CENTAR ZA PROUČAVANJE ALTERNATIVA

CENTER FOR POLICY STUDIES

BELGRADE, YUGOSLAVIA

SANCTIONS
NOW HELP ONLY
MILOSEVIC

Vladimir Goati
Miroljub Labus
Sonja Liht
Aleksandar Lojpur
Ljubomir Madzar
Milan Nikolic
Vukasin Pavlovic
Goran Pitic
Jovan Teokarevic
Ivan Vejvoda
Slobodan Vucetic

Belgrade, April 2000

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INTRODUCTION

Many liberal intellectuals have considered sanctions an admissible measure for punishing regimes
which are undemocratic, dictatorial or aggressive to their neighbours, rather than employing military
intervention, a direct and drastic cure which can be worse than the disease itself. Countries which are
exposed to both military intervention and sanctions are a special case in which the sanctions
complement or continue the military strikes rather than substitute for them.

Many democratically-oriented experts in Serbia have had a similar belief but very soon after the
sanctions were imposed it became obvious that undemocratic regimes, thanks precisely to their lack of
democracy, can avoid the sharp edge of the sanctions while the helpless people (those whom the
sanctions should, in theory, help) became their actual victims. We are then immediately able to see,
even in the case of bombing, the dictators and their ruling clique deep in their well-stocked bunkers,
suffer little from the bombs while the people, civil infrastructure and civilian enterprises (those which
are not underground or otherwise protected) suffer considerable damage as they have nowhere to hide
and must continue with their everyday lives in order to survive. By the very fact that they are under no
compulsion to heed the democratic response of the people to their behaviour but survive instead by
repressing the people, dictatorships are ‘free’ from concern for the fate of the people during military
intervention or under sanctions. Thus, in undemocratic regimes during military intervention or under
sanctions, the people suffer doubly under both the dictatorship itself and the foreign forces which
purport to be its opponents! This effect of sanctions (and similar military or non-military interventions)
has been observed in every country which has been exposed to them, from Cuba through Iraq to
Yugoslavia.

In this paper eleven Serbian experts will, in addition to arguing this position (that sanctions afflict the
people more than the regime), discuss other effects of sanctions which have been observed over recent
years in Yugoslavia and which have significantly hampered both the liberation of the people from the
grip of the Milosevic regime and democratisation of the country.

HISTORY OF SANCTIONS

The European Union halted all forms of cooperation (economic, financial and technical) with the
Federal Republic of Yugoslavia in November 1991.

From November 8, 1991, the European Union unilaterally suspended the Agreement on Co-operation
of 1980 and related arrangements and filed a decision on the complete termination of the Agreement of
Co-operation with the Socialist Federal Republic of Yugoslavia on November 29, 1991. Liabilities due
on loans from the European Investment Bank could not be paid because of the cessation of financial
co-operation. The Federal Republic of Yugoslavia was removed from the list of users of the General
Scheme of Trade Concessions of the EEC. The use of resources under the PHARE program was
blocked. The Traffic Agreement of 1991, the Third Financial Protocol and all programs of scientific,
technical and cultural co-operation were suspended. Most countries imposed visa requirements for
Yugoslav nationals. Co-operation between the European Parliament and the Parliament of the Socialist
Federal Republic of Yugoslavia were suspended.

On May 30, 1992, the United Nations adopted Resolution 757, imposing sanctions on the Federal
Republic of Yugoslavia. The EEC endorsed this fully and implemented all its regulations and
measures.

In a session of the Council of the European Union on December 5, 1995, the Decree on Suspension of
Sanctions Against FR Yugoslavia was adopted in keeping with the UN Security Council’s Resolution
1022. All sanctions were formally lifted in October 1996.

Approval was given in June 1997 to preferential status for the import of goods from FR Yugoslavia.

These concessions were cancelled in April 1998 because of irregularities in local elections in
Yugoslavia. Sanctions were again imposed in the form of restrictions on investments in Yugoslavia.

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This particularly affected privatisation, traffic, the use of state and other financial support, insurance
and guarantees in terms of exports and credits. In September 1998 restrictions on air traffic with
Yugoslavia were imposed.

In June 1999 the ban on investments was expanded to include private investments in equipment
purchases for companies in Yugoslavia.

At the end of February 2000, the re-establishment of air traffic with Yugoslavia was approved. It was
expected that this should be implemented during March.

Serbia has been under sanctions for almost a decade. The punitive measures against the country have
been wide-ranging in nature and have been imposed on several occasions by the Security Council of
the United Nations, the European Union and the United States of America. The first group of sanctions
(1991-1995) was widely seen as being related to Serbia’s role in the dissolution of the former
Yugoslavia while the second (1998-1999) came as a result of Serbia’s policies during the escalation of
the crisis in Kosovo. After years of general trade and financial sanctions, along with those on culture,
sports and air traffic, Serbia gave up its interference in the war in Bosnia and Herzegovina and
cooperated in the reaching of the Dayton Peace Accords (1995). The Security Council and the
European Union then freed both Serbia and Montenegro from all punitive measures.

Of the new sanctions, related to the conflicts in Kosovo, the Security Council’s embargo on arms
imports and the EU sanctions on imports of equipment which could be used for repression are still in
force as are the European Union’s oil embargo (which has been suspended for Montenegro and
Kosovo), and the ban on investments, i.e. the denial of loans from the European Union for trade with
Yugoslavia. In the same way financial assets of the Yugoslav Federation and the Republic of Serbia
held in the European Union and the United States have been frozen and these countries have also
banned the issue of visas to several hundred senior officials and associates of federal and Serbian
authorities.

For eight years Serbia has also been subject to sanctions imposed unilaterally by the United States.
The remaining “outer wall” of these sanctions blocks Yugoslavia from membership in international
institutions. To these were added, in 1999, a US trade embargo, from which Montenegro was shortly
afterwards exempted.

POLITICAL ARGUMENTS AGAINST SANCTIONS

The goals of sanctions are impossible to achieve with the required, analytically adequate, precision.
These goals are seldom explicitly formulated, especially not in any way which does not leave great
leeway for a wide range of subsequent interpretations. What occasional formulations are given cannot
be taken with any certainty to express exactly the goals of those who initiated the sanctions. Despite
this it is possible to gain some insight into the motives behind the sanctions. The aims of the sanctions
can probably not be interpreted as the desire to punish a nation nor as the determination to take some
sort of revenge for this or that kind of political behaviour, such has the nation having given most of its
votes to an authoritarian regime operating behind a thin and translucent, but completely effective,
facade of democracy.

