The NATO assault on the last renegade regime in Europe, even if it eventually succeeds in its humanitarian mission, is leaving the West with an enormous task in the Balkans. Although the framework accords hammered out at Rambouillet and Paris established a long-term plan for maintaining peace by injecting military monitors into the region, they did nothing to address the economic consequences of a conflict in the region dating back to the first moves towards independence from the former Yugoslavia made by Croatia and Slovenia in June 1991.

In contrast to the allied efforts to build durable post-war economic and reconstruction institutions in 1944, while war was still raging in the European and Pacific theatres, little thought appears to have gone into what happens next in the Balkans.

But the risks of leaving both the immediate refugee problem and the longer-term economic settlement unattended are substantial. In the immediate aftermath of the war the big fear among experts in the region is that hard won efforts to achieve economic transformation and re-establish growth - from Macedonia in the south-east of the region to Bosnia in the west and Croatia in the north - could be enormously set back.

"The greatest risk is an increase in the flow of refugees," argues Mr Marcelo Selowski, the World Bank chief economist for the Balkan region. "The refugees will strain local resources and place pressure on the public finances in countries which cannot afford it."

Moreover, the very act of a military campaign also damages commerce, halting trade, communications and even sporting events like football, in a region still heavily militarised and only now recovering from the deprivations of the Bosnia conflagration.

The two countries most immediately directly affected by the refugee flows are Macedonia and Albania. Economic experts believe that Macedonia will be the worst affected country which is not directly involved in the conflict. Ethnic Albanians make up 20 per cent of the Macedonian population and as a country with a border with Kosovo, it is inevitably soaking up refugee flows.

Most critically of all, however, 27 per cent of Macedonia's exports go to Yugoslavia with 35 per cent to the European Union. Since a large proportion of Macedonia exports to the EU pass through Serbia, the country faces serious damage on all fronts: loss of trade, a refugee burden and interruption of long-term aid flows until the conflict is over.*

Albania, which seems to be bearing the brunt of the refugee problem at present, also finds its own economic prospects severely dented. The country has only just started recovering from the disruption to its economy caused by the exposure of the massive "ponzi" (pyramid selling) scheme at the heart of its economy, which accounted for one-third of gross domestic product. Output plummeted by an astonishing 7.1 per cent in 1997 and growth has only just been restored. As one of the poorest nations in Europe, with a per capita income of just $750 (#697) per year, it is among the least able to even temporarily - let alone permanently - absorb and feed refugees without a large-scale aid effort.

While Albania and Macedonia may feel the brunt of the problem many of the recovering economies of the region will be affected. Despite problems with crime and the mafia Bulgaria has staged something of a miraculous turn-around in the last two years as a result of taking control of its financial affairs through a "currency board" and the injection of International Monetary Fund and World Bank assistance. In the crowded corner of Europe represented by the Balkans it is impossible for any economy to be totally insulated. Bosnia has been a strong focus for the development community since the end of its war with the Serbs. The country almost has become a Western dependency with some $5.1 billion of Western assistance co-ordinated by the World Bank, poured into the country in the 1996-99 period in an effort to rebuild its agriculture, the infrastructure and commerce. Because its trade with Yugoslavia is virtually non-existent it should be insulated from the economic effects of the bombing: although the restoration of confidence will now be more difficult. Similarly, Croatia will avoid the direct effects of a refugee influx, a decline in foreign investment or a blockage of trade routes.

Despite the obvious penalities which would be paid by the rest of the Balkans and the neighbouring states - as a result of an extensive bombing campaign - no one appears to have thought about the broader humanitarian and economic consequences. A region which has been almost a decade struggling to transform its commerce is in danger of moving backwards with falling incomes and increased poverty.

The NATO leaders could do worse than look at the example set by their predecessors at the end of the second World War who were determined not to repeat the mistakes of 1918 by punishing the defeated enemy. The strategic and economic objective was to bring all the countries into the reconstruction programme, the most famous element of which was the Marshall plan - the OECD was established to plan the economic rehabilitation. As a series of micro-nation states the prospects for prosperity in the Balkans, even under the best of circumstances, would be limited. As the financier George Soros proposed last month, a much broader structure would be necessary. This would involve an aid injection for postwar reconstruction - to include Serbia - in the order of $10 billion over the first year.

The nations of the Balkans would be locked into a broader economic free trade area to include neighbours to the east, west and north - Greece, Italy and Hungary. For those countries which are democratically and economically able, like Slovenia, there should be a fast track towards associate or even full membership of the European Union. A special facility should be established at the London-based European Bank for Reconstruction and Development (EBRD) - which has been successful in many of its Eastern European projects - aimed at providing transport and trade infrastructure moving both East and West a well as North-South.

In the midst of the bombing, when the debate is about ground forces and refugees, it is sometimes hard to stand back and look over the horizon. However, if the same amount of NATO firepower and diplomatic effort were to be applied to post-conflict planning, then the current brutal operation may not have been completely in vain.