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Analysis of the US-led Assault on Yugoslavia

March 29, 1999

A few weeks ago I reported on the fact that US oil companies

deliberately witheld vital information about hitherto unknown seismic 

dangers beneath the heavily overbuilt city of Los Angeles.

Here's another case of the results of seismic research being

witheld from the public. Makes the latest manufacured war in

Yugoslavia suddenly make even more sense. Probably the worst 

fate a region can have these days is to have "socialist tendencies"

and valuable resources in its ground. Kosovo has the largest

lead deposits in Europe and the largest coal deposits in the



"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."

- Michel Chossudovsky

Department of Economics, University of Ottawa




                      By Michel Chossudovsky

           Department of Economics, University of Ottawa

                         Ottawa, K1N6N5

               Voice box: 1-613-562-5800, ext. 1415

                       Fax: 1-514-425-6224


                              * * *

     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


     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


                              * * *

     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


     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 administration.


     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 market.


     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.


     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.


     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 percent.

     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


     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."


     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 therepublics -- 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 reforms.

     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


     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'



     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 Mitteleuropa."

     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



     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 agreements.

     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 necessary.

     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.


     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


     "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."


     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


     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.

                              * * *

     Copyright by Michel Chossudovsky, Ottawa, 1996.

     To reproduce this text, contact the author at:

     Michel Chossudovsky is 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.

Recent articles by Chossudovsky on the global economic crisis at:

                              * * *

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