Yugoslavia has been subject for ten years to a range of sanctions, differing in character and intensity. It
is clear that there have been multiple consequences of these but, even after ten years, it is difficult to
discern any among them which can reasonably be assumed to have been directly envisaged by the
architects of the sanctions. Even after ten years of this punishment the government remains unchanged,
its self-confidence still intact; it has maintained significant support from the electorate. The dwindling
of that electoral support and the erosion of the government’s political capital can hardly be ascribed to
the sanctions, even with the best will in the world. This paper will argue the position which has been
asserted more and more frequently and with stronger and stronger arguments that if the sanctions have
had any political result it has been to strengthen, rather than weaken, the present government.

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As far as the real goals of the sanctions go, only more or less reasonable suppositions can be made. We
may assume with fair certainty that the first aim was to topple the regime against which they were
imposed. There is no single previous case of sanctions having been put in place against a regime which
enjoyed good international repute or which had a strong and friendly relationship with those who
initiated the sanctions. The second aim, equivalent to the first and equally convincing, could be a
radical change in the political behaviour of the regime on which sanctions are imposed, particularly in
the area of international relations. The third possible goal, again closely related to the first two, is a
strong and politically critical drop in the support given by the local political public to the ruling elites
which are the target of the sanctions.

International experience has clearly and, it would appear, relentlessly, suggested that none of these
possible goals has ever been successfully achieved. With the possible exception of South Africa,
sanctions in different periods and in different parts of the globe against regimes which have been
politically diverse but, without exception, authoritarian, have by and large failed to bring the desired
and expected results. It can be established beyond argument that sanctions have not changed the
policies of Castro, Gadafi or Kim Il Sung or brought any significant decrease in their popular support.
On the contrary, there are adequate indications that sanctions have contributed to their popularity and
considerably increased their political capital.

Sanctions have in fact provided the targeted regimes with a wide range of material for political
manipulation and have facilitated the mobilisation of almost unreserved support from the local public
through the well used and almost always effective paradigm of the enemy outside the walls.

The result of the sanctions in the reallocation of political power, in the sense of bolstering the political
strength of leaders who dominate societies unchallenged, has became evident and has attracted the
attention of analysts to such an extent that there are now broadly accepted and deeply rooted claims
that the designers of sanctions have a single, ultimate and fundamental goal, however deeply
concealed. This goal of the sanctions’ architects in fact involves the maintenance and strengthening of
the current authoritarian order so as more easily to solve, at least in the short term, certain problems of
the major powers through co-operation with the leaders of small countries who can deliver what has
been agreed. Of course this ability to deliver depends to the greatest extent on the ruling elite's
authoritarian control over the whole society.

We should note here one important socio-psychological factor of the support achieved by the
authoritarian order thanks to the sanctions. Sanctions, whenever they have been imposed, have
nominally targeted the government, which results in the illusion that the government itself has been the
major victim of the sanctions although they have always afflicted the people to a much greater extent.
As a result of this coincidence, which is by no means unexpected but nonetheless very important, the
people have always developed a strong sense of solidarity with the political leadership, even if, under
normal circumstances, they neither liked nor respected the government. This phenomenon permits the
establishment to make enormous political mileage from the perception of joint suffering and the feeling
of exposure to a common enemy or a common source of evil.

In this way the population at large, including its vital, politically articulate stratum, develop a kind of
Pavlovian reflex: the exposure to a common danger and the simultaneous blows from the international
environs on the leadership and the society as a whole can not fail to produce this sense of solidarity.
The feeling of solidarity is then followed by calls to support the government and place it above other
political options (i.e. the opposition). This is perhaps the strongest mechanism through which sanctions
have strengthened the existing government instead of weakening it as might have been concluded, at
least prima faciae.

No less importantly, the international sanctions have been, in addition to the many internal reasons, one
of the limiting factors in the democratic reconstruction of Serbia.

Why would the lifting or partial abolition of the sanctions expedite and facilitate the process of
democratic change?

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1. This would decrease the isolation of Serbia’s citizens. Every instance of isolation plays into the
hands of the authoritarian regime. The greater the isolation, the greater the chance of political
despotism surviving. Conversely, every opening up and decrease in isolation increases opportunities
for the democratic options.

2. The lifting or easing of sanctions increases the opportunities for the international community to exert
a direct influence on the positive processes of democratic change. The lifting or easing of sanctions
would increase the political and economic interest and motivation of most the population in rapid
democratic change.

3. It would, in an effect closely related to the second point, open broader channels and facilitate greater
influence of the international civil society on the weak and underdeveloped civil society in Serbia. The
lifting or easing of sanctions would allow greater presence of international organisations and non-
governmental organisations and foundations from the West and allow them to have a greater impact on
the development of the civil sector in Serbia. This would contribute to the spread of a democratic
political culture and create a much firmer social foundation for the work of democratically oriented
political parties.

4. The maintaining of sanctions is playing into the hands of the current regime and worsening the
position of the democratic political bloc which is interested in change. The sanctions prevent or hamper
international cooperation in many areas of social life (primarily culture, tertiary education, health care
and sometimes even sports) which is enabling the regime to execute its plans for the total annihilation
of the institutional structure of society and the impoverishment and devaluation of whole areas of social
life.

5. The lifting of sanctions would improve the general social and economic position of the middle class
and the urban population. By all indications these are the strongest and the most reliable social base for
democratic political change.

6. Years of sanctions coupled with the NATO campaign have created anti-Western sentiment in part of
the population. These flames have been well fanned by state propaganda. This feeling on one hand calls
many values of the democratic world into question and on the other creates a fear of democratic
change. The lifting or easing of the sanctions would further narrow the opportunities for such negative
feelings and fears while simultaneously creating a broader space and more suitable atmosphere for pro-
European orientations and values. This would have a direct positive effect on the election potential of
the united democratic opposition, particularly as this approach would win over many voters from the
younger generations.

7. If the West were to accede to arguments and pressure from the democratic opposition in Serbia and
lift, or at least ease, the sanctions, this would increase confidence in the democratic opposition bloc
among a substantial part of the electorate (which is at present undecided and in a state of resignation).
Parallel with the decline in popularity of the ruling parties, the stocks of the opposition parties and their
leaders have also fallen with the public. Any move to abolish or partly lift sanctions before the
elections in Serbia which is clearly attributed to the opposition's good relations with the West would
increase the political credibility of the democratic opposition and considerably restore public
confidence.

8. Finally, if the international community were to lift or ease the sanctions at the suggestion and
demand of the democratic opposition in Serbia (leaving in force only those measures which directly
and personally target the regime), it would narrow the regime’s opportunities to libel the opposition as
traitors and collaborators with the West, which is constantly presented in the state media as an enemy
of Serbia.

