How is economics used as a policy tool

As previously discussed, the sanctions aimed at changing a pan-Serbian policy pursued by Yugoslavia, both by putting economic constraints to further assistance to the Bosnian Serbs and by electoral behavior of dissatisfied citizens. However, the war in Bosnia fully exploded only after Security Council Resolution was passed.

May can be taken as a turning point. The Geneva negotiations, set by the London conference on Yugoslavia and co-chaired by Cyrus Vance, on behalf of UN and Lord David Owen, on behalf of the European Community, resulted in the Vance-Owen plan for cease-fire agreement, military disengagement and the demilitarization of Bosnia-Herzegovina. It also created a plan for a constitutional system of Bosnia-Herzegovina as a decentralized State consisting of ten provinces based on ethnic, geographic, economic, traffic, cultural and other relevant criteria.

This resulted in tightening the sanctions against FR Yugoslavia the Security Council Resolution entered into force automatically after the Bosnian Serbs rejected the Peace plan and prohibited transport and transshipment of goods through FRY and prolonging the war in Bosnia-Herzegovina. The reason behind this was an increasing inability to provide the Bosnian Serbs with the means necessary for fighting the war in view of the near collapsed state of the Yugoslav economy, where exploding hyperinflation eliminated inflation tax revenue and dwarfed other government revenues used previously for this purpose.

Throughout the second half of , the economic situation continued to deteriorate, while the limits of recovery, brought about by the Program, were soon reached. In the long run, stabilization seemed possible only with the lifting of sanctions and this action was conditioned with the achievement of the peace in Bosnia-Herzegovina.

This is why the Yugoslav officials started applying pressure on the Bosnian Serbs to accept the peace plan, this time proposed by the Contact Group.

After the Bosnian Serbs had rejected the plan, Milosevic imposed sanctions on them August , confirming that he was a man driven by power rather than nationalism Zimmerman , p. Welcoming the evolvement of FR Yugoslavia towards a more cooperative position, the Security Council Resolution suspended the restrictions for air traffic from the Belgrade airport, restrictions regarding the ferry service between Bar FRY and Bari Italy and the measures concerning participation in sporting events and cultural exchanges.

With the escalation of violence in spring of , that certainly accounts for the most tragic parts of the war, the situation in Bosnia seemed to be in a deadlock. The situation in Croatia, however, started changing. Operation Storm followed in the beginning of August, when the Croatian forces reintegrated a big part of the self-proclaimed Serb state with its capital Knin.

The majority of the Serbs fled the region, resulting in a solution, albeit in a nasty way, of the Serbian question in Croatia Puhovski, 2 -- before the war there were , Serbs in Croatia, while now there would be , , The speed of the Croatian victory as well as lack of intervention from Belgrade came as a surprise to many, inviting the conclusion that Krajina has just opened the way for the partition of Bosnia between Milosevic and Tudjman Puhovski, 2.

Not even the intervention of Croatian government troops on behalf of Bosnian government after the Serb assaults against the UN safe areas of Srebrenica and Zepa in July could reverse this opinion because the areas captured by the Croatian forces ended up under their control.

Meanwhile, NATO was preparing its own response to the assaults on the safe areas. The moment was seized by the Army of Bosnia and Herzegovina. Then the US administration demanded they halt. The time had come for Pax Americana Lagumdzija, 3. Peace talks in Dayton, Ohio were soon to follow. It was agreed that B-H would continue to exist within internationally recognized borders.

Elections would be held under international control and they would have to adopt and observe common -international standard of human rights. The final status of Brcko, a Serb held town on a narrow stretch of land connecting Serb territories in west and east Bosnia would be determined by arbitration within one year. There would be a NATO implementation force, to be called IFOR, authorized to use military force to prevent interference with free movement of and violence against civilians and refugees, with freedom of movement throughout Bosnia and Herzegovina.

The parties were obliged to cooperate fully with an international investigation and prosecution of war crimes. The UN Security Council would lift the arms embargo against Bosnia Resolution and sanctions against FRY Resolution , though the latter would be re-imposed if any Serb authorities failed to meet their obligations under the peace agreement.

Agreed to on November 21 in Dayton, the peace was signed in Paris in December. As far as their contribution to ending the war in Bosnia is concerned, they seem to have been less convincing. Between August , when Milosevic imposed sanctions on Bosnian Serbs, and August , the peace process was in a deadlock. This changed after the use of NATO air force and, more importantly, the US determination not to have the war in Bosnia on the agenda any more.

