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Life or death polling day for Serbia: Marcus Tanner in Belgrade on how toothless sanctions may spoil Panic's pitch

IN BELGRADE'S central Palilula market, where the trestles groaned with imported Ecuadorian bananas, it was hard to believe that the rest of the world saw Serbia's election yesterday as a fateful moment in the country's history.

The peasants were too busy ladling succulent hams and slabs of feta cheese into the shopping bags of queuing housewives. 'Business is going well, super,' said the banana seller. 'Elections are all the same to me. We live from day to day.'

Western leaders, however, who are hoping that Serbian voters will decisively reject the nationalist President Slobodan Milosevic in favour of the moderate Milan Panic, may be in for a disappointment. The Western sanctions, imposed partly in the hope of persuading Serbs to part with their nationalist leader, have failed. The traffic pile-ups in Belgrade show that the vital oil embargo is merely symbolic; and the shops boast much the same assortment of Western goods.

Mr Milosevic's Socialists have blamed everything from rotten crops to shortages of medicines on the 'unjust sanctions', and are marshalling their supporters under the banner, 'We will not bend'. But it is a phoney war. Apart from having to travel to Timisoara in Romania to catch a plane, there are few signs of sanctions impinging on the ordinary people.

But the 7 million potential voters have a stark choice: more fighting for Greater Serbia under Mr Milosevic, or the olive branch of peace proffered by Mr Panic. They can opt to reinforce Serbia's confrontation with the West, or to seek a return to the world; to commit Serbia to a regime of belt- tightening and rationing, or to start building a peacetime market economy.

'Now or never' is the opposition slogan. Mr Panic is offering an end to the carnage in Bosnia, the recognition of former Yugoslav republics, the lifting of the state of emergency in Kosovo, a reduction of police powers, disbandment of the hated state television, the trial of war criminals and a start towards creating a market economy.

It is a high-risk campaign for Mr Panic, a 62-year-old Belgrade-born businessman who made a fortune out of pharmaceuticals in California. Invited back to Belgrade by Mr Milosevic to take up the largely symbolic post of federal prime minister, he has become his sponsor's sworn enemy. And if he loses, he will most likely have to leave the country. His opponent is a grim, unsmiling former Communist apparatchik, who has devoted his life to climbing the party's greasy pole. Mr Milosevic, 51, rarely appears in public, and then only behind a wall of bodyguards. He is obsessed with what he believes is an international Western conspiracy to destroy Serbia in general and himself in particular.

Emotions have cooled since 1987 when Mr Milosevic grabbed the Serbian Communist Party's reins after vowing to squash the despised ethnic Albanians in Kosovo and restore Serbia's former dominance over Yugoslavia. To a nation hungry for gloire, he was heaven-sent. To breathe a word of criticism was to risk being beaten up.

When Mr Milosevic wound up his campaign in Kosovo, thousands turned out to cheer him. In an exaggerated fashion, the Kosovo Serbs reflect the gut feelings of most Serbs about a world they think is determined to cheat them of the spoils of victory, earned in the blood of two Balkan and two world wars.

To pensioners raised on communism, to nationalist peasants, to hundreds of thousands of displaced refugees from Croatia and Bosnia, Mr Milosevic's visceral hostility to the West and his claim that Mr Panic is a CIA spy sent to destroy them are entirely plausible.

Serbian factories, hard hit by sanctions, have closed by the score and wages have tumbled to an average of DM50 ( pounds 20) a month. But when Mr Milosevic says this is a small price to pay for upholding Serbia's national dignity, a lot of people agree.

There is, of course, another Serbia bursting within this strait- jacket, and it is rooting fiercely for Mr Panic. Its strongholds are the big cities, where connections with the West are most valued and political life is most active. In Belgrade, Mr Panic leads his rival by a thumping 69 to 29 per cent; and among young people, he is far more popular.

But more than 150,000 young people have emigrated to the West since fighting began 18 months ago, a phenomenal brain drain in a small country. Typical of Mr Panic's supporters are Braca and Vesna Pavlovic, an unemployed, middle-class couple in their thirties, who are applying to emigrate to Canada. 'I have to think about my two children,' said Braca.

Stojan Cerovic, an intellectual from the liberal magazine Vreme, summed up his country's fate: 'If Milosevic wins now . . . all that will be left to us is to emigrate, change our names and tell no one where we are from.'

(Photograph omitted)