13358 YUGOSLAVIA and the World Bank Se'6" FL F 'V> ' IZ   WpfSAfl$ A kiW,Jt* 4) JW.4pMA rn.ow - VflAM  I e7PPW 9IIP  ud"q,  .n Aqp nqI4dv  I'  WINVWIV s1aLawo1II or ol ds o N , vnivoina PA0i I, J O.LLL OAOSO rnop;jJ LICI rnAOIflH UuO OCt' OJt'UtUON pdopa acr  __ - ' J .3 I gg  K ' I6Z U!POARA 60CZ  (uvLoon) (7' / \GvxDTrn  IUAOIS pdoI4dU ( Sfl ANt) 'itd jd LL6I) SIDIVGN&1Og 1VNOI1VN1NI -. - SIP1VGNflOfl WItlfldIti - - svUNflOe VINV1NOI 3JNIAO)LA SflONONOLflV - - S1VMAVJ I3NIAOad Sr1OWONOLflV UNV JVItlfld)HI 0 'IVflAYJ TiNOIJNN * A1VJiI SDNIAO)Id Sf1OIA4ONTOIflV c AV9NflH GNV SDI'IfIfldTI  nasnv VIAV'ISODflA ( -' 6I ISflOflV YUGOSLAVIA and the World Bank September 1979 World Bank 1818 H Street, N.W. Washington, D.C. 20433 Foreword On December 31, 1945 Yugoslavia joined 37 other countries in adopting the Articles of Agreement of the World Bank. The Interna- tional Bank for Reconstruction and Development, as it is formally called, was established to finance reconstruction in war damaged countries and to channel resources to the underdeveloped areas of the world. Apart from a few early loans for reconstruction, the Bank's activities have been concentrated entirely on fostering development in the developing countries. A strong partnership has grown between Yugoslavia and the World Bank, and today Yugoslavia ranks among the Bank's five largest bor- rowers, having received close to 60 loans totaling more than $2 billion. The World Bank helped Yugoslavia to meet the challenge of post-war development both through its lending program and its encouragement of structural reforms to assist development. Yugoslavia has experienced rapid economic growth and has become more integrated in the world economy, although problems of disparities between developed and less- developed regions still exist. Both Yugoslavia and the World Bank have undergone substantial changes during their 34-year association. Yugoslavia's economic and political system has evolved through several constitutions and other legislative reforms. A centrally planned economy has changed to a de- centralized one with a unique style of management, and the Bank has adjusted its operational approach to the country accordingly. The World Bank has grown to 134 member countries; and two affil- iates, the International Development Association (IDA) and the Interna- tional Finance Corporation (IFC), have been added. The emphasis of World Bank lending throughout the world has shifted to that of improv- ing the productivity and standard of living of the poorest people, espe- cially those in the countryside. This booklet examines the growth of the partnership between the World Bank and Yugoslavia. The challenges and achievements of devel- opment and the World Bank's contribution to the effort are described, and World Bank lending in each of the major economic sectors is exam- ined in the context of a number of individual projects. Hii Tim Cullen, author of Yugoslavia and the World Bank, is a member of the Information and Public Affairs Depart- ment of the World Bank. Cover Saws for cutting marble are included in equipment which has been pur- chased by the Ukras Marble Enterprise at Danilovgrad in Montenegro with funds provided by Investiciona Banka Titograd. The loan is part of the World Bank's Second Industrial Credit project which is assisting small and medium-sized industries in Yugoslavia's less-developed regions. Contents The World Bank vii Yugoslavia's Economic System-Self-Management and National Planning viii Introduction 1 1. Thirty-Four Years of Partnership: World Bank Helps Yugoslavia's Reconstruction and Development 3 The Early Years 3 The 1960's: World Bank Assistance for Yugoslavia's Modernization 4 Disparity Amidst Growth 5 World Bank Lending in the 1970's 8 2. Assistance to the Agricultural Sector 11 First and Second Agricultural Industries Projects, Macedonia, 1973 and 1977 12 First and Second Agricultural Credit Loans, 1975 and 1977 16 Agriculture and Agro-Industries Project, Montenegro, 1977 17 Bosanska-Krajina Agriculture and Agro-Industries Project, 1978 19 3. Assistance to the Transportation Sector 21 Highway Development 22 Railway Development 25 Port Development 28 4. Assistance to the Industrial Sector 29 Loans through the Yugoslav Investment Bank, 1967-1970 29 Kikinda Foundry Loan, 1973 30 IMT Tractor Loan, 1974 33 Industrial Credit Loans, 1974, 1976, and 1978 34 v1 5. Health and Environment: Sarajevo Air Pollution and Water Loans, 1976 38 6. Institution Building, Technical Assistance, and Yugoslavia's Contributions to the World Bank 42 Institution Building 42 Education and Training 43 Procurement Contracts for Yugoslav Enterprises 44 Yugoslavia's Contributions to the Resources of the World Bank 45 7. The International Finance Corporation in Yugoslavia 46 IFC Projects 46 IFC Strategy and Future Plans 48 8. Statement of World Bank Loans Annex I Statement of IFC Investments Annex II vi The World Bank The World Bank is a group of three main institutions, the International Bank for Reconstruction and Development (IBRD), the International Devel- opment Association (IDA), and the International Finance Corporation (IFC). The common objective of these institutions is to help raise standards of living in developing countries by channeling financial resources from devel- oped countries to the developing world. The World Bank, established in 1945, is owned by the governments of 134 countries. The Bank, whose capital is subscribed by its member countries, finances its lending operations primarily from its own borrowings in the world capital markets. Bank loans generally have a grace period of five years and are repayable over 20 years or less. They are usually directed toward developing countries at more advanced stages of economic and social growth. The interest rate the Bank charges on its loans is calculated in accordance with a formula related to its cost of borrowing. The International Development Association was established in 1960 to provide assistance for the same purposes as the Bank, but primarily in the poorer developing countries on terms that would bear less heavily on their balance of payments than Bank loans. IDA's assistance is, therefore, concen- trated on the very poor countries-mainly those with an annual per capita gross national product of less than $580 (in 1977 dollars). More than 50 countries are eligible under this criterion. Membership in IDA is open to all members of the World Bank and 121 of them have joined to date. The funds used by IDA, called credits to dis- tinguish them from Bank loans, come mostly in the form of subscriptions, general replenishments from its more industrialized and developed members, special contributions by its richer members, and transfers from the net earn- ings of the World Bank. The terms of IDA credits, which are made to gov- ernments only, are 10-year grace periods, 50-year maturities and no interest, but an annual service charge of 0.75% on the disbursed portion of each credit. Although legally and financially distinct from the Bank, IDA is ad- ministered by the same staff. The International Finance Corporation was established in 1956. Member- ship in the World Bank is a prerequisite for membership in the IFC, which totals 109 countries. Legally and financially, the IFC and the Bank are sepa- rate entities. The Corporation has its own operating and legal staff, but draws upon the Bank for administrative and other services. IFC has three principal functions: The first is to invest both in the form of loan and equity, in productive enterprises which have a private, commercial character. Unlike the World Bank, it does not require government guarantees; In addition, the Corporation brings together investment opportunities, for- eign and domestic capital, and experienced management; Finally, it seeks to stimulate and help create conditions conducive to the flow of domestic and foreign capital into productive investment in member countries. Since its establishment in 1956, IFC has steadily expanded its operations and has approved investments amounting to $2,528 million for 472 projects in 73 of its developing member countries. Domestic and foreign investors provided an additional $10,090 million, resulting in a total cost of IFC- assisted projects of $12,618 million. vii Yugoslavia's Economic System- Self-Management and National Planning Yugoslavia's economic system allows for an integration of workers' decision-making and macroeconomic coordination. Through a system of elected delegates and a consultative planning