Michel Chossudovsky (by way of mediafilter) on Mon, 29 Mar 1999 02:42:16 +0200 (CEST)

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	Michel Chossudovsky

Professor of Economics at the University of Ottawa and author of The
Globalisation of Poverty, Impacts of IMF and World Bank Reforms, Third
World Network, Penang and Zed Books, London, 1997.

C Copyright by Michel Chossudovsky, Ottawa, 1996. To reproduce this text,
contact the author at chossudovsky@sprint.ca

*       *        *

The following text was written in the wake of the 1995 Dayton Agreement
(Covert Action Quarterly, Spring 1996, No. 56 contains the complete article
with footnotes; a more detailed version is contained in "Globalisation of
Poverty", chapter 13).  Macro-economic reforms imposed by Belgrade's
external creditors since the late 1980s had been carefully synchronised
with NATO's military and intelligence operations. Kosovo's fate had already
been decided. Resulting from the IMF's deadly economic medicine, the entire
Yugoslav economy had been  spearheaded into bankruptcy. The Rambouillet
agreement largely replicates the model of colonial administration and
military occupation imposed on Bosnia under the Dayton agreement.

In Kosovo, the  economic reforms were conducive to the concurrent
impoverishment of both the Albanian and Serbian populations contributing to
fueling ethnic tensions.  The deliberate manipulation of market forces
destroyed economic activity and people's livelihood creating a situation of
social despair...

In parallel with the destruction of federal Yugoslavia, similar
macro-economic reforms under IMF auspices were imposed on Albania with
devastating economic and social consequences. The plight of Albania
culminating with the West's military intervention in 1997  is analysed by
the author in a separate text.

*      *      *

As heavily-armed US and NATO troops enforce the peace in Bosnia, the press
and politicians alike portray Western intervention in the former Yugoslavia
as a noble, if agonizingly belated, response to an outbreak of ethnic
massacres and human rights violations. In the wake of the November 1995
Dayton peace accords, the West is eager to touch up its self-portrait as
savior of the Southern Slavs and get on with "the work of rebuilding" the
newly sovereign states.

But following a pattern set early on, Western public opinion has been
misled. The conventional wisdom holds that the plight of the Balkans is the
outcome of an "aggressive nationalism", the inevitable result of
deep-seated ethnic and religious tensions rooted in history. Likewise,
commentators cite "Balkans power-plays" and the clash of political
personalities to explain the conflicts.

Lost in the barrage of images and self-serving analyses are the economic
and social causes of the conflict. The deep-seated economic crisis which
preceded the civil war is long forgotten.

The strategic interests of Germany and the US in laying the groundwork for
the disintegration of Yugoslavia go unmentioned, as does the role of
external creditors and international financial institutions. In the eyes of
the global media, Western powers bear no responsibility for the
impoverishment and destruction of a nation of 24 million people.

But through their domination of the global financial system, the Western
powers, in pursuit of national and collective strategic interests, helped
bring the Yugoslav economy to its knees and stirred simmering ethnic and
social conflicts. Now it is the turn of Yugoslavia's war-ravaged successor
states to feel the tender mercies of the international financial community.

As the world focuses on troop movements and cease fires, the international
financial institutions are busily collecting former Yugoslavia's external
debt from its remnant states, while transforming the Balkans into a
safe-haven for free enterprise. With a Bosnian peace settlement holding
under NATO guns, the West has unveiled a "reconstruction" program that
strips that brutalized country of sovereignty to a degree not seen in
Europe since the end of World War II. It consists largely of making Bosnia
a divided territory under NATO military occupation and Western

Neo-Colonial Bosnia

Resting on the Dayton accords, which created a Bosnian "constitution," the
US and the European Union have installed a full-fledged colonial
administration in Bosnia. At its head is their appointed High
Representative, Carl Bildt, a former Swedish prime minister and European
Union representative in Bosnian peace negotiations. Bildt has full
executive powers in all civilian matters, with the right to overrule the
governments of both the Bosnian Federation and the Republika Srpska. To
make the point crystal clear, the accords spell out that "The High
Representative is the final authority in theater regarding interpretation
of the agreements." He will work with IFOR's Military High Command as well
as creditors and donors.

The UN Security Council has also appointed a "commissioner" under the High
Representative to run an international civilian police force. Irish police
official Peter Fitzgerald, with previous UN policing experience in Namibia,
El Salvador, and Cambodia, presides over some 1,700 policemen from 15
countries. The police will be dispatched to Bosnia after a five-day
training program in Zagreb.

