Pressuring Milosevic: Financial Pressure Against Serbia and Montenegro, 1992 – 1995 (Part 1)

6 Nov 2012

Cases where economic sanctions have obviously worked are rare. However, UNSC sanctions against Serbia and Montenegro between 1992 and 1995 may be such a case. According to Victor Comras, they led to the signing of the Dayton Agreement and the end of the Bosnian War.

Editor's note: As part of our week-long focus on economic sanctions and security, today we highlight a case where this tool of statecraft unequivocally worked. As Victor Comras, a retired US diplomat, explains in the following text, economic sanctions played a critical role in pressuring Slobodan Milošević to sign the General Framework Agreement for Peace in Bosnia and Herzegovina (popularly known as the Dayton Accords) in 1995. “Serbia was under no direct military threat [at the time], Comras notes in his analysis. “The only real pressure on Milošević was the sanctions, and he needed to make a deal. Sanctions, as much if not more than any other factor, brought Milosevic to Dayton,” where he then agreed to end the three-and-a-half year Bosnian War.

Introduction

In May 1992, the United Nations Security Council imposed broad trade, financial and political sanctions against Serbia and Montenegro for their role in provoking and supporting aggression, ethnic cleansing and other atrocities in Bosnia. It quickly became clear that the Security Council measures were not being applied effectively and that the sanctions were not moderating Serb conduct in the Bosnia crisis. Neighboring countries also proved politically and logistically unable to effectively control the movement of goods and commodities crossing Serbia’s borders. 1

Further complicating the implementation of sanctions was Serbia’s position as the major transportation hub for much of southeastern Europe, notably via the Danube River. The Security Council’s May 30, 1992 resolution had exempted transshipment cargo from sanctions which allowed goods to transit Serbia.

In an effort to strengthen the U.N. sanctions, acting U.S. Secretary of State Lawrence Eagleburger advocated placing Sanctions Assistance Mission (SAM) teams composed of seasoned customs and border control officers at key border crossings. These officers were recruited from participating member countries of the Conference on Security and Cooperation in Europe (CSCE) (subsequently known as the Organization on Security and Cooperation in Europe (OSCE) based in Vienna). They were charged with monitoring commercial traffic and identifying and stopping contraband moving in and out of Serbia. They were assigned to Romania, Bulgaria, Macedonia, Albania and Hungary; teams were subsequently assigned also to Ukraine and Croatia.

Sanctions task force and stronger sanctions: 1993

The incoming Clinton administration placed further emphasis on enforcing the U.N. sanctions. Leon Fuerth, Vice President Al Gore’s national security advisor, established a special interagency sanctions task force to support U.S. government efforts. Task force members were drawn from U.S. agencies and offices, and this author was appointed director.

The task force formulated a new strategy focused on channeling U.S. resources and influence to tighten the application of existing sanctions, and sought to identify new, more stringent sanctions measures. The aim was to severely impact those sectors and individuals that supported the Milosevic regime in order to pressure Milosevic to rein in the Bosnian Serb leadership.

Efforts to increase the effectiveness of the existing sanctions focused on six objectives: tightening border controls; cutting off Serbia’s access to oil, gas and other essential commodities; bolstering financial sanctions on Milosevic’s supporters; prosecuting and penalizing sanctions violators; cutting off all maritime traffic to and from the ports of Kotor and Bar; and interdicting all Federal Republic of Yugoslavia (FRY) controlled vessels.

A special effort was made to strengthen the impact of the financial sanctions by identifying and targeting the Milosevic regime’s offshore businesses and accounts. The U.S. government also attempted to restrict the flow of workers’ remittances back to Serbia. The Milosevic regime soaked up these remittances in order to acquire badly needed hard currency.

The sanctions reached their apex in December 1993 and the Milosevic regime began to actively seek sanctions relief. The flow of goods in and out of Serbia had been cut by more than 75 percent and real income had contracted by more than 50 percent. Hyperinflation had taken hold and the Serbian dinar had become valueless. But the Clinton administration held back, waiting for some specific changed policy vis-à-vis the Bosnian Serbs. Unfortunately this intense sanctions pressure did not hold.

Aftermath: Serbian reaction and the Dayton peace accord, 1994-1995

In January 1994, Serbia took steps to mitigate the damage from sanctions, issuing a new dinar, tying it to the German mark and introducing new austerity measures to slow inflation. In February, Greece unilaterally imposed a total trade embargo on Macedonia. Being a landlocked country with few trading options, Macedonia immediately reopened its borders with Serbia.

As a result of these developments amid growing sanctions fatigue, the main focus of the task force began to perceptively switch in the spring of 1994 from sanctions intensification to sanctions maintenance and management.

Despite leakage, the stringent sanctions on Serbia continued to eat away at Serbia’s infrastructure and economy. Prospects grew particularly grim for Serbia in September 1995, as the country found itself once again facing a serious oil and gas shortage with winter just around the corner. Serbia was already experiencing serious power outages.

Its treasury was near empty and the Russians had again turned off the gas flow as a result of nonpayment. At the same time, in Bosnia the tide of war was turning as a result of an alliance of Bosnian and Croat forces supported by NATO air strikes. Milosevic knew that he needed to make a deal. Nevertheless, he pressed America’s chief negotiator, Ambassador Richard Holbrooke, to first allow oil and gas shipments into Serbia before going to Dayton, Ohio for the 1995 peace accord. Holbrooke complied, effectively ending the application of this key trade restriction.

After arduous negotiations at Dayton, the presidents of the Republic of Bosnia and Herzegovina, the Republic of Croatia and the Federal Republic of Yugoslavia reached agreement on the Dayton Accord on November 21, 1995, and the fighting in Bosnia stopped. The next day the Security Council adopted Resolution 1022 formally suspending the sanctions on Serbia. As this report outlines, the effective employment of sanctions on Serbia and Montenegro throughout this period was a major factor in bringing Milosevic to Dayton.

