Karadzic seeks currency union with Belgrade

RADOVAN KARADZIC, the Bosnian Serb leader, has called for an immediate currency union between Serbia and Serb-held lands in Bosnia-Herzegovina and Croatia. His appeal, made in an interview with Belgrade Radio, suggests that he sees a chance to bring about the unification of all Serb-ruled territories in the former Yugoslavia while the international peace effort is in a state of drift.

'It seems to me that everywhere in the world there is an increasing conviction that the Serbs have the right to self-determination, and that this self-determination will definitely lead towards our unification. So far as the economic and monetary systems are concerned, there is no longer any reason to wait,' Mr Karadzic said.

A currency union would be unacceptable to Croatia and the Muslim- led Bosnian government, both of which would interpret it as a device to pre-empt a negotiated settlement to the Yugoslav wars. A single all- Serb currency would amount to a rejection of proposals, previously accepted by the Bosnian Serbs, to turn Bosnia into a loose union of three nationally based republics. It would also effectively mean the permanent secession of the Serbian- ruled Krajina region from Croatia.

Mr Karadzic issued his appeal partly because of the chaotic economic conditions that prevail in Bosnian Serb territory. The 19- month-old war has displaced more than 2 million people, devastated agriculture, driven inflation to astronomical heights and replaced normal economic life with gangsterism and black marketeering.

For most of this period the Bosnian Serbs have received economic support from Serbia that has proved vital in helping them to consolidate their military gains. From Mr Karadzic's point of view, a currency union would tighten this connection and oblige Serbia to continue to keep the Bosnian Serbs afloat.

However, the Serbian President, Slobodan Milosevic, is almost certainly less interested in an all-Serb currency. It would probably be seen in the West as a step towards an expanded Serbian state and would therefore damage his efforts to secure an end to United Nations sanctions against his country.

It is also far from clear that Serbia could sustain the costs of propping up the Bosnian and Croatian Serb economies through a single currency. War, mismanagement and the UN embargo have ravaged Serbia. Industrial production has plunged. Rationing was introduced in September for basic items such as flour, sugar, salt and cooking oil. Monthly inflation in the rump Yugoslavia, combining Serbia and Montenegro, hit 1,900 per cent in October, the highest rate in the world.

Serbia is even facing a challenge from Montenegro, whose leaders and opposition parties are increasingly questioning the wisdom of supporting policies conceived in Belgrade. Montenegro's most important industries, shipping and tourism, have collapsed under the impact of war and UN sanctions, and almost four in five people are without jobs.

Montenegro's leaders say Serbia has tightened the screws on them recently by banning the shipment of most foodstuffs to their republic. Although in the long run Serbia needs the access to the sea provided by Montenegro's coastline, the ban indicates that Mr Milosevic's immediate priority is to protect Serbia through what promises to be a winter of exceptional hardship.