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]

Dismantling Former Yugoslavia, Recolonizing Bosnia-Herzegovina

Historical background

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 ethnic tensions".

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 returns.

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 to exist.



Structural Adjustment in the Developed Countries

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 phased out.

[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 companies.

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 of society.

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 operations.

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 institutions.

The mega-banks have penetrated the financial landscape of developing countries, taking control of banking institutions and financial services.

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 [1996] 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 debts.

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.

Globalization of Poverty and New World Order

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