ETHNIC and political strife are beginning to undercut ambitious economic reforms in Yugoslavia. Wary Western investors are staying away as nationalist and political passions threaten to bring the nation to the brink of civil war.
Yugoslavia has already lost critical financial bridging support. The International Monetary Fund has suspended negotiations on a $1 billion standby loan until the country's crisis abates.
Other important lenders have also signaled caution. The European Parliament last week threatened to block a $1 billion European Community (EC) loan for Yugoslavia if the government fails to find a peaceful way to settle the current political crisis.
The Parliament warned that any repeat of a recent bloody crackdown on opposition demonstrators in Belgrade would have a "seriously detrimental effect" on all aspects of relations between Yugoslavia and the EC.
EC suspends talks
The EC's executive Commission has also decided to suspend talks with Yugoslavia on an association agreement that would encourage closer economic ties between the country and the 12-nation EC.
The EC loan is aimed at improving Yugoslavia's decaying transport network, which is heavily used by trucks traveling between Greece and the rest of the EC.
Federal officials in Belgrade say foreign loans are needed to keep the beleaguered and near-bankrupt communist economy on a path toward market-oriented reforms and to help service a $16 billion foreign debt.
Hard-currency reserves have been drained to desperately low levels.
Although tough fiscal policy stopped runaway inflation last year, the dinar remains overvalued against the German mark, putting prices in some areas on a par with its northern neighbor, Austria, one of the most expensive nations in Europe.
Inflation is also surging back. Recent government statistics indicate that inflation could exceed 100 percent this year. Unemployment in the country of 24 million is now 20 percent, officials say. Another 15 percent of the 6.8-million work force is now officially recognized as redundant, a legacy of so-called communist full employment policies that padded industry work rolls.
Officials say those workers must be laid off gradually to decrease the shock of unemployment. But critics say the government fears widespread social unrest if too many moribund state enterprises are shut down at once.
An increasingly hamstrung reformist federal government blames the economic problems on the leaders of the nation's six republics and two autonomous provinces.
Serbia's battle with Croatia and Slovenia over the future of Yugoslavia has thrown domestic and export trade into turmoil. Communist-led Serbia, the nation's largest republic, opposes efforts by Slovenia and Croatia to create a loose federation of autonomous states. Croatia and Slovenia, which now have center-right governments, have threatened to secede if an agreement is not reached soon.
Hard-line Serbian President Slobodan Milosevic wants to maintain Yugoslavia's current centralized federal system. The national Army, which is dominated by Serbian officers and communists, is sympathetic to Milosevic, who also opposes many of the federal government's tough economic reforms.
Political and ethnic tensions between the two secessionist republics and Serbia have led to economic sanctions that have hurt both sides.
Prosperous Slovenia and Croatia have already suspended dozens of federal laws, including economic legislation, and replaced them with their own. Serbia, for example, recently declared gasoline stations on its territory operated by Croatia's INA fuel company to be Serbian property.
Radoslav Veselinovic, owner of the Yugofond manufacturing company, says the bickering and confusion often makes doing business nearly impossible.
"The rules on how to make a profit in one republic are not the same as in another," Mr. Veselinovic says. "And now some firms in Slovenia and Croatia are not paying Serbian companies, and vice versa."
In some instances, communication has all but ceased. Says Serbian foundry owner Stanko Krustin: "It's easier to have contacts in New York now than with some enterprises in the neighboring republics."
Fledgling entrepreneurs and investors also bemoan Serbia's near-insolvent banks. Hard hit by decades of bad loans to the state sector, few are able or willing to support new private businesses.
The political, ethnic, and economic quarreling has hit the poorer regions the hardest, especially southern Kosovo province.
In Kosovo, stores close
In Pristina, Kosovo's desolate capital, many shop windows are boarded over. Young ethnic Albanians of working age idly wander refuse-strewn streets under the suspicious gaze of Serbian police.
When the predominantly ethnic Albanian population in Kosovo went on strike last summer in an attempt to shake growing Serbian control, Serbia retaliated with mass firings and store closures.
Officials in Belgrade say that since then unemployment has jumped to 35 percent. But ethnic Albanian leaders claim the number is really much higher, nearly 70 percent in some areas.
The crisis has also fueled demonstrations in Serbia, where Army tanks were ordered on March 9 to quell unprecedented protests against the republic's communist government.
Thousands of workers in Serbia's near-bankrupt economy have not been paid for months, and Serbia's loss-making heavy industry is on the brink of collapse.
THE POLITICAL CRISIS (Data from Chart)
March 9: Demonstrators in Belgrade call for ouster of former communist leaders. Two people are killed and 76 wounded.
March 15: Eight-member federal presidency rejects Serbian calls for state of emergency to put down protests. Serbian member of presidency resigns.
March 16: Members from Montenegro and Serbian province of Vojvodina quit presidency. Serbian leader refuses to recognize body's authority.
March 17: Serbian leader declares Krajina region of Croatia a "Serbian autonomous region."
March 18: Member from Serbia's Kosovo province is removed from federal presidency by Serbia. Loss of its fourth member deprives body of a quorum.