The Dissolution of Yugoslavia and the Fate of Its Financial Obligations

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INTRODUCTION

The law of state succession is one of the most complicated issues in public international law. (1) Although it has been dealt with since the beginning of human interest in the field of relations among different political entities, (2) scholars, economists and politicians have seldom reached an agreement on what the real legal rules are on how to treat this phenomenon. This note will analyze the case of the succession of Yugoslavia and some of the problems raised by the disintegration of that country into separate republics, paying special regards to the fate of its financial obligations.

In order to address these concerns, the First Section will "set the stage", providing some relevant facts that occurred before the Yugoslav Federation broke up. The Second Section is an attempt to summarize the present "state of the law" regarding state succession and financial obligations (public debts). The Third Section will focus on the specific problem of the distinction between succession as a phenomenon of fact, on one side, and its consequences on the other, taking into account historical cases as well as more recent events in Central and Eastern Europe. Finally, the Fourth Section will deal with the fate of Yugoslav public debts in the aftermath of its dissolution: the many options that were proposed and various theoretical and practical problems faced by the successor states. It will also try and assess the policy of Yugoslavia (Serbia and Montenegro) (3) as regarding the apportionment of the former Yugoslavia's public debt and the seemingly viable solution envisaged in recent agreements. (4)

I. THE CRISIS OF YUGOSLAVIA

In 1989, the tide was definitively turning against planned economies and socialist parties all over Eastern Europe. In particular, because of the deadly mixture of bad planning and populist promises, the Yugoslav federation was suffering a terrible financial crisis. (5) The federal government launched a `shock therapy' to curb inflation and boost foreign investment. One year later, in Bosnia-Herzegovina, Croatia and Slovenia political pluralism developed: new nationalistic parties--clearly anti-communist and, thus, anti-federation--were quickly formed and won elections throughout the year. (6) On the other side, in Belgrade, the Serbian Assembly suspended Kosovo's government and parliament after Milosevic was elected Serbian president with 65% of the popular vote. The election of Milosevic was a signal that Serbia was in the field of the republics supporting nationalism and rejecting a decentralization of the political and economic system. (7)

From that moment on, the struggle to keep the federation united--at least as a confederation of sovereign states--interfered with the struggle of Serbia to `protect' its nationals who happened to be living in other republics; also, Milosevic was advocating a `strong Serbia' as the leading force to promote a `strong Yugoslavia'. The fact that the army was seen as mostly Serbian in its higher cadres, and strongly profederation, created a potentially powerful tool in the hands of its leadership, but, even more, a reason for strong suspicion about the role of the military within the republics. (8) Moreover, this attempt for a centralizing policy on the part of the Serbian leadership caught the federal institutions in a moment of particular crisis; in fact, the economic package launched in 1990 under an IMF Stand-by Agreement (SBA) and a World Bank Structural Adjustment Loan (SAL II) required large budget cuts and redirection of federal revenues towards debt servicing. This led to the suspension of transfer payments by the center to the governments of the Republics and autonomous provinces, thereby creating even more discomfort towards the federal authorities, in a moment of great distress. (9)

This internal situation also found the international community unwilling, at least in part, to deal with the task of relieving the situation, (10) In 1991, while the eyes of the world were focused on the Gulf War, Tudjman and Milosevic were secretly meeting at Karadjordje to discuss territorial partition of Bosnia-Herzegovina, the first military outbreaks took place in Croatia, and Serbs of Krajina in a local referendum declared their willingness to remain part of Yugoslavia. …