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Embargo Leaves Serbia Thriving

Embargo Leaves Serbia Thriving
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May 30, 1994, Section 1, Page 3Buy Reprints
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With hyperinflation overcome, new boutiques overflowing with Italian shoes and American jeans, food abundant and industry showing a modest recovery, Serbia today suggests that a long trade embargo stimulates ever more sophisticated ruses to circumvent it.

At a time when the United Nations has tightened sanctions on Haiti in an attempt to dislodge its military rulers, President Slobodan Milosevic of Serbia appears stronger than ever two years after the imposition of draconian trade sanctions.

Mr. Milosevic, who is widely seen as the orchestrator of the militant Serbian nationalism that has unfurled across Bosnia, was never explicitly the target of the sanctions, which were imposed on May 30, 1992. But United States officials have made little secret of the fact that they would not have rued his fall.

The embargo has cost the rump Yugoslav federation of Serbia and Montenegro tens of billions of dollars. Since it was imposed, economic output has dropped by half and the suicide rate has increased by 22 percent. Moreover, it induced a monthly inflation rate of over 300 million percent by last December.

But it now seems more an irritant than a threat. Hero of the Economy

The 74-year-old economist responsible for this shift and the soaring popularity of Mr. Milosevic may be found every evening at 6:15 in the aperitif bar of the central Hotel Moskva. The economist, Dragoslav Avramovic, who worked 24 years at the World Bank in Washington, is now such a hero that the currency he introduced last January is widely known as the Avram.

In fact, the currency is the new dinar and its exchange rate of one new dinar for one German mark has held steady since its appearance on Jan. 24, resulting in great affection for it among people whose former salaries of millions, even billions of old dinars had become worthless.

Since January, inflation has been close to zero. Goods have reappeared in stores. State television now dwells on business rather than war and the mood, while scarcely euphoric, has inched away from the dazed but defiant despair of last December.

"We have turned the corner," Mr. Avramovic, now the governor of the National Bank of Yugoslavia, said with a gleam in his eye. "The currency is steady, we have achieved agricultural independence and industrial production is up 40 percent since the end of last year. We hope sanctions will be lifted, because all they do is create enemies. But our program is sustainable whatever happens." Two Essential Changes

That claim appears questionable. With no access to foreign loans or finance, and business in foreign markets confined to illicit if expanding transactions, there may be a limit to how long Mr. Avramovic can prevent the Government from paying its bills by printing money and so igniting inflation.

"Hard-currency reserves are not sufficient, production cannot achieve sustained expansion under an embargo, and so the budget deficit must grow by the end of the year, leading to new hyperinflation," said Ljubomir Madjar, an economist.

Up to now, however, predictions that the Avramovic program would amount to no more than a tenuous conjuring trick have proved unfounded. Instead, two essential changes have taken place.

Farmers and industries that were hoarding inventory while inflation soared have now brought their goods to the market and resumed production. And people have been encouraged by interest rates to bring into circulation some of the untold millions of German marks stashed under mattresses during decades of intermittent inflation in Yugoslavia.

Randenko Vidakovic, a retired engineer in Novi Sad, north of Belgrade, said he had 100,000 German marks saved in his home -- a nest egg that enabled him to survive when the value of his monthly pension fell to about two marks by last December, scarcely enough to buy a liter of milk. "Of course life is still expensive," he added, "but our confidence has been restored."

Western diplomats say they have no idea how many marks are hidden in homes or continue to be sent by Yugoslav workers overseas, but it seems clear they are a decisive cushion against social upheaval.

Certainly, Mr. Milosevic seems to be oozing confidence. When he visited Novi Sad last week, he was rapturously received as he declared, "Maybe the cows around here are producing more milk out of spite at international trade sanctions."

In a speech at an agricultural fair that underscored how the Serbian President had been able to use the sanctions as a glue for defiant nationalist sentiment, and so strengthen his hold on power, Mr. Milsosevic added, "There is no power or international pact whose computers are able to calculate what the Serbian peasant can achieve." Fraying of the Embargo

The Government's economic program has clearly been bolstered by a severe fraying of the embargo. Everything from gasoline to L.A. Gear shoes is now available at a price, and business executives say that countries including Ukraine, Russia, Hungary, Bulgaria, Romania and Greece are places where deals can be done.

"Everyone understands money," said Vlastimir Grujic, whose recently opened clothes boutique is doing a thriving trade in Rifle jeans from America, Samoa sandals from Italy and other imports. "It's getting easier to get things because there are big holes in Bulgaria and Hungary for us to operate. We Serbs resisted the Turks for 500 years; we can resist the Americans for another two or three."

A Western diplomat here said neighboring countries that had suffered from the embargo had simply tired of it. "Tightening sanctions would be easy," he said. "Give a billion dollars to Hungary, Romania and Bulgaria to compensate them for lost income and tell them to police the borders better."

Officials at the United Nations sanctions committee in New York also said the embargo appeared seriously compromised by what one called "the weariness of third parties who have been affected because of Serbia's geographic position." Auto Industry Expanding

Mr. Avramovic is so confident that sanctions can be circumvented that he is going ahead with planning for major investments in the auto industry, telecommunications, public transport and other sectors that will require international financing. "If you have good projects," he said, "I do not know any that do not get finance in the end."

For example, the Zastava auto industry, crippled by sanctions and the breakup of Yugoslavia, has now found domestic replacements for all the parts it could no longer import for its Yugo cars, and is embarking on an expansion program. Its production is expected to reach 20,000 units this year, more than double last year, but still well below the 200,000 produced annually before the war.

The crucial question is how far a domestic market of 10 million can continue to sustain such recoveries and whether borders will continue to become more porous, so even industrial goods like steel and cars can get out. For without a more buoyant economy, and the higher tax receipts and greater hard-currency earnings it would bring, even Mr. Avramovic might not be able to balance the budget.

At the very least, however, President Milosevic has clearly bought time with the new economic program, and is not in a position where sanctions will compel him to seek peace in Bosnia. In this sense, the embargo appears to have fallen far short of its objectives.

Zarko Korac, a political opponent of Mr. Milosevic from the Civic Alliance Party, said the sanctions had become unhelpful.

"Of course morally it is very difficult for President Clinton to lift the embargo," he said. "But if you ask whether they have they been an effective policy, the answer seems to be no."

A version of this article appears in print on  , Section 1, Page 3 of the National edition with the headline: Embargo Leaves Serbia Thriving. Order Reprints | Today’s Paper | Subscribe

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