These are some of the reasons for the international community to re-examine the current regime of
sanctions as soon as possible with a view to fully or partly abolishing or easing them. Leaving this until
after elections may be interpreted by many people as lack of international interest in the result of these
elections and a lack of real interest in democratic change in Serbia. Like the democratic political
leaders on the local scene the international community must carefully avoid a situation where

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consideration and assistance for the democratic forces in Serbia comes too late. To put it simply, the
risk to the democratic opposition in Serbia of losing the coming elections is so great that it must not be
permitted to happen. This would not only be a defeat of the democratic opposition in Serbia. It would
also be defeat of Serbia as a whole and the closing down of the country’s future for many years to
come. It would also, in some way, be a defeat of the international democratic community.

Finally, the sanctions should be lifted because they are not effective, or are even counter-productive.
There is no single case which proves any change in behaviour of the targeted political group because of
the sanctions. There is not a single case in history which shows that trade embargoes or similar
economic sanctions have achieved any success, no matter what the aims of the party introducing the
sanctions. This is a consequence of the fact that the condition of universality has never been achieved,
nor will it ever be. Regardless of how large or powerful the group imposing the sanctions may be, there
will always be competition from those who attempt, and succeed, in profiting from them.

The very fact that the sanctions against Serbia and Yugoslavia have lasted so long is perhaps the best
indication of their lack of effectiveness. Over almost the whole decade the policy of the Yugoslav and
Serbian leadership has certainly changed in accordance with demands from the international
organisations and the states which imposed the sanctions, but the sanctions have not been the only, nor
even the most important, reason for these changes. The results of the sanctions, furthermore, have been
diametrically opposed to those expected: they have become the principal and universal excuse of the
authorities for all economic problems and have simultaneously been perceived by a majority of the
population as a collective retaliation against a people and a state, rather than as a punishment for the
policies of a government.

Some sources in the West have claimed that the sanctions were imposed with the aim that the
Milosevic regime would either change its policies or be toppled by the distressed people.

This is a completely erroneous supposition. People who are without medicines, adequate food and
water have energy only to keep themselves and their families alive. They do not form masses which
could begin a revolution against a strongly armed regime, particularly, as in Yugoslavia’s case, while
their “friends” abroad deliver them bombs from overhead.

History in fact demonstrates that sanctions extend the life of non-democratic regimes. It has been found
that undemocratic regimes exposed to sanctions last longer than those which are not. The Vietnamese
regime remained in power for twenty years because of sanctions. The Cuban regime has survived for
more than thirty years thanks to the US sanctions. The regimes in Romania, Spain, Portugal and Greece
would not have been replaced had the West imposed sanctions on them. The change of regime in South
Africa was possible only after the sanctions were substantially mitigated and these were not, in fact
enforced. The undemocratic regime in Croatia has recently been replaced without the benefit of
sanctions. Many opponents of Sadam Hussein believe that the Iraqi regime will last as long as
sanctions are in place. The same is true of Serbia, despite the increasing unity and strength of the
opposition.

Among their other negative effects, sanctions prevent transition as no transition from a closed to an
open society is possible while the economy is not exposed to direct foreign investment and market
competition. Sanctions turn every foreign investment into a criminal act and make exports impossible.
This not only prevents transition but also progressively destroys the economy of the targeted country at
the same time.

In the face of this, why do the US and some other countries still insist on sanctions against Serbia.
They say they want the Milosevic regime replaced but still have no faith in the Serbian pro-democratic
forces which they expect to replace him. There are many points of disagreement among the various
figures on the Serbian opposition scene but they are unanimous on two issues: that Milosevic must go
and that the lifting of sanctions is a vital element in achieving that goal. The US, however, has refused
to believe the Serbian opposition’s insistence that the sanctions have no negative impact on Milosevic
and in fact are responsible for keeping him in power.

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One possible reason is that the US Administration is less than honest when it says it wants to see
Milosevic removed from power. This may appear as a somewhat illogical conspiracy theory and is
probably not the real reason. There is also the opinion that it is very difficult for the US, as a super
power, to admit that it erred in introducing the sanctions. All US administrations since the Cuba crisis
seem to have implemented inadequate sanctions, relying on their belief that they are “doing the fair
thing” although the facts say just the opposite. Finally it may be that the US feel they must do
something to punish Milosevic, Hussein and other anti-American dictators (pro-American dictators are
not, of course, attacked, which results in them having shorter reigns and greater vulnerability) and
simply do not consider solutions other than sanctions.

If this is the case, the Serbian democratic opposition (like its Irish counterpart) faces the challenge of
finding something to offer the US which will punish Milosevic or Hussein but protect many innocent
lives, human rights in Yugoslavia and Iraq and the humane concept of society in general.

The economic sanctions were imposed on Yugoslavia by a resolution of the UN Security Council on
May 30. They were subsequently revoked twice. They have had a negative effect primarily on the
public in Serbia, many of whom have politically opposed the regime. The regime has very skilfully
used the indiscriminate impact of the sanctions to accuse the international community of “animosity to
the people of Serbia” and attempts at the “colonisation” of those people. These allegations have fallen
on fertile ground and have provoked and increased revulsion for the Western countries (anti-
Westernism) and xenophobia, particularly among the poorly-educated, less-informed older populations
of rural and semi-rural areas. It is exactly this group which in elections so far make up the “voting
army” of the parties of the “Red-Black” coalition (the Socialist Party of Serbia, the Yugoslav United
Left and the Serbian Radical Party).

The regime in Serbia, through its official propaganda, has used the introduction of sanctions to shift the
blame for its economic and social failures and shortcomings to the Western countries (the USA,
Germany, Britain, France etc.) and their anti-Serb policies. On this basis the regime has at least
partially managed to present its policies as patriotic and defensive. This sham was believed, judging by
the results of elections for the Serbian Parliament (1992, 1993, 1997) and the Federal Parliament (May
1992, December 1992, 1996), by a large percentage of the Serbian population. Although irregularities
in the system and frauds favouring the ruling party mean that these elections cannot be described as
free and fair, there is no doubt that the ruling coalition has managed to win the support of a relative
majority of the republic’s electorate in successive elections.

ECONOMIC ARGUMENTS AGAINST SANCTIONS

The assessment of the economic effects of sanctions is not a simple task1. Other effects have been in
force in tandem with the economic sanctions. Among them we should especially note the inappropriate

1 This paper will analyse the effects of sanctions on industrial production and foreign trade. We shall
here construct a model which will enable differentiation between the effects of different sanctions. On
that basis we shall establish their relative importance in the decrease in production and foreign trade
in the 1992 to 1999 period.

It is in the nature of industrial production and foreign trade that the effects of external shocks remain
in the economy for a long time. Even when sanctions are formally lifted, their negative impact is not
fully neutralised. For example, the sanctions imposed by the decision of the UN Security Council were
suspended in late 1995, but their impact continues to this day. This is why the extended impact of
sanctions should be kept in mind when assessing the effects of subsequent sanctions.

This paper is the first of its kind. Because of this the results presented here cannot be compared with
the results of similar studies. There are, of course, papers which assess the overall damage from
sanctions, wars and other external shocks but they are of a different analytical nature. They assess the
potential national product and the amount of damage, in other words the lost national product is
assessed from the relationship of the potential and actual national product.