This was illustrated with diplomatic initiative, persistent negotiation efforts and, finally, a plan for -united- Bosnia with two separate political entities formed on ethnical basis. All of this could have been employed even without the sanctions. True, as Baldwin notes, it is easier to prevent the war than to stop it, so the task attached to sanctions involved a high level of difficulty. Still, after four years of war, with 2,, of 3,, people in Bosnia either displaced or affected by war in some other way War Report, 51 , the contribution of sanctions can hardly be considered successful.

With respect to the expectations that the sanctions would create an electorate more critical about the government, the international community made two mistakes. The first refers to the lack of democratic tradition after 50 years of party monolithism. Having helped divert dissatisfaction to growing xenophobia, the sanctions provided a convenient excuse for whatever was wrong in the country. The second mistake was that the sanctions, rather than creating a more critical electorate, made people more receptive to authoritarian and totalitarian regimes by increasing poverty.

More than one third of the population cannot satisfy their basic needs, while another third is very close to the poverty line Posarac, forthcoming. In view of the unwillingness to open the process of privatization as well as the small percentage of employees in existing privately owned firms, those people are highly dependent on the state for jobs and salaries. Given the fact that the necessary preconditions for the establishment and development of civil society and democracy should be citizens economically independent from the state, these trends will result in postponing the emergence of the civil society in Yugoslavia Posarac, forthcoming.

The people are likely to support the status quo, since changes will be too costly. With these facts in mind, the change of policy pursued towards the Bosnian Serbs does not seem like a remarkable achievement at all, since everything seems to be predicated on the belief that Milosevic will remain cooperative.

However, if he is replaced by somebody more nationally oriented or if he decides to adopt any kind of an objectionable policy, the citizens of Yugoslavia will have no choice but to follow, since the extent to which they are dependent on the state leaves them little choice. This brings us to the problem of efficiency or what policy alternative would have fared better. To answer this question, the crisis has to be examined from the very beginning because numerous possibilities for alternative action appeared along the way.

As the reform was taking place against the background of political disintegration, the federal government increasingly relied on external factors to legitimize its efforts. Evidence for political support was abundant -- Bush, Baker, Delors and other leading Western politicians strongly backed up the economic reform as a means of maintaining the unity and the territorial integrity of the country, but no new financial agreements were forthcoming.

This seems even more puzzling given the increased assistance provided by international financial institutions for the process of transition in Central and Eastern European countries. Whether the reason for this was the loss of geopolitical importance Zimmerman , p.

In June , a couple of days before the crisis came to a head, the American Secretary of State James Baker visited Belgrade where he expressed the American hope that Yugoslavia would remain together behind the reformist Markovic. He also stressed that the United States would not encourage or support unilateral secession and would strongly oppose any use of force. Opinions about his message range from the belief that this was an extremely skillful and reasonable presentation Zimmerman , p.

The decisiveness shown in the Dayton peace talks, with the Americans firmly committed to having Milosevic, Tudjman and Izetbegovic agree on the peace plan before they left Dayton, is an exemplification of what was lacking, by way of international commitment to a negotiated agreement, in As the crisis continued to deepen, the European Community was given a chance to deal with what it called a -European problem.

This reflected the belief that -the hour of Europe- Jacques Poos, , quoted in Dinan has come and suited in the context of emerging common foreign and security policy intergovernmental conference on common foreign and security policy was in progress when the crisis broke out in Yugoslavia. The highest point of the involvement of the European Community in solving the Yugoslav crisis was the establishment of the Conference on Yugoslavia at The Hague and in Brussels, with the so-called Badinter Arbitration commission.

The most glaring Community weakness, that affected the application and effectiveness of other policy instruments, involved diplomatic recognition of secessionist republics Dinan, Of the three Yugoslav republics the European Community had recognized, the Badinter Commission Report supported only the claim of Slovenia.

The claim of Macedonia also supported by the Badinter Commission, but was blocked by Greece. Fearing a damaging split immediately after the Maastricht summit Dinan, , the other member states agreed and the Slovenia and Croatia were recognized on January 15, In between the recognition of Slovenia and Croatia and the recognition of Bosnia and Herzegovina that was soon to follow, there was a brief moment when all three sides agreed on the future of Bosnia.

On March 18 a document was signed in Lisbon, outlining the political principles of a republic composed of three constituent nations, each with the right to self-determination and of the regional cantonization along ethnonational lines laid out on a compromise map proposed by the EC. On April 6, Bosnia was recognized, triggering the bloodiest part of the Yugoslav wars. The Lisbon plan is referred to by many Pajic, 18, Woodward, as an encouragement for the ethnic partition of Bosnia.

