The Soviet Union and the Balkans
New World Order
excerpted from the book
The Globalization of Poverty and
the New World Order
by Michel Chossudovsky
Global Research, 2003, paperback
[first edition 1997]
Multi-ethnic, socialist Yugoslavia was
once a regional industrial power and economic success. In the
two decades before 1980, annual gross domestic product (GDP) growth
averaged 6.1 percent, medical care was free, the rate of literacy
was 91 percent and life expectancy was 72 years. But after a decade
of Western economic ministrations and a decade of disintegration,
war, boycott and embargo, the economies of the former Yugoslavia
were prostrate, their industrial sectors dismantled.
Yugoslavia s implosion was partially due
to US machinations. Despite Belgrade's non-alignment and its extensive
trading relations with the European Community and the US, the
Reagan administration had targeted the Yugoslav economy in a "Secret
Sensitive" 1984 National Security Decision Directive (NSDD
133) entitled "US Policy towards Yugoslavia." A censored
version, declassified in 1990, elaborated on NSDD 64 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 macroeconomics
reform in 1980, shortly before the death of Marshall Tito. That
initial round of restructuring set the pattern.
Secessionist tendencies, feeding on social
and ethnic divisions, gained impetus precisely during a period
of brutal impoverishment of the Yugoslav population. The economic
reforms "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
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 [Federal]
Prime Minister Milka Planinc, who was supposed to carry out the
program, had to promise the IMF an immediate increase of the discount
rates and much more for the Reaganomics arsenal of measures. .
." And throughout the 1980s, the IMF and World Bank periodically
prescribed further doses of their bitter economic medicine as
the Yugoslav economy slowly lapsed into a coma.
From the outset, successive IMF sponsored
programs hastened the disintegration of the Yugoslav industrial
sector. 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 a negative 10 percent
growth rate by 1990.' This process was accompanied by the piecemeal
dismantling of the Yugoslav welfare state, with all the predictable
social consequences. Debt restructuring agreements, meanwhile,
increased foreign debt, and a mandated currency devaluation also
hit hard at Yugoslavs' standard of living.
From Bosnia to Kosovo
Economic and political dislocation has
been the pattern in the various stages of the Balkans war: from
the initial military intervention of NATO in Bosnia in 1992 to
the bombing of Yugoslavia on "humanitarian grounds"
in 1999. Bosnia and Kosovo are stages in the recolonization of
the Balkans. The pattern of intervention under NATO guns in Bosnia
under the Dayton Accords has been replicated in Kosovo under the
formal mandate of United Nations "peace-keeping".
In post-war Kosovo, state terror and the
"free market" go hand in hand. In close consultation
with NATO, the World Bank had carefully analyzed the consequences
of an eventual military intervention leading to the occupation
of Kosovo. Almost a year prior to the onslaught of the war, the
World Bank had conducted relevant "simulations" which
"anticipated the possibility of an emergency scenario arising
out of the tensions in Kosovo his suggests that NATO had already
briefed the World Bank at an early stage of military planning.
The Installation of a Mafia State
While Financier George Soros was investing
money in Kosovo reconstruction, the George Soros Foundation for
an Open Society had opened a branch office in Pristina establishing
the Kosovo Foundation for an Open Society (KFOS) as part of the
Soros' network of "non-profit foundations" in the Balkans,
Eastern Europe and the former Soviet Union. Together with the
World Bank's Post Conflict Trust Fund, the Kosovo Open Society
Foundation (KOSF) was providing "targeted support" for
"the development of local governments to allow them to serve
their communities in a transparent, fair and accountable manner""
Since most of these local governments are in the hands of the
KLA, which has extensive links to organized crime, this program
is unlikely to meet its declared objective."
In turn, "strong economic medicine"
imposed by external creditors has contributed to further boosting
a criminal economy (already firmly implanted in Albania) which
feeds on poverty and economic dislocation.
With Albania and Kosovo at the hub of
the Balkans drug trade, Kosovo was also slated to reimburse foreign
creditors through the laundering of dirty money. Narco-dollars
will be recycled towards servicing Kosovo's debt, as well as "financing"
the costs of "reconstruction". The lucrative flow of
narco-dollars thus ensures that foreign investors involved in
the "reconstruction" programme will be able reap substantial
Neoliberalism, the Only Possible World?