process, workers, political or- ganizations, and government assemblies at local, republic and federal level all participate in economic decision-making. A balance also is struck between reliance on market forces on the one hand and economic planning on the other. The key elements of the system are described below. Basic Organizations of Associated Labor At the heart of the self-management system are Basic Organizations of Associated Labor (BOALs). A BOAL is the smallest unit of workers whose production of goods and services can be measured. A typical factory consists of a number of BOALs, each made up of workers responsible for a dis- tinctly identifiable phase of production. The workers elect delegates to the Workers Council, which is the decision-making body of the BOAL. The dele- gate system operates in such a way that decisions by the Workers Council are only made after consultation with all the workers. BOALs can remain independent, or they can join together with other BOALs for joint purposes such as marketing and research. Such a grouping in a factory is called a Work Organization. A professional manager or a man- agement board may be appointed under a fixed-term contract to carry out the decisions of the Workers Council. Social Ownership Factories are socially owned, belonging to the people of Yugoslavia as a whole as opposed to the state. The exceptions are industrial and other units of less than five non-family workers, which may be privately owned. In agri- culture, farms of less than ten hectares remain in the private sector with the result that 85 percent of the nation's farming is in private hands. There is also a mixed private/ social enterprise called a Contractual Organization of Associated Labor (COAL). Most of these organizations are in Slovenia and have been formed by returning migrant workers who have accumulated investable funds. Up to ten people contribute at least ten per- cent of the initial capital and, in addition to wages, the investors receive an income proportionate to their paid-in capital. These organizations are re- garded as transitional, with the founders eventually being paid back their investment, and the enterprise, therefore, becoming fully part of the social sector. Self-Managed Communities of Interest Self-management extends to community services such as health, educa- tion and transportation. These services are governed by Communities of viii Interest which bring together the providers and the users of services. In the case of education, for example, a Community of Interest would consist of representatives of local BOALs (who, as taxpayers, are paying for the schools), teachers, and representatives of the general public (whose children attend the schools). Socio-Political Organizations There are five Socio-Political Organizations, each of which has a dis- tinct role in decision-making. The Socialist Alliance is the largest, comprising 95 percent of the adult population. It constitutes the main forum for political, social and economic discussion. The League of Communists is a much smaller organization with a membership of only about 15 percent of that of the Alliance. However, it is a powerful and influential body whose task is to assert Marxist doctrines in national affairs. Another group, the Trade Unions, to which most social sector workers belong, has an important role in the internal workings of BOALs. These, and two other Socio-Political Organiza- tions: the Youth Federation and the Veterans Association, nominate dele- gates to the assemblies of the Republics and Autonomous Provinces and are also represented in the Federal Assembly in Belgrade. Legislative Structure The delegate election system extends throughout the legislative ma- chinery. Work Organizations (of BOALs) elect, from among their members, delegates to the assembly of the Commune which is the unit of local govern- ment. (There are 510 Communes in Yugoslavia, representing an average of 40,000 people each.) Communes, in tum, elect delegates to the assemblies of the six Republics and the two Autonomous Provinces, and these assemblies send delegates to the Federal assembly in Belgrade. Workers' Decision-Making and National Planning Workers, Communities of Interest, Socio-Political Organizations, and government bodies at all levels, participate in the national planning process. General planning guidelines which take broad economic factors into account are issued at the federal level at the beginning of the planning period. The guidelines are then given to the Republics, Communes, BOALs and other organizations. There follows an extensive process of discussion between all concerned parties, which takes full account of local market, labor, and other conditions. Every unit of the economy and government is involved in this give-and-take process, and discussion continues until a consensus is reached at all levels. Agreements are legally codified. Broad economic policies are given the force of law through so-called "Social Compacts," while detailed commit- ments between specific economic groups are governed by "Self-Management Agreements." ix Introduction Historical and Geographic Perspective Yugoslavia is a country of 21.8 million people and 256 thousand square kilometers-about the same size as the Federal Republic of Ger- many, but with less than half the population. Few countries of its size possess Yugoslavia's variety of terrain. The Julian Alps in the northwest extend into the high, barren, plateaux of the Dinaric Alps which stretch down the Adriatic coast to the Albanian border in the south. Mountains dominate the middle and south of the country, but the high peaks are modified by the varied relief of rolling hills and valleys. In contrast the northern quarter of Yugoslavia, bordered by Hungary and Romania, is a fertile plain, watered by the Danube, Sava and Drava rivers. (See map inside back cover.) The name Yugoslavia means "the land of the Southern Slavs." The inhabitants, who gave the country its name, migrated to the Balkans in the sixth and seventh centuries, but as the land they occupied formed the natural route between Europe and Asia, the people were ruled for centuries by a succession of invaders, all of whom imposed their own culture, religion and language. For much of the six hundred years preceding the First World War, the northern part of the region was ruled by the Hapsburg empire of Austria and Hungary while the Ottoman empire of Turkey dominated the south, with the Kingdoms of Serbia and Montenegro enjoying vary- ing degrees of independence. While the Slovenes and Croats in the north embraced Roman Catholicism, the Serbs, Macedonians, and Montene- grins in the south followed the Orthodox creed of Christianity. In Bosnia and Kosovo the Turks' religion of Islam was dominant. A sense of ethnic identity was maintained by the Slovenes, Serbs, Croats, Macedonians, and Montenegrins, who, in the latter part of the nineteenth century began to look to their common Slav heritage for the unity to free themselves from foreign domination. These national groups were brought together as the "Kingdom of the Serbs, Croats and Slovenes" at the end of World War II, and in 1929 the country was renamed Yugoslavia. Following its invasion by the forces of Germany, Italy, Hungary and Bulgaria on April 6, 1941, Yugoslavia experienced four years of fighting, from which Josip Broz Tito's Partisans emerged as the dominant force to become the Communist government of postwar Yugoslavia. 