The new constitution hands the reins of economic policy over to the Bretton
Woods institutions and the London-based European Bank for Reconstruction
and Development (EBRD). The IMF is empowered to appoint the first governor
of the Bosnian Central Bank, who, like the High Representative, "shall not
be a citizen of Bosnia and Herzegovina or a neighbouring State."

Under the IMF regency, the Central Bank will not be allowed to function as
a Central Bank: "For the first six years . . . it may not extend credit by
creating money, operating in this respect as a currency board." Neither
will Bosnia be allowed to have its own currency (issuing paper money only
when there is full foreign exchange backing), nor permitted to mobilize its
internal resources. Its ability to self-finance its reconstruction through
an independent monetary policy is blunted from the outset.

While the Central Bank is in IMF custody, the European Bank for
Reconstruction and Development (EBRD) heads the Commission on Public
Corporations, which supervises operations of all public sector
corporations, including energy, water, postal services, telecommunications,
and transportation. The EBRD president appoints the commission's chair and
will direct public sector restructuring, meaning primarily the sell-off of
state and socially-owned assets and the procurement of long term investment
funds. Western creditors explicitly created the EBRD "to give a
distinctively political dimension to lending."

As the West trumpets its support for democracy, actual political power
rests in the hands of a parallel Bosnian "state" whose executive positions
are held by non-citizens. Western creditors have embedded their interests
in a constitution hastily written on their behalf. They have done so
without a constitutional assembly, without consultations with Bosnian
citizens' organizations and without providing a means of amending this
"constitution." Their plans to rebuild Bosnia appear more suited to sating
creditors than satisfying even the elementary needs of Bosnians.

And why not? The neo-colonization of Bosnia is the logical culmination of
long Western efforts to undo Yugoslavia's experiment in market socialism
and workers' self-management and impose in its place the diktat of the free

The Shape of Things to Come

Multi-ethnic, socialist Yugoslavia was once a regional industrial power and
economic success. In the two decades prior to 1980, annual GDP growth
averaged 6.1 percent, medical care was free, the literacy rate was of the
order of 91 percent, and the life expectancy was 72 years. But after a
decade of Western economic ministrations and five years of disintegration,
war, boycott, and embargo, the economies of the former Yugoslavia are
prostrate, their industrial sectors dismantled.

Yugoslavia's implosion was in part due to US machinations. Despite
Belgrade's non-alignment and its extensive trading relations with the
European Community and the US, the Reagan administration targeted the
Yugoslav economy in a "Secret Sensitive" 1984 National Security Decision
Directive (NSDD 133), "United States Policy toward Yugoslavia." A censored
version declassified in 1990 largely elaborated on NSDD 54 on Eastern
Europe, issued in 1982. The latter advocated "expanded efforts to promote a
`quiet revolution' to overthrow Communist governments and parties" while
reintegrating the countries of Eastern Europe into a market-oriented economy.

The US had earlier joined Belgrade's other international creditors in
imposing a first round of macroeconomic reform in 1980, shortly before the
death of Marshall Tito. Successive IMF-sponsored programs since then
continued the disintegration of the industrial sector and the piecemeal
dismantling of the Yugoslav welfare state. Debt restructuring agreements
increased foreign debt, and a mandated currency devaluation also hit hard
at Yugoslavs' standard of living.

This initial round of restructuring set the pattern. Throughout the 1980s,
the IMF prescribed further doses of its bitter economic medicine
periodically as the Yugoslav economy slowly lapsed into a coma. Industrial
production declined to a negative 10 percent growth rate by 1990--with all
its predictable social consequences.

Mr. Markovic Goes to Washington

In autumn 1989, just before the fall of the Berlin Wall, Yugoslav federal
Premier Ante Markovic met in Washington with President George Bush to cap
negotiations for a new financial aid package. In return for assistance,
Yugoslavia agreed to even more sweeping economic reforms, including a new
devalued currency, another wage freeze, sharp cuts in government spending,
and the elimination of socially-owned, worker-managed companies. The
Belgrade nomenklatura, with the assistance of Western advisers, had laid
the groundwork for the prime minister's mission by implementing beforehand
many of the required reforms, including a major liberalization of foreign
investment legislation.

"Shock therapy" began in January 1990. Although inflation had eaten away at
earnings, the IMF ordered that wages be frozen at their mid-November 1989
level. Prices continued to rise unabated, and real wages collapsed by 41
percent in the first six months of 1990.