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economic policy which led to hyperinflation in the 1992-93 period and the civil war in the
neighbouring region or NATO aggression against Serbia.

Table 1 presents data on trends in industrial production and overall foreign trade. The sanctions, of
course, first affected foreign trade and, through that, industrial production. From industrial production
they bring about a drop in employment and other macroeconomic parameters.

Hyperinflation began in 1992, even before the Security Council imposed sanctions on Yugoslavia. The
sanctions were implemented in June 1992. Their effects were later multiplied in tandem with
inappropriate economic policy, which culminated in the hyperinflation of January 1994. The Monetary
Reconstruction program was then put in place. This brought about relative stability in the economy.
However the level of production at the time of lifting the sanctions in December 1995 was exactly the
same as that of January 1993. Foreign trade followed a similar pattern.

We thus constructed a dummy variable, UN sanctions for the June 1992 - January 1993 and February
1994 - November 1995 periods. Another dummy variable, hyperinflation, is introduced in the February
1993 - January 1994 period.

Table 1
Indices (1998 = 100) Millions of
US dollars
May 1992 166.6 628
January 1993 83.1 356
January 1994 53.2 124
December 1995 87.4 394

Sanctions were reintroduced by the European Union in 1998. This analysis takes September 1998,
when the ban on air traffic came into force, as the date of their becoming effective. The dummy
variable EU sanctions thus encompasses the period from September 1998 to January 2000, with the
exclusion of the three months of NATO bombing. This period is marked by the dummy variable NATO
for April 1999 - June 1999.

With the aid of these dummy variables it becomes possible to assess the economic impact of the
sanctions. Before that assessment is made, however, we should analyse two series which best illustrate
the effects of sanctions: industrial production and foreign trade indices.

Effects of Sanctions on Foreign Trade

The chart below shows overall foreign trade (imports plus exports) for the period January 1991 -
January 2000. Both periods during which sanctions were formally in place are highlighted.

At the point when UN sanctions were imposed, monthly foreign trade amounted to some US$ 800
million. After sanctions were imposed this fell to US$ 200 million. Over the course of 1993 foreign
trade was partially restored and during this period fluctuated between US$ 600 million and US$ 200
million. In January 1994, when hyperinflation reached its peak, trade fell to below US$ 200 million.
When the sanctions were suspended, foreign trade was partially restored but not to a level beyond US$
400 million.

Thus, with wide fluctuations, at the point when the sanctions were suspended, foreign trade had fallen
to half the level of the period before the sanctions were imposed.

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 Foreign Trade
1200

1000

800
Billions USD

600

400

200

0
91 92 93 94 95 96 97 98 99 00

The second period pertains to the EU sanctions. These where imposed when the monthly level of
foreign trade was US$ 600 million. The level then fell to US$ 400 million. During the NATO
aggression that level fell another US$ 200 million.

Effects of Sanctions on Industry

Sanctions have had a similar effect on industrial production, as shown in the chart below.

Industrial Production
250

200

150
1998 = 100

100

50

0
91 92 93 94 95 96 97 98 99 00

This analysis takes 1998 (1998 average = 100) as the basis of industrial production indices. At the
moment the UN sanctions were imposed, the level of industrial production was almost 170 index
points. At the end of the first period of sanctions it fell to below 90 index points. At one point during
hyperinflation it fell to only 50 index points.

On the other hand, from September 1998 to January 2000, the level of industrial production fell by
some 40 index points (from 110 to 73).

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 Table 2
Evaluation of the industrial production formula
Dependent Variable: LOG(IND)
Method: Least Squares
Sample: 1991:01 2000:01
Included observations: 109
Convergence achieved after 66 iterations
Variable Coefficient Std. Error t-Statistic Prob.
C 4.686742 0.050393 93.00411 0.0000
UN SANCTIONS -0.230539 0.070168 -3.285537 0.0014
HYPERINFLATION -0.300515 0.098684 -3.045244 0.0030
EU SANCTIONS -0.222816 0.091896 -2.424660 0.0171
NATO -0.396646 0.136250 -2.911160 0.0044
MA(1) 1.077502 0.074844 14.39673 0.0000
MA(2) 0.478603 0.079307 6.034829 0.0000
R-squared 0.780656 Mean dependent var 4.558932
Adjusted R-squared 0.767754 S.D. dependent var 0.318590
S.E. of regression 0.153535 Akaike info criterion -0.847712
Sum squared resid 2.404444 Schwarz criterion -0.674873
Log likelihood 53.20030 F-statistic 60.50392
Durbin-Watson stat 1.856471 Prob(F-statistic) 0.000000
Inverted MA Roots -.54 -.43i -.54+.43i

Econometric Evaluation of Industry

The econometric evaluation of the effects of sanctions is based on a model of industrial production
which shows production as a result of the impact of sanctions and other incidental external shocks. If
the level of industrial production is Yt , type of sanctions is Dk,t , and the residual ut , the behaviour of
production over time, t , is described in the following equation:

Yt = g + Dk,t + ut

ut = t + 1t-1 + 2t-2

where g is the average rate of industrial growth and > t the margin of error.

Table 2 shows evaluations of the econometric equation for the period January 1991 - January 2000. On
the basis of these evaluations we shall measure the partial effects of sanctions. The evaluations of the
equation are fully reliable, with good DW statistics and a high R2 quotient.

Evaluation of the Effects of Sanctions on Industrial Production

On the basis of the above equation, a model was developed to enable a logical experiment in what the
behaviour of production would have been without any one of the four external shocks related to
sanctions. For example, what would the level of production be had the UN sanctions not been
introduced in June 1992, with all other shocks occurring: hyperinflation, the EU sanctions and NATO
aggression?

This in essence is a matter of assessing the marginal effects of each individual external shock. Their
value, however, depends on the combined effect of the other shocks related to the sanctions. We
repeated the experiment for each of the external shocks, in each case with the assumption that only one
was excluded. Other scenarios are, of course, possible. The effects of external shocks are permanent,

9
diminishing slowly over time so that each subsequent shock builds on the accumulated effects of all
previous shocks.

The individual effects on national product in industry are listed in Table 3.

Table 3
Partial effects of the outside shocks on lost national product in industry: 1992-99
Effects USD millions Loss percentage
UN sanctions 6,932 14.8
Hyperinflation 5,693 12.1
EU sanctions 1,592 3.4
NATO aggression 1,087 2.3
Cumulative national product 72,633

With regard to the analysis of individual effects, the UN sanctions had the most severe effect on
production, with inappropriate foreign policy during hyperinflation being next in size of impact. The
effects of the current EU sanctions cannot yet compare with the earlier factors because of the shorter
period of time which has elapsed since their introduction, among other things. By itself, without the
parallel impact of the EU sanctions, the NATO aggression reduced the national industrial product by
over a billion USD over the past year.

