Part 1 - ECONOMIC TERRORISM, by Michel Chossudovsky

Borba100 at Borba100 at
Mon May 7 16:52:04 MDT 2001

URL for this article is * [Emperor's Clothes]

by Michel Chossudovsky [8 May 2001]
Professor of Economics, University of Ottawa

* In Yugoslavia, the IMF has become the steadfast financial bureaucracy of
the Western military alliance, working hand in glove with NATO and the US
State Department. *

The International Monetary Fund (IMF) is known to bully developing countries,
imposing strong doses of "deadly economic medicine" while saddling
governments with spiraling external debts. In complicity with Washington, the
IMF often meddles in cabinet appointments in debtor countries. In Korea in
the turmoil of the 1997 Asian crisis, the Finance Minister --sacked for
allegedly "hindering negotiations" with the IMF-- was replaced by a former
IMF official.1 In Turkey, also in the wake of an IMF-style financial meltdown
(March 2001), the Minister of Economy was substituted by a Vice-President of
the World Bank. 2

But what has occurred in Yugoslavia sets a new record in the abusive
practices of the Washington-based international financial bureaucracy: the
arrest of a head of State of a debtor nation --demanded by its main
creditors-- has become "a pre-condition" for the holding of loan

While the 31st of March 2001 was Washington's deadline date for the arrest of
President Slobodan Milosevic by the DOS government, another ultimatum was set
for transferring the former head of State to the jurisdiction of the
NATO-sponsored Hague Tribunal (ICTY). In the words of Secretary of State
Colin Powell:

"the US administration's support for an international donors' conference
where Yugoslavia is hoping for up to $1 billion to help rebuild would depend
on continued progress in full cooperation with the [Hague] tribunal."3

A State Department spokesman further clarified "that the United States has
the power to stop the conference from going ahead in the early summer if
Washington is not satisfied."4 Meanwhile, the Hague Tribunal has threatened
to take the matter before the UN Security Council, if President Milosevic is
not rapidly transferred to its jurisdiction. 5


Very timely... At the height of the Yugoslav presidential elections
(September 2000), "enabling legislation" was rushed through the US House of
Representatives. Washington had forewarned Kostunica --pursuant to an Act of
Congress (HR 1064)-- that unless his government fully complied to US diktats,
financial "aid" would be withheld. The IMF and the World Bank had also been
duly notified by their largest shareholder, namely the US government, that:

"the US Secretary of the Treasury [would] withhold from payment of the United
States share of any increase in the paid-in capital of [the IMF and World
Bank] an amount equal to the amount of the loan or other assistance [to

Meanwhile, Washington had demanded the setting up of an office of the Hague
Tribunal (ICTY) in Belgrade as well as modifications to the legal statutes of
Yugoslavia. The latter --to be rubber-stamped by the Parliament-- would place
the ICTY Tribunal above the jurisdiction of Yugoslavia's national legal
system. It would also allow the ICTY to order on NATO's behest, the arrest of
thousands of people on trumped up charges.


US officials had also intimated that the prompt release of KLA "freedom
fighters" serving jail terms in Serbia was to be regarded as an "additional
pre-condition" for the granting of financial assistance:

"State Department officials later told UPI that among other steps the United
States was looking for, were Yugoslav President Vojislav Kostunica to begin
returning Albanians captured during the 1999 Kosovo conflict to Kosovo and
for an acceptance of the war crimes tribunal's jurisdiction inside Serbia
where numerous indicted suspects still enjoy immunity."7

An "Amnesty Law" was rushed through the Yugoslav parliament barely a month
before Washington's March 31st deadline.8 While the victims of the war are
persecuted and indicted as war criminals, the Kostunica regime --on
Washington's instructions-- has released Kosovo Liberation Army (KLA)
criminals (linked to the drug mafias) who committed atrocities in Kosovo.

Meanwhile, these criminals have rejoined the ranks of the KLA, now involved
in a new wave of terrorist assaults in southern Serbia and in neighboring
Macedonia. The evidence amply confirms that these terrorist attacks are
supported and financed by Washington.9


Without further scrutiny, the Western media touts the holding of a donors'
conference as "a necessary step" towards "economic normalization" and the
"reintegration" of Yugoslavia into the "family of nations". Public opinion is
led to believe that the "donors" will "help" Yugoslavia rebuild. The term
"donor" is a misnomer. In fact the donors' conference is a meeting of bankers
and creditors mainly from the countries which bombed Yugoslavia. Their intent
is to not only to collect money from Yugoslavia, but also to gain full
control and ownership of the Yugoslav economy.

