The Ignored Dimensions of Balkan Disintegration
Jude Wanniski
March 31, 1999


To: Website fans, browsers and interested parties
From: Jude Wanniski
Re: Kosovo Crisis

Michel Chossudovsky, professor of economics at the University of Ottawa, Canada, is one of the few scholars and analysts who properly identifies the dissolution and strife in the Balkans as a consequence of IMF-imposed economic austerity programs on Yugoslavia. We always have appreciated his acumen, integrity, and informed insights on matters pertaining to the Balkans. The following are excerpts we have taken from a text he wrote 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 chapter 13 of Prof. Chossudovsky's book, The Globalisation of Poverty, Impacts of IMF and World Bank Reforms, Third World Network, Penang and Zed Books, London, 1997. His study provides the proper context for understanding the current crisis regarding Kosovo. The IMF-imposed economic reforms in Yugoslavia were conducive to the concurrent impoverishment of populations and to the fueling of ethnic tensions. Kosovo is the current consequence spawned by those policies


By Michel Chossudovsky

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 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.

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. In the eyes of the global media, Western powers bear no responsibility for the impoverishment and destruction of a nation of 24 million people.

Multi-ethnic, socialist Yugoslavia was once a regional industrial power and economic success 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. 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.

"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.

[IMF-imposed]...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 minus 7.5 percent. In 1991, GDP declined by a further 15 percent, while industrial output shrank by 21 percent.

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 situation."

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. 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 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. 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.

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.