Econometric Evaluation of the Effect of Sanctions on Foreign Trade

We have assessed the foreign trade equation in a similar way to that for industrial production. This
evaluation is shown in Table 4.

Table 4
Evaluation of the foreign trade formula
Dependent Variable: LOG(TRADE)
Method: Least Squares
Sample: 1991:01 2000:01
Included observations: 109
Convergence achieved after 9 iterations
Variable Coefficient Std. Error t-Statistic Prob.
C 6.422345 0.064274 99.92173 0.0000
UN SANCTIONS -0.626845 0.100985 -6.207331 0.0000
HYPERINFLATION -0.484691 0.137946 -3.513622 0.0007
EU SANCTIONS -0.250951 0.126507 -1.983690 0.0500
NATO -0.772043 0.212992 -3.624742 0.0005
MA(1) 0.644841 0.099860 6.457452 0.0000
MA(2) 0.224231 0.095830 2.339883 0.0212
R-squared 0.692716 Mean dependent var 6.146451
Adjusted R-squared 0.674640 S.D. dependent var 0.438097
S.E. of regression 0.249892 Akaike info criterion 0.126489
Sum squared resid 6.369489 Schwarz criterion 0.299328
Log likelihood 0.106358 F-statistic 38.32338
Durbin-Watson stat 2.057055 Prob(F-statistic) 0.000000
Inverted MA Roots -.32+.35i -.32 -.35i

In analysis of individual effects, the most severe impact on foreign trade was from the UN sanctions.
Next was inappropriate foreign policy during the period of hyperinflation. The effects of the current EU
sanctions cannot yet compare with the other factors. On its own, without the parallel impact of the EU
sanctions, the NATO aggression reduced foreign trade over the past year by US$ 1.3 billion.

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 Table 5
Partial effects of external shocks on lost foreign trade: 1992-99
Effects millions USD loss percentage
UN SANCTIONS 9,209 20.4%
HYPERINFLATION 3,783 8.4%
EU SANCTIONS 1,563 3.5%
NATO aggression 1,317 2.9%
Cumulative trade 45,084

These results are fully symmetrical as in the case of the analysis of the partial effects of sanctions on
the drop in industrial production. The conclusion should not be surprising, given the close relationship
between foreign trade and industrial production.

Conclusions

On the basis of the above analysis, several conclusions may be drawn:

1. The effects of sanctions remain in the economy long after the formal lifting of the sanctions.
2. New sanctions are cumulative with the remaining effects of earlier sanctions.
3. The effects of the sanctions currently imposed by the EU are weaker than those of the UN sanctions.
4. NATO aggression, strictly speaking, does not fall into the category of sanctions but its impact is only
slightly less severe than that of the EU sanctions.
5. Inappropriate economic policy is an external shock to the economy and, in that sense, has effects
similar to those of sanctions. Strictly speaking, this inappropriate economic policy does not fall into
the same category as sanctions. Its impact has been extremely negative.
6. Inappropriate economic policy can have more severe negative effects than international sanctions.

The aims of the sanctions cannot be reduced to the destruction of the economy in a society which
obviously doesn’t fit into predominant international trends. The initiators of the sanctions have no
interest in this if for no other reason than that Yugoslavia is one of their major debtors. Anyone
undertaking the economic destruction of their debtors is simultaneously undermining economic and
financial interests of their own which are by no means insignificant. The damage done on that front is
absolutely and obviously greater than any possible political gain from the undermining of the ruling
elite’s economic base. It is in any case by no means certain and, indeed, it is unlikely that the
weakening of the economy inevitably leads to the political weakening of the oligarchy which has
remained in power so persistently and successfully.

The performance of the sanctions is not equally distributed, nor can they be said to impact on all social
groups. It may safely be claimed that this is the case with any major blows to an economy and a society
which, by their very nature, are multi-faceted and complex. Experience again shows that the
distribution of the sanctions’ effects runs counter to the goals sought in imposing them. The greatest
victims of sanctions are the broadest part of the population - the ordinary people and the uneducated
masses. There are firm indications that sanctions inflict damage proportional to the level of
disadvantage already suffered by certain groups and individuals in the division of income. This is
especially true of the inhabitants of urban agglomerates and urban areas. The rural population, at least
in terms of overall social impoverishment and economic decline, is something of an exception in this
respect. The overall deterioration in standards may also afflict the rural population and the results of
sanctions are clearly felt in their standard and style of living, but the downward trend is less
pronounced, resulting in a relative improvement of the situation of the rural population by comparison
with the general absolute decline.

The members of the ruling groups are the ones least affected by sanctions. By precipitating a fall in the
overall economic situation and afflicting the social community as a whole, the sanctions change the
relations of power and strengthen the position of the ruling circles in relation to the society at large. In
an impoverished community, the rulers manipulate society as a whole much more easily and

11
efficiently. The sanctions increase the political capital of the authoritarian establishment which in any
case depends more on social misfortune and ruin than on prosperity.

It has long been obvious to most economists that the introduction and maintenance of sanctions have
had little if any negative effect on the political elite in power while they have been a grave or
substantial affliction on the population in general.

In addition to allowing a limited circle in or near power to accumulate enormous wealth (because its
members control all the mechanisms of illegal imports and sales in the grey market of embargoed
products such as oil and oil derivatives), the maintenance of the sanctions has a direct, doubly negative
effect on possible economic and democratic change.

a. it accelerates the impoverishment of the general population (and poverty is a key ally of the
authoritarian regime as the poorest people are generally more ready to accept authoritarian
measures and false promises of a fairer and better life to come); and
b. it enables the regime to continue the devastation of the middle class by putting urban
populations into a very difficult situation (heating in winter months, supplies of staple food
products and so on).

Sanctions impose many severe restrictions on normal economic operations. They are, in fact, an attack
on the market system. Many transactions and entire areas of economic traffic which once functioned
spontaneously and without hindrance become impossible; many things which once happened freely as
a matter of daily business routine are violently disrupted.

It is natural and almost inevitable that in so unbalanced a situation, economic entities turn to the state
for assistance and protection. This is because business has almost nowhere else to turn in such a
situation and the nature of the problems arising demands administrative intervention to a much greater
extent than in normal circumstances. In addition to this, there is suddenly and quite unusually a whole
series of problems which can be addressed only by the state itself.

The wider political and economic consequences of this unusual alliance of economy and state are very
obtrusive and easily recognised. The market elements of the economy are additionally weakened while
the role of administrative mechanisms and the procedures of decision-making and management in the
economy increases greatly in importance. In addition the general takeover of economic life by the state
becomes a prominent and pervasive trend while economic decisions and traffic are increasingly
orchestrated with the logic of a state of force and enforcement and less and less according to voluntary
transactions and the spontaneous vectors of the market. The economic system comes increasingly to
resemble a war economy.

