The snake pit: Economics in the Balkans

By Diane Alden
web posted July 26, 1999

Dealing with the Balkans in any fashion is akin to water skiing down the Blackwater River in the Florida panhandle and taking a fall into a ball of mating water moccasins -- the price of incursion into their territory is going to be high.

The damage inflicted on Kosovo and the entire Balkan region by the war is going to cost the Western alliance big bucks. According to the European Commission the reconstruction of Kosovo alone will be approximately $18 billion. The economic toll on the rest of the region will be even higher. The European Union's estimate released in Washington last month was $30 billion. The estimates for the rest of the region run as steep as $90 billion. Whatever the final figures, rebuilding the factories, railroads and infrastructure which took a pounding from NATO air strikes will be costly.

The Clinton administration has stated it expects the Europeans to bear the lions share of the cost of Balkan reconstruction. Spokesmen for the administration have indicated that the United States has done its fair share by supplying military hardware and humanitarian aid to the tune of $7 billion to date. However, Clinton's recent announcement regarding the anticipated massive U.S. budget surplus had the Europeans at the G8 summit in Cologne, Germany in June talking about where that surplus should go. There was every indication the United States is expected to accept the economic brunt of the war in the Balkans. Chaffing at the bit to spread tax dollars around the US Senate Appropriations Committee approved a bill giving $535 million to the Balkans --- excluding Serbia. Given the fact that most observers believe the NATO alliance is going to be bogged down in the Balkans for the foreseeable future the Royal Institute of International Affairs in London has calculated that the proposed annual price tag for the presence of 50,000 KFOR troops will be as much as $25 billion a year. To date the United States participation in Bosnia has cost $9 billion with 6,700 troops garrisoned in the area down from 22,000.

The snakes in this Balkan pit range from problems of which currency to use to supplying specialists with managerial and technical skills to wrenching economic control out of government hands and into private. In sorting it all out the usual suspects are lining up to spend the tax monies of various western nations in an attempt to fix the Balkans once and for all. The ultimate goal is the prospect of integration into the community of European nations. Recently, the Crown Prince of Yugoslavia, Prince Alexander stated that: "Of course such an economic integration will take years to bear fruit and cost a great deal. But billions of dollars have already been spent in peacekeeping is time to go back to fundamentals no matter how long it takes."

Members of the international community see the opportunities which death and destruction in the Balkans have created. Sir John Battle of the British economic task force to the Balkans said recently, "I am confident that the British business community has the quality and expertise necessary to help these people rebuild their lives." While this may sound like the silver lining to an otherwise black cloud, similar sentiments did not work well in recreating Bosnia. The expected resurgence of the Bosnian economy never materialized. Kevin Mannion, director of the International Management Group, a UN reconstruction agency stated recently, "There is no economy in Bosnia, because there is a general feeling here that broken-down state companies are an asset when in fact they are a liability." Foreign investment failed to materialize as envisioned in the Dayton accords. Though military conflict ended, the leaders of the various Balkan states have refused to give up control of the economies of their respective states with unfortunate consequences for the citizens of the Balkans.

Balkan economies have traditionally been fiefdoms built on spoils and patronage. The politicians in these countries obstruct economic changes which might lead to free markets and therefore diffuse rabid ethnic nationalism. Political leaders like Milosevic will not give up control of their economies because to do so would be to give up power. So far the West has been unable to spur needed changes in any of the Balkans. The NATO bombing has driven these fragile economies even further into chaos.

In the next round of rebuilding, this time in Kosovo, the British business community is likely to take the lead. A recent analysis in the Village Voice maintains that due to advance planning the European Union, more specifically the British Department of Trade and Industry has already sent a task force to the EU to plead its case. The Germans have done likewise while the U.S. merely has plans to send a Commerce Department Officer to wade in on the bidding process.

While U.S. business prospects for cashing in don't appeal very good it is expected their day will come. The IMF is considered by many observers to be a front for U.S. economic interests. When it wades into the area, which it is already doing, neo-liberal U.S. policies will run the show. In the view of Professor Chussodovsky of the University of Ottawa, an expert on the Balkan economy, the International Monetary Fund is partially responsible for the turmoil in the Balkans. In addition, Criton Zoakos of Polyconomics, Inc., an economic web site and Jude Wanniski, former associate editor of the Wall Street Journal have stated: "In 1987 the old Yugoslavia, with all its tragic failures, was still a functioning state. The International Monetary Fund then took over economic policy, implementing a number of all too familiar shock therapies; devaluation, a wage freeze, and price decontrol--designed on the Harvard/MIT economic textbook principles meant to drive the wage rate down to a level where it would be internationally economically competitive."

After World War II, industrial development had taken place in northern Yugoslavia while the south produced raw materials. As the price of raw material fell inequalities between the various states grew which in turn led to discontent and a desire for independence in the north. But the interference of the IMF caused revenues to the central government to shrink and that in turn forced the IMF to insist on raising taxes in Yugoslavia in order to balance the budget. Due to several factors, not the least being economics, the federal Republic of Yugoslavia began to splinter in the late 80s. The evacuation of the Balkans by the Russians at the end of the Cold War added to the instability. In addition, servicing the Yugoslav debt was becoming impossible and the blame game between the various Yugoslav factions was turning nasty. Between 1979 and 1985 a quarter of the national income was taken up with debt service. Old ethnic rivalries were rekindled as the economic house started to crumble.

While not entirely to blame for the strife in the Balkans the IMF and WTO did play a part. Critics of both institutions express concern, as they did in the case of the Mexican bailout several years ago, that the major recipients of economic goodies will be the big financial institutions rather than the man on the streets of Pristina or Sarajevo or Belgrade.

In the end the losers in all of this are the taxpayers of the West and the citizens in the various states of the former Yugoslav republic. Some multinational corporations, financial institutions and individuals will profit from rebuilding. Nevertheless, the entire process of creating economic stability in the Balkans is like dealing with the nest of water moccasins. Someone is going to get bitten and as usual it will be the taxpayer. The United States and other western democracies are going to pay a higher price for peace in the Balkans than anyone ever anticipated.

Diane Alden has previously been published at Right Magazine and is also a regular contributor to Enter Stage Right.

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