Yugoslavia’s Government Resigns : Rejection of Economic Plan Brings Down Mikulic Cabinet

The government resigned Friday in reaction to mounting criticism of its handling of an economic crisis, the first regime to fall since the Communists took power after World War II.

The move represented a further break with the legacy of President Josip Broz Tito, founder of Communist Yugoslavia and its undisputed leader until his death in 1980.

Premier Branko Mikulic told Parliament that he and the entire 31-member Cabinet stepped down because legislators refused Wednesday to pass an economic law needed to ensure continued support from the International Monetary Fund.

Mikulic, a 60-year-old economist and Tito ally who took office in May, 1986, will stay in office as a caretaker premier until the nine-man federal presidency names a new government in January.

The past month has seen the premier exposed to a chorus of demands for his resignation. The regional assemblies, notably in the most prosperous republics of Slovenia and Croatia, blocked his proposed economic reforms, while the media, trade unions and striking workers accused him of ineptitude in managing an economy saddled by rampant inflation, a large foreign debt and plummeting living standards.

Observers said the resignation leaves the country in an atmosphere of unprecedented political and economic paralysis. When he took office in May, 1986, Mikulic inherited an annual inflation rate of 85%, which now stands at about 250%. Wages have dropped by a quarter in real terms this year, living standards are thought to have fallen to the level of the 1960s and ethnic tensions have boiled over this year among the country’s six republics.

But in presenting his resignation, Mikulic offered a vehement defense of his policies.

“The government appears to be guilty for finally lifting the lid from mistakes of the system in the past decades. It has been asked to correct them in only 2 1/2 years,” he said.

The main question raised by Mikulic’s departure concerns the fate of his economic reform package and the reaction of foreign creditors to a possible halt in repayments of the country’s $21-billion foreign debt.

Mikulic’s package of about 40 laws, aimed at turning a centrally planned economy into one more responsive to the market, was to take effect next week. Now, left with no budget, officials are expected to run the country’s finances by decree until the next government can agree on a budget. That could take months.

The reform package, drawn up in May with the endorsement of the International Monetary Fund, was intended to ease state controls and to curb wage increases and inflation. There was much speculation here Friday night on how the IMF would react and whether it would stand by the debt-rescheduling and loan agreements that were contingent on the reform package.

“The entire process of economic reform on which a recovery depended is now in jeopardy,” a Western diplomat said. “And so are relations with the International Monetary Fund and Western creditors, whose present arrangements for Yugoslavia were based on the assumption that the reforms would go ahead.”

Other observers felt that the Western financial agencies, with tacit U.S. backing, would be unlikely to rock the Yugoslav boat even further by threatening to abrogate the agreements.

The rejection of Mikulic’s budget for 1989 came after the northern republics of Croatia and Slovenia called for a reduction of spending. Two-thirds of the $4.5-billion budget was for the army and much of the rest was for helping the country’s underdeveloped southern regions. Defense spending, now nearly 5% of national income, has been strongly criticized by the Slovenes and heatedly defended by the army’s generals, most of whom are Serbs.