Background

In May 1992, the United Nations Security Council imposed sanctions against Serbia and Montenegro based on its determination that “the situation in Bosnia and Herzegovina and in other parts of the former Socialist Federal Republic of Yugoslavia constituted a threat to international peace and security.” The crisis in Yugoslavia had been growing for some time. European countries, including Germany, France, Great Britain and Italy initially insisted that the issue be handled, to the fullest extent possible, within the community of European states, and were reluctant to refer the matter to the Security Council for action. Only when it became clear that European leaders were unable to cope with the crisis, and under great pressure from the United States, was the matter finally referred to the Security Council. This was the start of an epic tussle that led the United States, in conjunction with western Europe and Russia, to take over the management of the Yugoslav crisis and to develop and use sanctions as one of their most effective tools.

Fracturing of the Balkans

The genesis of the breakup of the Socialist Federal Republic of Yugoslavia (SFRY) can be traced back to the mid-1980s. The signs of the growing crisis in Yugoslavia had been plain to see well before any conflict began. The death of Yugoslav strongman, Josif Broz Tito in 1980 had loosened the reigns that had held the six republics and two autonomous regions together, setting in motion a growing competition among the constituent republics for resources and for political representation.

The 1980s economic downturn in Europe hit Yugoslavia hard and by 1985, the region was in deep economic crisis. Economic tensions between the republics were further exacerbated by growing nationalist rivalries, based, in significant part, on religious and linguistic differences between the republics (and in the autonomous region Kosovo where Albanians had come to outnumber Serbians).

The rise of Milosevic to leadership in Belgrade, his oppression of Kosovo’s majority Albanian population in the name of Serbian nationalism, and his formation and leadership of the very nationalist Socialist Party of Serbia in 1990 added new force to the already mounting centrifugal pressure from Croat and Slovene nationalists. While Croats and Slovenes constituted a majority in their own home republics, they were minorities in the federated Yugoslavia where Serbians constituted more than half of Yugoslavia’s total population. Cognizant of what was going on in Kosovo and fearful of being dominated by Serbian nationalists, Croatian and Slovenian nationalist leaders were determined to prepare for secession and exercise greater autonomy from the SFRY central government. Milosevic and the predominantly Serbian Yugoslav Army (JNA) were determined to resist.

Croatia and Slovenia formally broke from Yugoslavia on June 25, 1991 and declared their independence from the SFRY. The Yugoslav federal government immediately declared the independence moves illegal and armed clashes broke out between JNA units and territorial forces in Slovenia. Fierce gunfire also broke out a few days later in Croatia. The first in a series of Yugoslav wars began.

Ineffective European response

The Yugoslav crisis broke at roughly the same time as Europe’s great debate over the Maastricht treaty, which envisioned a common European foreign policy and the eventual adoption of a common European currency. Some European leaders saw the crisis as an opportunity to demonstrate that the European community had matured sufficiently to address such issues, that it could adopt and pursue a common policy, and use its influence and leverage effectively. They believed it was a chance for Europe to show that it could take the lead on what they viewed as an internal European crisis. These voices did not want to look to the United States for leadership or guidance. On this, the U.S. administration agreed. From the outset, then Secretary of State James Baker indicated the United States would follow Europe’s lead and play only a supportive role.

The initial consensus among European leaders was that Yugoslavia should remain united. Both European and U.S. policymakers were concerned that the breakup of Yugoslavia might stimulate other nationalist secessions in the newly emerging countries of eastern Europe and from the Soviet Union. A series of transatlantic meetings were held starting in the spring of 1991 to deter such secessions. During deliberations, it became increasingly clear that the Europeans themselves were divided over what, if any, action to take. Most were reluctant to use any meaningful political or economic leverage in their dealings with Yugoslavia, Serbia, Croatia or Slovenia or on core issues. Early on, Europe’s leaders ruled out armed intervention. Under such conditions a common European position on refusing to recognize the breakaway states quickly came undone. Germany broke ranks with the community and recognized Slovenia and Croatia on December 23, 1991. The other European Union members subsequently followed suit.

During this period of turmoil Macedonia also chose to withdraw from the SFRY and did so peacefully on September 8, 1991. That left pre- dominantly Muslim Bosnia partnered with Croat-dominated Herzegovina the choice of going it alone in a Yugoslavia dominated by Serbian majorities in Serbia and Montenegro, or also opting for independence. On December 20, 1991, the presidential council of Bosnia-Herzegovina decided to ask for EU recognition of its independence. The Serb members of the presidency voted against the secession decision. The next day the parliament of the Serbian people in Bosnia declared their own “Republic of the Serbian People” which they intended would become a part of Serbia proper. The Bosnian government moved forward on its independence referendum on March 1, 1992, and was subsequently recognized by the European Union on April 7, 1992. Two days later, fighting erupted between Serbian soldiers and Bosnian militia, setting off the worst conflict in Europe since World War II.

The international community was slow to react to the deteriorating situation in Bosnia-Herzegovina, where three-way interethnic violence began to flare between the Serb, Croat and Bosnian communities in early 1992. The European Union initially sought to take on a monitoring and mediating role, and indicated that it would deal with each of the par- ties in an even handed manner. In 1991, the U.N. Security Council, at the behest of the United States and the European Union, adopted Resolution 713, imposing an arms embargo on all of the republics. However, this evenhandedness soon gave way to a realization that Serbian forces were continuing to pursue their military advantage aggressively with JNA support and to employ brutal tactics including ethnic cleansing.

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