The IMF also effectively controlled the Yugoslav central bank. Its tight
money policy further crippled federal Yugoslavia's ability to finance its
economic and social programs. State revenues that should have gone as
transfer payments to the republics and provinces went instead to service
Belgrade's debt with the Paris and London clubs. The republics were largely
left to their own devices.

In one fell swoop, the reformers engineered the final collapse of
Yugoslavia's federal fiscal structure and mortally wounded its federal
political institutions. By cutting the financial arteries between Belgrade
and the republics, the reforms fueled secessionist tendencies that fed on
economic factors as well as ethnic divisions and virtually ensured the de
facto secession of the republics. The IMF-induced budgetary crisis created
an economic fait accompli that paved the way for Croatia's and Slovenia's
formal secession in June 1991.

Crushed by the Invisible Hand

The reforms demanded by Belgrade's creditors also struck at the heart of
Yugoslavia's system of socially-owned and worker- managed enterprises. As
one observer noted, "The objective was to subject the Yugoslav economy to
massive privatization and the dismantling of the public sector. The
Communist Party bureaucracy, most notably its military and intelligence
sector, was canvassed specifically and offered political and economic
backing on the condition that wholesale scuttling of social protections for
Yugoslavia's workforce was imposed."

It was an offer that a desperate Yugoslavia could not refuse. Advised by
Western lawyers and consultants, Markovic's government passed financial
legislation that forced "insolvent" businesses into bankruptcy or
liquidation. Under the new law, if a business were unable to pay its bills
for 30 days running, or for 30 days within a 45-day period, the government
would launch bankruptcy procedures within the next 15 days.

The assault on the socialist economy also included a new banking law
designed to trigger the liquidation of the socially owned "Associated
Banks." Within two years, more than half the country's banks had vanished,
to be replaced by newly-formed "independent profit-oriented institutions."

These changes in the legal framework, combined with the IMF's tight money
policy toward industry and the opening of the economy to foreign
competition, accelerated industrial decline. From 1989 through September
1990, more than a thousand companies went into bankruptcy. By 1990, the
annual rate of growth of GDP had collapsed to -7.5 percent. In 1991, GDP
declined by a further 15 percent, while industrial output shrank by 21

The IMF package unquestionably precipitated the collapse of much of
Yugoslavia's well-developed heavy industry. Other socially-owned
enterprises survived only by not paying workers. More than half a million
workers still on company payrolls did not get regular paychecks in late
1990. They were the lucky ones. Some 600,000 Yugoslavs had already lost
their jobs by September 1990, and that was only the beginning. According to
the World Bank, another 2,435 industrial enterprises, including some of the
country's largest, were slated for liquidation. Their 1.3 million
workers--half the remaining industrial workforce--were "redundant."

As 1991 dawned, real wages were in free fall, social programs had
collapsed, and unemployment ran rampant. The dismantling of the industrial
economy was breath-taking in its magnitude and brutality. Its social and
political impact, while not as easily quantified, was tremendous. "The pips
are squeaking," as London's patrician Financial Times put it.

Less archly, Yugoslav President Borisav Jovic warned that the reforms were
"having a markedly unfavourable impact on the overall situation in society
. . . Citizens have lost faith in the state and its institutions . . . The
further deepening of the economic crisis and the growth of social tensions
has had a vital impact on the deterioration of the political-security

The Political Economy of Disintegration

Some Yugoslavs joined together in a doomed battle to prevent the
destruction of their economy and polity. As one observer found, "worker
resistance crossed ethnic lines, as Serbs, Croats, Bosnians and Slovenians
mobilized . . . shoulder to shoulder with their fellow workers." But the
economic struggle also heightened already tense relations among the
republics--and between the republics and Belgrade.

Serbia rejected the austerity plan outright, and some 650,000 Serbian
workers struck against the federal government to force wage hikes. The
other republics followed different and sometimes self-contradictory paths.

In relatively wealthy Slovenia, for instance, secessionist leaders such as
Social Democratic party chair Joze Pucnik supported the reforms: "From an
economic standpoint, I can only agree with socially harmful measures in our
society, such as rising unemployment or cutting workers' rights, because
they are necessary to advance the economic reform process."

But at the same time, Slovenia joined other republics in challenging the
federal government's efforts to restrict their economic autonomy. Both
Croatian leader Franjo Tudjman and Serbia's Slobodan Milosevic joined
Slovene leaders in railing against Yugoslavia's attempts to impose harsh

In the multi-party elections in 1990, economic policy was at the center of
the political debate as separatist coalitions ousted the Communists in
Croatia, Bosnia and Slovenia. Just as economic collapse spurred the drift
toward separation, the separation in turn exacerbated the economic crisis.
Cooperation among the republics virtually ceased. And with the republics at
each others' throats, both economy and the nation itself embarked on a
vicious downward spiral.

