Bernd Christoph Ströhm, MA.

Research Paper

A Federation in peril:
Yugoslavia’s economic crisis of the 1980s
Content
- Introduction ...................................................................................................................................2

- The origins of the Yugoslav economic crisis of the 1980s ............................................................4

- Yugoslavia’s failing economy in the 1980s ....................................................................................8

- Last resort - the International Monetary Fund and the Yugoslav economic crisis ....................11

- The “shock therapy” by the IMF and its effect on Yugoslavia’s society ...................................13

- Conclusion ....................................................................................................................................15

- Bibliography .................................................................................................................................18

- Internet Sources ...........................................................................................................................19

1
 - Introduction
The violent dissolution of the Socialist Federal Republic of Yugoslavia which spanned
throughout the 1990s has a complex and profound back-story. The actual narrative about the
reasons for the disintegration of Yugoslavia does focus on nationalist movements within
Yugoslavia’s individual Republics, most notably in Serbia, which ultimately initiated the process
that plunged Yugoslavia into a grinding and bloody “Civil War”. It is true that nationalist
tendencies played a significant role in Yugoslavia’s demise, however it is often omitted that the
unstable economic situation in Yugoslavia during the 1980s majorly contributed to the sudden
destructive collapse of the Socialist Federative Republic a quarter century ago. The inefficiency
of Yugoslavia’s economy was however not established in the 1980’s; it was established much
earlier – under Josip Broz “Tito’s” leadership.
The greatest problem with the economic sustainability and productivity of Tito’s Yugoslavia was
over bureaucratisation. It is evident that the Yugoslav government had absolute control and the
final say over all investment decisions of Yugoslavian enterprises, which caused low and
inefficient production. In addition to that, local firms had to take on certain quotas of workers,
whether they were actually needed or not. 1 The political dimension also contributed to the overall
economic downfall of Yugoslavia due to the fact even directors of local enterprises and banks
were chosen on basis of their reliability and loyalty to the Federal Yugoslav government. As a
result key positions in industry and the financial sector were given to unqualified “loyal”
politicians.2
The internal mismanagement within Yugoslavia was however only one of many issues that
plagued Tito’s Federation. The first signs of the non sustainability of Tito’s 2nd Yugoslavia
became evident in the course of the 1980s, after Tito’s death. The economic crisis, which was
increasingly paralyzing Yugoslavia during the 1980s, could ultimately only have been solved in a
joint effort by its six republics and two provinces. However, in 1987, after almost 32 billion
marks of foreign debt and 1.2 million unemployed, such a joint effort was not reachable
anymore.3 The main problem of the stagnating Yugoslav economy during the 1980s was beyond
doubt its chronic foreign exchange deficit. Yugoslavia also could not pay its foreign debts, and

1
Chris Gray, “What Caused the Yugoslav Economic Disaster?” Vlaams Marxsistisch Tijdschrift, Jaargang 47,
Nummer 2, (Summer 2013): 85-86.
2
Ibd.
3
Rudberg, Ulrike: „Ein komplettes Chaos.“ In Die Zeit, 11.12.1987:
https://www.zeit.de/1987/51/ein-komplettes-chaos/seite-3, (last visited: 15.03.2019)
2
the money Belgrade borrowed in the 1970s in order to boost the Yugoslav domestic economy has
largely been spent with no effect.
A popular explanation for the reason of the violent dissolution of Yugoslavia states that the main
fault of its non sustainability was due to ethnic hatred and rivalry between the ethnicities as well
as the political leadership of the individual Yugoslav constituent Republics, which blew out of
proportion with the death of its main consolidating element, Tito in 1980. This explanation
however does not explain how the whole political system within Yugoslavia fell apart only 11
years after Tito’s death. Other theories claim that the economic and political decline of the Soviet
Empire accelerated the collapse of Yugoslavia, since as a “non-aligned” country it desperately
needed not only the support of the West, but also of the USSR in order to establish and manage
an “equilibrium” between its needs of foreign loans and domestic defence spending. However,
with the decline of the USSR, this equilibrium was not sustainable anymore. With the economic
downfall of the Soviet Empire, which started in the 1970’s, Tito turned to the International
Monetary Fund and borrowed vast amounts from it. This policy of keeping economic balances by
utilising foreign loans should however throw Yugoslavia in a deep crisis after Tito’s death. In
1983, Yugoslavia was on the verge of bankruptcy, which was only avoided due to the fact the
Federation ceded its control on foreign loans and debts by placing itself in the hands of the IMF.4
In 1987 the ever growing trade deficits of Yugoslavia resulted into the implementation of a
“shock therapy” by the International Monetary Fund, which took over the Yugoslav economic
policy. 5 The IMF ultimately implemented a number of drastic measures which included austerity
programs, causing an overall collapse of the Yugoslav living standards.
In this research paper, the economic crisis of the Socialist Federal Republic of Yugoslavia
throughout the 1980s shall be observed. In order to fully grasp the actual reasons for the failing
Yugoslav economy, Tito’s economic policies that echoed beyond his death into the 1980s shall
be analyzed as well.
The role of the International Monetary Fund during the Yugoslav economic crisis in the 1980s
also will be covered, since the IMF majorly intervened in order to decrease the Yugoslav trade
deficits, introducing a “shock therapy” to the Yugoslav economy.

