FOCUS ON THE BALKANS : Despite Displays of Plenty, Serbians Pay a Hidden Price for War

The streets of the Serbian capital are deceptive these days. The central market bursts with fruits and vegetables. Nightclubs and sporting events are jammed, and gasoline--sold in plastic jugs almost anywhere along the highway--is plentiful.

But step into Dusan Andric’s appliance store and see what many economists regard as the real Belgrade. The quiet downtown shop may explain better than any diplomat why Serbs are talking about making peace in Geneva after so many years of fomenting war.

Andric has shiny Italian-made dishwashers, high-tech Japanese stereos and late-model American telephones, all smuggled here in violation of U.N.-imposed trade sanctions. What the store conspicuously lacks is customers.

“Maybe 10% of the population has enough money to buy things like this,” said Andric, whose business has plummeted during more than three years of sanctions. “People are asking if the sanctions will be lifted and prices will ever come down. They are coming to the wrong place to ask. We are asking too.”

Thanks to good summer harvests, few people are going hungry here in the rump Yugoslavia, which is made up of the republics of Serbia and tiny Montenegro. And few people of means are forgoing the good life: For the right price, pirates can deliver everything from Marlboro cigarettes to a new Ford sedan.

But after 40 months of an international economic boycott, most people here are no longer content measuring their well-being by the abundance of red peppers or the fast money of high-priced sanction-busters.

In places such as Andric’s appliance store, the reasons become clear.

A General Electric push-button telephone costs 1,190 dinars, or about $815 at the official exchange rate. Even at black market rates, that comes to $330 in a country where the average monthly salary is less than $100. Andric said his prices have been pushed up because of the cost of violating the sanctions. These costs are widely known to include bribes and other kinds of payoffs.

“What you don’t see on the streets is that the majority of people have very little money. Their incomes are basically for surviving,” said Jurij Bajec, an economist at Belgrade University. “Many people still live in surroundings associated with their incomes from 1990, with cars and apartments that are nicely furnished. But they no longer have money to live that way. If they buy a washing machine, they pay a tremendous price.”

Not many buy washing machines, and those who do buy foreign-made ones because they have little choice. Both facts are huge problems for the Yugoslav economy. The sanctions have not only put a lid on consumer purchases; they have also closed many Yugoslav factories once dependent on foreign trade.

Industrial production is about one-third of its prewar level, with most industry now concentrated on energy, food and tobacco production, according to government statistics. Consumer goods still manufactured in Serbia and Montenegro, such as the space heaters and kitchen blenders that Andric sells, are overpriced, and spare parts for them are scarce. Economists estimate that sanctions have cost the rump Yugoslav economy $50 billion.

“The sanctions worked slowly and not in a very effective way, so it took three years for us to reach this point,” said Ljubizoje Acimovic, senior associate at the Institute for International Politics and Economics in Belgrade. “Now the economy is practically destroyed.”

The United Nations imposed sanctions on the rump Yugoslavia in 1992 as punishment for its having instigated the war in neighboring Bosnia-Herzegovina. The boycott was intended to isolate the country and block the shipment into it of most goods, excluding such things as medicine and humanitarian relief, in hopes of choking the Serb-fueled war machine.

The sanctions were eased last year when Serbian President Slobodan Milosevic accepted an international peace plan and promised to end his support for the rebel Bosnian Serbs. The Belgrade airport was reopened to international flights, and Yugoslavs were allowed to participate in sports and cultural exchanges.

But the trade embargo continued. Today its lifting has become one of Milosevic’s key demands in talks aimed at ending the Balkan war.

Still, sanctions alone are not responsible for the country’s economic woes, and many analysts say Milosevic’s current fixation on the U.N. boycott is driven more by politics than by economics.

During the past few years, Milosevic’s propaganda machine has alternately overplayed and underplayed the effect of the sanctions on the economy, dragging public opinion along with it. By blaming them for people’s hardships now, Milosevic has positioned himself to be seen as a redeemer when the sanctions are lifted, allowing him to take credit for re-integrating Yugoslavia into the world community.

“The sanctions have been like the joker in a card game that they use from time to time as an excuse for troubles,” said psychologist Dragan Popadic, who has studied public perceptions of the boycott. “Now people don’t know what to believe. They don’t know what is really a result of the sanctions and what is political rhetoric.”

The confusion is due in part to other serious drags on the economy.

Four years of bankrolling wars in Bosnia and Croatia have cost the Yugoslav economy dearly. It has also been ravaged by the loss of the former Yugoslavia’s internal market, now dispersed among five separate countries. Factories built for a domestic market of 23 million consumers in the 1980s now have access to just 10 million. And the influx of more than 700,000 mostly poor refugees from Croatia and Bosnia has made matters worse, as has the exodus to Europe and North America of untold thousands of educated and well-trained workers fleeing the war.

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Many economists acknowledge such problems but say the psychological boost that would follow a lifting of the sanctions could provide a much-needed impetus for reform. Many shoppers on a recent afternoon in downtown Belgrade seemed to agree that any change would be for the better.

Vera Mackic, who is eight months pregnant, wanted to buy her 5-year-old daughter a Barbie doll. But at 220 dinars (about $150 at the official exchange rate and $61 at the black-market rate), she calculated that it would wipe out 8% of the family’s annual income.

With diapers and a cold winter of expensive electricity bills and shortages ahead of her, such a purchase was out of the question, she said.

“You can find almost anything you want,” Mackic said. “But it doesn’t matter much if you can’t afford it.”