The process sped downward as the republican leaderships deliberately
fostered social and economic divisions to strengthen their own hands: "The
republican oligarchies, who all had visions of a `national renaissance' of
their own, instead of choosing between a genuine Yugoslav market and
hyperinflation, opted for war which would disguise the real causes of the
economic catastrophe."

The simultaneous appearance of militias loyal to secessionist leaders only
hastened the descent into chaos. These militias, with their escalating
atrocities, not only split the population along ethnic lines, they also
fragmented the workers' movement.

Western Help

The austerity measures had laid the basis for the recolonization of the
Balkans. Whether that required the breakup of Yugoslavia was subject to
debate among the Western powers, with Germany leading the push for
secession and the US, fearful of opening a nationalist pandora's box,
originally arguing for Yugoslavia's preservation.

Following Franjo Tudjman's and the rightist Democratic Union's decisive
victory in Croatia in May 1990, German Foreign Minister Hans Dietrich
Genscher, in almost daily contacts with his counterpart in Zagreb, gave his
go-ahead for Croatian secession. Germany did not passively support
secession; it "forced the pace of international diplomacy" and pressured
its Western allies to recognize Slovenia and Croatia. Germany sought a free
hand among its allies "to pursue economic dominance in the whole of

Washington, on the other hand, favored "a loose unity while encouraging
democratic development . . .  Secretary of State] Baker told Tudjman and
[Slovenia's President] Milan Kucan that the United States would not
encourage or support unilateral secession . . . but if they had to leave,
he urged them to leave by a negotiated agreement."

Instead, Slovenia, Croatia, and finally, Bosnia fought bloody civil wars
against "rump" Yugoslavia (Serbia and Montenegro) or Serbian nationalists
or both. But now, the US has belatedly taken an active diplomatic role in
Bosnia, strengthened its relations with Croatia, and Macedonia, and
positioned itself to play a leading role in the region's economic and
political future.

The Post-War Regime

Western creditors have now turned their attention to Yugoslavia's successor
states. As with the demise of Yugoslavia, the economic aspects of post-war
reconstruction remain largely unheralded, but the prospects for rebuilding
the newly independent republics appear bleak. Yugoslavia's foreign debt has
been carefully divided and allocated to the successor republics, which are
now strangled in separate debt rescheduling and structural adjustment

The consensus among donors and international agencies is that past
macroeconomic reforms adopted under IMF advice had not quite met their goal
and further shock therapy is required to restore "economic health" in
Yugoslavia's successor states. Croatia and Macedonia have followed the
IMF's direction. Both have agreed to loan packages--to pay off their shares
of the Yugoslav debt--which require a consolidation of the process begun
with Ante Markovic's bankruptcy program. The too familiar pattern of plant
closings, induced bank failures, and impoverishment continues apace.

And global capital applauds. Despite an emerging crisis in social welfare
and the decimation of his economy, Macedonian Finance Minister Ljube
Trpevski proudly informed the press that "the World Bank and the IMF place
Macedonia among the most successful countries in regard to current
transition reforms".

The head of the IMF mission to Macedonia, Paul Thomsen, agreed. He avowed
that "the results of the stabilization program were impressive" and gave
particular credit to "the efficient wages policy" adopted by the Skopje
government. Still, his negotiators added, even more budget cutting will be

But Western intervention is making its most serious inroads on national
sovereignty in Bosnia. The neo-colonial administration imposed by the
Dayton accords, supported by NATO's firepower, ensures that Bosnia's future
will be determined in Washington, Bonn, and Brussels-not Sarajevo.

Reconstruction Colonial Style

If Bosnia is ever to emerge from the ravages of war and neo- colonialism,
massive reconstruction will be essential. But judging by recent Balkan
history, Western assistance is more likely to drag Bosnia into the Third
World rather than lift it to parity with its European neighbors.

The Bosnian government estimates that reconstruction costs will reach $47
billion. Western donors have pledged $3 billion in reconstruction loans,
yet only $518 million dollars have so far been granted. Part of this money
is tagged to finance some of the local civilian costs of IFOR's military
deployment and part to repay international creditors.