However, in an explosive situation, with the population of Bosnia already nationally split about political issues, with neighboring Serbia and Croatia eagerly waiting to step in and each take a slice of Bosnia, the plan addressed the most immediate concern -- to prevent the war that would further alienate national communities in Bosnia and possibly endanger the whole region.

As the war grew more violent, the number of the dead, raped and displaced rapidly increased. Shelling of civilians, ethnic cleansing and concentration camps became the reality of Bosnia.

However, there was no Western military resolve. Countries contributing troops to UN peacekeeping operation--especially France and Britain, that had initiated UN involvement and lobbied for more humanitarian action--objected to greater use of military power fearing that their soldiers on the ground might be at risk as opposed to the United States, whose fundamental policy was against sending soldiers.

The hostage crisis of June , when the UN peacekeepers were taken hostage as a response to shelling Serb military positions, seemed to prove this point.

However, the use of NATO air power in August confirmed that this was not so and that a similar action if used before would have yielded similarly successful results. Even this short consideration of alternative policies that could have been applied in the former Yugoslavia results in four solutions, three of which might have, arguably, prevented the war.

Nevertheless, this appears to be so only at first sight, for enforcing the sanctions was not inexpensive at all, thus making other alternatives increasingly competitive. When benefits are compared, however, the fact that tough negotiations and military action had to be applied anyway to reach peace speaks about the benefits of sanctions loudly enough.

So why have not any of the alternatives been tried earlier- Part of the answer stems from the fragmented and often contradictory approach to the Yugoslav crisis, best illustrated by the UN-s Secretary General Boutros Boutros Ghali comment that UN peacekeepers were sent in the during the war, while NATO soldiers are expected to guard peace.

The war in Bosnia not only revealed, but also underscored the urgency to build a new comprehensive structure of relationships to form a new security architecture Holbrooke , p. However, the fact that the peace was initiated, negotiated and delivered by the Americans, demonstrates that this is still far from assured. Now it remains to be seen to what extent will the efforts to stabilize Bosnia succeed, for the tensions between the Croats and the Muslims in Mostar as well as majority of the Serbs fleeing Sarajevo after its incorporation into B-H Federation demonstrate how little of the multiethnic fabric of Bosnia, the existence of which is essential to differentiate peace from merely a cease-fire, is left behind.

The elections of September , aimed at creating common institutions that will integrate distinct ethnic enclaves, further demonstrated how alienated three national communities feel. With politicians who have made careers out of hating each other Not all bad, 32 now in charge of establishing confidence and trust between people, an option of Bosnia being partitioned by nationalist forces will remain open for quite some time, thus inviting the conclusion that efforts to keep the country united might increasingly look as squaring circles.

The creation of a new way of thinking and a more tolerant society is going to be a long process that might turn out to be even more difficult for the international community then stopping the war that was going on two years ago. The belief that the new, credible, inexpensive and potentially potent weapon against small and medium size troublemakers has been discovered Mueller, , reflected by the recent proliferation of the multilateral economic sanctions, certainly calls for critical review.

Sanctions are mostly imposed on the countries with little or no democratic tradition Yugoslavia, Iraq, Libya, Somalia , and that strengthens rather than weakens the existing authoritarian regimes. As a State is less democratic, the punishment is more unfair, since there is no possibility for the majority to influence the acts of government Dimitrijevic, Moreover, even if this possibility existed, it is unlikely that the citizens of those states would translate the economic signals in their electoral behavior.

Misperceptions of this kind can be compared only with the US action in Somalia, when an extremely powerful TV signal transmitter was installed to inform the people what was really going on. Only afterwards was it realized that a number of privately owned TV sets was very small, thus necessitating the installment of a radio-signal transmitter.

The same can be said about the economic sanctions applied against undemocratic countries - their population is not used to judge and change governments according to their economic performance. Finally, the poverty that inevitably increases due to sanctions, makes the citizens of the state in question ever more dependent on the state and hence receptive to totalitarian regimes.

This invites the conclusion that, even if the stated policy objectives are achieved, the solution of the problem is temporary at best. Therefore, the international community should address the cause rather than cure the consequences - helping democratization in those countries can be of greater use to foreign policy goals than the imposition of economic sanctions.

In response to the kidnapping of three Aspasian women,Athens imposed a trade boycott on Megara, a Spartan ally, excluding her from access to ports in the Athenian empire and the market of Athens. The violation by the United States of its legal obligation under article 17 of the Charter to pay its assessed contributions has encouraged other states to follow this lead.