4
Richard West, Tito and the Rise and Fall of Yugoslavia, (London : Sinclair-Stevenson, 1994), 336.
5
Nathan Lewis, Gold: The Once and Future Money (Hoboken, N.J.: John Wiley, 2000), 403.
3
Lastly, it shall be observed to what extent the economic crisis and the IMF contributed to the
dissolution of Tito’s 2nd Yugoslavia, which officially started in 1991 with the declaration of
independence by Slovenia and Croatia.

- The origins of the Yugoslav economic crisis of the 1980s

That the Yugoslav economy would stumble into a deep crisis in the 1980s was a development
which was not foreseen and expected by its own population during the 1970s. In fact, during that
time Yugoslavia, under Tito’s leadership, was one of the most important independent economic
countries in south-eastern Europe. The reason why Yugoslavia was able to maintain this
“economic independency” was of course due to its close ties with other members of the “non-
alignment movement” as well as its establishment of trade relations with the “Western Bloc”
which was possible due to the fact that Tito sought to distance Yugoslavia from the Soviet
geopolitical influence back in 1948 with the “Tito-Stalin” split.6
Nevertheless, the economic system in Yugoslavia, which was an indirectly controlled “market
economy”, proved to be overall not sustainable, since rising imbalances within the Federation had
to be more and more financially compensated.7 This is why the true sources of the economic
crisis of the 1980s can be found in the internal and external imbalances that grew exponentially
during the 1960s and 1970s.8 If the progression of Yugoslavia’s loans and external borrowing
from 1961 to 1980 is being examined, it is noticeable that there was an approximately 17 percent
annual increase of its total debt from 1961 to 1980.9 Especially in the early 1970s, with the oil
crisis which had severe effects on the overall global economy, Yugoslavia focused its economic
strategy on increasing foreign loans and external borrowing.10 As a result, Yugoslavia’s external
debt increased drastically, from less than 2 billion Dollars in 1970 to 14 billion in 1979.11 After

6
Stanev, Yoan: “The foreign trade relations of Tito’s Yugoslavia: lessons for contemporary Bulgaria (Part 1).” In The
end of transition, 2018:
http://kraiat-na-prehoda.millenniumclub.org/en/2018/06/15/the-foreign-trade-relations-of-titos-yugoslavia-
lessons-for-contemporary-bulgaria-part-1/ (last visited: 14.03.2019)
7
P. H. Liotta. “Paradigm Lost: Yugoslav Self-Management and the Economics of Disaster.” Balkanologie [En ligne],
Vol. V, n° 1-2, (2008): 4.
8
Milica Uvalić. “The Rise and Fall of Market Socialism in Yugoslavia”, (Project of the Dialogue of Civilizations
Research Institute (DOC RI) “Inequalities, Economic Models and the Russian October 1917 Revolution in Historical
Perspective”, University of Perugia, 2018), 23.
9
Ibd.
10
Ibd.
11
Ibd.
4
the first oil shock in 1973, the second shock in 1979 further disrupted oil supplies and markets.12
Oil prices doubled and Yugoslavia’s external debt increased again from 14 to 18 billion US
Dollars in 1980.13
Together with the increasing external debts, the weaknesses of the Yugoslav structure of "market
socialism” became apparent, due to the fact that the free market was restricted by contradictory
bureaucratic regulations.14
The inefficiency of the private sector in Yugoslavia, which was in general comprised of small
craft and service industries as well as private agriculture, is a perfect example why the Yugoslav
“market socialism” was ultimately detrimental for its overall productivity and economic output.15
It is evident that the Yugoslav private sector has been neglected for years- as a matter of fact; the
private sector in general was extremely small in direct comparison to the Yugoslav social sector,
since the private sector was compromised by only two percent of the Yugoslav working
population.16 Those cuts in the private sector were especially evident in 1965, where only 79,000
people were employed outside agriculture in the private sector, this number just marginally
increased in 1981 to 120.000 people 17 That the Yugoslav political leadership was well aware of
the inefficiencies that emerged out of the negligence to its private sector is also evident, since in
1982, the Slovene Mitja Ribičić, former Yugoslav Prime Minister and president of the Central
Committee of the Communist Party of Yugoslavia, admitted that Yugoslavia could create one
million jobs, if the restrictions to its private sector would be eased by the League of Yugoslav
Communists. 18
Nevertheless, the liberalisation of the Yugoslav private sector turned out to be a very sensitive
issue, since even with the statement of Ribičić in the 1980s, people like Čedo Grbić, who was
President of the Economic Chamber in the Parliament of the Socialist Republic of Croatia, got

