(Part 5)

Increased penalties for violations

The failure of a number of Serbia’s traditional trading partners to investigate sanctions-compliance cases referred to them by SAMCOM, or to impose substantial penalties for violations constituted a serious problem throughout the run of the Serbia sanctions. While most EU member countries acted responsibly, others did little to freeze Serbia’s business activities or assets, or to stop their companies or financial institutions from engaging in proscribed activities. Greece, Cyprus and Russia were major culprits, but were not alone in leaving most reported sanctions violation cases unpunished. The task force constantly sought to pressure these governments to take firmer action, but with only modest success. Our best weapon was the transparency that the SAM teams provided in identifying contraband cargo and our ability to “name and shame” those responsible. The seizure of contraband cargo at the border also constituted a “penalty” that deterred several companies. Yet, sanctions-busting remained big business, particularly as the sanctions regime began to loosen in the spring of 1994.

Humanitarian issues

The effective application of sanctions must take into account the humanitarian implications and impact of the measures imposed. The Milosevic regime was quick to detour the impact of the sanctions wherever possible onto the most vulnerable segments of their population, including the elderly, children, handicapped and infirmed, as well as those out of favor with the governing authorities. This became their most powerful propaganda tool in responding to the sanctions, and was used successfully to obtain energy sanctions relaxation, particularly during the winter months. Fuerth and I discussed these issues on a regular basis.

It was clearly incumbent on the task force to consider the humanitarian impact of any of the sanctions measures imposed. We raised no question about the importation of food, medicine or medical equipment to Serbia, although we insisted that cargo be closely inspected at the border to halt contraband. We loudly criticized Serbia for cases where they were known to export their own similar pharmaceuticals, which they claimed were in short supply at home because of the sanctions. We also had to contend with various requests from European groups seeking permission to provide relief oil shipments to com- munities in Serbia hard hit by the winter cold. It often proved difficult to distinguish between the bona fides of such shipments. We believed that the best way to handle this problem was to insist that those involved publicly acknowledge and take responsibility for the delivery of such shipments to the intended destinations.

One of the hardest issues posed concerned the supply of gas from Russia via Hungary. The bulk of this gas was consumed in the industrialized Vojvodina region (which also had its own gas reserves). But gas was also essential for heating in other parts of Serbia and in Bosnia. The question was whether the Bosnian Serbs would allow the gas to also flow to the Bosnians in Sarajevo. Apparently they would not.

The Russians were reluctant to curtail the flow of gas to Serbia so long as Serbia was willing to pay for it. They would turn the gas off when Serbia fell into deep arrears, and turn it back on when payments were eventually made. Hungary was finally persuaded in early 1994 to shut off the pipeline connection to Serbia when it became clear that the Bosnian Serbs were blocking the onward flow to Sarajevo. Ambassador Richard Holbrooke finally ordered the gas line restored in September 1995 in an effort to convince Milosevic to come to Dayton, Ohio for the peace accord.

The apex of Serbian sanctions

Despite these weaknesses, the combined application of trade and financial sanctions was clearly having a significant impact. Yugoslavia’s gross domes- tic product (GDP) fell by more than 30 percent in 1993.external page⁸call_made According to CIA estimates, the overall economy, industrial production and real income had all contracted by more than 50 percent. Private economists put the unemployment figure at greater than 40 percent. A FRY federal bureau of statistics report indicated that retail prices had soared as the Yugoslav dinar lost virtually all value. The black market rate for dinars in mid-September 1993 was 3,200,000,000 to the dollar. It would reach 30 billion to the dollar before the end of the year.external page⁹call_made

In November 1993, Milosevic began to signal that he was interested in pursuing discussions on the lines of the latest Owen-Stoltenberg proposals for a settlement of the Bosnian conflict. While Bosnian Serb forces still held the upper hand, Milosevic was under intense pressure domestically to seek relief from the sanctions. Winter was fast approaching, oil, coal and other sources of energy were in very short supply, hyperinflation had made the dinar valueless, and unemployment and food shortages were increasing, causing local disturbances. Milosevic apparently felt that he had to deal.

EU counterparts began engaging in a dialogue with Fuerth and the task force on possible sanctions relaxation measures that might be offered to Milosevic as a further inducement. Trade seep- age was at its lowest point. But, Washington first wanted to see some pull back by the Bosnian Serbs before engaging in such discussions with Milosevic. Therefore, Washington signaled to the United States/European Union/Russia Contact Group that the time was not yet ripe.

It was the task force’s assessment at that time that the sanctions had reached their apex, with close monitoring and tight controls being exercised along the borders of Serbia, on the Danube and in the Adriatic. However, there were growing signs of sanctions fatigue in the frontline states and other indications that this situation might not hold for much longer.

Sanctions begin to loosen

The end of 1993 brought some very difficult times for Serbia and its leadership. But, the new year seemed to bring a degree of sanctions relief. On January 24, 1994, the FRY replaced the old dinar with a new “super dinar” under a plan designed by retired World Bank economist Dragoslav Avramovic, a past president of the National Bank of Yugoslavia. The new dinar was linked directly to the German mark. The Milosevic regime also pledged to limit further printing of dinars by tying further dinar issuance to direct foreign currency and gold backing. While this operation brought a halt to the hyperinflation that Serbia had suffered, the new Serbian currency was left in short supply. This resulted in an increased reliance on German marks for both domestic and international dealings. This, in turn, placed new emphasis on Serbia’s illicit trade activities and the regime’s need to soak up hard currency remittances.

