‘Structural adjustment’ and dismemberment of Yugoslavia

By Nick Beams, Financial Express, Wednesday 28 April 1999

In all the acres of print and millions of hours of television programming devoted to the Balkan crisis, beginning with the dismemberment of the Yugoslav federation in 1991, there has been virtually no coverage, much less analysis, of its underlying causes.

The reasons for this silence are not hard to find, for such an analysis reveals that behind the propaganda smokescreen of humanitarian concerns for the fate of refugees and the victims of ethnic cleansing, powerful economic processes are driving the escalating military intervention.

In her 1995 study of the Balkan crisis, Susan Woodward took issue with the Washington scenario, according to which rogue states had emerged in the post-cold war world headed by ‘new Hitlers’ such as Saddam Hussein in Iraq and Slobodan Milosevic, who defied all norms of civilised behavior and had to be punished to protect those norms and to protect innocent people.

Neither was the break-up of Yugoslavia, she insisted, the result of the springing to life of ethnictensions and conflicts that had been held in a kind of deep freeze during the previous 40 years. Rather, the real origins of the breakdown of civil and political order lay in the economic decline caused largely by the debt repayment program imposed by the International Monetary Fund and other international financial institutions.

More than a decade of austerity and declining living standards corroded the social fabric and the rights and securities that individuals and families had come to rely on. Normal political conflicts over economic resources between central and regional governments and over the economic and political reforms of the debt-repayment package became constitutional conflicts and then a crisis of the state itself among politicians who were unwilling to compromise.

Jude Wanniski, a former associate editor of the Wall Street Journal, has forwarded a memo to US secretary of state Madeleine Albright consisting of a report prepared by the then Polyconomics staff member Criton Zoakosin May 1993. In 1987, Zoakos wrote, the old Yugoslavia, with all its tragic failings, as still a functioning state. The International Monetary Fund then took over economic policy, implementing a number of all too familiar shock therapies: devaluation, a wage freeze, and price decontrol—designed on the Harvard/MIT economic textbook principles meant to drive the wage rate down to a level where it would be internationally competitive. As the economy contracted from this shock, revenues to the central government declined, triggering pressure from the IMF to raise taxes to balance the budget.

These centrifugal forces began to tear apart at the federation, with the richer provinces of Croatia and Slovenia objecting to being drained of resources by the poorer provinces. Just as the USSR splintered as the IMF browbeat the Gorbachev government into a ruble devaluation, Yugoslavia broke into pieces as ethnic and religious rivalries were reasserted in an attempt to control the rapidly shrinking pool ofresources.... When the IMF shock therapy hit Yugoslavia, the initial form of social disorder was not ethnic friction but massive and repeated strikes and labor actions. Ordinary people turned into ethnic monsters only after all their options for a normal economic life were destroyed. ‘Ethnic cleansing’ arrived only after ‘shock therapy’ had done its work.

Economic devastation in Yugoslavia

The Yugoslav foreign debt, which stood at $2 billion in 1970, rose to $6 billion in 1975. By 1980 it stood at $20 billion, representing over a quarter of national income, with debt servicing taking up some 20 per cent of export revenue. Debt servicing and repayment led to an increased fracturing of the federal republic. Most of the industrial development had taken place in the north of the country, in Croatia and Slovenia, while the south supplied raw materials. As the relative prices of raw materials fell, so the economic inequalities between the republics increased, leading to increased tensions anddemands from the northern republics for greater autonomy. As the federal government was pressured by the IMF and other financial institutions to reduce foreign debt by expanding exports, the resultant diversion of production from home consumption led to a steady reduction of living standards throughout the 1980s.

Between 1979 and 1985 the real personal income of workers in the social sector had fallen by 25 per cent and by 1989 it is estimated that some 60 per cent of Yugoslav workers lived at or below the minimum level guaranteed by the state. The standard of living fell by 40 per cent from 1982 to 1989. This forced contraction of home consumption did bring about a fall in the foreign trade deficit from $7.2 billion to $0.6 billion between 1979 and 1988. But the rescheduling of debt meant that the debt was reduced by only $1 billion and by 1987 had risen once again to more than $20 million. Describing the operations of this economic treadmill, the British economist Michael Barratt Brown wrote: There seemed to be and indeed there was no hope. The same remedy was being administered to all the countries in debt in the Third World and in the communist world alike. ‘Export more and pay off your debts!' was the chorus of the World Bank and the IMF; and the more the debtor countries exported of the same, often mainly primary, products the more their prices in the world markets fell, while the prices of their imports from the industrialised countries and their rates of interest continued to rise.

The impact on Yugoslavia of the IMF dictates is indicated by the following figures. For the period 1966-79 the increase in industrial production had averaged 7.1 per cent per annum. After the first phase of macro-economic reform, it fell to 2.8 per cent in the period 1980-87, falling to zero in 1987-88 and then collapsing to -10.6 per cent in 1990. But even more severe measures were to come. In January 1990, an agreement signed with the IMF required expenditure cuts amounting to five per cent of gross domesticproduct.

As Chussodovsky's account of this process details, the results were nothing short of catastrophic. The freeze of all transfer payments to the republics had created a situation of ‘de facto secession.’ The implementation of these conditions (contained in the agreement signed with the IMF) was also part of the debt-rescheduling arrangements reached with the Paris and London clubs (the major Western financial institutions). The IMF-induced budgetary crisis had engineered the collapse of the federal fiscal structure. This situation acted in a sense as a fait accompli, prior to the formal declaration of secession by Croatia and Slovenia in June 1991. Political pressures on Belgrade by the European Community combined with the aspirations of Germany to draw the Balkans into its geo-political orbit had also encouraged the process of secession. Yet the economic and social conditions for the break-up of the federation resulting from 10 years of ‘structural adjustment’ had already been firmlyimplanted.

One of the major demands of the IMF was that the federal government and financial authorities should cease funding loss-making enterprises. In 1989 some 248 firms were liquidated and 89,400 workers were laid off. But more was to come. In the first nine months of 1990 a further 889 enterprises with 525,000 workers were subjected to bankruptcy proceedings, with the largest concentration of such firms in Serbia, Bosnia-Herzegovina, Macedonia and Kosovo.

A new colonisation

What these economic statistics underscore is that the current intervention by the Nato powers is nothing other than the continuation by other, that is, military means of the agenda carried out in the preceding period—the destruction of all the previous economic and social development in Yugoslavia and the transformation of the entire region into a kind of semi-colony.

Nowhere is this process more clearly seen than in Bosnia-Herzegovina. Under the Dayton accords of November 1995, these aims were writteninto the constitution of the new republic. The so-called High Representative appointed by the US and the European Union was given full executive power with authority to overrule the governments of both the Bosnian Federation and the Bosnian-Serb Republika Srpska.

Economic policy was placed in the hands of the major international financial institutions. The constitution stipulated that the first governor of the central bank of Bosnia Herzegovina was to be appointed by the IMF and shall not be a citizen of Bosnia and Herzegovina or a neighboring State ... Furthermore the central bank was not allowed to pursue an independent economic policy and for the first six years may not extend credit by creating money, operating in this respect as a currency board. That is, it could only issue paper currency where this was fully backed by holdings of foreign currency. International loans were not allowed to finance economic reconstruction but have been used to fund the military deployment under the Dayton agreementas well as repaying debts to international creditors.

Having secured the effective recolonisation of Bosnia Herzegovina, the imperialist powers, with the US in the lead, have now moved to extend this process to the rest of Yugoslavia.