12
David Painter. “Oil and Geopolitics: The Oil Crises of the 1970s and the Cold War.”Historical Social Research /
Historische Sozialforschung, 39(4 (150)), (2014): 198.
13
Uvalić, The Rise and Fall of Market Socialism in Yugoslavia, 23.
14
Andrew Janos. The Political Economy of Ethnic Conflict: The Dissolution of Czechoslovakia and Yugoslavia.
(National Council for Eurasian and East European Research, Berkeley, University of California, 1997), 15.
15
Holm Sundhaussen, Jugoslawien und seine Nachfolgestaaten 1943–2011. Eine ungewöhnliche Geschichte des
Gewöhnlichen.(Wien/Köln/Weimar, Böhlau, 2012), 221.
16
Ukandi G Damachi; Hans D Seibel, Self-Management in Yugoslavia and the Developing World (London/
Basingstoke: The Macmillan Press, 1982), 98.
17
Sundhausen, Jugoslawien und seine Nachfolgestaaten, 221
18
Ibd.
5
heavily criticised by the Yugoslav press for his suggestions to strengthen the support and
development of the private sector in order to improve Yugoslavia’s economy.19
Due to the numerous restrictions which were aimed at Yugoslavia’s private sector, it is apparent
that the Yugoslav Communist Party, especially in context with Tito’s “market socialism” (which
was still a far cry from the Soviet economic system of “central planning”), never really
recognised the overall positive potential of easing its regulations on private ownership within
Yugoslavia.
The absolute infatuation of the Yugoslav Communist Party to Tito’s economic policies is also
evident, since it was carried out further, long after his death- despite mismanagement and a
failing economy. The fact that, as an example, private farming was only possible with 10 hectares
of land simply became a farce, especially after the death of Tito and the economic crisis during
the 1980s.20 The consequence of disregarding the Yugoslav private sector ultimately contributed
to the weak productivity, increasing imports and a high current account deficit, since small and
medium-sized enterprises were only able to produce a fraction of what they could have produced
under more liberal policies. The overall failing productivity resulted to the import of foodstuff-
something which could have easily been produced in Yugoslavia itself.21
However, not only general mismanagement but also failed investments were further reasons why
the overall Yugoslav economy and growth rate stagnated in the mid of the 1970s. The reason why
investments failed in such an increased rate can be explained with the political ideology of
“Titoism” and overall corruption, since projects were often funded on the base of political rather
than economic criteria- this is why many favoured projects were ultimately not profitable and
chosen simply to provide employment or increase the reputation of local members of the
Yugoslav Communist Party- at the expense of economic growth.22 This also explains why a large
amount of the capital, which had been provided to the less developed Yugoslav republics, was
invested in unprofitable and also impractical projects.23

19
Spiegel Report: „Wir sind auf dem Weg ins Armenhaus.“ In Der Spiegel No.36/1985:
http://www.spiegel.de/spiegel/print/d-13514193.html (last visited: 01.04.2019)
20
Sundhausen, Jugoslawien und seine Nachfolgestaaten, 221
21
Ibd.
22
Ibd.
23
Ibd.
6
Between 1973 and 1981 Yugoslav liabilities ultimately had risen from 4.6 to 21 billion US
Dollars. 24 After the lenders reclaimed their funds in the 1980s, the Yugoslav state was threatened
with insolvency and numerous people were hit by rising unemployment, and decreasing living
standards.25
Especially after Tito’s death in 1980, the Yugoslav multi-ethnic construct lost its most important
supra-national figure, who actively tried to preserve Yugoslavia under all costs- with reforms and
autocratic measures. Without this constant consolidating force, Yugoslavia quickly fell into an
identity crisis, which was increased by the ever-growing economic crisis. The search for identity
and meaning, pared with numerous socioeconomic problems attracted nationalist politicians and
religious leaders who should challenge the sustainability of Tito’s Yugoslav Federation.26
However, if the Yugoslav economic development since its conception after the 2nd World War is
being observed, it also becomes evident that Tito, who with his ideology of “Brotherhood and
Unity” constantly wanted to preserve the Yugoslav union, actually committed the “original sin”
himself, which plunged Yugoslavia further into the deep economic crisis. After the Yugoslav
economy showed clear signs of recession in the 1970s, Tito recognized the problematic situation
and also expressed his concerns to the economic and social development within the Federation. 27
For that reason it can be said that Tito was clearly aware of the imminent dire Yugoslav
economic crisis - fueled due to the accumulation of foreign debt as well as Yugoslavia’s constant
foreign exchange deficit. However, it was ultimately Tito himself who decided to conceal the
economic development and ensuing crisis in Yugoslavia. 28 In addition, it was also Tito who
refused a devaluation of the Yugoslav Dinar shortly before his death in 1979, a measure which
was ultimately introduced after his death in June 1980, with a devaluation of 30 percent- thereby
reducing Yugoslavia’s current account deficit, since Belgrade had to react to the dire economic
situation in Yugoslavia. 29 This massive devaluation of the Yugoslav Dinar actually continued in
October 1982 with another 20 percent.30