Meanwhile, national laws have been revised to facilitate sweeping
privatization. Serbia's large industrial complexes and public utilities are
to be restructured and auctioned off to foreign capital. In other words,
rather than "helping Yugoslavia", the donor conference --organized in close
consultation with Washington and NATO headquarters in Brussels-- would set
the stage for the transformation of Yugoslavia into a colony of the Western
military alliance.

Yugoslavia's external debt is in excess of $14 billion of which $5 billion
are owed to the Paris Club (i.e. largely to the governments of NATO
countries) and $3 billion to the London Club. The latter is a syndicate of
private banks, which in the case of Yugoslavia includes some 400 creditor
institutions. The largest part of Yugoslavia's commercial debt, however, is
held by some 16 (mainly) American and European banks which are members of an
"International Coordinating Committee" (ICC) headed by America's Citigroup
and Germany's giant WestDeutsche Landesbank. Other big players in the ICC
include J. P. Morgan-Chase and Merrill Lynch.

The ICC --which operates discretely behind the scenes-- ultimately call the
shots regarding debt negotiations, privatization and macro-economic therapy.
In turn, the IMF bureaucracy acting on behalf of both the commercial and
official creditors has called for "a restructuring of FRY's external debt on
appropriate terms" underscoring the fact that fresh money can only be
approved "following the regularization of arrears." 10 What this means is
that Belgrade would be obliged to recognize these debts in full as a
condition for the negotiation of fresh loans as well as settle pending
succession issues regarding the division of the external debt of the FRY with
the "successor republics."


While token "reconstruction" loans are envisaged, vast amounts of money and
resources will be taken out of Yugoslavia. In fact, most of the promised
"reconstruction" money is totally fictitious.

A $208 million 'bridge loan" granted by Switzerland and Norway (January 2001
was used to reimburse the IMF. In turn, the IMF had granted $151 million to
Belgrade in the form of a so-called "post-conflict assistance" loan. But this
"aid" was tagged to reimburse Switzerland and Norway, which had coughed up
the money to settle IMF arrears in the first place:

"The [IMF] Board approved a loan [of] ...US$151 million under the IMF's
policy on emergency post-conflict assistance in support of a program to
stabilize the FRY's economy and help rebuild administrative capacities. Of
this amount, the [Belgrade] authorities will draw... US$130 million to repay
the bridge loans they received [from Switzerland and Norway] to eliminate
arrears with the IMF."11

The illusion is conveyed that "money is coming in" and that "the IMF is
helping Yugoslavia." In fact, what remains after the IMF "has reimbursed
itself" is a meager influx of 21 million dollars. And broadly the same
fictitious money arrangement has been put in place by the World Bank, which
has ordered that $1.7 billion in arrears "be cleared" before the granting of
fresh loans.

In this regard, Belgrade will be granted a so-called "loan of consolidation"
from the World Bank to reimburse the $1,7 billion debt it owes to the World
Bank. Little or no money will actually enter the country. In the words of
Central Bank governor Mladan Dinkic:

"[this] will pave the way for Yugoslavia's return to the World Bank. `In the
first three years, we will receive the so-called AIDA status, which the World
Bank gives to the poorest countries... [this] is the most favorable
arrangement possible, with a longer grace-period and minimum interest, which
will allow our economy to pay off the [$1.7 billion] debt and create
conditions for receiving new loans".12

More generally, the "reconstruction" money will line the pockets of
international creditors and multinational corporations (with trinkets for DOS
cronies) while putting the entire Yugoslav economy on the auction block.
Assets will be sold at rock-bottom prices under IMF-World Bank supervision.
The meager proceeds of forced privatization --in which only foreign
"investors" will be allowed to bid-- will then be used to pay back the
creditors, who happen to be the same people who are buying up Yugoslavia's

And who will appraise the "book value" of Yugoslavia's industrial assets and
supervise the auction of State property? The large European and US merchant
banks and accounting firms, which also happen to be acting on behalf of their
corporate clients involved in bidding.


Fictitious reconstruction money, however, is only granted on condition
Yugoslavia implements economic "shock therapy." The donor-sponsored program
is predicated on "destruction" rather than "reconstruction". Under the
disguise of "economic normalization", the IMF, the World Bank and the
London-based European Bank for Reconstruction and Development (EBRD) have
been given the mandate to dismantle through bankruptcy and forced
privatization what has not yet been destroyed by the bombers.