Both the Vance-Owen and the Contact Group plan will be referred to in the following chapter. For the detailed chronology of events in the former Yugoslavia, see Facts on Crisis in the Former Yugoslavia, special issue of Review of International Affairs, March 1st The mission included Jacques Pos, Gianni de Michelis and Hans van den Broek as the -troika- included foreign ministers from the current, immediately preceding and immediately succeeding presidencies, its composition was changing relatively fast, so later on -troika- was joined by Pinheiro, Hurd and Jensen.

The Badinter Commission found a precedent in international law relating to border conflict between Burkina Faso and Mali, resulting from the colonial rule, which declared the colonial border to be inviolable on a principle of uti possidetis or -keep what you have.

At an extraordinary Ministerial meeting in Rome, the member States of the European Community agreed on the following measures: immediate suspension of the application of the Trade and Cooperation Agreement with Yugoslavia, with a decision to terminate the same Agreement; restoration of the quantitative limits for textiles; removal of Yugoslavia from the list of beneficiaries of the General System of Preferences; formal suspension of benefits under the PHARE program.

On 2 December , the European Community adopted a decision on the so-called positive measures in favor of some Yugoslav republics after the termination of the Trade and Cooperation Agreement with Yugoslavia.

Bosnia-Herzegovina, Macedonia, Slovenia and Croatia were to have the preferential trade provisions contained in the previous Agreement restored, as well as other benefits and credits it envisaged. The amount that is received by the government is the increase in the stock of high-powered money, that consists of the currency and banks?

This effect was named after two economists who independently documented it - Vito Tanzi and Julio Oliviera - and refers to the phenomenon of the declining real revenue raised from taxation in the hyperinflatory economies, due to lags in both the calculation and payment of taxes. Poverty especially increased among the urban population - while the number of the people under the poverty line in was ,, , of which in rural and , in urban areas, in the first half of it increased to 2.

Cviic, Christopher. Dimitrijevic, Vojin. Dinan, Desmond. London: Macmillan. Dornbusch, Rudiger and Stanley Fisher. Singapore: McGraw-Hill, Inc.

Gowlland-Debbas, Vera. Holbrooke, Richard. Volume 74, No. Higgins, Rosalyn. Problems and Process. International Law and how we us it. The price of a product drops if the supply rises and the demand is stagnant. Conversely, the price of the product goes up if demand rises while the supply remains the same.

Mathematics comes hand in hand with economics. Math helps economists solve concrete problems involving numbers, such as how to calculate the profit margin of a firm, what price a company should set to maximize profits, or how to calculate the amount of CO2 emissions in the atmosphere. Mathematical tools used in economics include matrix algebra, linear equations, econometric models, optimization and differential equations.

Statistics is similar to mathematics, but here the emphasis is made on processing vast arrays of data. Read More. The term exchange rate refers to the price of one currency in relation Monetary policy is used in the stabilization of prices and inflation control. Government Spending Tools Capital Expenditure Capital expenditure refers to what a government spends on amenities such as schools, roads, and hospitals. Current Government Spending Current government spending includes goods and services, which it regularly provides.

Transfer Payments Transfer payments are payments that the government makes through the social security systems. Justifications for Government Spending Providing services such as defense for the benefit of all citizens; Enhancing infrastructure in the form of capital spending; Assuring the less-wealthy individuals a certain minimum income level; and Increasing the employment level.

In this sense, aincrease in government expenditure increases aggregate demand and the need for companies to employ more workers to meet the growing demand for goods and services. Disadvantages of Using Spending Tools Capital spending strategies tend to take time.

Formulation and implementation of capital spending may take several years; and Too much spending on recurrent projects might be unproductive and have negative effects on the economy. Government Revenue Tools Indirect Taxes Indirect taxes refer to taxes imposed on specific goods such as cigarettes, alcohol, fuel and services. Direct Taxes Levies on profit, income, and wealth are direct taxes. Advantages of Using Fiscal Tools Raising taxes helps in discouraging alcoholism and drug abuse.

Disadvantages of Using Fiscal Tools Raising taxes is unpopular and can be politically challenging to impose and implement. Question Which the following statements is the most accurate regarding fiscal tools? Indirect taxes cannot be modified quickly; therefore, they are not relevant fiscal policy tools B. Direct taxes are useful for discouraging alcoholism C. Government capital spending decisions are slow to plan, implement, and execute; thus, they are of little use for short-term stabilization of the economy Solution The correct answer is C.

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