24
Calic, Marie-Janine: „Kleine Geschichte Jugoslawiens“, In Aus Politik und Zeitgeschichte, Bundeszentrale für
politische Bildung, Jahrgang 2017: https://www.bpb.de/apuz/256921/kleine-geschichte-jugoslawiens?p=all
(last visited: 01.04.2019)
25
Ibd.
26
Ibd.
27
Hilde Katrine Haug, Creating a socialist Yugoslavia: Tito, communist leadership and the national question (London
/ New York: Tauris, 2012), 308
28
Ibd.
29
Sundhausen, Jugoslawien und seine Nachfolgestaaten, 206.
30
Ibd.
7
Even Tito’s constitutional amendments of 1974 had detrimental after effects on the Yugoslav
economy which were already weakened due to the first oil crisis in 1973. Tito’s wish to further
decentralize Yugoslavia in order to redistribute power and authority to the Yugoslav republics (in
order to ensure stability between the various ethnicities) proved to contribute to the
ineffectiveness of overall reforms in the wake of the crisis, since it stripped effective power from
the central government.31

- Yugoslavia’s failing economy in the 1980s

From a socioeconomic point of view, it can be said that the death of Tito in 1980 marked a
general turning point for Yugoslavia. By the time of his death, Yugoslavia itself was trapped
within a socio-political deadlock, due to the fact that reformers as well as the political leaders of
the individual republics and autonomous provinces mutually blocked each other, which is why
the political and economic situation itself worsened on a constant rate. In spite the fact that
Yugoslavia was heading right into a crisis of never seen proportions, the leadership of the
Communist League of Yugoslavia was simply not able, as well as unwilling, to introduce
sustainable economic reforms which were desperately necessary at the beginning of the 1980s.32
This standstill was ultimately one of the major reasons why there was no intra-Yugoslav
economic innovation which could have ensured Yugoslavia’s sustainability beyond the era of
Josip Broz “Tito”.33
It is indeed no secret that the Yugoslavia Tito left behind had already in 1980 several severe
deficiencies, which were marked by an overall inefficient economy and ever-growing economic
disparities between the different Yugoslav republics, which manifested themselves in large
differences of the living standards between the north and south of the Federation. An example for
this large north-south divide within Yugoslavia during the 1980s can be seen in Slovenia, where
the per capita GNP was more than two times higher than the average in the Federation- at the
same time, the per capita GNP of southern Kosovo however was no more than one third of the
average.34 Those huge differences in living standards gave a clear picture of the overall economic
development in Yugoslavia, where the northern Republics of Croatia and Slovenia were

31
Liotta, “Paradigm,”,7-8.
32
Sundhausen, Jugoslawien und seine Nachfolgestaaten, 205
33
Ibd.
34
David Anderson, The Collapse of Yugoslavia: Background and Summary (Department of the Parliamentary
Library, Australian Parliament Research Service, 1995), 5.
8
economically far beyond in comparison to the rest of the Federation. At the same time, with the
ever-widening gap between the poor regions in the south and the richer republics in the north,
there was an overall growing dependence on foreign credit which brought the Federation literary
on its knees in the first place.35
In 1982 the director of the Institute for Socio-economic Research in Titograd (Montenegro),
Boško Glušćević, member of a commission which was established in order to find solutions to
stabilize the economic situation in Yugoslavia, pointed out that the ensuing deep economic crisis
had been anticipated by many experts long before the recession actually started and that several
warnings and suggestions were deliberately ignored by Belgrade. 36 With this statement,
Glušćević also criticized the political leadership of Yugoslavia after the death of Tito. He stated
that even after the crisis hit Yugoslavia, actual proposals to accurately tackle the problem were
generally rejected or ignored.37
The longer the economic crisis during the 1980s went on, the larger the disproportionate
contributions of Croatia and Slovenia got, which put an enormous strain on the political
sustainability and fiscal “unity” of Yugoslavia. This fact also contributed to the further division
of the central Yugoslav government and the “wealthy” northern Republics, namely Slovenia and
Croatia. With the obligation to absorb the bulk of the Yugoslav foreign debt, the republics of
Slovenia and Croatia became growingly nationalistic and ultimately were not willing to make
transfers to the poorer republics and provinces as well as contributing financially in order to wipe
out Yugoslavia’s foreign debt. 38
That the overall Yugoslav economy was stuck in recession in the course of the 1980s is
especially evident if the development of the Yugoslav gross domestic product from 1980 to 1986
is being observed, since during this time the Yugoslav GDP only increased by 0.6 percent per
year.39 Together with the poor development of its GDP there was a 34 percent decrease in real net
wages between 1980 and 1984, which meant automatically a clear decline of the overall living

