Rumors of U.S. Aid Halt, Possible Intervention Set Off Yugoslav Furor : Eastern Europe: Communists see a plot. But Bush calls to say nothing has changed.

In Belgrade, the news hit like a Balkan storm: The United States, reports said, was cutting off aid to Yugoslavia, signaling a major policy shift away from supporting unity for the troubled federation.

Officials of Communist-governed Serbia quickly denounced the move as part of a U.S.-led plot against them, issuing dire warnings through the state-controlled media.

“It is clear that Yugoslavia has entered the closing phase of a special war against it,” TV Belgrade announced Tuesday night. “Elite U.S. rapid deployment forces have been deployed to Germany and are awaiting orders to enter Yugoslavia.”

In Zagreb and Ljubljana, the capitals of Yugoslavia’s republics of Croatia and Slovenia, which have been threatening to secede, officials welcomed the purported American move, seizing it as evidence that President Bush would be willing to support their quest for independence.

But in Washington, where the reports began over the weekend, Administration officials were left bewildered, insisting that they really had not done anything. After a flurry of high-level discussions, Bush, using his favorite foreign policy tool, dialed Yugoslav Prime Minister Ante Markovic on the telephone Monday and tried to calm the chaos, reassuring him that U.S. policy had not changed. Aid to Yugoslavia is “still under review,” the State Department insists.

Markovic, one of the few moderates still holding office in Yugoslavia and a U.S. favorite, has used the appeal of Western assistance as a carrot to draw the stubbornly nationalist republics together in a federal recovery effort. Loss of Western financial support would have a “devastating” effect on Yugoslavia’s economic reforms, warned Ljubisa Jeredic, the prime minister’s chief economic adviser.

For the Administration, the confusion over policy toward Yugoslavia has underlined how loudly a little-noticed policy whisper in Washington can reverberate overseas. A move designed to apply quiet pressure on Serbian leaders to improve their human rights record appears to have backfired, undermining Yugoslav moderates and reducing U.S. leverage on key players in the Balkan drama.

“In an effort to correct a tragic situation and to right a wrong, we are running a serious risk of injuring the wrong party,” Secretary of State James A. Baker III said Thursday in congressional testimony. The congressionally mandated restriction on U.S. aid to Yugoslavia is “a very crude device,” Baker said.

The problems have come in a particularly sensitive region, for Yugoslavia has become a test case on the difficulty of applying Bush’s abstract principles of a “new world order” to the leaden realities of a real world ordered by entrenched national hatreds.

“This is really the first post-Cold War crisis in Europe,” said one official who has been closely involved in shaping policy toward the region. “It’s very important to show we can address it.”

For nearly a year, the Administration has tried to balance two potentially irreconcilable goals in Yugoslavia.

On the one hand, the Administration favors the attempts by non-Communist, Western-oriented governments in Croatia and Slovenia to resist domination by Serbia and its autocratic Communist Party leader Slobodan Milosevic. On the other hand, the Administration opposes the idea of independence for any of the Yugoslav republics.

The concern, Administration policy-makers say, is that secession and nationalism will become contagious, undermining governments throughout Eastern Europe and on into the Soviet Union. Unless the claims of small ethnic groups seeking independence are restrained, Administration planners fear, the “new world order,” freed of the constraints of superpower competition, could become an anarchy of small, squabbling nation-states.

That concern about nationalism, which has also been at the center of U.S. policy toward the Kurdish rebellion in Iraq, has put the United States in an unusual position. The country whose Presidents once were the foremost diplomatic champions of self-determination has now become one of the chief defenders of the status quo and the sanctity of borders.

But Bush has also come under pressure, particularly from conservatives, to support the non-Communist Croat and Slovenian nationalists against their Communist adversaries in Serbia. On Thursday, Senate Minority Leader Bob Dole (R-Kan.) and Sen. Don Nickles (R-Okla.), who has been the conservatives’ point man on Yugoslavia, sent a letter to Bush urging him to block any aid to Yugoslavia until the Serbians “implement real reforms.”

Officially, the Administration would like to see a “united and democratic Yugoslavia.” But that formulation may be an oxymoron given the fact that in democratic elections, Yugoslavs increasingly have voted against unity.

For most of last fall, the Administration emphasized the “united” side of its policy, prodding European allies to make clear that republics that secede should not expect to be “welcomed into Europe.” The policy reaped considerable success, Administration officials claim, restraining independence moves by Slovenia and Croatia.

But by this spring, with Serbia increasingly trying to assert its power and to provoke its neighbors into fighting, the Administration has tried to put more emphasis on the “democratic” side, condemning Serbian human rights violations.

Along with those condemnations, the Administration has offered increasing sympathy for the independence-minded republics, particularly Slovenia, the most Westernized and most prosperous of Yugoslavia’s six republics.

“For the sake of the region as a whole and European stability, secession would be a very bad move,” said one official. But “there does come a point where the international community cannot expect the Slovenes to work within a non-democratic Yugoslavia.”

“We’re not at that point yet,” he added, but “if I were a Slovene, I would want out, too.”

That slowly shifting and ambiguous policy provided the background for the most recent confused U.S. moves. The direct cause was an obscure amendment to a State Department budget bill pushed last year by Nickles.

Nickles’ amendment bars U.S. aid to Yugoslavia unless the Administration formally certifies that the country is making progress toward democracy and observance of human rights.

On May 5, six months after the bill bearing Nickles’ amendment was signed into law, the deadline for the certification arrived. Given repeated human rights violations in Yugoslavia, particularly in Serbian-controlled regions, Secretary Baker decided quietly not to issue the certification.

State Department officials said that they hoped their action would buy some time. “We were hoping the Yugoslavs would right things by themselves,” allowing Baker to issue the certification later, said one State Department official.

For a while the ploy seemed to work. Officials prepared “guidance” to explain the decision to reporters, and were pleased that no one asked about it, keeping the U.S. move essentially hidden.

Then, last week, the situation worsened as Serbian leader Slobodan Milosevic used his republic’s power to block the rotation of Yugoslavia’s presidency, throwing the country into a constitutional crisis that shows no sign of ending.

With attention thus focused on Yugoslavia’s perilous situation, reporters discovered the by-then two-week-old decision to block aid. And with those news reports a foreign policy crisis was begun.

Lauter reported from Washington and Williams from Budapest, Hungary.