Entrepreneurial models and their focus are substantially deformed. Instead of inventing new products
and processes, new markets and management companies, new resources and new modes of
management, entrepreneurs increasingly turn to the state to seek preferential treatment for which
sanctions are a welcome justification. The economy increasingly assumes the characteristics of re-
distributive, exploitative behaviour. It is increasingly less focused on increasing productivity and
creating new values. Instead of concerning itself with increasing production and creating new value, the
economy turns more and more to reallocating existing value and laying claim to what other people have
already created. The long-term consequences of this change in the focus of entrepreneurship are lethal,
far-reaching, global and difficult to quantify. What is certain is that they are extremely disadvantageous
and can undercut economic efficiency for decades to come.

Another consequence of this all-encompassing state grip on the economy is the fatal negative selection
in the entrepreneurial field. Rather than those most efficient in technical progress and increased
productivity, the most successful are those who are best at developing their relationships with state
bodies and their administrative hierarchies. Meanwhile, those who can contribute to the economy and
the society most, and in the only productive way - the creation of new value - find themselves in the
most difficult situation. This negative selection has multiple and enduring consequences which are
difficult to neutralise. Redistributive, exploitative elements come into dominant positions in the
economy and, consequently, the society. Once they have strengthened and established themselves it

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becomes difficult to push them aside even once the general economic situation has normalised and the
conditions of economic operations undergo essential change. They become a part of the lethal heritage
of immoral times which the economy and the society as a whole will be hard put to rid themselves of.
In addition to all this, the economy and the non-economy become accustomed to administration and
state regulations. This process of perverted learning also has permanent consequences.

The reversal of these consequences may turn out to be a longer, more expensive and more uncertain
process than has been their creation in those periods when sanctions literally force the economy to
resort to administrative mechanisms and operations. It is difficult to imagine a more difficult and
dangerous deformity in the economy than its becoming accustomed to government patronage or the
accompanying permanent orientation to administration as an important factor of economic
management.

The administrative rechanneling of the economy and its launching of mechanisms for the bureaucratic
co-ordination of economic processes have significant indirect effects. By refocusing economic and
social entities onto the reallocation, rather than the production, of technological innovation, the
bureaucratisation of the economy permanently and markedly decreases the efficiency of the economy.
The inefficient economy then works back towards further bureaucratisation. Fewer and fewer economic
sectors and units are able to survive without economic intervention and protection. The inefficient
economy also results in general weakening of the economic system and the society as a whole. The
directorate draws its political power mostly from the weakness of the economy and the society which
lives on that economy. This global reallocation of political power can only delay the moment of
political change, make democratisation more difficult and increase the uncertainty of a successful
transition to a productive democracy if and when the time comes for that important social task to be
undertaken.

The ruling political elite in Serbia have used economic sanctions as a tool for their own accumulation
of wealth. In a “closed economy” established through the operation of the sanctions, members of the
elite have accumulated their wealth through the exploitation of a monopoly. That monopoly, among
other things, includes the import and export of goods, loans at favourable rates, the purchase of hard
currency at the official rate of exchange while the black market rate is three and a half times that and so
on. In addition, in an economy isolated from the world market, the members of the ruling elite and their
families and friends have taken control of entrepreneurial functions and attracted into “their own orbit”
entrepreneurs who, in a state-regulated economy, can do business only with the backing of members of
that elite. In this way, members of the ruling political elite, during the economic sanctions, have
acquired, in parallel with the general impoverishment and economic ruin, enormous wealth and
gathered economic and political power into their hands.

LEGAL ARGUMENTS AGAINST SANCTIONS

One important and utterly destructive effect of sanctions is the undermining of the legal system. Even
in the most well-ordered societies, laws are designed for normal, universally predictable conditions and
circumstances. When the whole social ambience, and thus the environment in which economic and,
especially, financial transactions are carried out, is so broadly and drastically changed as a result of
sanctions, a large number of laws simply become seriously inappropriate for the new, substantially
changed, conditions.

The enforcement of the law therefore becomes essentially more difficult and in many cases this is
closely related to the obvious and by no means insignificant damage. In such circumstances there
appears a huge temptation to circumvent legislation or even suppress laws and interpret their meaning
and content with the utmost latitude. There is enormous pressure to suppress or devalue the whole legal
system and there is no doubt that this pressure has many enormous and enduring effects.

Through the discrepancy between the spirit of the law and the changed reality in which it is applied,
enormous damages and scars are inflicted on the legal system which are difficult to remove.

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The erosion of the legal system - although as difficult to quantify as the damage it produces - has lethal
consequences which will probably be felt for decades. A modern economy can function only as a
decentralised economy and decentralised systems are almost unimaginable without a high level of legal
security. Legal security implies both the trust of social entities in the stability of regulations and the
consistent and uncompromising enforcement of those regulations and an ability to predict the relevant
parameters of the business environment which should arise from the stability of the system. The legal
system is an unavoidable pillar both of the economy and the whole system of modern (and perhaps
any) civilisation. Any blow against the legal system is equivalent to undermining what is vital for the
decentralised economy. A blow to the legal system is tantamount to a strike on the institutional
foundations of civilisation. It is comparable to, although less spectacular than, the attack on the
foundations of civilisation through the great Communist experiment. The consequences of this are too
well known to need further explanation.

Because of the breadth of the damage they inflict on a society and individuals, sanctions have an
essential element of abuse of political power which is inhuman and thus contrary to natural law and
order. The price of the political goal sought by sanctions is too great. In Iraq sanctions have already
claimed hundreds of thousands of lives through hunger and poor health care. Infant mortality has
reached an extremely high level. In Serbia, thanks to the strong private agricultural sector, the
consequences will not be so dramatic. However it would appear that there will inevitably be a large
number of deaths from a lack of heating in winter, poor health care and a shortage of basic medicines in
maternity hospitals.

The consequences of sanctions are worse than any military aggression or any other act banned by
international law. International law is based on respect for human life, human rights and human society.
Sanctions ruin human lives on a large scale. Sanctions enable and encourage a lack of respect for basic
human rights in undemocratic regimes. Sanctions destroy human society. Therefore, under international
law, sanctions are illegal.

Sanctions encourage illegal trade and corruption, they morally destroy the society under sanctions and,
at least to some extent, its neighbours. Sanctions make all trade illegal and therefore expose every
business to the possibility of intimidation and blackmail by the regime. Corruption is often the only
way to do any kind of business under sanctions. Crime and corruption on such a large scale can lead to
the moral ruin of an entire society for many years. Undemocratic regimes can only profit from such a
situation.

