Plunging Living Standards Test Milosevic's Strategy


IN keeping with the communist-era economics it has refused to shed, the rump Yugoslav government minted an estimated 400 trillion dinars for the purchase of summer wheat.

The money was to be used by Serbian and Montenegrin government agencies to pay farmers in Serbia's northern breadbasket province of Vojvodina for 3 million tons of grain.

But economic planners failed to account for the effects of hyperinflation fueled by two years of war and 14 months of UN sanctions, which have rendered the Yugoslav currency worthless.

As soon as wheat-buying began, farmers rushed to the black market to exchange their dinar payments for duetsche marks. Cash-strapped state bureaucrats then did the same thing with dinars earmarked for grain. The resulting wave of worthless paper has catapulted to new heights the economic crisis gripping the Serbia-Montenegro union of 10 million people.

The economic crisis is so severe that some experts worry that, even if he wins a peace deal for the ethnic division of Bosnia, Serbian President Slobodan Milosevic will have to continue seeking conflict there or elsewhere to divert popular attention from plunging living standards. These analysts say Mr. Milosevic's refusal to reform Serbia's socialist economy forced him to seek a "Greater Serbia" by sponsoring the Serbian conquests of parts of Croatia and Bosnia.

"One can speak of an immediate standstill in our economy," says Ljubomir Madzar, a Belgrade University economics professor and former federal finance minister.

When the official wheat purchase plan was approved on June 24, one dollar was worth 1.5 million dinars on the black market. The currency is now trading at close to 11 million and rising.

Even the regime-run press reports the depths of the crisis:

* More than 3 million people are living below the official poverty line of $11 per month; the average monthly wage is $17.

* The annual gross domestic product has plunged from $30 billion in 1989 to $10 billion today; more than 20 percent goes to the Serb-conquered areas of Croatia and Bosnia-Herzegovina.

* About two-thirds of the 3.1 million work force is unemployed or on forced leaves from idled factories.

* The government hiked electricity prices twice this month for a total increase of 512 percent; other commodities are rising at similar paces.

Inflation is expected to top 690 percent this month, but officials say they will have to print another 787.5 trillion dinars to meet demands for the third quarter, which will send the rate even higher.

As the crisis builds, so does a debate over how Milosevic will deal with the situation. The only real solution, all experts agree, is a massive infusion of foreign capital. But that will not happen because of UN sanctions against Serbia and the unpredictability associated with Milosevic's style of rule.

The Serbian leader paid for the wars in Croatia and Bosnia by

printing cash, exacerbating an economic slump that began in the mid-1980s and worsened with the collapse of former Yugoslavia's internal market.

"This is a war-dependent regime," says Danica Popovic of the Center for Economic Studies, an independent Belgrade think tank. "They will say freedom has no price. This is Orwell."

Says a Western diplomat: "It is hard to imagine how these guys will deal with peace. How are they going to disband the Bosnian Serb Army of 60,000 men? There are no jobs for these soldiers."

But other analysts argue that Milosevic no longer has the resources for prolonged conflict. It will be sufficient for him, they say, to endure low-level strife in Bosnia and Croatia, renew tensions over ethnic Albanian demands for the independence of Serbia's southern Kosovo Province, or provoke some kind of internal political crisis.

The state media would maintain support for Milosevic among the poorly educated rural majority by blaming their economic woes on the UN sanctions and maintaining the claim of domestic and foreign enemies.

Milosevic also has the support of 70,000 well-armed police, who are better paid than senior Yugoslav Army generals.

Minimum living standards would be maintained through continued breaches of the UN embargoes, hard cash sent from Yugoslavs abroad, further consolidation of state control over remaining resources, and the continued printing of money. Serbia's agriculture would also ensure against starvation.

"We can live for a long period as we are now," says Srdjan Bogosavjevic, assistant director of the Federal Institute of Statistics. "In this situation, the regime will remain stable for a long period." Oskar Kovac, a Belgrade University economist, former Yugoslav deputy prime minister, and a member of Milosevic's Socialist Party of Serbia, indicates that this scenario was favored within the party even though it will produce long-term hardships.

"We understand when someone says that no costs are too high in order to achieve non-economic goals," Mr. Kovac says.

But he conceded that the ruling party has been unable to decide on specific steps to contain the economic crisis. Some recommend that the regime exercise total economic control through rationing, substituting coupons for cash payments such as those made for wheat, or barter trade.

They also call for reducing support for the Bosnian and Croatian Serbs, closing enterprises, and slashing wages paid to the more than 1 million workers on forced leaves.

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