Südosteuropa 57 (2009), H . 2/3, S . 305-328
DEMOCRACY AND MARKET ECONOMY
GORDANA BRUSIS
Serbia: Reforms under Stress
Abstract. This article investigates the quality of democracy, market economy and political management in Serbia, based upon the situation in 2007-2009 . It is argued that Serbia has made impressive progress in democratic and economic reforms since the end of the Milošević regime . The government and all major political actors opposed Kosovo’s declaration of inde- pendence in February 2008, but have respected international law and largely used diplomatic means to promote their position . The global economic crisis has exacerbated existing social divisions and is likely to weaken the societal basis of support for liberal, pro-European parties in the future . These developments have increased the stress under which the ruling political elites have to implement adjustment and reform measures while ensuring the acceptance of reforms in society .
Gordana Brusis is a freelance author specializing in Southeast and East European affairs . She obtained a post-doctoral degree in Slavonic Studies from the University of Zagreb and has worked for the Ethnodoc project of the Südost-Institut, Regensburg .
Introduction
In the period between 2007 and early 2009, Serbia’s democratic and economic development was shaped by numerous significant events: the independence of Kosovo, two parliamentary elections, presidential, local and provincial elec- tions, the signing of a Stabilization and Association Agreement (SAA) with the European Union, and the shock of the global economic and financial crisis . By taking stock of the situation in early 2009 and the preceding two years, the present article investigates the quality of democracy, market economy and political management in Serbia . This article is based on ambitious concepts of “constitutional democracy”, “sustainable market economy” and “strategic man- agement” that have been defined and operationalizedto guide a biannual global expert survey of democracy and market economy conducted by the Bertelsmann Foundation 1. The questions in this survey pertaining to democracy not only refer
1 Cf . Martin Brusis’s contribution to this issue; ertelsmannB Stiftung (ed .), Transformation Index 2010 . Gütersloh 2009, available at
History and Characteristics of Transformation
Serbia’s transition to democracy and a market economy has been fraught with statehood conflicts that led to the disintegration of the former Yugoslavia and caused a series of wars . The toleration and emergence of political plural- ism in the Socialist Federative Republic of Yugoslavia and its six constituent republics brought political elites into power who instrumentalized nationalist ideologies and stereotypes to advance their nation-state projects .2 Led by Slo- bodan Milošević, Serbia’s state socialist party won the first democratic elections in 1990 and sought to retain its political power by re-establishing a centralized federation and blocking economic reform . Irreconcilable aims and nationalist mobilization in Serbia and other Yugoslav republics led to the collapse of the federation and the emergence of Bosnia and Herzegovina, Croatia, Macedonia and Slovenia as independent states . In Bosnia and Herzegovina, Croatia and Slovenia, wars of varied duration and intensity began when the Yugoslav Na- tional Army intervened in the conflicts between the republics’ new leaderships and their ethnic Serb communities .
2 Cf . for example Holm Sundhaussen, Experiment Jugoslawien . Von der Staatsgründung bis zum Staatszerfall . Mannheim et al . 1993 . Serbia 307
Facilitated by the wars and nationalist mobilization, Serbia’s president Milošević was able to establish an authoritarian system in the remaining parts of Yugoslavia that allowed him to remain in power until 2000 . His regime was based on clientelist networks in the state administration, police, military and a state-dominated economy, which allowed him to control the electronic media, to skillfully falsify elections and to effectively fragment and isolate the political opposition .3 Responding to its deepening integration and legitimation crises, the regime increased political repression in Serbia proper and the violent military repression of ethnic Albanians in Kosovo; the country then slid into a full-scale war . NATO air strikes forced the regime to abandon its control over Kosovo and contributed to the demise of Milošević . However, the democratic breakthrough in October 2000 was driven primarily by the united opposition and student protest movements as well as the electorate’s growing discontent with the economic and social situation . The Democratic Opposition of Serbia (Demokratska opozicija Srbije, DOS), a coalition of 18 liberal, social democratic and moderate nationalist parties, won the federal parliamentary and presidential elections as well as the Serbian local and parliamentary elections of 2000 . The opposition leaders Vojislav Koštunica and Zoran Đinđić became federal president and prime minister, respectively . Once the governing coalition had achieved its main aim, the overthrow of the Milošević regime, internal tensions grew over fundamental policy choices . The heterogeneity of the coalition and the assassination of Prime Minister Đinđić in March 2003 limited the government’s capacity to sustain its initially-dynamic policy of economic and political reform . The breakup of the governing coalition necessitated elections in December 2003 that led to the formation of a four-party coalition government headed by Koštunica . The state framework of Serbia has changed several times since the dissolution of communist Yugoslavia . Between 1992 and 2003, Serbia and Montenegro, the two remaining republics of the former Yugoslavia, constituted republics within the Federal Republic of Yugoslavia . In 2003, Serbia and Montenegro replaced this state with a more loosely integrated state union mediated by the European Union . Following a referendum in May 2006, Montenegro became an indepen- dent state and the state union was dissolved . As a consequence of its military defeat in the Kosovo war, Serbia had to accept a UN-led interim administration in Kosovo . This administration has exercised political authority over the territory since 1999, based upon Resolu- tion No . 1244/1999 of the UN Security Council . Serbia’s government and major
3 Cf . for example Thomas Bremer / Nebojša Popov / Heinz-Günther Stobbe (eds .), Serbiens Weg in den Krieg . Kollektive Erinnerung, nationaleFormierung und ideologische Aufrüstung . Berlin 1998; Leonard Cohen, Serpent in the Bosom . The Rise and Fall of Slobodan Milošević . Boulder 2001 . 308 Gordana Brusis political actors interpret this resolution as legally assigning Kosovo to Serbia as the successor state of the state union with Montenegro . Most Kosovo Albanians refused to be citizens of Serbia due to their experience of violent repression and expulsion under the Milošević regime . On 17 February 2008, Kosovo declared its independence, which was subsequently recognized by the major Western states, but opposed by Serbia .
