Serbs stranded on a dead-end road: Not sanctions, but four decades of Communism followed by an ill-conceived war have destroyed the economy, writes Tony Barber from Belgrade

IT WAS midnight at the smoky Bitef nightclub in Central Belgrade, and the jazz quartet was playing 'When autumn leaves are falling'. Waiters in shabbily elegant tuxedos glided between tables carrying trays of cocktails. Every table was full, and more people were waiting outside.

'It looks just like Belgrade before the war, doesn't it?' said Snezana Novak ovic, a young Serb. 'More like Chicago in the 1920s,' said her Serbian-American friend.

The comparison with the prohibition era is apt. The cocktails at Bitef were made from Russian vodka, Scotch whisky, Caribbean rum and other spirits smuggled into Serbia in defiance of United Nations sanctions. The prices were high but if you could pay in German marks the waiter had some good news from his black-market friends. 'The mark went up from 16,000 to 18,000 dinars today,' he announced.

Five miles away, snow was falling at dawn in the suburb of Zemun. A middle-aged woman in boots and torn winter clothes sifted through a skip full of rubbish on the street. She was one of the newly destitute of Belgrade, people for whom a discarded cigarette is a prize. 'What do you think, am I going to need permission to do this soon?' she asked bitterly.

It is almost two years since the Yugoslav conflict started. Serbia is a society of extremes: war profiteers; hungry pensioners; gunmen; innocent victims of crime; rabid nationalists; earnest peaceniks; educated Serbs desperate to emigrate; and unemployed Serbian workers with nowhere to go. The economy is in ruins, destroyed not so much by a year of sanctions as by four decades of Communist mismanagement, then a war that has bankrupted the nation.

Inflation in February alone hit 211.8 per cent. Annually it is running at more than 2,000 per cent. The average wage in the state sector, which employs about 2 million of Serbia's 9 million people, is 815,000 dinars (pounds 30) a month. Even now many workers have not received their pay for January and some are still awaiting their December wages.

About 700,000 workers are unemployed and up to 70 per cent of them have no income support. The authorities promised three months ago that they would give bread, sugar and cooking oil to the unemployed at subsidised prices. But the promise fell flat. Basic foodstuffs are often scarce.

The reason is the state's attempt to control prices. The government has set a maximum price of 2,300 dinars for a loaf of bread. Serbia's bakers have stopped baking - why sell bread at that price when a kilogram of flour costs 10,000 dinars on the black market?

Agriculture, the pride of Serbia, is becoming a source of social tension. Farmers refused to sell wheat to the state last year because the price offered was too low. Now they are feeding it to cattle. The problem is all the more serious because Serbia must feed Serbian communities in Bosnia-Herzegovina. The Serbian policy of 'ethnic cleansing', or the forced removal of Muslims from their native areas, has wrecked agriculture in large parts of Bosnia, and turned the dream of an expanded Serbian state into a massive and unsustainable drain on Serbian resources.

Contrary to impressions abroad, Serbia is not a country whose population consists of nationalist fanatics bent on the subjugation of their neighbours. It is, increasingly, a country in which the majority of families are obsessed by the question of financial survival. Many are lucky and have a supply of Western money - usually marks or US dollars - that they saved in Communist times. Suspicious of state banks, they hid it in their homes.

Now, banknotes buy banknotes. They are converting their money into dinars to offset the worst effects of the inflation. But like salt slipping through an egg-timer, the money is running out.

Some have turned to crime. With so many factories idle, thieves are having a field day. One gang recently stole several tons of copper and machinery from the Niksic steelworks. Armed robberies are rising in Belgrade: the police report frequent thefts of tens of thousands of marks or dollars from private flats.

Even directors of state firms are at it. They establish bogus businesses which buy up the state companies' products only to resell them at a massive profit. Many Serbian firms have registered in Hungary, Cyprus and the Caribbean to avoid taxes and pension contributions, and so deepen the state's bankruptcy.

The government of Slobodan Milose vic and his Socialist Party has no remedy for the chaos except to keep printing money and repeat the message that Serbia is a victim of foreign hostility. Every night the television news programme Dnevnik repeats the theme that Serbia is surrounded by Catholic and Muslim adversaries, and the best hope of salvation lies in Russia, the big Slavic Orthodox brother to the east.

For the moment the propaganda may be working. The democratic Serbian opposition is demoralised, stunned by its humiliation in last December's elections. They saw the defeat of Milan Panic, the Serbian-American businessman who promised an end to the war and a switch to Western economic values. And they witnessed the emergence of Vojislav Seselj, an ultra-nationalist whom the US has labelled a war criminal, as a force in Serbian politics.

Independent Serbian voices still struggle manfully to be heard. They include the television station Studio B, the radio station B-92, and the magazine Vreme. But their constituency is diminishing. Thousands of liberal Serbs have emigrated to Canada, the US and South Africa rather than fight the good fight at home. The opposition political parties seem woefully out of touch.

What troubles Serbs is inflation, collapsing living standards, crime, corruption and the fear of war spreading into their homeland. A social explosion is coming but the people, whipped on by their leaders, have travelled a long way down the dead-end road of an illusory national dream. When you have travelled that far, it can seem too painful and too frightening to turn back.

(Photograph omitted)