Get the latest updates as we post them — right on your browser

. Last Updated: 07/27/2016

Yugoslav Economy: Grim Picture

BELGRADE -- Marina, a 50-year-old secretary in one of Yugoslavia's state-run businesses, pondered at the counter of a city department store.

Her dilemma: whether to dish out nine dinars ($2) on a sheet of colorful paper to wrap a favorite nephew's birthday present in, or eat.

She chose the paper. "But tomorrow I will not have the money to buy milk and yogurt for breakfast," she said.

Her daily struggle is typical in a country where the average monthly wage is $130 -- well short of the $280 that the government estimates a family of four needs for food alone.

At least as far as the socialist administration is concerned, 3 1/2 years of wartime sanctions are to blame for the economic woes. End the remaining "outer wall" of sanctions, the argument goes, and the economy takes off.

Nine months after the embargo was lifted Belgrade resembles other European cities, with shops stocking a variety of goods and designer clothes.

Young nouveau riches with mobile phones and luxury cars are a regular sight in the town recently overcrowded with black market dealers trading fuel and foreign currency.

But as many economists predicted, the end of sanctions did not translate into economic well-being for ordinary people. Instead, their standard of living fell even further.

Gordana, a mother of two who with her husband earns 850 dinars ($173) a month, said her family has never been worse off. "Yesterday I did not even have five dinars for two notebooks for my children." she said.

"And we won't have money for the rest of the week until I get next month's wages. I don't expect things to get better soon."

Government officials are not so gloomy. They blame the sluggish return to prosperity on delays in rejoining international financial markets after sanctions were suspended.

"We are eagerly waiting for the day after the Bosnian elections when the outer wall of sanctions is to be lifted," said a senior government official who asked not to be named. "We expect a dynamic economic revival after that." The U.N. imposed economic sanctions in May 1992 because of Serbian President Slobodan Milosevic's role in the Bosnian war.

The economy contracted significantly under the sanctions, slashing Yugoslav gross domestic product to $15.9 billion, or $1,500 per capita, last year -- a drop of 44.7 percent compared with prewar 1990.

Diplomats and local economists see mismanagement, war spending and corruption as more significant causes of Yugoslavia's economic devastation. "The leaky embargo served as a convenient scapegoat for socialist leaders," said a diplomat.

The "scapegoat" lasted until November 1995, when Milosevic signed the Dayton Peace Accord on behalf of the Bosnian Serbs.

But a so-called "outer wall" of sanctions remained in place, blocking Yugoslavia's access to international financial markets and desperately needed funds, as a way of pushing both Belgrade and the Bosnian Serbs to meet their Dayton obligations.

While access to foreign finance is important, local and Western analysts say it is unlikely in the near future.

The U.S. says Belgrade's return to the world community depends on its cooperation with a war crimes tribunal in The Hague, and respect for Albanian human rights in the province of Kosovo. "And this is a slow process," said another diplomat.

The International Monetary Fund is expected to link strict conditions to any loans, pressuring Milosevic to ease state control over the economy.

"Milosevic must prove privatization is going forward and not back, and that the dinar is stable," the diplomat said.

But even if investment arrives, economists doubt it will help the government boost growth of 2.5 percent in the first six months to its forecast of 12.5 percent for the year. Enterprises need at least $1 billion in fresh working capital, experts estimate.

On top of enormous foreign and internal commercial debt, the national economy is also burdened with a crippling lack of liquidity.

But analysts warn the central bank should not be tempted to print money, as it would create a vicious inflationary spiral.

"Inflationary expectations are very high here after the experience of 1993 when inflation was 60 percent a day," said Jurij Bajec, chief economic adviser to the Serbian government.

Last year inflation reached 120 percent. Since sanctions were suspended, it has fluctuated monthly, but in the year to August, it slowed to 99.2 percent.

"Lifting sanctions won't help me buy new shoes and winter clothes for my children," said Gordana as she ticked off the hours in her office. "And it won't help me buy milk or bread."