Administered in several doses since the
1980s, NATO-backed neo-liberal economic medicine has helped destroy
Yugoslavia. Yet, the global media has carefully overlooked or
denied its central role. Instead, they have 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 war and devastation. In reality, they are the consequence
of a much deeper process of economic and political fracturing.
Such 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
in what constituted a multi-ethnic society.
At stake in the Balkans are the lives
of millions of people. Macro-economic reform, combined with military
conquest and UN "peace keeping", 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 and social programs eliminated.
No alternative to global capital, be it Yugoslav "market
socialism" or "national capitalism", will be allowed
Structural Adjustment in the Developed
At the very heart of the crisis in the West are the markets for
public debt where hundreds of billions of dollars of government
bonds and Treasury bills are transacted on a daily basis. The
accumulation of large public debts has provided financial and
banking interests with "political leverage" as well
as the power to dictate government economic and social policy.
'Surveillance" by creditor institutions (without the formal
involvement of the IMF and the World Bank) is routinely enforced
in the European Union and North America. Since the 1990s, the
macro-economic reforms adopted in the developed countries contain
many of the essential ingredients of the "structural adjustment
programs" applied in the Third World and Eastern Europe.
Ministers of finance are increasingly expected to report to the
large investment houses and commercial banks. Targets for the
budget deficit are imposed. The Welfare State is slated to be
[The] dismantling of the state ... is
not limited to the privatization of public utilities, airlines,
telecoms and railways; corporate capital also aspires to privatize
health and education, and eventually acquire control over all
state-supported activities. Under WTO definition of "investment",
cultural activities, the performing arts, sports, municipal level
community services, etc. are slated to be transformed into moneymaking
operations. In turn, corporations vie to establish their control
over water, electricity, national highways, the inner-city road
network, national parks, etc.
Since the early 1980s, large amounts of
debt of large corporations and commercial banks have been conveniently
erased and transformed into public debt. This process of "debt
conversion" is a central feature of the crisis: business
and bank losses have been systematically transferred to the state.
During the merger boom of the late 1980s, the burden of corporate
losses was shifted to the state through the acquisition of bankrupt
enterprises. The latter could then be closed down and written
off as tax losses. In turn, the "non-performing loans"
of the large commercial banks were routinely written off and transformed
into pre-tax losses. The "rescue packages" for troubled
corporations and commercial banks were based on the principle
of shifting the burden of corporate debts onto the State Treasury.
In turn, the many state subsidies - rather
than stimulating job creation - were routinely used by large corporations
to finance their mega-mergers, introduce labor saving technology
and relocate production to the Third World.
While corporate taxes were curtailed, the new tax revenues appropriated
from the (lower and middle) salaried population had been recycled
towards the servicing of the public debt.' While the state was
collecting taxes from its citizens, "a tribute" was
being paid by the state (in the form of hand-outs and subsidies)
to big business.
The Cayman Islands, a British Crown colony in the Caribbean is
the fifth largest banking center in the world, i.e. ,. in terms
of the size of its deposits, most of which are by dummy or anonymous
Monetary policy no longer exists as a means of State intervention;
it largely belongs to the realm of private banking. In contrast
to the marked scarcity of state funds and the inability of the
State to finance government programmes through monetary policy,
"the creation of money" (implying a command over real
resources) occurs within the inner web of the international banking
system in accordance with the sole pursuit of private wealth.
Powerful financial actors not only have the ability of creating
and moving money without impediment, but also of manipulating
interests rates and precipitating the decline of major currencies...
What this signifies, in practice, is that central banks are no
longer able to regulate the creation of money in the broad interests
Under neoliberalism, Western social democracy has been steered
into a quandary: those elected to high office increasingly act
as puppets or bureaucrats acting on behalf of the financial establishment.
The State's creditors have become the depositaries of real political
power operating discretely behind the scenes. In turn, a uniform
economic discourse and ideology has unfolded. A "consensus"
on macro-economic reform extends across the entire political spectrum.
The fate of public policy is transacted on the US and Eurobond
markets, policy options are mechanically presented through the
same stylized economic slogans: "we must reduce the deficit,
we must combat inflation"; "the economy is overheating:
put on the brakes !"
In the United States, Democrats and Republicans
have joined hands; in the European Union, "socialist"
governments (not to mention the Greens in Germany) have become
the protagonists of "strong economic medicine". . .