1 CHAPTER 1 Thirty-Four Years of Partnership: World Bank Helps Yugoslavia s Reconstruction and Development The Early Years More than 1.7 million Yugoslavs, their average age being 22, died during the second world war. This was more than twice the military and civilian casualties sustained by the United States and the United King- dom combined. In 1945 three and a half million Yugoslavs were home- less, and almost half the country's manufacturing capacity was inopera- tive. Eighteen months before the end of the war, a provisional govern- ment had been declared at Jajce in the Bosnian mountains and planning for postwar Yugoslavia had begun. The devastation of a country that was poor even before the war presented the government with an enor- mous task of reconstruction and development. These same problems were addressed in a global context in June 1944 at Bretton Woods, New Hampshire in the United States, when representatives of 44 countries met to develop a framework for postwar international economic cooper- ation-a meeting that resulted in the establishment of the World Bank and the International Monetary Fund. Yugoslavia, although still par- tially occupied, sent a delegate to Bretton Woods, and when the World Bank began operations on June 25, 1946, Yugoslavia was one of the 38 founder members. While the international financial institutions, the World Bank and the IMF, were being established in Washington, the Federal People's Republic of Yugoslavia was proclaimed in Belgrade. (It was renamed the Socialist Federal Republic of Yugoslavia in 1963.) Yugoslavia's 1946 constitution, which followed the formation of the new state, established six constituent republics corresponding to tra- ditional national groupings: Serbia, Croatia, Slovenia, Bosnia-Herze- govina, Montenegro, and Macedonia. Two autonomous provinces, Voj- vodina and Kosovo, were created in the northern and southern parts of Serbia respectively. (See map inside front cover.) The new government set out to mold a modern diversified economy out of a largely agrarian one through a centralized program aimed at 3 rapid industrialization of the war-ravaged country. However, early in 1948, the country's post-war reconstruction and development efforts received a setback when the Soviet Union and other Cominform coun- tries severed their ties with Yugoslavia. Imports from and exports to Socialist bloc countries ceased immediately, and agreements to provide development assistance were cancelled. A large number of projects- many of which were for heavy industry-were left half finished without the funds for their completion. Early in 1949 Yugoslavia dispatched a mission to Washington to ask for World Bank assistance to help com- plete these projects. Discussions between Yugoslavia and the Bank continued for two years, and in the meantime a small loan was made to Yugoslavia in October 1949, for $2.7 million for the purchase of timber production equipment. Two loans eventually resulted from the negotiations. In October 1951 the Bank lent Yugoslavia the equivalent of $28 million in various currencies to complete power, mining, industrial, agricultural, transportation and other projects. In February 1953, a loan equivalent to $30 million was signed, bringing the total number of sub-projects supported by the two loans to over 50. The 1950's were years of change for Yugoslavia. Economic policy moved away from the rigid central controls which had characterized the immediate postwar period, and the system of self-management was introduced. Yugoslavia developed a socialist society based on social ownership-as opposed to state ownership-of the means of production with the workers themselves as the decision makers. (See Page viii: Self- Management and National Planning.) Throughout the period Yugoslavia participated in decisions of the Bank's board and joined the International Development Association (IDA) in 1960. The 1960's: Assistance for Modernization The loans of the 1960's were directed towards building a strong infrastructure and helping Yugoslavia to become more integrated with its trading partners. In February 1961 a $31 million loan was made, and a second for the same amount in the following year assisted the building of two hydro- electric power stations and more than 1,700 km. of transmission lines. The Yugoslav electricity grid's interconnections with Austria and Italy were also strengthened. Transportation loans during the 1960's also served to improve Yugoslavia's links with the rest of Europe by assisting in the completion and modernization of the central and coastal highways. Modernization of railways and the construction of lines joining Adriatic ports and the center of the country were assisted by loans totaling $155 million be- 4 tween 1963 and 1970. (See Chapter 3: Transportation.) Three loans totaling $45 million provided imported equipment for twenty industrial enterprises (See Chapter 4: Industry) and one $40 million loan, in February 1970, expanded the country's telephone and telecommunica- tions network. In July 1968 Yugoslavia joined the International Finance Corpora- tion (IFC), and in 1970 IFC made a $2 million equity commitment to the International Investment Corporation for Yugoslavia. Subsequent IFC investments have given priority to the establishment of joint ventures to attract foreign investment. (See Chapter 7: IFC in Yugoslavia.) As the evolution of the self-management system caused more and more decision-making to be decentralized, the World Bank began lend- ing directly to enterprises with a government guarantee rather than to a central entity in Belgrade. For the World Bank, which had been accus- tomed to dealing directly with single entities like a finance or agriculture ministry in borrowing countries, negotiations with Yugoslav borrowers representing a number of enterprises were often complicated and lengthy. Negotiations for a 1972 power transmission loan for $75 million in- volved 100 officials representing 11 enterprises and the governments and banks of all the republics and provinces. This loan and a second power transmission loan for $80 million in 1977 illustrate the Bank's support for projects that have enhanced Yugo- slavia's ability to cooperate with its European neighbors. Yugoslavia is now able to buy, sell and exchange electricity with the rest of Europe as a result of construction of 4,000 km. of 380 kv. transmission lines-a considerable engineering feat in a country as mountainous as Yugoslavia. Prior to 1975, Greece had been cut off from the rest of the European power grid, but it is now linked to Italy and Austria through Yugoslavia. Yugoslavia is also interconnected to Czechoslovakia, Romania and Hun- gary. Disparity Amidst Growth Throughout this period Yugoslavia achieved dramatic growth. An- nual real growth in Gross Material Product1 averaged 7 percent between 1952 and 1977, and by 1977 per capita GNP was $1,960. Overall post- war growth has been more than twice the average of developed and de- veloping countries. Social advancement has accompanied growth. Infant 1. GMP includes a market price value added of those sectors which produce goods plus the value added by the activities contributing to the production and distribution of these goods and thereby increasing their value-transport and trade. It does not include other services which are directly rendered to individuals- housing, social services, and government. 5 mortality has dropped from 118.6 per thousand live births in 1950 to 55.2 in 1970; the ratio of doctors to patients has tripled, and the illit- eracy rate has dropped from 1 in 4 to 1 in 7. But one goal has still to be attained. Income disparities between and within developed and less-developed regions' persist. Today, despite substantial efforts to narrow the gap, Slovenia, with per capita GNP of $3,802, is comparable to several European countries, while inhabitants of Kosovo, with per capita GNP of $627, have a similar standard of living to the people of many developing countries. (See map inside front cover) The 6:1 ratio between the per capita GNP of Slovenia and that of Kosovo is the extreme example, but disparities between the other repub- lics are a serious problem as the following table demonstrates: Regional Disparities of Income Per Capita, 1954-77 House- GNP hold GMP' (US$)2 Income3 1954 1964 1970 1977 1977 1973 Bosnia-Herzegovina 82 69 67 67 1,313 76 Montenegro 53 72 78 74 1,450 82 Macedonia 69 73 64 66 1,294 78 Kosovo 48 37 34 32 627 49 Less-developed regions 71 65 61 61 1,196 72 Croatia 119 119 125 128 2,509 125 Slovenia 188 187 193 194 3,802 150 Serbia Proper 84 95 97 96 1,882 100 Vojvodina 88 116 110 122 2,391 105 Developed regions 110 118 121 123 2,411 116 Yugoslavia 100 100 100 100 1,960 100 Source: Statistical Yearbook of Yugoslavia, various issues. 1. Calculated on the basis of current prices; Yugoslav average = 100. 2. GNP per capita Yugoslavia computed according to World Bank Atlas methodology; regional data imputed by applying the GMP per capita differences to the country average. 3. Calculated from household surveys; Yugoslav average = 100. While absolute GMP growth has been very similar to the developed regions and the less-developed regions, the considerably higher popula- tion growth of the poorer areas has had an adverse effect on the differ- 2. The term developed regions refers to Slovenia, Croatia, Vojvodina, and Serbia. The term less developed regions refers to Montenegro, Bosnia-Herzegovina, Macedonia, and Kosovo. 