The economic crisis was the product of disastrous errors by Yugoslav governments in the 1970s, borrowing vast amounts of Western capital in order to fund growth through exports. Western economies then entered recession, blocked Yugoslav exports and created a huge debt problem. The Yugoslav government then accepted the
IMF's conditionalities which shifted the burden of the crisis onto the Yugoslav working class. Simultaneously, strong social groups emerged within the Yugoslav Communist Party, allied to Western business, banking and state interests and began pushing towards
neoliberalism, to the delight of the US. It was the
Reagan administration which, in 1984, had adopted a
"Shock Therapy" proposal to push Yugoslavia towards a
capitalist restoration.This, naturally, undermined a central pillar of the state: the socialist link between the Communist Party and the working class. The forms and effects of this varied in different parts of Yugoslavia. First in Kosovo in 1981, where the links between Yugoslav communism and the population had always been the weakest and where the economic crisis was most intense, there was an uprising demanding full republican status for Kosovo, as well as unification with Albania.
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One aspect of Yugoslavia's "Shock Therapy" programme was both unique within the region and of great political importance in 1989-90. The bankruptcy law to liquidate state enterprises was enacted in the 1989 Financial Operations Act which required that if an enterprise was insolvent for 30 days running, or for 30 days within a 45 day period, it had to settle with its creditors either by giving them ownership or by being liquidated, in which case workers would be sacked, normally without severance payments.
In 1989, according to official sources, 248 firms were declared bankrupt or were liquidated and 89,400 workers were laid off. During the first nine months of 1990 directly following the adoption of the IMF programme, another 889 enterprises with a combined work-force of 525,000 workers suffered the same fate.
In other words, in less than two years "the trigger mechanism" (under the Financial Operations Act) had led to the lay off of more than 600,000 workers out of a total industrial workforce of the order of 2.7 million. A further 20% of the work force, or half a million people, were not paid wages during the early months of 1990 as enterprises sought to avoid bankruptcy. The largest concentrations of bankrupt firms and lay-offs were in Serbia, Bosnia and Herzegovina, Macedonia and Kosovo. Real earnings were in a free fall, social programmes had collapsed creating within the population an atmosphere of social despair and hopelessness. This was a critical turning point in the Yugoslav tragedy.http://en.wikipedia.org/wiki/Yugoslavia#Ethnic_tensions_and_the_economic_crisisThis is why Yugoslavia splintered apart. The end of economic stability simply allowed for a reawakening of dormant ethnic tensions within the former country.
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