834707319

3. THE INSTITUTE OF ECONOMIC STUDIES¹ JUDGMENT OF THE

ECONOMIC SITUATION IN OCTOBER 1969

The text which follows represents the first part of the cited memorandum.

In the fifth year after the inception of the economic reform the fol-lowing phenomena can be observed:

1.    Administrative price control covers 44% of industrial production compared with 31% in 1958. Reduction of control from about 70% to 44% lasted a fuli four years, and further liberalization of prices is halted.

2.    Prices are rising faster than before the reform. The increase is accelerating.

ANNUAL RATĘ OF GROWTH

1952-1963. 1964. 1965.	1966.	. 1967.	1968.	1969. I-IX
0,9 5 15	11	2	0	2.6
3,9 9 29	23	7	4	6,9

Producers’ prices of industrial products

Retail prices

3.    The dinar is being devalued by open and hidden customs duties and premiums. The import ratę of exchange for industrial products increased from 13.9 in 1966 to 14.3 dinars to the dollar in 1968 and is rising further sińce then.¹⁵ For the sake of better understanding, it should be added that, contrary to widerspread views, exchange ratę ingredients are desirable economically because they make it possible for a fixed exchange ratę to become flexible. What is not desirable is the continued depreciation of the exchange ratę ingredients. which had to occur because of price rises on the domestic market. And that was carried out under pressures, inconsistently and, because of that, ineffectively.

4.    When at the beginning of 1967 close to a fourth of imports was liberalized - and a similar proportion was also liberalized by the reform of 1961 - it was anticipated that this proportion would constant-ly increase and that in 1970 payment for the entire value of imports would be freed of all legislative foreign exchange limitations. In fact, however, the extent of liberalization of foreign trade was reduced. From 1967 to 1969 imports under the liberalized regulations were reduced from 39.2% to 33.6%, and under the restrictive regulations increased five times (from 4.5% to 20.3%).

5.    Imports are increasing faster than exports, 21.6% compared to 17% for the first nine months of this year (1969). Instead of the anticipated equilibrium balance of payments with the convertible area, this year a deficit of over 150 million dollars can be expected.

¹⁸ From 1965 to the end of 1969 the average export exchange ratę increased from 11.1 to 14.5, and the average import exchange ratę from 11.3 to 13.4 (J. Ana-kioski, »Spoljnotregovinska razmena i płatni bilans«, Borba (Sept. 19, 1970), p. 21.

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