-Caveat Lector-
DISMANTLING FORMER YUGOSLAVIA,
RECOLONISING BOSNIA
by Michel Chossudovsky
The author is Professor of Economics at the University of Ottawa.
Copyright by Michel Chossudovsky, Ottawa, 1996. This text can
be posted. For publication in printed form kindly request
permission from the author: E-Mail:[EMAIL PROTECTED], fax:
1-613-7892050.
As heavily-armed 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 saviour of
the Southern Slavs and get on with "the work of rebuilding" the newly
sovereign states.
But following a pattern set since the onslaught of the civil war, Western public
opinion has been misled. The conventional wisdom, exemplified by the
writings of former US Ambassador to Yugoslavia Robert Zimmermann, is
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.1 Likewise, much has been made of the "Balkans power-play" and
the clash of political personalities: "Tudjman and Milosevic are tearing
Bosnia-Herzegovina to pieces".2
Drowned 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 has long been 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, pursuing their collective and
individual "strategic interests" helped from the beginning of the 1980s, bring
the Yugoslav economy to its knees, contributing to stirring simmering ethnic
and social conflicts. Now, the efforts of the international financial community
are channelled towards "helping Yugoslavia's war-ravaged successor
states". Yet while the World's attention is focused on troop movements and
cease fires, creditors and international financial institutions are busy at work
collecting former Yugoslavia's external debt, while transforming the Balkans
into a safe-haven for free enterprise.
Adopted in several stages since the early 1980s, the reforms imposed by
Belgrade's creditors wreaked economic and political havoc leading to
disintegration of the industrial sector and the piece-meal dismantling of the
Yugoslav Welfare State. Despite Belgrade's political non-alignment and
extensive trading relations with the US and the European Community, the
Reagan administration had targeted the Yugoslav economy in a "Secret
Sensitive" 1984 National Security Decision Directive (NSDD 133) entitled
"United States Policy towards Yugoslavia". A censored version of this
document declassified in 1990 largely conformed to a previous National
Security Decision Directive (NSDD 54) on Eastern Europe issued in 1982.
Its objectives included "expanded efforts to promote a `quiet revolution' to
overthrow Communist governments and parties"... while reintegrating the
countries of Eastern Europe into the orbit of the World market.3
Secessionist tendencies feeding on social and ethnic divisions, gained
impetus precisely during a period of brutal impoverishment of the Yugoslav
population. The first phase of macro-economic reform initiated in 1980
shortly before the death of Marshall Tito "wreaked economic and political
havoc... Slower growth, the accumulation of foreign debt and especially the
cost of servicing it as well as devaluation led to a fall in the standard of
living
of the average Yugoslav... The economic crisis threatened political stability ...
it also threatened to aggravate simmering ethnic tensions".4 These reforms
accompanied by the signing of debt restructuring agreements with the official
and commercial creditors also served to weaken the institutions of the
federal State creating political divisions between Belgrade and the
governments of the Republics and Autonomous Provinces. "The Prime
Minister Milka Planinc, who was supposed to carry out the programme, had
to promise the IMF an immediate increase of the discount rates and much
more for the Reaganomics arsenal of measures..."5
Following the initial phase of macro-economic reform in 1980, industrial
growth plummeted to 2.8 percent in the 1980-87 period, plunging to zero in
1987-88 and to -10.6 percent in 1990.6 The economic reforms reached their
climax under the pro-US government of Prime Minister Ante Markovic. In the
Autumn of 1989 just prior to the collapse of the Berlin Wall, the federal
Premier had travelled to Washington to meet President George Bush. A
"financial aid package" had been promised in exchange for sweeping
