Yugoslavia Scrambles to Salvage Its Economy

The popular uprising that brought down Slobodan Milosevic also overturned the complex shell game he used to keep the economy just a few tricks ahead of collapse.

Allies of Yugoslavia’s new president, Vojislav Kostunica, are frantically trying to piece things back together. If they fail, they acknowledge, the discontent that brought Kostunica to power could quickly turn against them.

Prices of some basic foods and services have soared more than 300% in the last few days, and the government already is running out of money. There is little time to avoid a new wave of discontent.

Crises are mounting by the hour, including with public service workers who won’t be paid on time today unless the government can find enough cash, said Milko Stimac, a member of a team of economists that helped bring Kostunica to power.

“Our problem is that the opposition took over an empty house,” Stimac said. “The safe in that house is also empty.”

Serbia, the dominant of Yugoslavia’s two republics, needs at least $1 billion in reconstruction aid over the next year, half of it almost immediately, according to estimates by the economic think tank where Stimac works, called G17 Plus.

In Washington, President Clinton joined the European Union on Thursday in ending an oil embargo and a ban on commercial airline flights that have been in effect since 1998 against the Milosevic regime.

“The removal of these sanctions is a first step to ending Serbia’s isolation,” Clinton said in a statement.

“We have a strong interest in supporting Yugoslavia’s newly elected leaders as they work to build a truly democratic society,” he added.

“Our disagreement was with the Milosevic regime, not the people of Serbia who have suffered under the regime’s brutal policies,” Clinton said.

Like the Europeans, Clinton retained sanctions targeted directly against Milosevic and his cronies, such as a ban on travel to the United States by members of Milosevic’s inner circle.

Kostunica’s government says it needs millions of dollars within the next several days to prevent widespread public discontent, which pro-Milosevic parties could easily exploit as they try to block Kostunica’s consolidation of power.

From where Radovan Bosnjak stands behind his stall at a Belgrade flea market, there is reason to hope, but not much. All that Yugoslavia needs now is honest politicians, Bosnjak said. But aside from Kostunica, opposition leaders are widely regarded as corrupt, and the opposition hasn’t convinced Bosnjak so far that it represents much of an improvement.

“All of them are rotten,” he said, “so you always have to be skeptical.”

Stimac, the economist, said Serbia already is “in a very deep social crisis,” with a rising death rate and a sharp increase in suicides and crime after a decade of war, sanctions and misrule by Milosevic. It is hard to predict what will happen if Kostunica can’t deliver, he said.

“We are worried,” Stimac said. “I wouldn’t give us more than one week or 10 days, but it is very hard to say. People are very angry. For 10 years we have been subjected to these inhuman policies from outside, and inside as well.”

Threats of labor action are already coming from unionized workers at the Belgrade Water Supply Co., run by the city government, which is allied with Kostunica. They are demanding to be paid overdue wages by today.

One of the ways Milosevic tried to buy support among his impoverished people was by using price controls to keep down the cost of basic foods such as milk and cooking oil.

But when Kostunica supporters forced out most managers in state-owned shops and factories and put their own people in charge, that system of controls collapsed and prices immediately shot up. The cost of cooking oil has more than tripled since last Friday, when Milosevic announced that he was stepping aside.

Serbia’s economic crisis is further complicated by one of Kostunica’s first successes: the stabilization of the currency, the Yugoslav dinar.

Under Milosevic, when people managed to save anything from their meager wages and pensions paid in dinars, they usually converted it into German marks so they didn’t have to watch the value plummet by the day.

Hours after Milosevic’s regime collapsed, Kostunica’s coalition took control of the national bank’s payments section, and the value of the Yugoslav dinar suddenly went up 28% against the mark. The stronger dinar took a huge bite out of the mark-based savings--and thus the purchasing power--of many people just as prices were shooting up.

Even with the old price controls, which caused widespread hoarding and black-marketeering, the cost of fruits and vegetables rose 22.5% from August to September as Milosevic fueled inflation by printing money to pay for war reconstruction.

The prices of sugar and cigarettes are about to jump again. After Kostunica’s supporters forced out Milosevic-era factory directors, the new ones are moving quickly to make their plants more profitable.

During meetings with Kostunica in recent days, European diplomats have promised to send emergency supplies of heating oil, cooking oil and sugar, Stimac said, but added that he didn’t know when they would start arriving.

“I suppose very soon, in a very few days,” he said, conceding that many street protesters who backed Kostunica expect to see improvements immediately. “I think people can wait one or two more days. They’ve been waiting 10 years.”

The 15-member European Union has promised $2 billion in aid by 2007 to help rebuild Yugoslavia, where more than a quarter of the work force--by some measures, half--is unemployed.

The EU plans to hold a two-day summit beginning today in the French resort of Biarritz to discuss plans for aid to Yugoslavia. Foreign aid to countries in the former Yugoslav federation has had patchy results for years, largely due to bureaucratic delays and corruption.

In July 1999, Clinton attended a summit in the Bosnian capital, Sarajevo, that created the Balkans Stability Pact, an aid program intended to help heal deep ethnic wounds with economic development. More than a year later, the pact has yet to fulfill its ambitious promises.

Bosnjak, the 46-year-old street vendor, said he has done his part for economic recovery with a blue felt-tipped pen, which he used to cut prices on his stock of perfumes, hair sprays and toiletries in line with the lower value of the German mark.

“For 12 years, we have been raising prices. It was the first time we had to bring them down,” Bosnjak said, adding that many of his competitors haven’t followed suit.

Bosnjak, a father of two, repaired diesel engines in a Belgrade-area factory until he was laid off in 1992 as the violent breakup of the former Yugoslav federation accelerated and the economy went into free fall.

After two years without a job, he sold his apartment and used the money to set up shop in a small wooden stall in an open lot on the outskirts of Belgrade, the Yugoslav and Serbian capital. Bosnjak believes in foreign promises of help and in his country’s will to rebuild. And he has big dreams.

“In about five years, we can even employ Americans,” he said, and had to laugh.

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Times staff writer Norman Kempster in Washington contributed to this report.