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TITLE:  SERBIA AND MONTENEGRO ECONOMIC POLICY AND
        TRADE PRACTICES
DATE:  FEBRUARY 1994
AUTHOR:  U.S. DEPARTMENT OF STATE

                      SERBIA AND MONTENEGRO*

    The United Nations imposed comprehensive economic sanctions
on Serbia and Montenegro in May 1992 because of its support for
aggression in Bosnia-Herzegovina.  These sanctions have
accelerated the economic decline already underway in the former
Yugoslav republics.  As a result, the economic crisis faced by
the country is worsening steadily.

    The war in Bosnia-Herzegovina is being financed largely by
the Serbian government in Belgrade.  This -- plus unrestricted
monetary expansion by the National Bank of Yugoslavia -- is a
major contributor to the hyperinflation now ravaging Serbia and
Montenegro.  The dinar had all but lost value as a means of
exchange by the end of 1993, with the first dinar
redenomination (six zeros were dropped in early autumn) unable
to stem hyperinflation.  The German mark had largely replaced
the dinar by the end of 1993 as the primary means of exchange. 
An emergency government stabilization program also failed to
stem hyperinflation, which had accelerated to approximately
120,000 percent by the end of December 1993, for an annual
level in the quadrillions.

    United Nations sanctions imposed against Serbia and
Montenegro have created severe raw materials shortages for the
manufacturing sector.  Shutdowns and slowdowns are
commonplace.  Workers on forced leave are receiving
unemployment compensation from the government, which is
increasingly unable to meet even basic government costs.  Food
prices have increased to the point that most families find it
difficult to buy basic necessities; increasingly, support of
endangered segments (refugees, pensioners) of the population is
required.  The financial instability caused by the sanctions
has effectively shut down banking operations.  Although Serbia
produces about one-third of its domestic oil needs, energy is
not reaching the civilian sector in sufficient quantities to
provide for adequate heating in winter.  Industry limps along
on domestic coal and electric power, but production is barely
above minimum levels.  While Serbia is largely self-sufficient
in food production, energy shortages are now disrupting food
distribution networks.

    The poorest region governed from Belgrade is Kosovo.  The
population of Kosovo is 90 percent ethnic Albanian, and the
region has the highest infant mortality rate in Europe and the
highest rate of infectious disease -- both symptoms of a poor,
underdeveloped economy.  Serbia in the best of times did not
supply Kosovo with fuel and raw materials as well as it did the
rest of its territory.



*   Serbia and Montenegro have asserted the formation of a
    joint independent state, but this entity has not been
    formally recognized as a state by the United States.


    The economic forecast for Serbia-Montenegro is bleak.  The
cost of the war effort and entitlement programs continues to
rise while GDP plummets and hard currency reserves are
depleted.  Even if the crisis ends and sanctions are lifted,
the rebuilding of the run-down infrastructure will be a lengthy
and expensive process, exacerbated by the recent emigration of
young Serbian and Montenegrin professionals and workers.  Loss
of export markets will also help prolong economic misery faced
by Serbia and Montenegro well into the future.



         Extent of U.S. Investment in Selected Industries

              U.S. Direct Investment Position Abroad
                on an Historical Cost Basis - 1992
                    (Millions of U.S. dollars)

Category                                    Amount

Petroleum                                                 0
Total Manufacturing                                       D
    Food & Kindred Products                     0
    Chemicals and Allied Products               D
    Metals, Primary & Fabricated                0
    Machinery, except Electrical                0
    Electric & Electronic Equipment             0
    Transportation Equipment                    0
    Other Manufacturing                         0
Wholesale Trade                                           0
Banking                                                   0
Finance and Insurance                                     0
Services                                                  D
Other Industries                                          D

TOTAL ALL INDUSTRIES                                      D


(D)-Suppressed to avoid disclosing data of individual companies

Source:  U.S. Department of Commerce, Bureau of Economic
Analysis.

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