Social Democrats, New Labor and former Communists have become
loyal servants of the financial establishment. Their "progressive"
rhetoric and their links to organized labor have made them more
"effective" in cutting social budgets and laying off
workers. The Social Democrats have become more astute and compliant
political brokers on behalf of the financial establishment than
their Liberal or Conservative counterparts.
The interests of the financial establishment
(particularly in the United States) have also permeated the top
echelons of the Treasury and the Bretton Woods institutions.
Marred by conflicts of interest, the state system in the West
is in crisis as a result of its ambiguous relationship to private
economic and financial interests. Under these conditions, the
practice of parliamentary democracy has become a ritual. No alternative
is offered to the electorate. Neoliberalism is an integral part
of the political platform of all major political parties. As in
a one party state, the results of the ballot have virtually no
impact on the actual conduct of state economic and social policy.
In 1993, a report of Germany's Bundesbank had warned that trade
in derivatives could potentially "trigger chain reactions
and endanger the financial system as a whole"
By 1995, the daily turnover of foreign exchange transactions (US
$1300 billion) had exceeded the world's official foreign exchange
reserves estimated at US $1202 billion.
Under the Financial Modernization Act adopted November 1999 -
barely a week before the historic Seattle Millenium Summit of
the World Trade Organization (WTO) - US lawmakers had set the
stage for a sweeping deregulation of the US banking system.
In the wake of lengthy negotiations, all
regulatory restraints on Wall Street's powerful banking conglomerates
were revoked "with a stroke of a pen - under the new rules
ratified by the US Senate and approved by President Clinton -
commercial banks, brokerage firms, hedge funds, institutional
investors, pension funds and insurance companies can freely invest
in each others businesses as well as fully integrate their financial
The legislation had repealed the Glass-Steagall
Act of 1933, a pillar of President Roosevelt's "New Deal"
which was put in place in response to the climate of corruption,
financial manipulation and "insider trading" which led
to more than 5,000 bank failures in the years following the 1929
Wall Street crash. Effective control over the entire US financial
services industry (including insurance companies, pension funds,
securities companies, etc.) had been transferred to a handful
of financial conglomerates - which are also the creditors and
shareholders of high tech companies, the defense industry, major
oil and mining consortia, etc. Moreover, as underwriters of the
public debt at federal, state and municipal levels, the financial
giants have also reinforced their stranglehold on politicians,
as well as their command over the conduct of public policy.
The "global financial supermarket"
is to be overseen by the Wall Street giants; competing banking
institutions are to be removed from the financial landscape. State
level banks across America will be displaced or bought up, leading
to a deadly string of bank failures. In turn, the supervisory
powers of the Federal Reserve Board (which are increasingly under
the direct dominion of Wall Street) have been significantly weakened
Free from government regulation, the financial
giants have the ability to strangle local-level businesses in
the US and overshadow the real economy. In fact, due to the lack
of competition, the legislation also entitles the financial services
giants (bypassing the Federal Reserve Board and acting tacit collusion
with one another) to set interest rates as they please.
While the 1999 US Financial Services Act does not in itself break
down remaining barriers to the free movement of capital, in practice,
it empowers Wall Street's key players, including Merrill Lynch,
Citigroup, J.P. Morgan, Lehman Brothers, etc., to develop a hegemonic
position in global banking, overshadowing and ultimately destabilizing
financial systems in Asia, Latin America and Eastern Europe.
Financial deregulation in the US has created
an environment which favors an unprecedented concentration of
global financial power. In turn, it has set the pace of global
financial and trade reform under the auspices of the IMF and the
World Trade Organization (WTO). The provisions of both the WTO
General Agreement on Trade in Services (GATS) and of the Financial
Services Agreement (FTA) imply the breaking down of remaining
impediments to the movement of finance capital meaning that Merrill
Lynch, Citigroup or Deutsche-Bankers Trust can go wherever they
please, triggering the bankruptcy of national banks and financial
The mega-banks have penetrated the financial landscape of developing
countries, taking control of banking institutions and financial
In practice the large US and European financial services giants
do not require the formal adoption of the GATS to be able to dominate
banking institutions worldwide, as well as overshadow national
governments. The process of global financial deregulation is,
in many regards, a fait accompli. Wall Street has routinely invaded
country after country. The domestic banking system has been put
on the auction block and reorganized under the surveillance of
external creditors. National financial institutions are routinely
destabilized and driven out of business; mass unemployment and
poverty are the invariable results.
