collection.