In this process, political terror and "economic terror" go hand in hand. The
evidence amply confirms that the IMF-World Bank's lethal economic reforms
imposed in more than 150 developing countries have led to the impoverishment
of millions of people. In a cruel irony, bitter economic medicine and token
financial assistance are presented as "the rewards" for transferring
President Milosevic to the jurisdiction of the Hague Tribunal.

While the present IMF program is a "continuation" of the deadly economic
reforms first imposed on federal Yugoslavia in the 1980s (and then on its
"successor republics"), it promises to be far more devastating.13

The Group of 17 economists (G-17) --which controls the Ministry of Finance
and Yugoslavia's Central Bank (NBJ)-- are in permanent liaison with the IMF,
the World Bank and the US Treasury. A "letter of Intent" outlining in detail
the economic therapy to be imposed on Yugoslavia by the DOS government had in
fact been drawn up in secret negotiations with the creditors before the
September 2000 presidential elections. Mladjan Dinkic --who now holds the
position of Governor of the National Bank of Yugoslavia (NBJ) (Central
Bank)-- had stated that one of the first things they would do under a
Kostunica presidency would be to implement economic "shock therapy":

"Immediately after taking the office, the new government shall abolish all
types of subsidies... This measure must be implemented without regrets or
hesitation, since it will be difficult if not impossible to apply later, in
view of the fact that in the meantime strong lobbies may appear and do their
best to block such measures... This initial step in economic liberalization
must be undertaken as a "shock therapy" as its radical nature does not leave
space for gradualism of any kind."14

The G-17 does not hide the fact that one of its main objectives consists in
breaking social resistance to the economic restructuring program:

"Any future democratic regime is likely to face substantial public resistance
to privatization and the socio-economic reforms that will accompany it. In
the short term, the insolvency and restructuring of Serbian enterprises is
likely to generate unemployment or wage cuts for many employees... The
servicing of debts and fiscal adjustments are likely to require cuts in
public expenditure and the introduction of potentially unpopular new taxes
and levies. The purchase of Serbian firms by wealthy domestic and foreign
investors may also generate resentment, especially as it will represent a
radical break with the former Yugoslav tradition of workers' or "social"
ownership. Nationalist and anti-reformist groups are likely to mobilize
popular resistance by exploiting these problems. This form of political
opposition would limit the scope for introducing effective economic reform
and privatization."15.


The IMF program --put into full swing in the wake of the September 2000
elections-- calls for the adoption of "prudent macroeconomic policies and
bold structural reforms", In IMF lingo, "bold" invariably means the
application of "shock treatment" while "prudent" means carefully designed and
uncompromising austerity measures.16. Upon assuming office, the Kostunica
government --under IMF instructions-- has deregulated the prices of basic
consumer goods and frozen the wages of working people.17 A new Labor Law
setting the minimum wage at 35 percent of the average wage was rubber-stamped
by the Yugoslav parliament. In other words, with rising prices coupled with
the deindexation of wages ordered by the IMF, the new legislation allows the
real minimum wage to slide to abysmally low levels.18

Credit has been frozen to local businesses and farmers. Interest rates have
already skyrocketed. With the end of the economic sanctions, the IMF has also
demanded that import barriers be removed to facilitate the dumping of surplus
commodities on the domestic market leading to the bankruptcy of domestic
producers. In turn, energy prices are to be totally deregulated prior to the
privatization of public utilities, State oil refineries, coal mining and

In turn, drastic cuts in the social security and pension funds of the
Republic of Serbia are envisaged, which would virtually lead to their
collapse (See IMF Program, op cit). The restructuring of social programs is a
carbon copy of that imposed in neighboring Bulgaria, where pensions paid out
to senior citizens plummeted in 1997 to $3 as month.19


The most lethal component of the IMF program, however, is the so-called
"managed float" of the exchange rate which --according to IMF Deputy Managing
Director Stanley Fischer-- is implemented "to better reflect market
conditions". 20

Yugoslavia's central bank foreign exchange reserves are of the order of $500
million, the external debt is in excess of $14 billion. Under agreement with
the IMF, money (in the form of "precautionary loan") would be granted to
replenish the foreign exchange reserves of the Central Bank with a view to
supporting the dinar. Moreover following the Brazilian pattern, the dinar
would also be artificially propped up by extensive government borrowing from
private banking institutions at exorbitant interest rates thereby fuelling
the internal public debt. 21

In the absence of exchange controls restricting capital flight, central bank
foreign exchange reserves would eventually be depleted. In other words, when
the "borrowed reserves" are no longer there to prop up the currency, the
dinar collapses. In the logic of the "managed float", the dollars borrowed
under an IMF precautionary fund arrangement, would be reappropriated by
international creditors and speculators once the dinar slides, leading to a
further expansion of Yugoslavia's external debt.

