BUILDING PEACE IN THE BALKANS : For the Women of Sirogojno, Peace Means Wool and Knitting Needles : Serbia: International sanctions had furloughed the makers of coveted sweaters. Now they’re back at work in mountain village.

The Balkan war never reached this faraway mountain village in central Serbia, but the women who live here longed for peace as much as anyone.

With the fighting over and economic sanctions against the rump Yugoslavia suspended, dozens of them have returned to doing what they do best: hand-knitting wool sweaters that before the war enjoyed a worldwide reputation and helped transform this region into an economic wonderland.

Thousands of other women, in snow-swept houses sprinkled across the surrounding Zlatibor Mountains, are hoping to pick up their knitting needles soon too, encouraged by the arrival last week of 10 tons of yarn from Iceland.

“I don’t know why the sanctions were imposed, but I am sure we women and children were not guilty,” said Jasminka Starcevic, one of the lucky ones who picked up six pounds of yarn from the new shipment, the first since sanctions were suspended. “We had the good life. We had almost everything, and now we are lucky if we can survive.”

For 30 years before the war, about 2,500 grandmothers, mothers, daughters, sisters and wives passed the harsh winter months knitting elaborate sweaters in the warmth of their kitchens and living rooms as part of a Communist-sponsored jobs program intended to halt the migration of peasants to big cities.

The local women made good money--as much as $50 for a large sweater coat, or about half the average monthly wage in Serbia--and they were able to do it without neglecting traditional household duties. As a result, hundreds of families stayed put.

“When I first started, we used to have to walk [10 miles] to pick up the wool,” said Starcevic, 33, who has been knitting for 15 years. “Now they have a bus. Three of us in my house are knitting, including my 70-year-old mother-in-law and my 15-year-old daughter.”

The beautifully crafted garments, which carry the trademark name of the village, were favorites of the Japanese royal family, Italian designers and exclusive Alpine ski boutiques. Top models sold for more than $1,000 in Japan and were considered one of the former Yugoslav federation’s most prestigious exports.

But the international sanctions imposed four years ago brought all of that to an end. Most knitting needles here, and in 40 or so nearby villages where the women are dispersed, were packed away, some feared forever.

Except for small-scale smuggling, yarn from Iceland--where the quality of fiber is much higher than local wool--was no longer available. Only two of the sweater company’s 12 foreign buyers continued placing orders, and then only at reduced prices and without the sanctions-busting Sirogojno label.

“It was the ultimate humiliation,” said Dobrila Vasiljevic Smiljanic, director of Sirogojno Enterprises and its top designer. “We had to export everything with a tag that said ‘Made in Macedonia.’ ”

Thousands of tourists and bargain hunters used to make the three-hour trip from Belgrade, the Serbian capital, to this picturesque village, where they would buy sweaters and tour a folklore museum and art gallery. More than 40 television crews, mostly from abroad, filmed stories about the village in 1990, Smiljanic said.

This year, a reporter from The Times was the only journalist to visit from outside Serbia, she said.

“We are having to start everything all over again, from scratch,” said marketing director Zorica Stamatevic. “We had 55 permanent employees in administration, marketing and design before the war, but at least 20 of them just stopped coming because there was nothing to do. We have to contact everybody and see who really wants to stay.”

The lack of foreign visitors became so serious that the village’s only bank and money-exchange office was closed and converted to a sweater shop, although its racks remained mostly empty and its clerks mostly apologetic. A larger sweater outlet in the folklore museum, meanwhile, closed down.

“Before the war, we were producing 40,000 sweaters a year,” shop assistant Zora Milic said. “This year, just 4,000.”

The road to recovery is expected to be long and painful.

The good news on sanctions came too late for this fashion season, so it is unlikely that more than a few hundred of the knitters will get regular employment before late next year.

Those called back this month are knitting prototypes for a fashion show for prospective buyers, expected in January.

Although four former buyers faxed letters of interest the day the sanctions were suspended, rebuilding a network of distributors will be difficult, Stamatevic said.

Sirogojno Enterprises has no cash, and with the ongoing threat of sanctions being reimposed if the peace deal in Bosnia-Herzegovina collapses, financial institutions are not interested in extending credit, she said.

Knitters, who used to be paid upon finishing each sweater, are now being warned not to expect payment for at least three months. And management is having trouble pulling together enough cash to buy another shipment of wool.

“We used to have 120 days to pay, but now we are paying for yarn like we are buying oranges at the fruit stand,” Stamatevic said. “We hand over the cash, and they give us the goods.”

Smiljanic said Sirogojno also has the difficult task of overcoming rump Yugoslavia’s tarnished reputation, something that is hard to quantify but potentially more devastating than money problems.

“If you have a bad opinion about a country, you will think the products of that country are also bad,” Smiljanic said. “It has been so long since we had any contact with the outside world. I think we will need five or six years to recover.”