6 ences between per capita GNP. The impact of population growth is shown in the following table: Growth Rates of GMP, Population, and GMP Per Capita, 1966-1975 GMP Popu- per GMP lation Capita % % % Bosnia-Herzegovina 5.0 1.3 3.6 Montenegro 5.1 1.1 3.9 Macedonia 6.3 1.5 4.5 Kosovo 6.1 2.7 3.0 Less-developed regions 5.4 1.6 3.5 Croatia 5.3 0.5 4.8 Slovenia 6.8 0.7 6.0 Serbia Proper 5.4 0.7 4.6 Vojvodina 5.0 0.4 4.6 Developed regions 5.6 0.6 4.9 Yugoslavia 5.6 1.0 4.5 Souirce: Statistical Yearbook of Yugoslavia, various issues. The origins of the economic differences between regions are deep- rooted. Natural endowments led to an emphasis on basic industries such as metallurgy and energy in the less-developed regions. Less productive private agriculture is also concentrated in these largely mountainous regions. The developed regions, on the other hand, built up their man- agerial and technical know-how in the 19th century and were able to develop processing industries. In addition, Vojvodina possesses the richest farming in the country. Problems of poverty and underemploy- ment in the less-developed regions have been compounded by the fact that ethnic and cultural differences between republics have limited the potential for interregional migration. These imbalances in employ- ment have been accentuated by reduced opportunities for Yugoslav workers in western Europe. In 1973 there were 830,000 Yugoslavs employed outside the country, but the trend has been reversed by slower growth and policy changes in host countries, so that by 1979 the expatri- ate workforce had been reduced to about 700,000. Yugoslavia has devoted much attention to trying to solve the problems of regional disparities. As early as the 1950's, transfers of resources were made to the less-developed regions from the Federal General Fund and the Federal budget. When this fund was discontinued in 1966, a perma- nent mechanism was established called "The Federal Fund for Crediting 7 the Accelerated Development of the Less-Developed Republics and the Autonomous Province of Kosovo." Between 1971 and 1975 transfers of financial resources at highly concessional terms through the Federal Fund, as it is known, accounted for about 20 percent of the fixed asset investments of the less-developed regions, with the ratio rising to 70 percent for Kosovo. Additional re- sources, largely for social services in poorer areas, have been provided from the Federal budget. In total these transfers amounted to 9.3 per- cent of the less-developed regions' Gross Material Product and involved a sacrifice for the developed regions of 2.7 percent of GMP. An increasing effort is being made to effect technical as well as financial resources to the less-developed regions. The World Bank's ac- tivities in Yugoslavia, which include technical assistance, have increas- ingly aided the less-developed regions. Today the Bank channels at least two thirds of its loan resources to the poorer republics and Kosovo. World Bank Lending in the 1970's This approach is consistent with a new emphasis in lending philos- ophy which was spelled out by the Bank's President, Robert S. Mc- Namara, in a speech to the Bank's Board of Governors at their 1973 Annual Meeting in Nairobi, when he outlined a strategy for attacking absolute poverty especially in the world's rural areas. Since then Bank assistance worldwide has increasingly been channeled into agriculture and rural development and into other sectors benefiting the poorest of the population, while traditional lending for infrastructure and industry has increased in absolute terms. Six months before the Nairobi speech, the Bank had made its first agricultural loan to Yugoslavia-a $31 million project in Macedonia, with the poor, individual farmer being an important beneficiary. Since then a considerable portion of Bank lending in Yugoslavia has been directed toward helping the individual farmer. (See Chapter 2: Agri- culture.) The increased emphasis is on helping the poor is illustrated by Bank lending in the industrial sector in 1974. While loans were made to two foundries-one in Vojvodina and one in Serbia-two other loans specifi- cally benefited the less-developed regions by providing credit to small and medium-sized industries in Macedonia and Kosovo and in Bosnia- Herzegovina and Montenegro. A fifth loan supported expansion of a tractor plant in Belgrade whose products are now a familiar sight on farms throughout Yugoslavia. (See Chapter 4: Industry.) While the emphasis has shifted to projects directly assisting the poorest, the Bank's substantial support for the transportation sector con- tinued throughout the 1970's with loans for railways, roads and the Port of Bar-all projects which benefit the country and its economy as a 8 Oil receiving facilities have been built at the port of Omisalj on the island of Krk as part of an oil pipeline project supported by a $49 million World Bank loan. The 736-km. pipeline will alleviate energy shortages by transporting up to 400,000 barrels of petroleum a day to five refineries in Yugoslavia. 9 whole. (See Chapter 3: Transportation.) Two other infrastructure loans, for a natural gas pipeline in 1973 ($59.4 million) and for an oil pipe- line in 1975 ($49 million), support major investments to alleviate energy shortages. A loan of $73 million was signed for a hydroelectric power station located on the Neretva river in the less-developed republic of Bosnia- Herzegovina, and a major water supply project for which the Bank pro- vided $54 million is located in Metohija, the poorest half of the poorest province of Kosovo. The poorest regions of Serbia are the beneficiaries of another water resource project in the Morava Valley supported by a $20 million Bank loan. Air pollution and water supply projects in Sara- jevo and Dubrovnik contribute to the health of the residents of those two cities. (See Chapter 5: Health and Environment.) Details of the greater part of the Bank's recent lending-for agri- culture, transportation, and small industry are contained in chapters 2 through 4 dealing with sector lending. 10 CHAPTER 2 Assistance to the Agricultural Sector Yugoslavia's rapid industrialization has led to a relative decline in the role of agriculture, but it still accounts for about 14 percent of social sector GMP. With 40 percent of the active population-many of whom are poor-living in rural areas, agriculture is of vital importance to Yugoslavia's development. It is the one sector of the Yugoslav economy which is predominantly privately owned, with about 85 percent of the country's arable land belonging to individual farmers. The remainder is cultivated by the social sector through "agrokombinats" (integrated factory farms), cooperatives and research institutions. The private sector employs about 90 percent of the agricultural workforce, but has lower productivity than the social sector, which produces about one third of the nation's agricultural output. The dual structure dates back to the 1953 Agrarian Reform Law, which reversed the collectivization policy of the 1940's and permitted private holdings up to a maximum of 10 hectares of cultivable land. Social sector agrokombinats are self-managed compound organiza- tions made up of Work Organizations and Basic Organizations of Asso- ciated Labor (BOALs) (See page viii: Self-Management and National Planning) and have the same status in the economy as their counterparts in manufacturing and service industries. Before the present decade, agricultural development received little attention and experienced an average annual growth rate of only 2.2 per- cent during the latter part of the 1960's. The country's 2.6 million private farmers experienced only one sixth of the growth rate of the social sector, which had the advantage of receiving 16 times the capital investment per hectare and most of the available technical expertise. As well as being small, private holdings tend to be fragmented and of inferior land quality. This, coupled with lack of credit and extension services, has contributed to their poor productivity, and there is considerable under- employment and rural poverty especially in the less-developed repub- lics and Kosovo. It was an acknowledgement of past neglect and the vast potential of the private sector to produce more food which led to lengthy discussions between the republics and provinces in 1973, from which a common agricultural policy emerged. This "Green Plan" accords equal attention to both sectors. 