The last Prime Minister of Yugoslavia Ante Marković was considered by many within the country and in the international community to be Yugoslavia’s last chance for a peaceful transition toward democracy and capitalism. In spite of his popularity, the Reformist party he created failed decisively in the first democratic elections of 1990. We expose the reasons for this failure by analyzing electoral, economic, and sociodemographic data on the level of more than two hundred Yugoslav municipalities where the Reformists put forward their candidates. Our analysis shows that the party’s failure had little to do with the voters’ exposure to the effects of the free market reforms undertaken by Marković’s federal government during this period. Instead, the Reformists’ results were largely determined by the communities’ ethnic makeup and interethnic balance. The Reformists suffered at the hands of a strong negative campaign by the Serbian regime of Slobodan Milošević, and they were squeezed out by the ethnically based parties that benefited from voters behaving strategically in the electoral marketplace dominated by questions of nationalism. The analysis presented here offers important lessons for our understanding of Yugoslavia’s breakup, post-communist transitions in general, and electoral politics in societies on the verge of ethnic conflict.