[The] manipulation of market forces by powerful actors constitutes
a form of financial and economic warfare. No need to recolonize
lost territory or send in invading armies. In the late twentieth
century, the outright "conquest of nations" meaning
the control / over productive assets, labor, natural resources
and institutions can be carried out in an impersonal fashion from
the corporate boardroom.
Malaysia's Prime Minister Mahathir Mohamad:
[The] deliberate devaluation of the currency
of a country by currency traders purely for profit is a serious
denial of the rights of independent nations.
In Korea, Indonesia and Thailand, the vaults of the central banks
were pillaged by institutional speculators, while the monetary
authorities sought, in vain to prop up their ailing currencies.
In 1997, more than 100 billion dollars of Asia's hard currency
reserves had been confiscated and transferred (in a matter of
months) into private financial hands. In the wake of the currency
devaluations, real earnings and employment plummeted virtually
overnight leading to mass poverty in countries that had, in the
post-War period, registered significant economic and social progress.
The financial scam in the foreign exchange
market had destabilized national economies, thereby creating the
preconditions for the subsequent plunder of the Asian countries'
productive assets by so-called "vulture foreign investors".
Privately held money reserves in the hands of "institutional
speculators" far exceed the limited capabilities of the world's
central banks. The latter, acting individually or collectively,
are no longer able to fight the tide of speculative activity.
Monetary policy is in the hands of private creditors who have
the ability to freeze state budgets, paralyze the payments process,
thwart the regular disbursement of wages to millions of workers
(as in the former Soviet Union) and precipitate the collapse of
production and social programs.
A handful of commercial banks and brokerage houses have enriched
themselves beyond bounds; they have also increased their stranglehold
over governments and politicians around the world.
Since the 1994-95 Mexican crisis, the IMF has played a crucial
role in shaping the "financial battlefields" on which
the global money managers / wage their speculative raids. The
global banks are craving for access to inside information. Successful
speculative attacks require the concurrent ( implementation on
their behalf of "strong economic medicine" under the
IMF bail-out agreements. The "big six" Wall Street commercial
banks (including Chase, Bank America, Citigroup and J.P. Morgan)
and the "big five" merchant banks (Goldman Sachs, Lehman
Brothers, Morgan Stanley and Salomon Smith Barney) were consulted
on the clauses to be included in the Asian bail-out agreements.
While in theory committed to "financial
stability", what they really want is to engineer the collapse
of national currencies.
In their worldwide quest to appropriate economic and financial
wealth, global banks and multinational corporations have actively
pressured for the outright deregulation of international capital
flows including the movement of "hot" and "dirty"
money." Caving in to these demands (after hasty consultations
with G7 finance ministers) a formal verdict to deregulate capital
movements was taken by the IMF in 1998. The official communique
stated that the IMF will proceed with the Amendment of its Articles
with a view to "making the liberalization of capital movements
one of the purposes of the Fund and extending, as needed, the
Fund's jurisdiction for this purpose".
[The] restructuring of global financial markets and institutions
(alongside the pillage of national economies) has enabled the
accumulation of vast amounts of private wealth - a large portion
of which has been amassed as a result of strictly speculative
transactions. No need to produce commodities: enrichment is increasingly
taking place outside the real economy divorced from bona fide
productive and commercial activities. According to American billionaire
Steven Forbes: "Successes on the Wall Street stock market
[meaning speculative trade] produced most of last year s 
surge in billionaires ". ' In turn, part of the money accumulated
from speculative transactions is funnelled towards confidential
numbered accounts in the numerous offshore banking havens. This
critical drain of billions of dollars in capital flight dramatically
reduces state tax revenues, paralyses social programmes, drives
up budget deficits and spurs the accumulation of large public
In contrast, the earnings of the direct
producers of goods and services are compressed; the standard of
living of large sectors of the world population - including the
middle classes - has tumbled. Health and education programmes
are downsized; wage inequality has risen in the OECD countries.
In both the developing and developed countries, poverty has become
rampant. The accumulation of financial wealth, resulting from
speculative transactions feeds on poverty and low wages.
of Poverty and New World Order