11 -mN ~~~~~~~~~~~~~~~- A farmer near Pristina uses oxen to draw his plough. Lack of mechanization has contributed to the low productivity of individual farms in Kosovo, the poorest province in Yugoslavia. The plan called for greater attention to be paid to the agricultural sector as a whole, with modernization and expansion of social sector facilities, but it also recognized that much of the growth in primary production had to come from the private sector. The plan emphasized cooperation between the social and private sectors to increase total productivity, and it also established a framework for private farmers to receive some of the benefits of social sector organizations such as health care and pensions. First and Second Agricultural Industries Projects, Macedonia, 1973 and 1977 In 1973, the World Bank made its first loan to Yugoslavia for the exclusive development of agriculture. The $31 million loan to Stopanska Banka Skopje (SBS), the development bank of Macedonia, was for on-lending largely to agrokombinats and cooperatives for the mod- ernization of production and processing facilities. Five dairy farms, 12 four cattle fattening farms, four heifer rearing farms, and two pig farms were established. The loan also provided for slaughtering and meat processing plants and cold storage facilities for dairy, meat, poultry, fruit and vegetable products, as well as development of 2,600 hectares of vineyards and wine and wine byproduct processing plants. Eight fish ponds stocked with carp and trout were also developed. While some of these investments helped the private sector as well as the social sector, others, like tobacco drying sheds, directly assisted individual farmers. Credit facilities were made available to about 2,400 private farmers to enable them to invest in vineyards, livestock and other improvements. Another important element of the loan was a provision for the govern- ment of Macedonia to study the private farm sector to determine its priorities for the next ten years. It is estimated that an additional annual production of 75,000 tons of primary products, including 4,000 tons of processed meat and 24,000 tons of milk, have been generated by the project. About 1,500 jobs were created in the social sector and the average annual income of the 2,400 private farmers increased from about $310 in 1973 to $535 in 1978. The closer link forged between the private farmer and cooperatives and agrokombinats has been a feature of subsequent World Bank loans for agriculture. Improved markets for their produce, coupled with the availability of small development credits, laid the groundwork for mod- ernization of small farms in Macedonia. This progress was consolidated by a second project in 1977 supported by a $24 million World Bank loan. The second project provided for further processing facilities for the social sector as well as investments in the private sector for primary crop and livestock production. An Agricultural Operations Department at Stopanska Banka Skopje was strengthened under the second loan to improve its appraisal of sub-projects. Eight agronomists were appointed by the government of the Republic, and a further 80 were hired at the commune level to provide extension services to private farmers. One such farmer is Stankovic Milic, who owns a 3.5-hectare farm near Skopje. He and his son used to grow cereals and sugar beet, work- ing the land by hand with occasional help from a neighbor's tractor; but on the advice of the extension service he has also started growing vines and sunflowers. The Skopska Polje Agrokombinat, which is close to Milic's farm, has established a unit for the specific purpose of co- operating with private farmers, and through it he has received low-priced fertilizer and high-yielding varieties of seeds. Also through the agro- kombinat, Milic obtained credit (part of the 1973 World Bank loan which had been on-lent to the agrokombinat by SBS) to purchase a tractor at 9 percent interest for five years. Separately, he has signed an agreement to sell the greater part of his produce to the agrokombinat. 13 [ :: i;40:gu004:0<904tS:08t;DSf:fES | l S os j SC:B:;:st 0 ;:. I 0 ,$0.' _Q E 6.|. . i _ iM 0f?d''t_ | _LO.>OD6209ti;(5 ts0 s(92) 3ss}tis' '.'R FE s_ ,,, _ r_ ; fi; 0 t00000000000 SiV00000t''''600e, _ |' 0.y' S w hr ; f i j 0 0 0 0 0 f 0 X We . , & - (d, s .'S. s I - 0 _ ;>50 _ 2 tt . '''0j'000'i''t'\<6ffi\ +;t'' '0e t 0 . f. ,,; it§,,,, ;'7wlB \\ 1irs,1 it 0 tS'X''g'"''tf _ _ $ i S dUL; <. \- wt a00 0 t E 0 t w 0 t W _ a } _r S ,) B wa:S.u S \ :; . .Se.a.R;atrffi- 0 <* ^ w ffi r P _ t: tAV06| s A 0 k: t40<; i ? .: , 0 :'s: f \,. 0 ' :,;fff;;;foUSs 0 ; 0 0 0; 0 t 0 0 i 't i arfi 52 4 f 0; f; AgFr|| ' ' 5ktSr 0 r, tt },. < S I E- Two pig farms have been established near Skopje as part of the World Bank's First Agricultural Industries project in Macedonia. 14 Stojan Pop Demetrov, who owns a farmn near Sko pje, has benefited from improved credit terms and better markets for his produce as a result of the World Bank's 1973 Agricultural Industries loan in Macedonia. The tractor and improved seed inputs have doubled his annual output of wheat from about 3,000 kilograms per hectare to 6,000 kilograms, and the farm income has doubled since 1973. Another farmer, 66-year-old Stojan Pop Demetrov has lived on his farm for 50 years. The 1 3-hectare holding is divided between him and his two sons, with all three men and their wives working on the land. Although they have electricity, their water has to be pumped by hand from a well in the farm yard. Credit had been available to Demetrov before the World Bank loans were made, but it was not -always on terms that appealed to him. He is now willing to pay the slightly higher interest on the credit he obtains through the World Bank/SBS/agrokombinat in return for a longer grace period and repayment terms. He has bor- rowed from the Skopje Polje Agrokombinat to purchase a tractor and a plough. He welcomes the expansion of the processing facilities of the agrokombinat as he now has a guaranteed market for his chickens, piglets, milk, wheat, corn, cabbages, carrots, and alfalfa. With this in- creased income he is planning to build a new cow house for his small dairy herd. 15 First and Second Agricultural Credit Loans, 1975 and 1977 The success of the individual farmer component of the First Agri- cultural Industries project in Macedonia provided some lessons in tech- niques which could be applied to address the problems of rural poverty in Yugoslavia as a whole. The rural poor could best be helped, it seemed, by Bank support of primary production in the individual sector, while loans for modernization of the social sector would build up essential processing and marketing requirements. Vojvodjanska Banka in Novi Sad, the development bank of Vojvo- dina, was chosen as the lead bank for the World Bank's national agri- cultural credit loans because of the agricultural experience it had gained from its location in the most fertile farming area in the country. The first loan, for $50 million, was made to Vojvodjanska Banka in June 1975 for on-lending to seven banks representing the republics and Kosovo (with some funds being used for agriculture in Vojvodina itself). A Project Operations Department was established at Vojvodjanska Banka, and the training of its staff and the staff of the participating banks was also supported by the loan. (See Chapter 6: Institution Building.) The loan provided funds to 380 social sector enterprises through- out Yugoslavia for investments in dairy farms, cattle fattening, vegetable production, irrigation, drainage, land development, and various food processing facilities. About 10,200 private farmers received the remain- ing funds (about 43 percent) for investments in dairy, sheep, vegetable and fruit production, on-farm mechanization, and land development. Al- though the direct investments for private farmers accounted for less than half the funds, they benefited from the increased markets for their produce provided by the social sector investment. Some 8,700 new jobs were created by the project, and an estimated 39,000 poorer farmers benefited directly or indirectly. Most of the increased production from the project is being marketed domestically, reducing Yugoslavia's need to import food. This lessening of the import bill, combined with exports of meat, fruits and vegetables, is expected to earn or save about $200 million in foreign exchange over the 20-year lifetime of the loan. The Second Agricultural Credit loan for $75 million, signed in June 1977, was along broadly similar lines, but the proportion of funds allotted to the less-developed republics and Kosovo was increased from a quarter under the first loan to a half under the