One extremely negative consequence of sanctions is mass corruption of the society. This takes a
number of forms. First of all the political leadership of the regime uses corruption as a means to
strengthen support at the lower levels of the state and party hierarchy. It thereby broadens the base of
the regime, gathering it around shared interests. One of the key resources the Milosevic regime is able
to distribute to those loyal to it is licences for smuggling, given that the regime controls both customs
and the border guards. We can also assume that the Milosevic regime has managed to corrupt and,
where necessary, attract to its side leaders of the ruling coalition parties by using its unlimited power
over the economic resources of the whole society. It is here that we should seek the reason for the
sudden U-turns in the policies of the opposition parties and the sudden clashes within those parties at
times when victory has seemed "within reach". Thirdly, by tolerating bribes in all sectors, from
education to the health care system and the judiciary, smuggling, the illegal traffic of goods and so on,
the regime has enabled a large number of poorly paid or unemployed citizens to earn illegal income. By
directing citizens to these individual strategies for survival the regime has reduced internal tension and
simultaneously made it more difficult to begin any kind of collective political action which could
jeopardise its hold on power. At the same time, by pushing a large part o the society into illegal
activities, the regime has made all sorts of petty smugglers, street peddlers and other similar
"businessmen" its hostages. They dare not stand up openly to the regime for fear they may lose their
living or even end up in jail.

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CULTURAL ARGUMENTS AGAINST SANCTIONS

Yugoslavia’s experience with sanctions (and that of Cuba, Iraq and Libya has been similar) shows that
economic sanctions have a number of serious negative consequences which are not intended. The
decrease in economic exchange almost always results in decreased cultural exchange as it becomes
increasingly difficult to import foreign books, magazines, films or CD and video recordings which
make up the greatest part of what is usually known as cultural exchange. This is because the decrease
in international trade means that there is less money to purchase foreign goods. At the same time there
is an increase in the regime-sponsored aversion of the public to foreign material which often presents a
view of events which is at variance with that seen in local cultural materials. It would appear that this
stimulates the closing off of the society under sanctions and lays a solid foundation for a sense of
isolation and xenophobia and, finally, supports the “everybody hates us” syndrome which ends in
rallying round the flag of the regime in a de facto strengthening of support. The democratic opposition
to the Milosevic regime are those who seek an open society as part of the world community and the
European Union and it is precisely these people who are most severely punished as their relations with
the world are severed. Significantly enough, the same measure restricts the cultural contacts of that
stratum of society most inclined to democracy, development and the return of Yugoslavia to the
international community: the liberal pro-democracy middle class whose children have already left
Yugoslavia in large numbers. A similar, and very convincing, example of this has already been seen in
Cuba.

INTERNATIONAL POLITICAL ARGUMENTS AGAINST SANCTIONS

Sanctions are not capable of perfect targeting and absolute precision. In addition to their target they hit
the immediate neighbourhood of the country under sanctions and have tangible repercussions for a
broader international community.

Neighbouring countries have strong trade and other relations with the targeted state. In observing the
embargo on this traffic they lose all the benefits and effects they have previously enjoyed from it. This
is because trade as a form of interaction among states has the nature of a game with a positive score.
Trade generates considerable benefits for all participants and stopping or seriously hindering that trade
results in the loss of those benefits. In comparison to the normal pre-sanctions situation, the loss or
substantial reduction of trade represents pure economic loss. It is not surprising that the countries
neighbouring Yugoslavia have on a number of occasions widely published their assessments of the
major damage they have suffered as a result of the sanctions imposed on Yugoslavia. These
assessments are, of course, exaggerated, in an attempt to secure the greatest possible reparation from
the developed countries. However the damage has certainly been done and it is by no means
insubstantial. The very fact that the sanctions have to some extent forced Yugoslavia’s trade partners to
find alternative markets and alternative resources is enough to demonstrate the fact that we are dealing
here with considerable costs. These costs function as investments, because making inroads into new
markets and securing new sources of supplies both require the forging of new business networks, the
building of a business reputation, acclimatisation to new trade conditions and, perhaps most
importantly, selling at lower and purchasing at higher prices. All of this must be done over an extended
period of time until the new relationships have become more permanent and the new partners
committed to ongoing, systematic cooperation. What gives these economic sacrifices the character of
investments is the fact that the positive results achieved from them can, with the usual uncertainty, be
expected over a much longer period leading into the distant future.

The same arguments are valid not only for countries in the immediate vicinity of the state under
sanctions but also throughout the broader international region. There are often strong trade
relationships affecting states which are not immediate neighbours. In the case of the Socialist Federal
Republic of Yugoslavia, for example, the main trading partners were two non-neighbouring countries,
the Federal Republic of Germany and the USSR. Thus the same problems, although to an obviously
lesser extent, occur in the wider environs of the country under sanctions.

Compensation is given, or is supposed to be given, to those countries directly affected by those

imposing or enforcing the sanctions. This itself is also an effect of the sanctions. Depending on whether

15
this compensation is actually given and, if so, whether it is at a satisfactory level or not, it is clear that it
leads to international tension, the deterioration of relations among some countries, prolonged
negotiations and exhaustive bargaining. These effects are not easily quantifiable they are nevertheless a
serious cost of sanctions affecting a wide range of countries, even those which have only indirect
interaction with the country against which the sanctions are imposed.

They ways in which sanctions interfere with the free flow of traffic are obvious. The country under
sanctions is, as a rule, prohibited from providing traffic services, which means that economic entities
from a large number of neighbouring and non-neighbouring countries are forced to find alternative,
longer and more expensive traffic routes and to establish new business relationships. Establishing these
new links generates costs comparable with those of making inroads into new markets or securing new
sources of supplies and further comment would be superfluous. Sanctions almost always prevent the
normal development of traffic infrastructures in the country subject to them. This affects both
neighbouring countries and those in the broader environs in the most direct way. Traffic routes of
international importance require close international co-operation for both their initial establishment and
modernisation. Such co-operation is blocked by sanctions. This also necessitates the rerouting of traffic
to alternative and much more expensive routes and to a general increase in business overheads.

Experience to date shows that the construction of strategic traffic routes which skirt countries under
sanctions has often been considered. In this way the country would be bypassed by international traffic.
However it soon appeared that this kind of plan was not acceptable, that many of the solutions were not
feasible, that the costs would be much greater than initially envisaged and that such ideas should be
abandoned. However the costs of these feasibility studies and the costs of preliminary planning for the
implementation of this solution are not inconsiderable and must be included in the overall cost of
sanctions.