35
Gal Kirn, „Das Absterben des Staates in Jugoslawien. Von der Partisanenrevolution zum Marktsozialismus.“ Das
Argument - Zeitschrift für Philosophie und Sozialwissenschaften, Nr. 317, (2016): 332.
36
Sundhausen, Jugoslawien und seine Nachfolgestaaten, 208
37
Ibd.
38
The University of North Carolina at Chapel Hill: “Background: Tito’s Yugoslavia”, In Centre for European Studies. A
Jean Monnet Centre of Excellence: https://europe.unc.edu/background-titos-yugoslavia/
(last visited: 04.04.2019)
39
Calic, „Kleine Geschichte Jugoslawiens.“
9
standards and an increase of social tensions within the Federation.40 That Yugoslavia got caught
in a “debt trap”, since it tried to compensate the decreasing economic development with foreign
loans, ultimately paralyzed any potent endeavours to find solutions to the ever growing crisis.
Tito’s amendments to the Yugoslav constitution in 1974 further deepened the economic crisis
since it gave the Yugoslav republics the power to borrow individually and without restraint from
abroad. The central government itself actually “only” caused 35 percent of Yugoslavia’s
culminating debt, whereas the six republics and the two autonomous provinces combined
borrowed the remaining 65 percent.41 As a matter of fact, the central government often was not
even aware of the vast amounts that were borrowed from abroad by its republics. 42
Next to the ever growing indebtedness, the crisis during the 1980 escalated further due to the
galloping inflation which haunted Yugoslavia’s economy. One of the reasons why inflation
within Yugoslavia grew without restraints was due to its overall detrimental monetary policies
which were introduced in order to increase Yugoslav exports and decreasing its overall debt.43
For the Yugoslav central government it became quickly apparent that the real appreciation of its
currency, the “Dinar”, had a huge negative effect on its exports, since it stimulated imports and
ultimately led to a high current account deficit in 1979, which was a clear indicator that
Yugoslavia was spending far beyond its means, thereby again automatically increasing its foreign
debts.44 In order to boost exports and reduce its current account deficit, Yugoslavia perused a
policy of real depreciation with the goal to resolve its debt crisis which by 1982 became an
omnipresent problem within the Federation. Initially, the real depreciation of the Yugoslav
currency did indeed influence an increase in exports and a decrease in imports. However those
measures meant following an expansionary monetary policy, which quickly abolished the initial
positive impact on Yugoslavia’s exports. This is why this policy ultimately nullified all possible
beneficial effects on the Yugoslav balance of payments- simply because it promoted raging
inflation, which crippled the economy further in the course of the 1980s.45

40
Uvalić, The Rise and Fall of Market Socialism in Yugoslavia, 37.
41
“Background: Tito’s Yugoslavia”
42
Ibd.
43
E. Žižmond, “The collapse of the Yugoslav economy.” Soviet Studies, 44(1), (1992): 104
44
Bilijana Stojanović, “Exchange Rate Regimes of the Dinar 1945–1990: An Assessment of Appropriateness and
Efficiency.” In The Experience of Exchange Rate Regimes in Southeastern Europe in a Historical and Comparative
Perspective ed. Peter Mooslechner; Ernest Gnan (Wien, Oesterreichische Nationalbank, 2017), 232
45
Ibd.
10
The true detrimental effects of the crisis to the general Yugoslav population became evident at
the latest in 1985, when the real income within Yugoslavia was 27 percent lower than in 1979.46
In the end of the 1980s, the economic crisis worsened to a point where the overall Yugoslav
living standards had fallen by over 40 percent with inflation peeking at a flabbergasting 2000
percent in 1989.47