second. Kosovo, the poorest province, was allocated considerably more resources in the second project, with Kosovska Banka Pristina receiving $11.3 million. The benefits to poor individual farmers in Kosovo through cooperation with the social sector can be seen in a livestock component of the loan which provides for a broiler farm with hatchery and slaughterhouse to be built in an agrokombinat. Four times a year, the agrokombinat will sell batches of 750 one-day-old chicks to about 1,000 private farmers, 16 to whom loans to build new hen-houses will have been made. The farm- ers will keep the broilers for about nine weeks until they reach a weight of about 1.5 kilograms, when the agrokombinat will buy them back for processing in the project-financed facilities. The private farmer component of the Second Agricultural Credit loan was increased to 57 percent (compared to 43 percent under the first loan). The closer links between the individual and social sectors are ex- pected to increase the prosperity of some 40,000 private farmers through- out Yugoslavia by providing them with better access to markets and proc- essing plants. About 60 percent of all project beneficiaries in the indi- vidual farmer sector have annual incomes of less than $341 per family member. It is estimated that the nationwide average income of individual farmers will double by 1981. Agriculture and Agro-Industries Project, Montenegro, 1977 Because of its mountainous terrain, only a small part of the land area of Montenegro is cultivable. Two-thirds of this arable land is located in mountainous areas where individual farmers cultivate 62,000 holdings with an average size of 4.9 hectares. These farmers are being assisted through the two World Bank Agricultural Credit loans. The balance of the Republic's farm land is located on the Cemovsko Polje plain near Titograd, cultivation of which is being assisted by a $26 million World Bank loan. Cemovsko Polje had always been regarded by the people of Tito- grad as a desert, with snakes and birds being the only life sustained by its rock strewn, barren surface. Heat and dust from the plain contributed to Titograd's uncomfortable summer climate, and the local people visited the plain only to gather sacks of the absinthe shrub to flavor the hams they smoked for the winter. To the south the plain is bordered by Lake Skadar, from which the Romans took water by way of canals across the plain for their settlement at Doclea, now the site of Titograd railway station. Without pumps, the Romans were unable to use the lake or the subterranean water to cultivate the plain. In the 1930's trees were planted as windbreaks, but they were burned down in 1942 by the Italian forces who feared that the Partisans would use them for cover, and the plain remained desolate until the early 1970's. In 1972 the Agrokombinat "July 13" (named for the 1943 Mon- tenegrin uprising against the army of occupation) irrigated some pilot areas near Lake Skadar using water from the lake. Encouraged by their success, further studies were undertaken by the Organisation for Eco- nomic Cooperation and Development (OECD) and the U.N. Food and Agriculture Organization (FAO), and in 1974 a World Bank reconnais- sance mission visited Cemovsko Polje. The project which was finally approved in February 1977, established a 2,000-hectare sprinkler irriga- 17 Vineyards have been established on the barren Cemovsko Polje plain near Titograd with assistance from a $26 million World Bank loan. tion system using both water pumped from Lake Skadar and from the underground water table. Windbreaks were added and nearly 700 hec- tares of vineyards have been established. Table grapevines, peach trees and cherry trees will also be planted. A winery with an annual capacity of 10 million litres and a cold store with a capacity of 3,000 tons will be built, as well as grading and packing facilities and a collecting center. The project also provides for 14 kilometers of farm roads, equipment sheds and research on new fruit tree varieties. Although surface rocks and absinthe shrubs serve as a reminder of Cemovsko Polje's past, the plain is already transformed into prosper- ous and fertile vineyards and orchards, and the agrokombinat's "Vranac" wine is highly regarded. The World Bank loan was made to Investiciona Banka Titograd, the Montenegrin development bank, which on-lent the funds to Agrokombinat "July 13." It is estimated that the agrokombinat, which employs 2,800 workers in 26 BOALs will experience an annual incremental income of $7.5 million and will employ 630 new workers as a result of the project. The incomes of the workers' families are expected to increase by about 55 percent. 18 Bosanska-Krajina Agriculture and Agro-Industries Project, 1978 A loan approved in September 1978 for a project in Bosnia- Herzegovina, one of Yugoslavia's poorest republics, is the most formal- ized approach to cooperation between the private and social sectors yet undertaken by the Bank. It aims at increasing growth of primary production in the individual sector by providing farmers with a host of services through the social sector. In 1969 the Bosanska-Krajina region in northwestern Bosnia- Herzegovina was struck by a massive earthquake. Two tremors, 17 hours apart, almost destroyed the industrial town of Banja Luka, causing 18 deaths and leaving many of its 60,000 inhabitants homeless. The physical damage and economic distruption were severe. As one of the steps taken to reconstruct the area, the government invited the United Nations Development Programme (UNDP) to prepare a regional devel- opment plan. The strategy devised by UNDP called for increases in farm production, mainly in the individual sector, to be paralleled with increases in processing capacities and marketing opportunities in the social sector. To carry out the plan, an agrokombinat called Agro- industrijeski I Prometni Kombinat (AIPK) was established by combining a group of previously independent agricultural BOALs. AIPK prepared the project with assistance from the FAO/IBRD cooperative program.' The loan for $55 million was made to Privredna Banka Sarajevo (PBS), the development bank of Bosnia-Herzegovina, which, with co-financing from Japanese and French banks, provided the balance of the funds for the $203.8 million project. At the heart of the project are the Zadrugas. A Zadruga is a group of private farmers who have pooled their land and labor in an Organiza- tion of Associated Labor, operating as part of a social sector agrokom- binat. However, unlike a conventional social sector BOAL, ownership of the means of production-in this case the farm-remains in private hands. AIPK has 99 BOALs of which 23 are Zadrugas (to be increased to 40 under the project). Rather than signing buying/selling contracts like those under the two agricultural credit loans, Zadrugas utilize the technology of the agrokombinat and provide it with produce for which they receive a share of the profits. The cooperation between the individual and social sector is, therefore, highly integrated. The Bosanska-Krajina project assists primary production by mak- ing sub-loans to about 12,000 individual farmers through Zadrugas for 1. Under the FAO/IBRD Cooperative Program, in existence since 1964, the Bank and the U.N. Food and Agriculture Organization share the costs of profes- sional staff engaged in project identification and preparation. 