Serbs query economic miracle: Sceptics claim President Milosevic's fiscal wizardry will go up in puff of smoke, says Emma Daly in Belgrade

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The Independent Online
A FOREIGNER in Belgrade, deaf to the xenophobic rantings of the official media, might ask: 'Sanctions? What sanctions?' The streets are filled with traffic, the shops with food, clothes and children's toys, and wallets with new dinars valued at one German mark apiece. Only the mile-long queue of cars at the border with Hungary (source of goods sold on the black market) and the people hawking jerrycans of petrol on the hard shoulder smudge the picture of an economy working normally.

It is a far cry from the monthly hyper-inflation of 302 million per cent in January, and the food shortages of the past two years. Despite the embargo imposed on Serbia for its role in the Bosnian and Croatian wars, President Slobodan Milosevic has made economic magic. Now Serbia is waiting to see if it will dissolve in a puff of smoke.

The economic programme launched on 24 January replaced worthless local banknotes with a 'new dinar', backed by hard currency. Overnight, life changed for the better. 'It's super, compared to how it was before,' said Vasilije Kovacevic, a pensioner. 'And that's not just a slogan, it's a reality. People are happy, we are satisfied.'

Mr Kovacevic's views bear close resemblance to those broadcast on state television. But a poll in the magazine Nin showed that the percentage who believe the new dinar will not last long has risen to 43 per cent.

'We've already noticed hints of inflation,' said Milena Zivadinovic, an architect. 'The price of food is going up - and that's the only thing that interests us because even under this new programme that's all we can afford.'

Her friend, Jovan Markovic, retired four years ago on a monthly pension worth DM1,300 ( pounds 517). Now it is a tenth of that. 'We are not economists,' he said, 'but we know that economic improvement can be achieved only by increasing productivity and working harder.' There's the rub: without capital for investments and widespread reform it will be impossible to sustain economic stability.

Jurij Bajec, an economist working on the new dinar programme, emphasises that sanctions are only part of the problem. There is the drain of resources to support Serbian warriors in Croatia and Bosnia - estimated at 20 per cent of GNP in 1992 - and the complex social priorities in a country where economic policy is subordinate to politics. Serbia will spend the equivalent of DM9m on health care this year and DM300m on its police force.

Furthermore, the new policy is founded on the public accepting a steep decline in the standard of living. Nin estimates that a Yugoslav must work for two hours to buy a litre of milk - twice the time needed by a Russian.

Mr Bajec is, nevertheless, confident his programme will succeed - if President Milosevic is willing to do what it takes. Asked what could trigger the collapse of the new dinar, he replied: 'Old habits - the mentality of the old system, which says that . . . no one can be a loser, no factory can close, nobody can lose his job.'

The 1994 state budget, he said, provides for the sacking of 210,000 public employees this year. Others say the ultimate goal is to lay off 900,000 people. Many of these workers are already effectively jobless, on 'unpaid leave' from factories standing idle. Even so, a policy of formal redundancies (at a time when only 2 million are actively employed) would be hugely unpopular and could seriously damage the President.

The lifting of sanctions - which was put on the international agenda this week by Andrei Kozyrev, the Russian Foreign Minister - could pre-empt, at least in the short term, the need for harsher economic measures. The new dinar bought the President time last winter, when the public was restless.

Now it is summer, and he is safe at least until the autumn, when he must find a way to pay for the harvest. By then, he may have reaped the rewards of a peace deal in Bosnia. In the meantime, the Serbs wait to find out whether the new dinar is solid as a rock, or, as Mrs Zivadinovic thinks, 'just make-believe'.

Yasushi Akashi profile, page 14