Yugoslavia Gets Shock Therapy

excerpted from the book

A Century of War

Anglo-American Oil Politics and the New World Order

by William Engdahl

Pluto Press, 2004, paperback (original edition 1992)


Well before the Soviet Union was treated to American-made economic 'shock therapy,' the Balkans had been targeted for U.S. intervention. 'he importance of destroying the Yugoslav economic model was a major reason for Washington's early focus on Yugoslavia. As events developed into the mid 1990s, the strategic position of Yugoslavia in regard to the potential oil sources of central Asia became increasingly important for Washington. Oil and the dollar in effect played decisive roles in Washington's Balkan politics through the latter half of the 1990s, though not in the simplistic way critics in the West suspected.

Well before the fall of the Berlin Wall, Washington was busy at work in what was then Yugoslavia, working in tandem with the IMF once again. Balkan nationalism was being manipulated from the outside to transform the map of Eurasia into what it had been in the years before the First World War, when British and other interests, intent on dismantling the Ottoman Empire and stopping Germany's Baghdad railway dreams, had intervened.

The obvious aim now was to fragment Yugoslavia into dependent, tiny states, and to open a foothold for NATO and the United States at the crossroads between western Europe and central Asia. Oil and
politics were again in the forefront for Washington.

Ironically, with the dismantling of the Warsaw Pact in the early 1990s, the very reason for the continued existence of NATO appeared to vanish. What threat could justify continuation of the 1949 cold war alliance, or a permanent U.S. military presence across western Europe, let alone a further extension to the east? Many hoped NATO might be dismantled once it was clear the Soviet threat had gone. But Washington strategists had begun to devise a new mission for NATO, even before the collapse of the Soviet regime.

The new proposed NATO mandate was termed 'NATO out of area deployment,' meaning well beyond the borders of NATO member states. This new mandate was later coupled, in 1994, with a Washington 'Partnership for Peace/ a scheme to integrate the military defense of former Warsaw Pact members, stepwise, into a U.S.-led NATO. Republican Senator Richard Lugar posed the dilemma facing the U.S.-dominated NATO at the end of the cold war with the phrase, 'NATO: out of area, or out of business.' Conveniently, the Balkan wars were to give Washington a much-needed argument to extend NATO. The process was to last more than a decade.

For over 40 years, Washington had quietly supported Yugoslavia, and the Tito model of mixed socialism, as a buffer against the Soviet Union. As Moscow's empire began to fall apart, Washington had no more use for a buffer-especially a nationalist buffer which was economically successful, one that might convince neighboring states in eastern Europe that a middle way other than IMF shock therapy was possible. The Yugoslav model had to be dismantled, for this reason alone, in the eyes of top Washington strategists. The fact that Yugoslavia also lay on a critical path to the potential oil riches of central Asia merely added to the argument. Yugoslavia must be brought, kicking and screaming if need be, into the IMF version of free-market reform. NATO would secure the deal.

Already in 1988, as it became clear that the Soviet system was on its last legs, Washington had sent in advisers to Yugoslavia from a curious, private, non-profit organization with the high-sounding name, the National Endowment for Democracy, or NED as it was known in Washington circles. That 'private' organization began handing out generous doses of dollars in every corner of Yugoslavia, financing opposition groups, buying up hungry young journalists with dreams of a new life, and financing trade union opposition, pro-IMF opposition economists such as the G-17, and human rights NGOs.

Speaking in Washington in 1998, ten years later, and one year before NATO began bombing Belgrade, NED director Paul McCarthy boasted, 'NED was one of the few Western organizations, along with the Soros Foundation and some European foundations, to make grants in the Federal Republic of Yugoslavia, and to work with local NGO's and independent media throughout the country.' During the cold war, such internal intervention in a foreign country would have been labeled a CIA destabilization. In Washington newspeak, it was called, 'the fostering of democracy.' The result, for the living standard of Serbs, Kosovans, Bosnians, Croats and others, was disastrous.

What ensued in Yugoslavia after 1990 was understood by only a few insiders for what it was. Washington, using the NED, George Soros's Open Society Foundation and the IMF, introduced economic chaos into Yugoslavia as an instrument of geopolitical policy. In 1989, the IMF demanded that the prime minister, Ante Markovic, impose structural reform on the economy. For whatever reasons, he did.

