The tremors under Milosevic's Yugoslavia

With its soaring mountain ranges, spectacular opening to the Adriatic Sea, and leisurely pace of life, the tiny Yugoslav republic of Montenegro seems worlds away from the confrontational politics in much of the country.

But this land of some 600,000 inhabitants is in many ways the key to the future of Yugoslavia, where ethnic violence is raging in the province of Kosovo and where civil unrest seems inevitable in the capital of Belgrade.

Western diplomats consider Montenegro to be a beachhead in their effort to reform Yugoslavia and its dominant republic of Serbia. And in recent months, they say, Montenegro has made significant strides in helping to loosen Yugoslav President Slobodan Milosevic's grip on power - even in the face of US sanctions that are intended to punish Mr. Milosevic's regime but affect Montenegro as well.

"The improvements we have seen in Montenegro over the course of the last year ... have been historic," says US diplomat Robert Gelbard. "The point here is that we have, as a strong policy, the need to support and to help those who want democracy and market economic reform."

Milosevic himself may have further pushed Montenegrin sentiment for reform with a series of provocations. The leader, who has family roots in Montenegro, has orchestrated several federal-government shuffles, replacing reformers with regime loyalists. He also recently fired the top general of the Yugoslav Army, Momcilo Perisic, who has close ties with Montenegrin President Milo Djukanovic. In addition, Montenegrins accuse Milosevic of withholding money earmarked for Montenegrin pension funds.

Analysts speculate that after Kosovo, Milosevic may turn the focus of his activities on Montenegro.

Reaction to Kosovo

For now, Montenegro has become increasingly important with the deepening of the conflict in the province of Kosovo, where the 90 percent ethnic Albanian majority is calling for independence and Serbian forces are accused of massacring civilians. Montenegrins have openly criticized the actions of the Yugoslav Army there, and have maintained solid relations with the ethnic Albanian populations in both Kosovo and Montenegro.

When Yugoslav officials said Jan. 18 they would expel the top international observer in Kosovo - William Walker of the Organization for Security and Cooperation in Europe (OSCE) - Montenegrin officials promptly invited Mr. Walker to Montenegro.

Mr. Djukanovic, who finished his first year in office last week, has promised economic reform and greater integration with Europe. To do so, he has distanced himself from Milosevic and stopped recognizing the federal government, whose prime minister is a Milosevic ally hailing from Montenegro, Momir Bulatovic.

By pulling away from Serbia, Djukanovic has alienated those who identify with the Serbs and want to maintain close ties. But Djukanovic has stopped short of calling for independence, despite the desires of some of his supporters.

"Mr. Djukanovic is a pragmatic politician," says Radomir Sekulovic, a Montenegrin government spokesman. "He wants to try to change Milosevic, not start an independence war with him."

Western diplomats support that strategy, saying that a positive turnaround in Montenegro could inspire the Serbs to seek change, thus weakening Milosevic. Djukanovic has begun an alliance with a group of like-minded politicians in Serbia that is thought to be the best alternative to the current regime, though tainted with nationalism in the opinion of Western diplomats.

A sign that Milosevic is losing support in Montenegro was evident in the outcome of an Orthodox New Year's celebration in the streets of Podgorica. When Milosevic and Bulatovic supporters planned the celebration for Jan. 13, many thought it would erupt into violence. But the celebration was sparsely attended and passed without an incident.

Also last week, the OSCE opened its first office in Montenegro, yet another strengthening of Djukanovic's ties to the West.

Improving the economy

But if Djukanovic is to have a real impact, and gain greater support in his own republic, he will have to improve Montenegro's economy. At the moment, the government is about halfway through a privatization program that is modeled on those used by countries in Eastern Europe like the Czech Republic and Hungary.

Economists in Podgorica, however, say their efforts are being thwarted by US sanctions imposed on the centralized government in Belgrade. The sanctions prevent Yugoslavia from joining the World Bank and the International Monetary Fund.

The US Congress has approved a plan to allow a government investment program in Montenegro, but it has yet to take effect. Without loans, outdated factories are unable to compete in international markets.

In Bar, the Adriatic port that is Yugoslavia's main link to the sea, the need for a financial infusion is apparent in the rusty cranes, disgruntled workers, and ships that languish at dock for weeks before they are unloaded.

"Many international companies are interested in doing business with us, but they worry about the political situation," says Mladen Miranovic, the port's commercial manager. According to Mr. Miranovic, the port operates at about 40 percent capacity, although other officials say it may be closer to 20 percent.

"At other ports our cargo could be unloaded in 24 hours," says a deckhand from a boat that originated in the US and is carrying humanitarian aid for Kosovo. "Here we may have to wait a week before we finish."