Further sanctions relief was obtained on February 17, 1994 when Greece unilaterally imposed a total trade embargo on Macedonia in its growing dispute of the latter country’s constitutionally adopted name. Being a landlocked country with few trading options, Macedonia immediately re-opened its borders with Serbia in defiance of the sanctions, pleading they had no other option. Macedonia was eventually coaxed, under considerable pressure from the United States and the European Union, into limiting trade to and through Serbia to those items originating or terminating in Macedonia. Nevertheless, considerable sanctions leakage was allowed to occur. Serbia took full advantage to bring in as much oil for the winter as possible. Macedonia only returned into full compliance with the sanctions regime after the Greek embargo was lifted in 1995. According to official Serbian data, the Serbian economy took a jump up in 1994 and grew by 6.5 percent. We now had to count on longer-term economic attrition and infrastructure deterioration to reconstitute the sanctions pressure required to bring the Milosevic regime to heel.

A serious divergence also developed between the task force and Holbrooke, who took over as the U.S. member of the contact group in the summer of 1994 and maneuvered himself into a solo role as the West’s principal interlocutor with Milosevic. These differences became acute as Holbrooke sought to use sanctions relaxation as an inducement to Milosevic to come to Dayton, Ohio for peace talks.

Beginning in the summer of 1994, the main focus of the task force switched from sanctions intensification to sanctions management. Maintaining the integrity of the sanctions would remain the principal challenge right up to the Dayton Accords. Further task force efforts would be focused on upgrading and replacement recruitment for the SAMs, logistical and training support for local customs officials, upgrading border control and inspection facilities and training and logistical support for local customs officers. Interdiction and inspection operations in the Adriatic and on the Danube were also maintained. And work continued on identifying and closing Serbian overseas operations and accounts. ¹⁰

An assessment report on the impact of the sanctions on Serbia prepared by the CIA in June 1996 found that the Serbian economy only started again into a downward economic spiral in late 1994. By that time Serbia had lost most of its traditional customers to the newly emerging eastern European and trans-caucus states. With a lack of spare and replacement parts, Serbia’s industrial and transportation infrastructure was also starting to crumble. Rapid inflation was also starting to take hold. Belgrade’s Institute of Economics reported that, by October 1995, real income had declined a further one-third since December 1994.external page¹¹call_made

Prospects were particularly glum in September 1995 as the country found itself, once again, facing a serious oil and gas shortage with winter just around the corner. Serbia was already experiencing serious power outages. The treasury was near empty and the Russians had again turned off the gas flow for nonpayment.

At the same time, the turning tide of war in Bosnia, created by the alliance of Bosnian and Croat forces and supported by NATO air strikes, had forced the Bosnian Serb leadership into accepting Milosevic as the principal deal maker on their behalf. They knew they could not withstand the Bosnian/Croat/NATO onslaught without Milosevic’s support, and could not salvage a peace independently. Milosevic had their unchallenged mandate.

Milosevic knew also that he needed to make a deal to get the sanctions off Serbia’s back. The sanctions had kayoed his country’s economy and sapped the energy of what was once the strongest power in the Balkans. But, his stated precondition in negotiations was that sanctions be lifted (including on oil) and gas begin to flow.

Dayton and the suspension of the sanctions

A deep split developed between Holbrooke and those administering the sanctions as to whether the gas and oil embargo should be suspended, as demanded by Milosevic as his precondition for coming to Dayton. Holbrooke convinced the Clinton administration that the time was right for serious talks to end the Bosnian War and that lifting the oil embargo was worth the gamble. The sanctions supporters argued that once suspended, the sanctions would be extremely difficult to restore. In the meantime Milosevic would fill his oil reserves and we would lose much of the real lever- age we had to negotiate a fair deal for the Bosnians. On the one hand, a peace agreement was achieved at Dayton. Yet, one can question whether the terms of the Dayton Accords might have been better if the sanctions lever was still in place up until the agreement was actually reached.

It should be recalled that none of the fighting had spread to Serbia, and there had been no air strikes against targets in Serbia proper. Serbia was under no direct military threat. The only real pressure on Milosevic was the sanctions, and he needed to make a deal. Sanctions, as much if not more than any other factor, brought Milosevic to Dayton.

On November 21, 1995, the presidents of the Republic of Bosnia and Herzegovina, the Republic of Croatia and the Federal Republic of Yugoslavia reached agreement on the Dayton Accords and the fighting in Bosnia stopped. The next day the U.N. Security Council adopted Resolution 1022 formally suspending the sanctions on Serbia.

Serbia now found itself in a deep economic ditch. It would only be able to dig itself out with the provision of substantial trade concessions and economic assistance. The withholding of such trade concessions and assistance now constituted the “outer wall” of a new set of sanctions that would remain in place until Milosevic was turned over to The Hague for trial. These “outer wall” sanctions would be filled in with a new set of sanctions measures as the Milosevic regime drifted into a new expanded conflict in Kosovo.