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Covert Action Quarterly


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 administration.

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 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.


Covert Action Quarterly, Spring 1996, No. 56
Web: http://www.covertaction.org/


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