Democracy
Stateness
The Republic of Serbia has the monopoly on the use of force over its terri- tory, except for its formerly autonomous province of Kosovo and Metohija (in the following: Kosovo), the status of which is disputed . Serbia opposed the Kosovar parliament’s declaration of independence in 2008 and sustained its claim on Kosovo . By December 2009, 64 states had recognized Kosovo as an independent state, while the UN Security Council could not agree to recognize Kosovo’s independence . Thus, the status of Kosovo continues to be defined by Resolution No . 1244/1999, which had established a UN mission to exercise political authority over Kosovo . Organized crime is still prominent in Serbia, but its threat to public order and safety has been reduced due to improvements in police organization and capacities . A new law, passed in October 2008, allowed the state to confiscate property attained through criminal acts . The parliament ratified three conven- tions against human trafficking and terrorism and adopted a Law on the Pre- vention of Money Laundering and the Financing of Terrorism in March 2009 . The members of the “Zemun Clan”, a network of criminals who assassinated the former Prime Minister Đinđić, were convicted and received long prison sentences in 2007/08 . The Constitution defines Serbia as the state of the Serbian people and all citizens who live in Serbia . Political parties of national minorities (approxi- mately 17 percent of Serbia’s population, excluding Kosovo) are represented in parliament and are exempted from electoral thresholds . The Constitution envisaged the creation of National Minority Councils to facilitate the political participation and consultation of minorities, but the state level Council did not meet for several years . A Ministry for Human and Minority Rights was estab- lished in 2008, and efforts were undertaken to improve the share of minorities in public administration, the judiciary and the police . In July 2009, the parliament discussed a law on councils of national minorities at the local, provincial and national levels . The councils were envisaged to beelected by persons belonging Serbia 309 to national minorities, and they were to be consulted on issues concerning the cultural, educational and linguistic interests of national minorities . To address concerns of the ethnic Albanian minority in Southern Serbia, the government has also established a regular consultation with local Albanian leaders in the municipalities of Preševo, Bujanovac and Medvedja . Interethnic tensions grew in January 2009, when local Albanians demonstrated against the arrest of ten Albanians who were accused of war crimes during the 1999 conflict in Kosovo4 .
Political Participation
In 2007/2008, two parliamentary elections and presidential elections were held in accordance with European and international standards . The National Assembly is elected according to a proportional system with a single nation- wide constituency and a five-percent electoral threshold . The electoral turnout was 61 percent in both parliamentary elections of January 2007 and May 2008 . Presidential elections were held in two rounds on 20 January and 3 February 2008, based upon a new Law on the Election of the President of the Republic of Serbia . In December 2007, the parliament also adopted a new law on munici- pal elections, which abolished the direct election of mayors and introduced a proportional system of electing members of municipal assemblies . The electoral legislation constrains the ability of citizens to choose their pre- ferred candidates by allowing parties to arbitrarily distribute mandates among the candidates on their lists after the elections . This provision was intended to eschew practices of vote-buying and back-room deals concerning changes of party caucus, but has been criticized by international organizations as blurring the transparency of the electoral process .5 A new Law on Associations, adopted on 8 July 2009, guarantees the freedom of association and regulates the establishment, legal status and structure of associations . The freedom of the media has been negatively affected by nu- merous attacks on journalists, a weak regulatory framework and pressures of commercialization . The media system is pluralist, but many media outlets are financially weak and depend on economic interest groups . Of the 306 media outlets surveyed by the Organisation for Security and Cooperation in Europe
4 Council of Europe, Serbia: Compliance with Obligations and Commitments and Imple- mentation of the Post-Accession Co-operation Programme, Fourth Report (February 2008 – February 2009), Secretary General SG/Inf(2009)3, 14 . Strasbourg 2009, available at
(OSCE) in April / May 2008, 61 percent saw serious obstacles to the practical exercise of media freedoms 6. According to the OSCE report, in 2008 journalists were subject to 76 physical assaults, 62 verbal attacks and various other attempts to impede their work .7 The Council of the Republican Broadcasting Authority disrespected licensing procedures and awarded licences to five broadcasters in an opaque manner, which was criticized by the Supreme Court of Serbia . Serbia’s media system still lacks institutions of self-regulation that could address complaints relating to violations of professional standards by journalists .