19 livestock, cereal, fruit and vegetable production. Land reclamation and irrigation of both social and individual sector land is provided for. Extension services are being made available to individual farmers through AIPK, and investments are being made in heifer, cattle, pig and sheep farms, and seed and nursery facilities, all designed to improve livestock breeds and crop varieties. The agrokombinat will also be able to increase its facilities for processing meat, milk, fruit, vegetables and barley. It is estimated that, at full development (in 1983), the average net income of 12,000 individual farmers will increase by 120 percent. Approx- imately 9,000 of these farmers currently have per capita annual incomes of less than $225. A further 20,000 farm families will benefit from improved marketing outlets and technical assistance, and some 4,500 new jobs are expected to be created. Employment and increased income opportunities are particularly important to Bosanska-Krajina as some 40,000 people from the area are employed outside Yugoslavia, and an additional 12,000 are employed in other republics of Yugoslavia. They represent about 20 percent of the active agricultural population of the region, and it is, therefore, hoped that the project will help to reduce migration from the area. 20 CHAPTER 3 Assistance to the Transportation Sector The development of Yugoslavia's transportation sector has been influenced both by the country's topography and its history. The broad valleys of the Danube and Sava rivers provided a natural corridor for road, rail and river transport running from the northwest to the south- east. For centuries this was the major land route from western Europe to Greece, Turkey and the East. Running parallel to this central corridor are the coastal and southern mountain ranges which form a formidable barrier, making construction of cross-country links from east to west both difficult and costly. This natural phenomenon has contributed to the problems of the less-developed regions by depriving them of access to the coast or the hinterland. (See map inside back cover.) The historical influences that helped to widen the gap between the developed and the less-developed regions had their effect too on trans- portation development. In Slovenia a rail and road network was devel- oped similar to that of its northern neighbor Austria, while in the south, transportation was never adequately developed. Yugoslavia has made the expansion and modernization of the trans- portation sector one of its development priorities, both for its impact on the economy as a whole and specifically on the poorer regions, but also because of its potential for helping the country to become more integrated with its European neighbors. There was substantial investment during the early postwar years, with the emphasis being very heavily on developing modern railways. World Bank involvement began in 1963, when it made one loan each for highways and railways. Since then, it has supported and encouraged balanced growth between the various sub-sectors. The Bank's involve- ment has been substantial, with more than $1 billion-or 44 percent of total loan volume-being committed to 10 highway loans, five railway loans, and one each for a port, a natural gas pipeline, and an oil pipeline. The Bank has also made an important contribution to transportation through technical assistance and institution building of the bodies respon- sible for transportation development. Late in 1976, the Federation, Republics and Autonomous Provinces agreed to establish a long-term transportation policy for the country. A social agreement on transport policy was signed by the various bodies 21 involved in the decision-making process and their respective responsibili- ties were clearly delineated. Highway Development When the World Bank made its first highway loan in 1963, Yugo- slavia's vehicle population was very small with about five cars per thou- sand inhabitants. Commercial vehicles also were scarce, and some 75 percent of the country's freight was carried by rail. Nevertheless, the flex- ibility offered by road transport made it an attractive alternative and supplement to rail, with the result that the number of vehicles on the roads was growing fast, but without an adequate highway network. Ve- hicle growth has continued, and by 1978 the ratio of cars to people had reached 98 per thousand. Freight carried on the roads also has increased from 17.8 billion tons per km. in 1970 to 34.2 billion tons per km. in 1978. The first highway loan, for $35 million, helped to finance the con- struction of the country's two major arterial roads, the Central Highway and the Adriatic Highway. The Central Highway, stretching between the Austrian and Greek borders, is the backbone of the highway network, and the existing road was already the most advanced in Yugoslavia at the time of the project. The Bank loan assisted in the completion of an important 246-km. section, south of Belgrade, and a 34-km. section in the Slovenian Alps, connecting the Yugoslav and Austrian road systems. A tunnel under the border was designed to keep the road open throughout the year despite heavy snowfalls and landslides which had formerly closed the old road for six to seven months of the year. As well as reducing transportation costs for road users, completion of the Central Highway contributed to the growth of Yugoslavia's exports especially for agricultural products. The original coastal road running from Rijeka, in the northwest, to Bar, by the Albanian border in the south, was a narrow gravel road with many steep grades and curves. The 180-km. journey from Dubrov- nik to Split would take an entire day and was wearing on travellers and their cars. These conditions were discouraging to tourists who were beginning to discover the picturesque Adriatic coast and whose foreign exchange was of great potential importance to Yugoslavia. Nearly two-thirds of the three million foreign visitors to Yugoslavia in 1963 arrived by car or bus, 80 percent of the tourists making the coastal resorts their destination. The new highway made it considerably more comfortable and convenient to travel to the Adriatic coast, and its success is reflected in the fact that, while one million foreign cars crossed the borders into Yugoslavia in 1963, the number had risen to 14 million by 1970, just five years after the highway's completion. Farmers growing fruits and vegetables and rearing sheep also welcomed 22 the new road for the access it gave them to markets and ports. Damage to their produce from transporting it over the old rough roads also was reduced. The old dirt road had once been a route taken by people traveling out of the country to find employment, but many of these same people are returning on the new highway to work in the prosperous coastal towns. As well as contributing to employment for automobile assembly workers, truck drivers and many others, the expansion of highways also helped the establishment of a strong construction industry. Before 1963, Yugoslavia possessed a few poorly organized and ill-equipped road- construction units which were not capable of undertaking major works, while foreign contractors were excluded from participating in Yugoslav projects. The World Bank made it a condition of the first highway loan that construction contracts would be open to international competitive bidding. Foreign competition, coupled with technical assistance and sub- sequent joint ventures with foreign contractors, has helped Yugoslavia to build up a strong construction industry which is now fully competitive internationally. A large proportion of Yugoslavia's receipts from procure- ment on World Bank projects outside the country are attributable to contracts won by the construction industry. (See Chapter 6.) During the decade 1967-77, the World Bank made seven highway loans totaling $276 million for stretches of new highway and road widen- ing to ease congestion of the major arteries and to help open up the less-developed regions. The devolution of decision-making to the Repub- lics and Provinces during the 1960's added stimulus to the development of the transportation sector as a means of maintaining an integrated economy. The Bank's contribution to the institutional framework during this period was an important adjunct to its loans. Construction and main- tenance were the responsibility of a number of enterprises, while the broader responsibilities for highway development lay with the Com- munities of Interest (representing transport enterprises and their users). Each republic and province had its own Community of Interest for Roads. Although there was a Federal Committee for Transportation, charged with the task of coordinating policy, the sector suffered from a lack of uniformity of methodology and practice between the Republics and Provinces. To address this problem, the Bank encouraged the estab- lishment of a "Council of Republican and Provincial Roads Organiza- tion" (CRO). Although it has no legal authority, the CRO has provided a forum of discussion of common concerns such as standardization of road signs and other technical questions. As part of the Bank's Fifth Highway loan in 1971, consultants were hired to develop a uniform methodolgy for project appraisal by the Republics and Provinces. This methodology, which uses the CRO's computer, was applied to all the economic features such as traffic flows, access roads, international implications and the impact of rail competi- 23 tion, for the entire length of the Central Highway to determine priorities for its improvement under the Bank's Ninth Highway loan. The same methodology was applied