Yugoslavia Desperate for Aid Funds : Balkans: A quick $2 billion is mentioned. But even a show of Western generosity could be too little and far too late.

Before attempting an explanation of why the West should bail out disintegrating Yugoslavia, the federal government spokesman took a good belt of Scotch.

It was only 11 a.m., and Deputy Information Minister Mustafa Cengic is a Muslim. But these are desperate days in the Balkans, and the last of the true believers in Yugoslavia, like Cengic, are beginning to show the strain.

As the government’s point man with the press, it is up to Cengic to keep alive the Western world’s belief that peace and prosperity remain alternatives to war.

The Yugoslav federation, facing economic oblivion, has been given a three-month lease on life by the latest peace accord, one that is barely holding.

But to survive even that long, the government needs an immediate $2 billion in foreign aid and rescheduling of at least $1 billion of the hard-currency debt it already owes.

While a Western handout is the only hope for keeping the 73-year-old federation solvent for a few more weeks, few believe that it would do more than postpone inevitable bankruptcy. Even fewer expect Western Europe to respond to the latest poverty cry after repeated warnings to the warring republics that their destructive bickering would lead to doom.

But the government of Prime Minister Ante Markovic has only two options left, Cengic explained: cling to hopes for a miracle or resign and let the conflagration begin.

“The government is aware of the consequences that would arise if it resigned, so we have decided to be active as long as the slightest chance exists for some recovery,” said a dejected Cengic. “The government is still exerting efforts to save what can be saved.”

Against a backdrop of rebellion and war cries, Cengic and Markovic continue to push for unity as a means of survival. But as the drumbeat of nationalism grows ever louder, no one is heeding the government’s calls. And even a miraculous show of Western generosity would likely prove too little and far too late.

Yugoslavia’s banking system has collapsed, and its state-owned airline has suspended most flights. Industrial production has fallen by 20% so far this year, exports have been paralyzed by the latest violence and inflation is headed for another uncontrolled spiral that will make last year’s 120% increase seem like good news.

“No one would dream of having financial arrangements with a three-month Yugoslavia,” Cengic understated in an appeal to rival republic leaders to work seriously to save the federation.

What Yugoslavia needs to survive the uphill negotiations, which according to the peace plan must begin by Aug. 1, is economic “shock therapy” and massive Western aid.

“This short-term and very radical program is aimed at gaining time, namely to avoid an immediate collapse,” said Bozo Marendic, federal minister for development.

Without the requested foreign assistance and cooperation among the belligerent leaders, he predicted, the Yugoslav economy will fall apart some time between late August and early September.

Slovenia and Croatia, the federation’s two most prosperous republics, declared independence on June 25, vowing to go their own way. Even if they could be induced to stay in Yugoslavia, their economies have already been ravaged by the first skirmishes of civil war.

Slovenia’s vaunted manufacturing, which accounted for 30% of Yugoslav exports, was devastated by two weeks of siege following the republic’s battle with the Yugoslav People’s Army. While the fighting lasted only a few days, it inflicted an estimated $2.7 billion in damage and disrupted trade and transportation throughout the Balkan peninsula.

Croatia, which encompasses most of the spectacular Adriatic coastline, has seen its resort revenues wither to virtually nil. Last year it earned 80% of Yugoslavia’s $2.5-billion tourism income. This year it will be lucky to earn a third of that.

Under terms of the European Community-brokered cease-fire, announced Sunday, both republics have suspended further moves to secede. The three-month cooling-off period is intended to allow time to negotiate a more amicable separation and hopefully stave off further violence.

The cease-fire appeared to be holding in Slovenia, but the EC accord has done little to alleviate the larger conflict between Serbs and Croats, which looms ever larger as both sides amass armies and armaments and threaten to settle old scores.

Despite the breathing space provided by the fragile cease-fire, little can be done to orchestrate a comeback without massive aid.

“We estimate that collapse can be avoided this year only if a $3-billion input is secured from abroad, namely $2 billion of fresh money and $1 billion by means of debt rescheduling,” said Marendic, the federal development minister.

The Markovic government has asked the republic leaderships to “bury the war hatchet” and quickly endorse the belt-tightening needed to win foreign support.

Marendic and Cengic, who met with foreign reporters to explain how the bailout would work, said the Yugoslav government was guaranteeing private deposit accounts, although banks no longer have hard currency to give out.

Yugoslavs, as well as foreign residents and business people, can no longer withdraw dollars or German marks without months of notice.

In another sign of impending disaster, the state-owned airline JAT has all but closed shop. According to the daily newspaper Borba, Lloyds of London has doubled insurance premiums, forcing the airline to cut deeply into its normally broad range of domestic and foreign runs.

Political instability and persistent posturing by the republic leaderships prevented any consensus on a recovery plan, which scuttled an International Monetary Fund standby credit that was tied to a loan package worth $3.5 billion.

As it sought to paper over the political crisis, the Markovic government has attempted to put a presentable face on the devastated economy. That policy has preserved the federal government’s lead role in seeking Western assistance but has exacerbated criticism of Markovic within Yugoslavia for failing to face up to reality.

The option of reason has been on the table for more than a year with no takers, Western diplomats note.

Said one disillusioned envoy: “That leads us to conclude that at least some people here want a war, and Western Europe is not going to be duped into financing part of that for them.”