Fresh loans will pay back old debt. The Central Bank of the Netherlands has
generously provided "bridge financing" of $37 million to allow Bosnia to
pay its arrears with the IMF, without which the IMF will not lend it fresh
money. But in a cruel and absurd paradox, the sought-after loans from the
IMF's newly created "Emergency Window" for "post-conflict countries" will
not be used for post-war reconstruction. Instead, they will repay the Dutch
Central Bank, which had coughed up the money to settle IMF arrears in the
first place. Debt piles up, and little new money goes for rebuilding
Bosnia's war-torn economy.

While rebuilding is sacrificed on the altar of debt repayment, Western
governments and corporations show greater interest in gaining access to
strategic natural resources. With the discovery of energy reserves in the
region, the partition of Bosnia between the Federation of
Bosnia-Herzegovina and the Bosnian-Serb Republika Srpska under the Dayton
accords has taken on new strategic importance. Documents in the hands of
Croatia and the Bosnian Serbs indicate that coal and oil deposits have been
identified on the eastern slope of the Dinarides Thrust, retaken from rebel
Krajina Serbs by the US-backed Croatian army in the final offensives before
the Dayton accords. Bosnian officials report that Chicago-based Amoco was
among several foreign firms that subsequently initiated exploratory surveys
in Bosnia.

"Substantial" petroleum fields also lie in the Serb-held part of Croatia
just across the Sava river from Tuzla, the headquarters for the US military
zone. Exploration operations went on during the war, but the World Bank and
the multinationals which conducted the operations kept local governments in
the dark, presumably to prevent them from acting to grab potentially
valuable areas.

With their attention devoted to debt repayment and potential energy
bonanzas, the Western powers have shown little interest in rectifying the
crimes committed under the rubric of ethnic cleansing. The 70,000 NATO
troops on hand to "enforce the peace" will accordingly devote their efforts
to administering the partition of Bosnia in accordance with Western
economic interests rather than restoring the status quo ante.

While local leaders and Western interests share the spoils of the former
Yugoslav economy, they have entrenched socio-ethnic divisions in the very
structure of partition. This permanent fragmentation of Yugoslavia along
ethnic lines serves to thwart a united resistance of Yugoslavs of all
ethnic origins against the recolonization of their homeland.

But what's new? As one observer caustically noted, all of the leaders of
Yugoslavia's successor states have worked closely with the West: "All the
current leaders of the former Yugoslav republics were Communist Party
functionaires and each in turn vied to meet the demands of the World Bank
and the International Monetary Fund, the better to qualify for investment
loans and substantial perks for the leadership."

Concluding Remarks

Western-backed neoliberal macroeconomic restructuring helped destroy
Yugoslavia. Yet, since the onset of war in 1991, the global media has
carefully overlooked or denied its central role. Instead, it has joined the
chorus singing praises of the free market as the basis for rebuilding a
war-shattered economy. The social and political impact of economic
restructuring in Yugoslavia has been carefully erased from our collective
understanding. Opinion-makers instead dogmatically present cultural,
ethnic, and religious divisions as the sole cause of the crisis. In
reality, they are the consequence of a much deeper process of economic and
political fracturing.

This false consciousness not only masks the truth, it also prevents us from
acknowledging precise historical occurrences.

Ultimately it distorts the true sources of social conflict. When applied to
the former Yugoslavia, it obscures the historical foundations of South
Slavic unity, solidarity and identity. But this false consciousness lives
worldwide, where  the only possible world is one of shuttered factories,
jobless workers, and gutted social programs, and "bitter economic medicine"
is the only prescription.

At stake in the Balkans are the lives of millions of people. Macroeconomic
reform there has destroyed livelihoods and made a joke of the right to
work. It has put basic needs such as food and shelter beyond the reach of
many. It has degraded culture and national identity. In the name of global
capital, borders have been redrawn, legal codes rewritten, industries
destroyed, financial and banking systems dismantled, social programs
eliminated. No alternative to global capital, be it market socialism or
"national" capitalism, will be allowed to exist.

But what happened to Yugoslavia--and now continues in its weak successor
states--should resonate beyond the Balkans. Yugoslavia is a mirror for
similar economic restructuring programs in not only the developing world
but also in the US, Canada and Western Europe.

The Yugoslav reforms are the cruel reflection of a destructive economic
model pushed to the extreme.

    Michel Chossudovsky

    Department of Economics,
    University of Ottawa,
    Ottawa, K1N6N5

    Voice box: 1-613-562-5800, ext. 1415
    Fax: 1-514-425-6224
    E-Mail: chossudovsky@sprint.ca

Recent articles by Chossudovsky on the global economic crisis at:

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