more widely for the Tenth Highway loan, signed in April 1979, which marks a significant new development in the Bank's lending for transportation in Yugoslavia. Before the Tenth loan, decisions about which stretch of highway should be financed were subject to the various demands of the different republics and provinces as well as the requirements dictated by national traffic flows. However, the Bank was anxious to concentrate its lending on the less-developed regions if suitable projects could be identified- a policy that was also a central element of the government's long-term transport plan. The new uniform methodology used for the Ninth High- way loan was employed by each of the less-developed republics and the two autonomous provinces (Vojvodina was included as the principal agricultural region) to develop master plans for their highway require- ments for 1979 through 1985. An inventory of all aspects of every section of road in Bosnia- Herzegovina, Macedonia, Montenegro, Kosovo, and Vojvodina was con- ducted to enable each republic or province to rank them according to economic priorities. The analysis ensures that critically needed invest- ments in regional, secondary and feeder roads which are essential to induce and sustain economic development in remote areas are not obscured by the more visibly pressing needs of the arterial network. This sector approach also enables each republic or province to integrate its development policies for roads with those for agriculture and industry. The Tenth Highway loan, for $148 million, is the largest single loan the Bank has made in Yugoslavia. It supports a total project cost of $794.6 million which will finance sections of road designated by the master plans as having the highest economic priority. The project pro- vides for construction or improvement of 770 km. of interregional roads and 435 km. of regional roads; and for road maintenance and a monitor- ing system to implement the project. The management and operations of the roads organizations also will be strengthened through training and supply of equipment. New and improved roads will directly serve the agricultural and industrial centers which produce the bulk of the output of the Less- Developed Republics and Vojvodina, and in several cases will open up new areas of the country for agricultural development and light process- ing industry. Future highway projects are expected to employ similar method- ology and will benefit from one of the provisions of an earlier loan. The Eighth Highway project contained funds to finance complementary studies of road-user charges and rail costs by consultants hired by the Bank. The road study is examining fiscal, economic and administrative implications of road tolls, vehicle taxes and other charges, and the allocation of resources for the highway subsector. The study on rail 24 costs is reviewing the cost effectiveness of the railway system. The two studies will contribute to planning a transportation system that attempts to harmonize the various sub-sectors. Railway Development Compared to the newer and rapidly growing road sub-sector, the railways have developed much more slowly. In the decade from 1965 to 1975 rail freight traffic grew at 2 percent per annum and passenger traffic fell by about 2 percent, compared to 13 percent and 20 percent annual growths of freight and passenger usage of roads. However, the railways have tended to find their economic role in the carrying of longer distance traffic, notably bulk materials for key industries. In 1975, they accounted for about 40 percent of Yugoslavia's total freight traffic and 24 percent of public passenger traffic. Coordination between the different means of transportation has received special government attention in recent years, and rail and water transport are being encouraged for long and medium-distance commodity hauls, under the terms of a recent transport policy agreement. An important Yugoslav innovation, aimed at resolving the questions raised throughout the world on effective use and development of rail- ways, including the issue of subsidies, has been the creation of Com- munities of Interest (COIs), consisting of individual railway enterprises and their users. COIs have a key government role at republican and provincial level. The main coordinating body at the federal level is the Community of Yugoslav Railways (CYR), which is an agency of the eight independ- ent republican and provincial railway organizations. The existence of so many railways, government and related organizations complicates the planning decision-making process. The World Bank has therefore supported a more active role for the CYR as a coordinating body. The Bank has contributed to improved investment planning and project management by assisting the CYR and the railway organizations in preparing successive five-year plans. It also helped to analyze the railway tariff and subsidy structure. The Bank's institution building and technical assistance for the railways has supported a lending program totaling $348 million com- mitted through five loans. These funds have been used for moderniza- tion, electrification, building of ancillary facilities, and the construction of one major new line. Yugoslavia's principal rail routes follow the same central corridor as the highways, with the mountain barrier separating the center of the country from the coast. An old narrow gauge line crossed the moun- tains to connect Sarajevo with the port of Ploce, but with the growth of Bosnia-Herzegovina as an industrial center, the rail line was unable to 25 The Ploce to Sarajevo railway crosses the Neretva river south of Mostar. The World Bank's first railway loan in Yugoslavia in 1963 assisted in the construction of the 194-km. standard gauge electrified line. handle the increased freight generated by the region. With over 2.5 million tons of freight a year being forced to travel by more circuitous routes, and Bosnia-Herzegovina needing to expand further its industry and agriculture, it became imperative for the republic, which is one of the poorest, to be able to ship its goods to the Adriatic efficiently. The Bank's first railway loan, for $35 million in 1963, helped to finance a new standard gauge electrified line from Ploce to Sarajevo, a distance of 194 km. The journey from Ploce to Sarajevo is one of contrasts, as the train follows the Neretva river from the temperate coastal settlements through the foothills to Mostar, the ancient Herzegovinan town with its houses and mosques clustered around its historic Turkish bridge. As it crosses the Prenj.mountains, the train passes over many viaducts and through tunnels blasted out of the rockface and crosses the flank of Mount Ivan, which is snow covered for much of the year, before dropping down to Sarajevo. To lay modern rail tracks along this route was a major civil engineering undertaking, but the achievement pales beside that of the building of the Belgrade to Bar railway five years later. Prior to the Belgrade-Bar rail link, the less-developed republic of Montenegro was cut off from the potential markets of the more 26 prosperous republics to the north, while industrial enterprises in Serbia and agricultural producers in Vojvodina were deprived of the southern export outlet of the port of Bar. The Bank's Third Railway loan for $50 million assisted in the construction of the 462-km. line which, apart from a total of 90 km. at each end, was a completely new line. The track had to be pushed through mountainous terrain, much of which was remote from existing transport links, with the result that over 200 tunnels and numerous bridges and viaducts had to be built. Two of the tunnels are more than six kilometers long and another five are longer than three kilometers. The Mala Rijeka bridge is particularly dramatic. The track emerges from a tunnel in the mountainside straight onto a bridge, half a kilo- meter long, and then disappears into a tunnel on the other side. The bridge with a central span of 150 meters is supported by four massive pillars anchored to the edges of a ravine 120 meters above the Mala river. The Belgrade to Bar railway passes through more than 200 tunnels and over numerous bridges. Lutovo Station, which was under construction when this photograph was taken in 1974, is located in a mountainous area which was remote from existing transportation links. _r~~~~~~~~ World Bank Headquarters 1818 H Street, N.W. U Washington, D.C. 20433, U.S.A. Telephone: (202) 477-1234 Cable Address: INTBAFRAD WASHINGTONDC U * 66 _m.