Under the IMF policies, the Yugoslavian GDP sank in 1990 by 7.5 per cent, and by another 15 per cent in 1991. Industrial production plunged 21 per cent. The IMF demanded wholesale privatization of state enterprises. The result was the bankruptcy of more than 1,100 companies by 1990, and more than 20 per cent unemployment. The economic pressure on the various regions of the country created an explosive cocktail. Predictably, amid growing economic chaos, each region fought for its own survival, against its neighbors. Leaving nothing to chance, the IMF ordered all wages to be frozen at 1989 levels, while inflation rose dramatically, leading to a fall in real earnings of 41 per cent by the first six months of 1990. By 1991, inflation was over 140 per cent. In this situation, the IMF ordered full convertibility of the dinar and the freeing of interest rates. The IMF explicitly prevented the Yugoslav government from obtaining credit from its own central bank, crippling the ability of the central government to finance social and other programs. This freeze created a de facto economic secession, well before the formal declaration of secession by Croatia and Slovenia in June 1991.

In November 1990, under pressure from the Bush administration, the U.S. Congress passed the Foreign Operations Appropriations Act. The new U. S. law provided that any part of Yugoslavia failing to declare independence from Yugoslavia within six months of the act would lose all U.S. financial support. The law demanded separate elections, supervised by the U.S. State Department, in each of the six Yugoslav republics. It also stipulated that any aid go directly to each republic, and not to the central Yugoslav government in Belgrade. In short, the Bush administration demanded the self-dissolution of the Yugoslav Federation. They were deliberately lighting the fuse to an explosive new series of Balkan wars.

Using groups such as the Soros Foundation and NED, Washington financial support was channeled into often extreme nationalist or former fascist organizations that would guarantee a dismemberment of Yugoslavia. Reacting to this combination of IMF shock therapy and direct Washington destabilization, the Yugoslav president, Serb nationalist Slobodan Milosevic, organized a new Communist Party in November 1990, dedicated to prevent the breakup of the federated Yugoslav Republic. The stage was set for a gruesome series of regional ethnic wars which would last a decade and result in the deaths of more than 200,000 people.

The economic heat was being turned up on the tiny but strategic Balkan country, and the Bush administration was doing the r turning. In 1992 Washington imposed a total economic embargo on Yugoslavia, freezing all trade and plunging the economy into chaos, with hyperinflation and 70 per cent unemployment as the result. The Western public, above all in the United States, was told by the establishment media that the problems were all a result of a corrupt Belgrade dictatorship. The American media chose rarely if ever to mention the provocative Washington actions, or the IMF policies which were driving events in the Balkans.

In 1995, the Dayton accord brought an end to the war in Bosnia. This coincided with the point at which the Clinton administration became convinced of the strategic importance of Caspian oil, and the extent of EU efforts to secure that oil for Europe via Balkan pipelines. Washington decided apparently that peace in the region was needed to develop oil routes from the Caspian into Europe. But it was to be 'peace' on Washington's terms.

After Dayton, Bosnia, once multiethnic, was established as a de facto Muslim state, in effect a client state under control of the IMF and of NATO. The Clinton administration had largely financed the arming of the Bosnian Muslim army. The depiction of the war in the international media maximized the impression of European Union powerlessness to settle a major war on its borders without America's intervention. Washington's argument for extending NATO eastward advanced significantly in the process. Hungary, Poland and the Czech Republic became prospective NATO partners, something inconceivable just five years earlier.

Soon the Clinton administration went to work on the next stage of dismantling any nationalist residue in the Balkans that might have a different agenda for the region than that of Washington. American and British oil companies scrambled to exploit the potentially vast oil reserves believed to lie under the Caspian Sea off Baku, and bordering Kazakhstan in central Asia. Geologists spoke of a 'new Kuwait or Saudi Arabia' there. The U.S. government estimated oil reserves could be in excess of 200 billion barrels-if true, the largest oil discovery in decades. Zbigniew Brzezinski, a well-paid Washington lobbyist, represented the interests of BP, the Anglo-American oil giant with a major stake in the Caspian oil region.

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