In fact, this policy is largely instrumental in triggering hyperinflation.
The national currency would become totally worthless. In other words, prices
would go sky high following the collapse of the national currency. In turn,
wages would be frozen on IMF instructions as part of an "anti-inflationary
program" and the standard of living would plummet to even lower levels. And
Yugoslavs are already impoverished with two thirds of the population
(according to UN sources acknowledged in the IMF report) with per capita
incomes below 2 dollars a day.

It's the same financial scam that the IMF applied in Korea, Indonesia,
Russia, Brazil and more recently Turkey.22 In this process, various
speculative instruments (including "short selling" of currencies) were
applied by international banks and financial institutions to trigger the
collapse of national currencies. In Korea, debts spiraled in the wake of the
currency crisis. As a result, the entire economy was put on the auction block
and several of Korea's powerful conglomerates were taken over by American
capital at ridiculously low prices.

In Russia, the ruble became totally worthless following the implementation of
an IMF program. The float of the ruble applied in 1992 under IMF advice was
conducive in less than a year to a one hundred fold (9900%) increase in
consumer prices. Nominal earnings increased ten fold (900%), the collapse in
real wages in 1992 was of the order of 86 percent. In subsequent years, real
earnings continued to plummet precipitating the descent of the Russian people
into extreme poverty.23

More generally, the IMF program creates a framework for collecting as well as
enlarging the debt through the manipulation of currency markets. It is worth
mentioning, in this regard, that barely a few weeks before the arrest of
President Milosevic, Turkey was subjected --following the destabilization of
its currency-- to the most brutal economic reforms leading virtually over
night to the collapse of the standard of living. Under IMF ministrations,
interest rates in Turkey had shot up to a modest 550%.


The IMF has acknowledged in its report that the damage caused by NATO
bombings is of the order of 40 billion dollars.24 This figure does not take
into account the losses in Yugoslavia's GDP resulting from years of economic
sanctions, nor does it account for the loss of human life and limb, the human
suffering inflicted on an entire population, the toxic radiation from
depleted uranium and the environmental devastation amply documented by
Yugoslav and international sources. 25 Ironically, this study on war damages
was coordinated by G-17 Mladjan Dinkic and Miroslav Labus who now hold key
positions in the DOS government. Since his appointment to the position of
central bank governor, Dinkic has not said a word about "war damages" in his
discussions with Western creditors. 26


No "compensation" for war damages let alone debt relief has been
contemplated. In a cruel twist, a large part of the fresh loans --which
Yugoslavia will eventually have to reimburse-- will be used to rebuild what
was destroyed by the bombers. Moreover, under the World Bank-EBRD system of
international tender, these loans are in fact tagged to finance lucrative
contracts with construction companies from NATO countries:

"the big winners [are the Western] telecommunications companies, construction
firms, banks and shipping concerns who can rebuild the Danube River bridges,
power plants and refineries destroyed by NATO airstrikes. ... While European
companies, already busy with Balkan projects, have a home-court advantage,
U.S. companies such as infrastructure specialists Brown & Root [a subsidiary
of Vice President Dick Cheney's company Halliburton Oil], AES and General
Electric could get a piece of the action." 27

And what will these companies do? They will sub-contract will local firms
and/or hire Yugoslav engineers and workers at wages below one hundred dollars
a month. In other words, the borrowed money promised to Belgrade for
"reconstruction" will go straight back into the pockets of Western banks and
MNCs. In turn, the so-called "prioritization of expenditures" imposed by the
IMF means that the State (i.e. Yugoslavia's own money) would be footing the
bill for clearing the Danube and rebuilding the bridges, essentially
"subsidizing" the interests of foreign capital. Moreover, IMF
"conditionalities" --which require drastic cuts in social expenditures--
would prevent the government from allocating its budget to rebuilding schools
and hospitals hit during the bombing campaign.


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