Serbia's economy throughout the 1990s fluctuated between crisis and moderate instability. The economy was hurt by poor economic policy, regional war, and international sanctions.
Following the breakdown of the old communist structure, the Yugoslav currency collapsed, as the other former republicsnow independent countriesrejected it and Serbia tried to retain it. In 1992, after the regime began printing extra Dinars to pay the wages of state employees and pensioners, hyperinflation exploded in Serbia. In one month, the cost of potatoes soared from 12,500 dinars to an unbelievable 4,000,000,000 dinars. At the height of the crisis, prices rose 2 percent every hour. Money became practically worthless, and Serbs bartered for goods or exchanged any stable hard currency, such as Deutsch Marks, that they had saved. By late 1994, half of the population was spending between 66 percent and 100 percent of their family's earnings on food alone. Daily subsistence for many was a struggle.
The government reversed its monetary policy and gradually reduced the hyperinflation, but economic instability continued. In 1998, inflation still averaged about 45 percent. The effects of hyperinflation and the continuing instability created a new economic reality in Serbia. The crisis caused a mass emigrationmany young people left Serbia for a better life abroad. The economic (and political) importance of this wave of emigration cannot be underestimated, since many in the exodus would likely have belonged to a new entrepreneurial middle class had the transition to a free-market system been achieved.
At the macro level, the crisis resulted in a wealth transfer from the urban to the rural population, as the latter was better equipped to live in an economy focused on basic necessities. Additionally, wealth moved from the private to the public sector, as private businesses folded and the government took over ownership of physical industrial plants and housing facilities. The economic crises of the early 1990s pushed the middle and upper-middle classes, which had enjoyed a degree of economic independence from the state, into a position of dependence and drove the lower classes into greater poverty.
In an economy defined by shortages, unemployment, and barter, the opportunity to traffic in goods illegally and to manage a "gray" market created room for a new criminal elite. Since the illicit trafficking of goods across borders required involvement by custom and internal police agents, a connection developed between the state and organized crime. This trafficking also provided the Milosevic elite with hard currency through bribes and protection payments. More importantly, this criminal elite created a shadow economy that made consumer goods available albeit through illegal means and provided some sense of normality even though the goods had to be produced, sought, and bought through extraordinary means.
The economic situation had a direct political impact. It hit those sectors of society (young, urban middle class) hardest that were least likely to support the regime, while it improved the opportunities available to the demographic group (rural, elderly) that was most likely to back Milosevic. In short, almost everyone in Serbia, except criminals and the Milosevic elite, saw their standard of living decline in the 1990s; however, this economic situation only made the regime more important in the daily lives of individuals. While Serbs might have blamed the regime for their economic woes, they were also more dependent upon it for survival. Thus, the poor economic situation in Serbia actually increased the regime's power over the population (see Eric Gordy, The Culture of Power in Serbia [University Park, Pa.: Penn State University Press, 1999], pp. 16598).
The economic isolation of Serbia throughout the 1990s further complicated Serbia's economic condition. In the former communist state of Yugoslavia, Serbia mostly traded with its fellow republics, but that trade completely collapsed as war broke out during the secessions of Slovenia, Croatia, and others. Most western countries viewed Serbia and Milosevic as the main protagonists behind the Balkan conflict and "ethnic cleansing" and, therefore, shunned the country as a trading partner. And after sanctions were imposed during the Bosnian civil war, Serbia was further prevented from developing new international markets. Western powers lifted some sanctions as a reward for Milosevic's abandoning direct support for the Serb minorities in Croatia and in Bosnia. However, even after signing the Dayton Peace Accords, some sanctions remained to ensure Serbian compliance as well as Serbian movement on other contentious issues, including those surrounding Kosovo.
The sanctions were important blocks to economic recovery in Serbia, but they were even more important psychologically and politically. A large majority of Serbs viewed the imposition of sanctions as one-sided and unfairly biased against Serbia. This fed a national culture of victimization, which the regime manipulated effectively by blaming Serbia's economic catastrophe entirely on the sanctions, which in turn allowed both the regime and society to focus on perseverance in the face of outside hostility instead of what they could do to improve their own economic lot.
A snapshot of Serbia's economy reveals an economic crisis that jolted society. Much of the country was impoverished and grew dependent economically on the regime for wages, while a criminal economy developed to fill the void in trade. The country was economically isolated, which fed the perception that external enemies blocked Serb recovery. These economic weaknesses ultimately encouraged nationalist rhetoric and engendered dependency on the state, which in turn endowed the regime with greater power.
A SNAPSHOT: SERBIA'S GOVERNMENT
A SNAPSHOT: SERBIA'S POPULATION
NATIONALISM AS A DOUBLE-EDGED SWORD?
ULTIMATUM AS OPPORTUNITY?