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Causes of Yugoslavia's Inflation

The causes of Yugoslavia's hyperinflation stem from conflict in the region, local economic crises and governmental mismanagement.

Following a recession sparked by excessive overseas borrowing and a block on exports in the 1970s, the country and region was mired in conflict and political struggle throughout the '80s and early '90s. After accepting an IMF loan following a deep recession, in 1989 and 1990 over 1,100 firms went bankrupt and in a workforce of about 2.7 million, more than 600,000 workers were laid off. In addition, some companies seeking to avoid bankruptcy stopped paying workers for the first few months of the year, affecting an estimated 500,000 individuals.

The Yugoslav Wars, the breakup of the state and general destabilization of the region were major contributing factors to hyperinflation. Government mismanagement, including ill-conceived economic policies like unrestrained printing of money, generation of large deficits and price setting exacerbated the situation greatly.

Price controls were specifically troublesome. Enacted by the government, they presented disincentives for farmers who could no longer profit from selling their crops and as a result, stores closed to save their inventory instead of selling at artificially low, government-set prices. The government also began buying items from overseas instead of removing price controls and alleviating the country's supply, distribution and monetary problems. As supply shrank dramatically, prices exploded as goods became increasingly scarce.

In the case of Yugoslavia, the drastic imbalance of supply and demand, combined with an faltering government and unchecked printing of currency were the root causes of the country's massive inflation.

Photo: Malcolm Linton | Getty Images News | Getty Images