The dissolution of Yugoslavia and the fate of its financial obligations.

Author:Acquaviva, Guido


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)


    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. Slovenia and Croatia declared their own sovereignty at the end of June; (11) it is true that, at this very moment, the EC began an arms embargo, freezing all economic aid to Yugoslavia in July in an effort to try and ease the situation, but then the attention was diverted to Moscow, where Gorbachev was declared `sick' and then came back--under the `protective' wings of Yeltsin--after one of the strangest coups in history. The only action taken by the European Community was the establishment of a `Peace Conference' on Yugoslavia; such an action, that would prove to be very important for the resolution of the legal problems linked to the dissolution of Yugoslavia, would be virtually useless in regards to the conflicts and the political solution to the crisis. (12) Macedonia, too, declared its independence in September, (13) and only this triggered the first United Nations' action, when the Security Council adopted a Resolution (14) for an embargo on arms sales to Yugoslavia.

    If the Security Council was no longer hostage to the vetoes by the Superpowers, one of which was rapidly losing its status, it could do no more than condemn and adopt weak actions, without being able to promote any real diplomatic solution for events that were clearly developing as `a threat to international peace and security.' (15) In October, the situation appeared even more complex: Bosnia-Herzegovina, Croatia, Macedonia and Slovenia were on the verge of becoming independent countries, leaving Montenegro with Serbia as the two remaining constituent parts of the Federation; the question seemed to be only one of timing and of the legal framework to contain the more than likely outbreak of violence. At this point, the European Community finally decided to take a stand, one that looked bold to many: it would not recognize newly independent countries in Eastern Europe if they did not meet high criteria, never heard before in the field of states' recognition. (16) This action could have had a `chilling' effect on the rush towards independence that many republics were showing, and it could have also promoted a more coherent approach by other important countries--the United States, the fellow Non-aligned countries, the newly emerging independent Russia together with the other republics, all eager for international support and recognition themselves. But the European Community was not able to live up to its own set standards.

    On December 23rd, 1991 Germany decided to unilaterally recognize Slovenia and Croatia as independent countries, thus defeating the substantive requirements--as well as even the timetable--previously agreed on. (17) The rest of the Community followed suit on January 15th, respecting the formal dateline, but not necessarily the standards proposed in the Guidelines. More importantly, on April 6th the European Community recognized Bosnia-Herzegovina (despite negative Badinter Commission advice) (18) and refused to grant recognition of Macedonia, due to the Greek veto (despite positive Badinter Commission advice). (19) On the next day, the United States, too, recognized Croatia, Slovenia, and Bosnia-Herzegovina, (20) while, on April 27th, Serbia and Montenegro declared the Federal Republic of Yugoslavia to be the `continuation' of the dismantled SFRY. This happened while a surge of violence was taking place in the territory of the republics of Croatia and Bosnia-Herzegovina; especially in the latter, war crimes and terrible human rights violations occurred, (21) creating an environment where effective negotiations among the parties was difficult to start, let alone succeed.


    This note purports to shed some light on the legal principles governing the transfer of financial obligations due to the succession in the territory of the former Yugoslavia. In order to accomplish this aim, however, it is necessary to reach an agreement on the terminology that will be used, a common problem in dealing with international law theory to be applied in practice. In particular, the definitions of `state'--and the relevance of recognition -, of debt, and of succession seem necessary hermeneutical `tools' for our purposes.

    1. The State

      Although this might seem an academic question with no practical consequences, many discussions have actually arisen about the legal threshold of what really constitutes a State, especially with regard to the break-up of Yugoslavia. (22) The Restatement (23) clarifies that an entity must satisfy four requirements for statehood: territory, (24) permanent population, government and capacity to conduct international relations. Some of these elements, however, are quite loosely defined. For example, the territory requirement seems to be satisfied even though its boundaries have not been finally settled; (25) also, the definition of permanent population comprises situations like the one of the Vatican City--with a mere 400 citizens and a total of around 750 permanent residents. (26) This is one of the reasons why it is possible to affirn that the government, with its effective jurisdiction within state borders and/or on the population, and its innate capacity to enter into relation with other subjects of international law is clearly the most relevant characterizing aspects of the State. (27)

      What is important to note, however, is that scholars are generally agreed that an entity fulfilling these requirements is a State as such, and does not need any kind of recognition by the `international community' to become a member. (28) But, obviously, things are not as simple as that. Whether an entity satisfies the requirements for statehood is ordinarily determined by...

To continue reading