The War in Yugoslavia is best described as a, “modern war” (Clark, 1991, 419). The disintegration of Yugoslavia is still being debated and usually one comes across ethnic, political and social factors being put forth as the main causes. Rarely does one come across a discussion based on the economic reasons underlying this dissolution. This is a serious deficiency of the manner in which the Yugoslav situation is usually framed. The problem is usually defined within the parameters of nationalism.
In fact one can go to the extent of saying that without reference to the economic factors it is not possible to understand the political dimensions of the dissolution of Yugoslavia. This goes against the traditional political thinking on the crisis in the Balkans described over the years as a melting pot of heterogeneity waiting to disintegrate. (Roucek, 1948). Basically, the roots of the economic dissolution of Yugoslavia can be traced to the days of Tito when reform after reform attempted but failed to resolve national issues.
The classic economists have described this era as that of Titoism. (Warner, 1958). On the whole the Federal System came under increasing pressure and the Communist Party began to loose control. This resulted in the creation of the region of Kosovo, and was legislated by a Constitution in 1974. There was a separation of powers between the capital and the autonomous regions in Vojvodina and Kosovo. What then emerged was a loose federation and placed enormous pressure on the legitimacy of the Yugoslav state.
But underlying the ethnic and political reasons that generated the crisis to the disintegration of Yugoslavia lay the fact within the federation, there existed great disparity in economic development. For example, Slovenia and Croatia, the most developed republics, faced the problem that they had to subsidize the development of their poorer cousins. This created problems of sustaining their own regions and highlighted the differences in the quality of life in the different republics.
While it is accepted that there were major structural problems within Yugoslavia, the unity of the nation was in fact also undermined by economic factors. It is worth recalling that Yugoslavia’s foreign policy of being non-aligned resulted in her getting access to loans from both the superpowers. Therefore, Belgrade was able to open her markets to the West much earlier than other countries in Central and Eastern Europe. The oil crisis in 1973 combined with trade barriers imposed by the West, hindered 30 years of rapid conomic growth.
Then to maintain the growth rate, Yugoslavia went to the IMF and took large loans and subsequently found itself unable to repay and fell into heavy debt. Additionally, the IMF placed certain pre-conditions to Yugoslavia getting loans, for example, it demanded liberalization of the market. In January 1990, the IMF ordered that wages be frozen at their mid-November 1989 levels, even though inflation had eaten away at earnings. Prices continued to rise unabated, and real wages collapsed by 41 percent in the first six months of 1990. By 1981, Yugoslavia had incurred $19. 9 billion in foreign debt.
(Dyker, 1996). Two years later, austerity had decreased the standard of living by 10 per cent among Croatians. In late 1988, Yugoslavia experienced its “worst economic crisis in four decades,” following the Government’s decision to freeze wages and allowing prices to increase. By 1989, per capita international indebtedness of Yugoslavia approached US$ 1,000. Profligate borrowing from abroad did account for a good deal of Yugoslavia’s economic problems. But remember that Yugoslavia never defaulted on its international obligations, and was not the most heavily indebted of states.
It became the focus of international financial stringency, not because of concern about Yugoslavia’s economic situation, but because of the general shift of opinion in the international financial community about the regulation of the world market for credit. What actually must have happened is that the IMF, which effectively controlled the Yugoslav central bank, set the rules of the game so tightly so as to cripple the country’s ability to finance its economic and social programs. Therefore, Central Government money actually meant for the poorer regions went instead to service debt repayment to international institutions.