- Last resort - the International Monetary Fund and the Yugoslav economic crisis
With the continuation of the crisis it became quickly clear that Croatia and Slovenia themselves
were not able to pay of the foreign debts that culminated massively since the 1970s. It also can be
said that in the course of the economic crisis during the 1980, Croatia and Slovenia made
disproportionately financial contributions in order to reduce the debt in Yugoslavia which was
one of the major reasons why nationalistic tendencies grew stronger in those 2 republics. 48
Objectively speaking it is evident that Yugoslavia’s economic issues got increasingly
complicated in 1980, since that year the Dollar had immensely increased its value.49
It has already been established that in the 1980s the flabbergasting foreign debt of Yugoslavia
originated from the high domestic debt of companies, banks and also private individuals.50 Even
one year before Tito’s death, in 1979, the short and long-term loans in the economic enterprises
of the social sector alone amounted approximately to one billion Dollars which reached in 1983
the amount of 3.3 trillion dinar, an amount that was according to the exchange rate of that year
over $26 billion Dollar.51
The dire situation and the depth of the Yugoslav indebtedness can be even better visualized, if the
total number of its creditors is being summarised: During the 1980s Yugoslavia was in debt with
over 16 foreign governments as well as more than 500 private banks. Among those creditors were
also the three major international financial institutions- the World Bank, the Bank for
International Settlements and, of course, most prominently the International Monetary Fund. 52
If the chaotic fiscal situation of Yugoslavia in the 1980s is being observed more closely, it is of
course immediately recognisable that especially the International Monetary Fund played a

46
Calic, „Kleine Geschichte Jugoslawiens.“
47
“Background: Tito’s Yugoslavia”
48
Ibd.
49
Lewis, Gold, 400.
50
Sundhausen, Jugoslawien und seine Nachfolgestaaten, 206.
51
Ibd.
52
Ibd.
11
prominent role in the overall efforts to overcome the Yugoslav economic crisis, since it was the
IMF which declared that Yugoslavia should be kept from bankruptcy. 53 However, the financial
aid by the IMF did not come for free, since it was linked to the deep economic restructuring of
the Yugoslav market and, in particular, to the overall balance of its deficit. Those requirements
by the IMF were for many scholars, like Susan Woodward, the prelude and reason of the
destruction and violent dissolution of Yugoslavia.54
At this point it has to be said that there exists a popular narrative which states that the
disintegration of Yugoslavia was accelerated by major western powers that deliberately aimed to
destabilize Yugoslavia, as the last “socialist state” at the Balkans which constantly deified the
western social models and market structures to enter and overtake its economic system. 55
According to this theory, the IMF is presented as an aid to the capitalist/imperialist west.56
Of course, those narratives omit that without the International Monetary Fund, which was
majorly influenced by “western powers” and one of the few Institution that was able and willing
to tackle the problem of the massive Yugoslav indebtedness, the Yugoslav Federation eventually
could have fallen even further into recession. It is however true that the loans by the IMF came
with massive demands, binding Yugoslavia to deregulation measures, which had automatically
massive negative effects on the living standards of the Yugoslav population. Therefore it can be
said that the “shock therapy” of the IMF, together with years of inflation and growing
unemployment, triggered social unrest within the Yugoslav population which also contributed to
the rise of nationalist secessionist movements. 57 Already in June of 1980, practically in the
aftermaths of Tito’s death, the IMF started granting its first substantial loans to Yugoslavia, with
441 million Dollars. 58 Additional loans by the IMF followed in January 1981 (with 1,960 million
Dollars) and in April 1984 (with 379 million Dollars).59
Next to those loans, the International Monetary Fund also contributed to the realisation of further
foreign loans by western institutions. Especially in 1983, the IMF majorly intervened in the

53
Ibd. 212.
54
Ibd.
55
Ernstgert Kalbe, „Die Zerstörung Jugoslawiens. Vom Zerfall der südslawischen Föderation zum NATO-Krieg im
Kosovo“, Sitzungsberichte der Leibniz-Sozietät der Wissenschaften e.V. Berlin, Bd. 44. (2001): 21
56
Sundhausen, Jugoslawien und seine Nachfolgestaaten, 212.
57
Kalbe, „Die Zerstörung Jugoslawiens“, 21.
58
Laura Tyson; Sherman Robinson; Leyla Woods, “Conditionality and Adjustment in Hungary and Yugoslavia.” In
Economic Adjustment and Reform in Eastern Europe and the Soviet Union ed. Josef C. Brada, Ed A. Hewett, Thomas
A. Wolf (Durham / London, Duke University Press, 1988), 82.
59
Ibd.
12
failing Yugoslav economy by organizing an “emergency lending package”, which amounted to
6.5 billion dollars in loans, financed by foreign western banks and governments. 60 In order to
properly grasp the massive role the International Monetary Fund played in the realisation of those
foreign loans, it has to be understood that without the influence of and “approval” by the IMF,
this massive aid package would never have been approved by Yugoslavia’s major creditors.61
Therefore it can be said that the contribution by the IMF at least bought Yugoslavia some time to
adjust to the staggering crisis, which had the result that the overall effects of the imposed
domestic austerity program were even dampened in the course of the 1980s.62
However, it is evident that those loans were not able to resolve the Yugoslav economic crisis, on
the contrary, since the situation even worsened in the late 1980s. Branko Mikulić, Prime Minister
of Yugoslavia in 1988, ultimately had to admit and realize that the dogmatic economic policies of
Yugoslavia, which were dependent on foreign loans, could not be sustained anymore. Internally,
the republics of Slovenia and Croatia also lost their willingness to follow Tito’s ideal of
Yugoslavia’s fiscal and political unity. 63
It therefore cannot be said that the involvement by the International Monetary Fund was able to
improve the actual situation in the Yugoslav economy- as a matter of fact the crisis has not been
resolved at the slightest, since inflation was still rising at a rapid and constant manner with
Yugoslavia’s external debt amounting around 20 billion US Dollars.64