economic reforms including a new devalued currency, the freeze of wages, a
drastic curtailment of government expenditure and the abrogation of the
socially owned enterprises under self-management.7 The "economic
therapy" (launched in January 1990) contributed to crippling the federal State
system. State revenues which should have gone as transfer payments to the
republics and autonomous provinces were instead funnelled towards
servicing Belgrade's debt with the Paris and London clubs. The republics
were largely left to their own devices thereby exacerbating the process of
political fracturing. In one fell swoop, the reformers had engineered the
demise of the federal fiscal structure and mortally wounded its federal
political institutions. The IMF induced budgetary crisis created an economic
"fait accompli" which in part paved the way for Croatia's and Slovenia's
formal secession in June 1991. The Agreement with the IMF
The economic package was launched in January 1990 under an IMF
Stand-by Arrangement (SBA) and a World Bank Structural Adjustment Loan
(SAL II). The budget cuts requiring the redirection of federal revenues
towards debt servicing, were conducive to the suspension of transfer
payments by Belgrade to the governments of the Republics and Autonomous
Provinces thereby fuelling the process of political balcanisation and
secessionism. The government of Serbia rejected Markovic's austerity
programme outright leading to a walk-out protest of some 650,000 Serbian
workers directed against the Federal government.8 The Trade Union
movement was united in this struggle: "worker resistance crossed ethnic
lines, as Serbs, Croats, Bosnians and Slovenians mobilised (...) shoulder to
shoulder with their fellow workers (...).9
The 1989 Enterprise Reforms
The 1989 enterprise reforms adopted under Premier Ante Markovic played
a central role in steering the industrial sector into bankruptcy. By 1990, the
annual rate of growth of GDP had collapsed to -7.5 percent.10 In 1991, GDP
declined by a further 15 percent, industrial output collapsed by 21 percent.11
The restructuring programme demanded by Belgrade's creditors was
intended to abrogate the system of socially owned enterprises. The
Enterprise Law of 1989 required abolishing the "Basic Organizations of
Associated Labour (BAOL)".12 The latter were socially-owned productive
units under self-management with the Workers' Council constituting the main
decision making body. The 1989 Enterprise Law required the transformation
of the BOALs into private capitalist enterprises with the Worker's Council
replaced by a so-called "Social Board" under the control of the enterprise's
owners including its creditors.13 "The objective was to subject the Yugoslav
economy to massive privatisation and the dismantling of the public sector.
Who was to carry it out? 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...".14
Overhauling The Legal Framework
A number of supporting pieces of legislation were put in place in a hurry with
the assistance of Western lawyers and consultants. A new Banking Law was
enacted with a view to triggering the liquidation of the socially owned
"Associated Banks". More than half the country's banks were dismantled, the
emphasis was on the formation of "independent profit oriented
institutions".15 By 1990, the entire "three-tier banking system" consisting of
the National Bank of Yugoslavia, the national banks of the eight Republics
and autonomous provinces and the commercial banks had been dismantled
under the guidance of the World Bank.16 A World Bank Financial Sector
Adjustment Loan was being negotiated in 1990. It was to be adopted by the
Belgrade government in 1991...
The Bankruptcy Programme
Industrial enterprises had been carefully categorised. Under the IMF-World
Bank sponsored reforms, credit to the industrial sector had been frozen with
a view to speeding up the bankruptcy process. So-called "exit mechanisms"
had been established under the provisions of the 1989 Financial Operations
Act.17 The latter stipulated that if an enterprise were to remain insolvent for
30 days running, or for 30 days within a 45 day period, it must hold a meeting
within the next 15 days with its creditors in view of arriving at a settlement.
