Yugoslavia, Finding Itself Lagging, Eyes Changes : East Europe: With the economy a shambles and unrest growing, the Communists are meeting this weekend to curb their power, try other reforms.

For decades, Yugoslavia was the pacesetter in political and economic reforms in Eastern Europe: It was the first Communist country to allow its citizens to travel freely abroad, and it had less of the looming police state that darkened most of the region.

Yugoslavians liked to say they were on “the sunny side of the Alps.” Their country was independent, innovative and, after it broke from the Soviet Bloc in 1948, mostly free from the shackles of Stalinism.

In almost every way, from the wealth of goods in its shop windows to the hordes of topless Western European tourists on its Adriatic beaches, Yugoslavia felt better off than its Communist kin.

But that was before the amazing year of change in 1989. Today the relatively progressive country founded by Marshal Josip Broz Tito, the late Communist rebel who died 10 years ago this spring, finds itself suddenly lagging far behind its neighbors in many areas.

“What we took 40 years to accomplish, they did in one month in Czechoslovakia,” marveled Slavko Splichal, a sociologist from Ljubljana, in the northwest corner of Yugoslavia.

“The Yugoslavs look around and see that Albania is the only country left that is not moving,” a Western diplomat here said. “Believe me, they do not like to be compared to Albania.”

In an attempt to catch up with the rest of Eastern Europe, the Yugoslav Communist Party is expected to relinquish its monopolistic hold on power and endorse other reforms at a special meeting here this weekend. But the congress of the League of Communists of Yugoslavia comes at a time when the country finds itself confronted with a panoply of very difficult challenges.

Yugoslavia’s economy is in shambles, with an effective inflation rate topping 2,000% last year. The foreign debt is more than $20 billion.

Until the federal government finally made the Yugoslav dinar convertible into hard currency in December--the first Eastern European country to take this important step--daily life here often involved hours of complicated dealings with black-market money traders.

Even more troubling, the nasty Balkan conflicts that gave the country its reputation as the “tinderbox of Europe” have resurfaced in a big way, spreading talk of secession and a breakup of the Yugoslav federation along the lines of the old Austro-Hungarian empire.

In the most celebrated recent example of the internal feuding, the government of Serbia, the largest of the six republics in Yugoslavia, ordered an economic boycott of Slovenia, the richest Yugoslav republic.

Populist Serbian leader Slobodan Milosevic called the boycott after the Slovenian government blocked a pro-Serbian demonstration he planned in Ljubljana, the Slovenian capital, on Dec. 1. Since then, some Serbian banks have refused to transfer funds to their Slovene counterparts. Popular items such as Slovenian mineral water and Coca-Cola, bottled in Slovenia, have disappeared from markets as a result.

Meanwhile, at a political meeting of new opposition parties in Ljubljana on Wednesday, speaker after speaker urged greater autonomy, even independence, for Slovenia. The guests of honor at the rally were politicians from Austria and Italy, countries many Slovenes say they prefer to their own.

For years, Yugoslavia has always been an improbable country. With six republics, two provinces, four languages, three religions and two alphabets, it defies most definitions of statehood. United as partisan fighters against the Germans during World War II, the Yugoslavs were kept together for 35 years under the leadership of Tito.

But even Tito had to intervene with force to quell an ethnic-nationalist uprising in Croatia in the early 1970s.

After Tito’s death in 1980, no other pan-Yugoslavian leader has emerged. Economic disparities between the republics--Slovenia has a per-capita income three times higher than Serbia, for example--has fostered jealousies.

The traditional Communist Party leadership was hopelessly identified with failed economic schemes, a classic example of which was a nickel-alloy production facility in Macedonia. Built at a cost of $2 billion, the plant was never used because of a collapse in the world nickel market and because assays showed the nickel ore in the region, one of Yugoslavia’s poorest, was not nearly rich enough to exploit profitably.

In the place of the old Tito-style politicians, mostly Communists who favored a strong federal government, new regionally based leaders such as Milosevic have surfaced. Milosevic has won broad appeal by championing the plight of Serbian minorities in other republics and provinces.

Although there are 8 million Serbs in Yugoslavia, the largest ethnic group among the country’s 25.5 million citizens, only 60% live in the republic of Serbia, with the rest scattered as minorities in other states.

Rekindling an age-old flame for “a greater Serbian state,” Milosevic used his power as Serbian Communist Party leader to subjugate Kosovo and Vojvodina, the two so-called autonomous provinces inside Serbia, because of what he claimed was persecution of Serbs there.

In Kosovo, where a majority of the population is Albanian, Milosevic ordered the arrest and prosecution of Albanian Communist Azem Vlasi, a move that has been widely criticized on human rights grounds in the West.

Milosevic’s Kosovo moves also frightened people in other republics where fears of Serbian dominance have existed for centuries. “The old maxim is that a strong Serbia means a weak Yugoslavia,” one diplomat here said.

Although he relinquished his job as head of the Serbian Communist Party when he was elected as president of the Serbian republic this fall, Milosevic is expected to be a key player behind the scenes when the four-day party congress opens today.

The crucial issues to be debated at the party congress are the constitutionally ordained leadership role of the party; multi-party elections, and a proposal by Slovene Communists for a “League of Communist Leagues” in which each republic would have an equal vote instead of the population-based voting that now favors Serbia.

According to most sources, the first two points already have been approved by the Communist leadership. At a news conference Friday, Yugoslavian Deputy Prime Minister Vivko Pregl preempted the party congress by announcing an eight-point proposal for reform, including an end to the party’s domination of labor unions.

“Our intention is to change the leading role of the Communist Party,” Pregl said. “We want to write in as much freedom as possible with regard to political affiliation.”