- The “shock therapy” by the IMF and its effect on Yugoslavia’s society
Due to the critical balance-of-payment situation in 1987, Yugoslavia had to yet again contact the
IMF in order to conclude a new long term debt agreement. Since the government under Mikulić
constantly resisted the recommendations of the IMF to enforce a tight policy program that
actively fights inflations, it was finally compelled doing so in 1987, by entering a new contract
with the IMF.65 This meant that after 1987, Yugoslavia had to follow a tight austerity program
and actively implementing a “shock therapy” in 1990, which resulted in an immense devaluation
of its own currency. 66 This shock therapy included free trading of the massive inflationary

60
Ibd.
61
Ibd.
62
Ibd.84
63
Viktor Meier, Yugoslavia. A History of its Demise (London / New York: Routledge, 1999), 97.
64
Ibd.
65
Ibd.
66
Lewis, Gold, 400-401
13
Yugoslav dinar for Western currencies, the introduction of strict wage controls and the
establishment of a fixed exchange rate.67 It is therefore self-evident that the aftermath of this long
term debt agreement between Yugoslavia and the International Monetary Fund, with the
inclusion of the subsequent “belt tightening” and austerity policies, had of course immense
effects on the Yugoslav population. This is why the dissatisfaction to the dire economic situation
grew exponentially within the Yugoslav Federation. For Mikulić and his government, which
stood under immense pressure, the IMF presented itself as the perfect scapegoat for the further
failing Yugoslav economy and imposed austerity program, which is why the IMF itself had a
rather poor reputation within Yugoslavia. 68
It has to be said that the claim, that the International Monetary Fund offered the best possible
solutions to the economic crisis of Yugoslavia would not be entirely accurate. Especially in 1989,
the IMF recommended some rather questionable measures to solve the desperate economic
situation of the Federation. Those recommendations included an even higher devaluation of the
Yugoslav Dinar as well as freezing the wages of workers. 69 Those recommendations were
problematic, since they further forced Yugoslavia into recession, indirectly promoting the
collapse of the Yugoslav economy.70 Next to those measures the International Monetary Fund
also recommended that the Yugoslav state industries that were evaluated as unprofitable should
be abandoned and closed. 71 It goes without saying that those measures automatically resulted in
higher unemployment.
At this time, Belgrade noticed the high tensions and dissatisfaction within the Federation.
Yugoslavia’s Prime Minister Ante Marković even mentioned to President George Bush, during
his visit to Washington, that ethnic tensions rose in the Yugoslav provinces due to the measures
imposed by the IMF. 72 Nevertheless, Bush suggested that Marković should stick to the IMF
program.73 The continuation of the austerity program however resulted in the bankruptcy for over
a thousand more enterprises- this provoked a strike by Serbian workers which was joined by
workers from other ethnic backgrounds, like Croatians, Slovenes, Macedonians Muslims or

67
Engelberg, Stephen: “Feuds Crippling Yugoslav Economy.” In The New York Times, 20.04.1991:
https://www.nytimes.com/1991/04/20/business/feuds-crippling-yugoslav-economy.html (last visited: 01.04.2019)
68
Meier, Yugoslavia, 97.
69
Lewis, Gold, 403.
70
Ibd.
71
Ibd.
72
Ibd.
73
Ibd.
14
workers from the Roma community.74 During this strike a total of 650,000 Yugoslav workers
went on the streets to protest the austerity program that was conducted by the Federation, with
little effect, since in 1991, the Yugoslav Federation should experience the beginning of its chaotic
and violent dissolution.75

