Serbia's Economy Falters, but Not From Sanctions

ONE year after United Nations sanctions were imposed on Serbia and Montenegro, gasoline and other proscribed foreign items remain plentiful - gas, for instance, is easily obtained for about $4.50 a gallon from the country's many black-marketeers.

Such abundance raises questions about the effectiveness of the sanctions, which include petroleum and trade embargoes aimed at punishing the rump Yugoslav union for its sponsorship of the Bosnian Serb division of neighboring Bosnia-Herzegovina.

But even amid such plenty, only a shrinking minority of the country's 10.5 million people can afford the prices of smuggled goods or the much lower costs of many domestic products, including basic commodities, because of hyper-inflation.

The price surges - more than 280,000 percent since May 1992 - are just one indication that what was the most affluent country in the former communist world is in the throes of total economic collapse.

Other signs include:

* About 2.6 million people, out of a work force of 3.4 million, are unemployed or on "forced vacation" from factories and companies idled by sanctions.

* The average monthly in-come has fallen to $25.

* Production dropped 40 percent over the past year.

* Shortages of many essential commodities are common.

* A leading private bank collapsed and a second was temporarily closed.

* The crime rate has soared.

* And a new 5-million dinar note has been released - weeks after the introduction of the 500,000-dinar note - amid soaring black-market rates for the deutsche mark and the US dollar.

The crisis also can be seen in the massive lines of commuters caused by cutbacks in public transportation and in the critical shortages of medicines and other items in hospitals. Chaos was inevitable

But many economists, political analysts, and Western diplomats say that such a cataclysm was inevitable without the sanctions. Efforts to apply Western-style market reforms here have failed, and with the collapse of former Yugoslavia, an unrestricted amount of dinars have been printed to pay for three wars in less than two years.

"This started in early 1989 and was merely enhanced by the sanctions," said Tomislav Popovic, the director of Belgrade's Institute of Economic Science.

For that reason, many experts believe the sanctions have achieved little toward their intended goals.

Instead, they say, the measures are punishing ordinary civilians for the transgressions of their political leadership, while rewarding those in power and a small number of war profiteers, smugglers, and those they do business with in other countries.

"Sanctions are a very blunt instrument that hurts a lot of innocent people," says Ivan Vujacic, a United States-educated economist and an opposition Democratic Party member of the Yugoslav Parliament.

Economic chaos also may increase the appeal of authoritarian leaders.

"The question is: Are you going to get social unrest, and what kind of regime are you going to get after that? History tells us that it will be an authoritative one," Mr. Vujacic says.

When imposed on May 30, 1992, the sanctions were intended to coerce Belgrade into halting its support for the Bosnian Serbs and bringing an end to the war.

Such efforts clearly failed. The Bosnian Serbs overran 70 percent of the former Yugoslav republic with military, financial, and material assistance from Serbia and Montenegro.

The sanctions were tightened in mid-May after the Bosnian Serbs rejected the UN peace plan mediated by Cyrus Vance and Lord David Owen.

Tighter sanctions and the threat of foreign military intervention, which has since receded, apparently prompted communist President Slobodan Milosevic to declare his support for the plan. He also announced a cutoff of all but humanitarian supplies to the Bosnian Serbs. Fait accompli

Whether he has done so is still in question. But, by the time he took the decisions, the Bosnian Serbs were already victorious on the battlefield.

The fighting rages unabated, as evidenced May 30 by some of the worst clashes to convulse Sarajevo since the war erupted in late March 1992.

There has yet been no major unrest in rump Yugoslavia as a result of the economic turmoil, leaving Mr. Milosevic, the country's paramount leader, relatively secure.

Ironically, political analysts and Western diplomats attribute the relative social calm to the sanctions themselves because they have allowed Milosevic to blame the economic crisis on the international community.