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Yugoslav Economy Nears Collapse

In Serbia and Montenegro, inflation is growing at an unprecedented pace, prompting one economist to say it is like `trying to predict a cosmic catastrophe'

IN 1923, inflation in Germany's Weimar Republic hit a monthly record of 32,400 percent, ravaging the country and aiding Adolph Hitler's rise to power. Today, accelerated hyper-inflation in Serbia and Montenegro is expected to top that.

Despite the comparison with Weimar, leading economists cannot predict where these price hikes - which average nearly 1 percent an hour - will lead. What is happening in rump Yugoslavia has no modern parallel.

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``This is something that has never been experienced,'' says Ljubomir Madzar, a former federal finance minister. ``It is like trying to predict a cosmic catastrophe.''

Inflation has grown from 1,895 percent a month in October to 20,190 percent a month in November. That is a bigger jump in inflation than for all of 1992.

``We will probably pass Weimar this month,'' says Miroljub Labus, a Belgrade University economist and an opposition Democratic Party member of the federal Parliament.

The gloomy picture is fueling speculation that President Slobodan Milosevic of Serbia, the paramount ruler of rump Yugoslavia, may cancel elections for the Serbian assembly scheduled for Dec. 19, declare a state of emergency, and impose harsh economic measures.

The chaos is best seen in black market currency prices. On Oct. 1, one deutsche mark, the currency of choice, fetched 2,500 Yugoslav dinars. One mark now buys 160 million dinars.

The average monthly wage, meanwhile, is 10 marks ($5.87) - no longer enough to buy a frozen chicken. Two pounds of oranges or bananas cost 5 marks, while a light bulb costs 2 marks. Fewer merchants will accept dinars.

What has astounded most analysts, however, is the great apathy with which a majority of rump Yugoslavia's population - 10.5 million people - are enduring the growing misery.

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Many people are either too frightened to challenge the regime or remain wedded to Mr. Milosevic's goal of building a ``Greater Serbia,'' by backing the conquests of parts of Bosnia-Herzegovina and Croatia.

``At least half the population wants to have a new state and are still prepared to pay the price for that,'' Dr. Labus says.

Many experts say the chaos could shortly lead to a total paralysis in the national monetary system and state services, including the crumbling transport, health, and social welfare sectors.

``Little by little, blocks of economic and social life will cease to exist,'' says Jurij Bajec of the Belgrade Economics Institute. ``Certain functions of the dinar have already ceased to exist.''

The dinar is no longer considered a function of wealth and is not used to calculate costs, Professor Bajec says. President's role

Some experts, however, argue that Milosevic need not act as long as domestic calm prevails and hard currency and contraband continue to evade United Nations sanctions imposed on Serbia and Montenegro.

Some analysts even suggest that Milosevic is deliberately pursuing inflationary policies in order to deplete consumers' hard cash reserves.

Yet the cost of neglect will be huge: hunger, poverty, and a deteriorating infrastructure, which has already reduced one of the world's most affluent socialist societies to the level of a developing country.

The regime has tried to calm inflation by periodically devaluing the dinar. It also issues new notes of ever higher denominations. This week, the government released a new 500 million dinar bill, only days after issuing a new 50 million dinar note.

But the policy has fueled even more controversy: Manufacturers are withholding products until the state allows them to raise prices. This in turn is causing shortages of staples. Proliferating dinar

Contrary to Milosevic's claims, economists agree that the main cause of rump Yugoslavia's hyper-inflation is not sanctions but the unrestrained printing of the dinar to underwrite the ``Greater Serbia'' program.

Milosevic's financial support for Bosnian and Croatian Serbs is estimated at up to 40 percent of gross national product, which has plummeted to less than $10 billion from $30 billion in 1989.

Milosevic has printed dinars to bridge the shortfalls, and to finance the corruption-ridden social programs, government bureaucracy, the Army and police force on which his rule depends, and the near-weekly wage and pension hikes.

Production slump

Sanctions have accelerated the economic crisis by exacerbating a massive production slump that began in the early 1980s and deepened with the collapse of the former Yugoslavia's single market.

Milosevic responded by issuing even more dinars to placate hundreds of thousands of workers laid off or put on ``forced vacations'' by idled factories.

The regime is nearing the point where it can no longer compete with the soaring rate of inflation.

Economists say that supplies of hard currency and manufactured goods for barter appear to be running down, and there are now signs of ``mark inflation,'' due to shortages of both the dinar and the mark.

Stringent steps can still be taken to halt hyper-inflation in its tracks, these economists say, and at least preserve what is left of the country's financial system and resources.

Steps include halting the printing of dinars, freezing prices and wages, and rationing food using coupons instead of dinars.

Even more drastic is the need to slash state spending through massive layoffs of public employees. This also would include terminating many social programs and cutting back aid to the Bosnian and Croatian Serbs.

The fallout from such harsh measures, however, would be ``political suicide'' for Milosevic, one Western diplomat says.

Other tough remedies, such as substituting food for monetary wages and pensions, will also fail once food reserves run out, economists say.

``We are in a thick fog in which one cannot see anything or be certain of anything,'' Professor Madzar says.

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