- Conclusion
If the crisis in Yugoslavia during the 1980s is being observed, it becomes quickly apparent that
the failing economy, which brought Tito’s Socialist Federation on its knees, is deeply connected
with the subsequent violent dissolution of the Federation, beginning with the secession of Croatia
and Slovenia in 1991. The background of the Yugoslav economic crisis is beyond doubt linked
with a long period of recession that also affected Western economies and hindered Yugoslavia
from increasing its exports. 76 This period of recession and stagnation, pared with inflation,
originally started the ever growing cycle of foreign debt making. 77
That Croatia and Slovenia seceded first from the Federation is by no means surprising, since even
during Tito’s lifetime there has always been a substantial north-south division in Yugoslavia,
with the north being the wealthiest regions in Yugoslavia, and the south, in particular the
autonomous province of Kosovo, being the poorest.
Fact is that especially after the death of Tito, who spent his lifetime struggling to establish and
maintain his Federation, Croatia and Slovenia grew increasingly defiant towards their fiscal
“obligation” to cover the majority of the massive debt the Yugoslav Federation accumulated
during the 1970s and 1980s (as well as transferring funds to the poorer South). 78 That Yugoslavia
could not be sustained anymore was ultimately inevitable, since the Croatian and Slovenian
political elite, under the leadership of Franjo Tuđman and Milan Kučan, decided that it ultimately
would be more beneficial to abandon Tito’s Federation, which by 1991, (next to a toxic “Greater
Serbian” sentiment) was haunted with a failing economy, massive unemployment and staggering
79
inflation. Of course, besides the economic discrepancies, there also existed other, internal

74
Michael Parenti, To Kill a Nation: The Attack on Yugoslavia, (London / New York: Verso, 2000), 21-22
75
Ibd.
Vassilis Fouskas, “Sovereign Debt Crisis and Peripheral Capitalisms.” Politička misao, Vol. 48, No. 5, (2011): 183
76
77
Ibd.
78
“Background: Tito’s Yugoslavia”
79
Lewis, Gold, 400-401
15
reasons that tore Tito’s 2nd Yugoslavia apart; nevertheless, saying that the economic crisis at least
accelerated the breakup process would be an accurate statement.
Assuming that Yugoslavia stumbled into the economic crisis, without its political leadership
knowing about the dire situation of the Federations external debts and its balance of payments
issues would however not be accurate, since even before his death, Tito was informed about the
problematic economic situation the Federation had to face in the following years to come.
Nevertheless, he ultimately decided to conceal the ensuing crisis that would hit Yugoslavia80 and
even refuse a devaluation of the Dinar in 1979, one year before his death. 81 During the ensuing
crisis, Yugoslavia was also held back by the dogmatic economic policies that were introduced by
Tito, which granted “self management”, however still neglected its private sector. The issue of
the underdeveloped private sector within Yugoslavia was also raised in the 1980s by renowned
Yugoslavian political figures, like the Slovene Mitja Ribičić82, former Yugoslav Prime Minister
or Čedo Grbić83, President of the Economic Chamber in the Parliament of the Socialist Republic
of Croatia; nevertheless, the total liberalisation of Yugoslavia’s private sector was never realized.
The essential question, which is often raised, concerns the International Monetary Fund and
whether it caused the actual dissolution of Yugoslavia by further granting the Federation foreign
loans as well as imposing a “shock therapy”, which ultimately caused a deep depression in
Yugoslavia. That the IMF enjoyed a bad reputation is to a certain extent understandable, since the
“shock therapy” also had the effect that over two thirds of the income by the Yugoslav population
was lost in the early 1990s.84
However, blaming the International Monetary Fund alone for the dissolution of Yugoslavia
would be an overstatement, since the IMF itself only acted as a facilitator that merely fulfilled its
main task, which is arranging loans to countries who have balance of payments difficulties and
no adequate foreign exchange reserves. The dissolution of Yugoslavia itself was therefore not
caused by the IMF or even by its economic crisis; it was caused by decades of political
mismanagement and national dissent within Yugoslavia’s own republics. From an objective point

80
Haug, Creating a Socialist Yugoslavia, 308.
81
Sundhausen, Jugoslawien und seine Nachfolgestaaten, 206.
82
Ibd. 221.
83
Spiegel Report: „Wir sind auf dem Weg ins Armenhaus.“ In Der Spiegel No.36/1985:
http://www.spiegel.de/spiegel/print/d-13514193.html (last visited: 01.04.2019)
84
Michael Mandel, “Illegal Wars, Collateral Damage, and International Criminal Law." In Yugoslavia Unraveled:
Sovereignty, Self-Determination, Intervention, ed. Raju G. C. Thomas (Lanham, Boulder, New York, Oxford:
Lexington Books, 2003), 292.
16
of view it can be said that Yugoslavia’s fate was already sealed in 1989 with the Serbian
constitutional amendment that granted Belgrade more powers over Kosovo, which ultimately
destabilized the balance of power within Yugoslavia.85
By the end of 1990, the Yugoslav Federation existed more or less only as a subject of
international law, since there was not a democratically or otherwise legitimated state authority
nor a generally accepted constitution that consolidated Yugoslavia as a whole entity. 86 With the
political and economic chaos the Yugoslavian unity as well as identity vanished from its
population nearly without a trace and got replaced by an exclusively ethno-national sentiment-
this ultimately sealed the downfall of Yugoslavia and paved the way for the independence of its
former socialist Republics.87

85
Sundhausen, Jugoslawien und seine Nachfolgestaaten, 301-302.
86
Ibd.
87
Ibd.
17
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