Regardless of the fact that they bring more good than harm to ruling circles, sanctions inflict great
damage on the economy of the targeted country and are injurious in many ways to the society as a
whole. The country, as a result becomes a kind of weak spot, a locus minoris of the wider territorial and
political units to which it belongs. Many aspects of this weakened position have a complex negative
impact on other countries. Because they weaken a particular country, both economically and otherwise,
sanctions in a sense interfere with the global geopolitical balance and thus bring harm to a much
broader territory than the country they target. The ways in which these disturbances of the geopolitical
balance affect individual countries have not been adequately studied and little is known of them. There
is, however, no doubt that these disorders are serious and the resulting costs are by no means
insignificant. Although difficult to quantify, one of the overall consequences is a general reduction of
security which results in a broad spectrum of negative consequences for the economy and other spheres
of life. Lack of security is a real deterrent to entrepreneurship, that most essential element of a
decentralised economy without which the economy’s prompt adjustment to changing conditions,
rational restructuring, rapid assimilation of innovations and technical progress, as the most important
factor in economic growth and the successful development of the society as a whole, are impossible.
One consequence of the general reduction of security as a result of serious disorders in the geopolitical
balance should be explicitly mentioned. This is the discouragement of the inflow of foreign capital and,
equally important and perhaps even more harmful, the outflow of domestic capital. The normal flow of
capital and its permanent deployment in the mobilisation of other economic resources are not
compatible with a politically induced high level of insecurity.

For the sake of completeness we should mention that in some sectors and for some (usually
neighbouring) countries, sanctions can have some positive effects. A country under sanctions must
secure some access to imports which are fundamental to the economy and life in general. It must
secure these through its neighbours who find in this a source of fast, easy and substantial income. The
Yugoslav experience has produced many examples of this. However even these positive effects are
followed by less visible long-term negative effects which are perhaps even greater than the short-term
effect of quick and copious profits. This income is generated through criminal activity with major
breaches of the law and dangerous erosion of the legal system. The undermining of the legal system is
a very dangerous development for any country and its long-term consequences may amount to a blow
to the basic social values without which a civilised existence is not possible. The country under

16
sanctions thus appears as an encircled territory which radiates peril into its near and distant
surroundings, threatening a much broader set of functions and values than those within its own borders.

CONCLUSION

Sanctions, in fact, strengthen the regime they target. This has been demonstrated in Vietnam, South
Africa, Cuba, Iraq and, now, Yugoslavia. Every targeted regime welcomes sanctions as its officials line
their pockets breaking them. With sanctions in place all transactions are carefully controlled by the
regime which takes bribes to allow these transaction while on the other hand it licences smuggling
which is a source of enormous accumulation of wealth for the members of the regime, their families
and those loyal to them. The negative effects of sanctions are mostly felt by the people and especially
those social strata which are anti-regime and inclined to change.

When speaking of Yugoslavia as a whole the economic sanctions have had a deleterious effect on the
economic and political development of Serbia and, to a lesser extent, of Montenegro. A particularly
severe negative effect has been the impoverishment of the former middle class and the intelligentsia
which, in other post-Communist countries of South-Eastern Europe, have given strong support to the
democratic and market-oriented parties. In addition to this, a realistically estimated 200,000 to 300,000
mostly young, educated people have left Serbia since 1991 in economic and social desperation. This
has been a considerable blow to the forces which strive for democratic and market change. Taking all
this into account it is no exaggeration to claim that, from a long-term perspective, the sanctions have
created an extremely unfavourable social climate for the establishment of democracy, the rule of law
and a market economy. The negative impact of these effects will be felt for a long time after the
sanctions have been lifted.

Sanctions Are Anti-European

Officials of the leading European countries which are members of G8, with the exception of Great
Britain, recently presented their view that sanctions against Serbia should be lifted.

A united Europe will be difficult to achieve as long as there are sanctions in force against Serbia, given
the country's central position on European trade routes. For example all Greek products are no more
expensive because of increased freight costs. All European products are more expensive in Greece,
Turkey and other markets because of the artificially imposed increase in transport costs. Textiles and
other products from Romania, Bulgaria and other poor countries in transition are more expensive
because the Danube navigation route is out of service. This has resulted in German and other
consumers from the developed countries paying higher, rather than lower, prices.

The sum effect is to make European products less competitive on the world market than they would be
if Serbia were not under sanctions, if existing Serbian roads were repaired and new ones built, if the
Danube was navigable, if the railway network were serviceable.

OTHER ARGUMENTS AGAINST SANCTIONS

Serbia's democratic opposition believes that the sanctions are an enormous hurdle and, in general, a
poor measure against the Milosevic regime. It is clear that nobody is more keen to damage the Serbian
regime than the Serbian opposition and yet nobody, not a single opposition politician, party nor
coalition, not a single non-governmental organisation or individual activist from the civil sector in
Serbia supports sanctions. This in itself speaks volumes about the effectiveness of sanctions in the
removal of the Milosevic regime and the establishment of democracy in Serbia.

The sanctions should be abolished as soon as possible (or those sanctions harming only the Milosevic
regime should be retained). This should be done step by step throughout 2000 (a year of local and
possibly federal and republic elections) with the international community loudly and clearly ascribing
the abolition to the activities of the opposition. This would be a clear sign an opposition victory in

17
elections would mean much better relations with the world for a new, democratic regime in Serbia.
This would make a significant contribution to the struggle the opposition is now waging under very
poor conditions for a democratic victory over the Milosevic coalition.

This paper was prepared by the expert team of the CPA/CPS (CENTAR ZA PROUCAVANJE
ALTERNATIVA / CENTER FOR POLICY STUDIES) Belgrade, Yugoslavia.

Team members and authors:

1. Vladimir Goati, Scientific Adviser at the Institute of Social Sciences, Belgrade

2. Miroljub Labus, Lecturer at the School of Law, BU and Chairman of the Managing Board of
Group 17 Plus
3. Sonja Liht, Chairperson of the Fund for an Open Society, Yugoslavia
4. Aleksandar Lojpur, Co-ordinator of the Task Force on the Future of FRY, East West Institute,
Prague.
5. Ljubomir Madzar, Lecturer at the School of Economics, BU and Member of the Managing
Board of G17 Plus
6. Milan Nikolic, Director of the Center for Policy Studies, Belgrade
7. Vukasin Pavlovic, Lecturer at the School of Political Sciences, BU and Director of the EKO
Centre
8. Goran Pitic, Lecturer at the School of Economics, BU and Director of the Research Centre of
the Economic Institute, Belgrade
9. Jovan Teokarevic, Research Fellow at the Institute for European Studies, Belgrade
10. Ivan Vejvoda, Executive Director of the Fund for an Open Society, Yugoslavia
11. Slobodan Vucetic, former Judge of the Constitutional Court of Serbia and Member of the
Managing Board of G17 Plus

CENTAR ZA PROUCAVANJE ALTERNATIVA

CENTER FOR POLICY STUDIES
Brace Jugovica 21 (II floor)
11000 Belgrade
Yugoslavia
Tel./Fax: ++ 381 11 3220 253
E-Mail: office@cpa-cps.org.yu
www. cpa-cps.org.yu

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