This mechanism allowed creditors (including national and foreign banks) to
routinely convert their loans into a controlling equity in the insolvent
enterprise. Under the Act, the government was not authorised to intervene. In
case a settlement was not reached, bankruptcy procedures would be
initiated in which case workers would not normally receive severance
payments.18
In 1989, according to official sources, 248 firms were steered into
bankruptcy or were liquidated and 89,400 workers had been laid off.19
During the first nine months of 1990 directly following the adoption of the IMF
programme, another 889 enterprises with a combined work-force of 525,000
workers were subjected to bankruptcy procedures.20 In other words, in less
than two years "the trigger mechanism" (under the Financial Operations Act)
had led to the lay off of more than 600,000 workers (out of a total industrial
workforce of the order of 2.7 million). The largest concentrations of bankrupt
firms and lay-offs were in Serbia, Bosnia-Herzegovina, Macedonia and
Kosovo.21
Many socially owned enterprises attempted to avoid bankruptcy through the
non payment of wages. Half a million workers representing some 20 percent
of the industrial labour force were not paid during the early months of 1990,
in order to meet the demands of creditors under the "settlement" procedures
stipulated in the Law on Financial Organisations. Real earnings were in a
free fall, social programmes had collapsed, with the bankruptcies of
industrial enterprises, unemployment had become rampant, creating within
the population an atmosphere of social despair and hopelessness. "When
Mr. Markovic finally started his "programmed privatisation", 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".22
The January 1990 IMF sponsored package contributed unequivocally to
increasing enterprise losses while precipitating many of the large electric,
petroleum refinery, machinery, engineering and chemical enterprises into
bankruptcy. Moreover, with the deregulation of the trade regime in January
1990, a flood of imported commodities contributed to further destabilising
domestic production. These imports were financed with borrowed money
granted under the IMF package (ie. the various "quick disbursing loans"
granted by the IMF, the World Bank and bilateral donors in support of the
economic reforms). While the import bonanza was fuelling the build-up of
Yugoslavia's external debt, the abrupt hikes in interest rates and input prices
imposed on national enterprises had expedited the displacement and
exclusion of domestic producers from their own national market.
"Shedding Surplus Workers"
The situation prevailing in the months preceding the Secession of Croatia
and Slovenia (June 1991) (confirmed by the 1989-90 bankruptcy figures)
points to the sheer magnitude and brutality of the process of industrial
dismantling. The figures, however, provide but a partial picture, depicting the
situation at the outset of the "bankruptcy programme". The latter has
continued unabated throughout the period of the civil War and its aftermath...
Similar industrial restructuring programmes were imposed by external
creditors on Yugoslavia's successor states.
The World Bank had estimated that there were still in September 1990,
2,435 "loss-making" enterprises out of a remaining total of 7,531.23 In other
words, these 2,435 firms with a combined work-force of more than 1,3
million workers had been categorised as "insolvent" under the provisions of
the Financial Operations Act, requiring the immediate implementation of
bankruptcy procedures. Bearing in mind that 600,000 workers had already
been laid off by bankrupt firms prior to September 1990, these figures
suggest that some 1.9 million workers (out of a total of 2.7 million) had been
classified as "redundant". The "insolvent" firms concentrated in the Energy,
Heavy Industry, Metal processing, Forestry and Textiles sectors were among
the largest industrial enterprises in the country representing (in September
1990) 49.7 percent of the total (remaining and employed) industrial
work-force.24
Political Disintegration
Supporting broad strategic interests, the austerity measures had laid the
basis for "the recolonisation" of the Balkans. In the multi-party elections in
1990, economic policy was at the centre of the political debate, the
separatist coalitions ousted the Communists in Croatia, Bosnia-Herzegovina
and Slovenia.
Following the decisive victory in Croatia of the rightist Democratic Union in
May 1990 under the leadership of Franjo Tudjman, the separation of Croatia
received the formal assent of the German Foreign Minister Mr. Hans Dietrich
Genscher who was in almost daily contact with his Croatian counterpart in
Zagreb.25 Germany not only favoured secession, it was also "forcing the
pace of international diplomacy" and pressuring its Western allies to grant
recognition to Slovenia and Croatia. The borders of Yugoslavia are
reminiscent of World War II when Croatia (including the territories of
Bosnia-Herzegovina) was an Axis satellite under the fascist Ustasa regime:
"German expansion has been accompanied by a rising tide of nationalism
and xenophobia... Germany has been seeking a free hand among its allies
to pursue economic dominance in the whole of Mitteleuropa..."26
Washington on the other hand, favoured "a loose unity while encouraging
democratic development... [the US Secretary of State] Baker told [Croatia's
President] Franjo 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"... 27
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