Rule of Law
The judiciary is established as a distinct profession and operates relatively independently of the other branches of government, but its functions are par- tially restricted by corruption, politicization and inefficiencies . The fiscal and administrative autonomy of the courts is limited 8. In December 2008, the par- liament adopted a set of laws regarding the organization of courts, the election of judges, the High Judicial Council, the powers of the public prosecutor, and the administrative power and jurisdiction of courts . These laws were intended to improve the independence, efficiency and accountability of judges and to align the judicial system with the new constitution . The municipal courts were integrated into fewer and larger basic courts, the number of judges was re- duced, and judges were given more assistants . A Supreme Court of Cassation, four appellate courts and specialized commercial, administrative and criminal courts been established . According to Serbia’s constitution, judges are elected by parliament upon the proposal of the High Judicial Council (Vrhovni Sud Srbije, VSS) . The VSS is an independent body consisting of the President of the Supreme Court of Cassation, the Minister of Justice, the president of the authorized committee of parliament, as well as six judges, a lawyer and a professor of law, all of whom are elected by parliament . Public prosecutors are also elected by the National Assembly upon a proposal by the government that is based on a list of candidates prepared by the State Prosecutorial Council and discussed with the competent committee of the Assembly .
6 Miroslav Janković et al ., Media Freedom in Serbia in 2008, The Organisation for Security and Cooperation in Europe (OSCE) Mission to Serbia, Media Department . Belgrade 2009, available at
The Venice Commission, an advisory body of legal experts attached to the Council of Europe, cautioned that the election of all judges, prosecutors and all VSS members by parliament could lead to a politicization of appointments 9. According to the Commission, Serbia’s parliament “hitherto has not limited its role to confirming candidates presented by the High Judicial Council but it has rejected a considerable number of such candidates under circumstances where it seemed questionable that the decisions were based on merit” 10. To reduce the influence of political considerations on appointments, the 2008 Law on the High Judicial Council authorized only professional associations of judges, lawyers and law faculties to nominate candidates for the VSS and obliged these nominators to present only a single candidate to parliament . International organizations also warned that the reappointment of all judges, envisaged in the Constitutional Law on the Implementation of the Constitution and the Law on Judges, would provide opportunities for partisan political influ- ences . The main motive for introducing a reappointment of acting judges seems to have been the fear that judges appointed under the Milošević regime would not be held accountable for biased decisions or malfeasance 11. By February 2009, the Ministry of Justice had prepared assessments of all judges, including the number of completed cases undertaken by each judge .12 The professional associations of judges and prosecutors submitted a consti- tutional complaint against the new laws, arguing that the re-election of judges would risk a politicization of the judiciary and undermine its independence . However, the Constitutional Court rejected their complaint, and the VSS sub- jected all judges to a reappointment procedure .13 In November 2007, the parliament adopted a new Law on the Constitutional Court . Subsequently, the parliament and the president appointed two-thirds of the judges so that the Court, which had not been operational for more than a year, was able to resume its work . During the period from May to October 2008, the Court dealt with 188 constitutional complaints and 251 investigations of the constitutionality of laws and regulations .14
9 Venice Commission, Opinion on the Constitution of Serbia, Council of Europe CDL- AD (2007) 004 . Venice 2007, 14-16, available at
In December 2007, the parliament adopted new laws on local self-government, on the capital city and on the territorial organization of Serbia . These laws ex- panded the powers of municipalities inter alia by entitling them to manage their own property and to establish municipal police organizations .15 The Provincial Assembly of Vojvodina adopted a new autonomy statute, but its approval by the National Assembly was blocked due to political controversies over the province’s degree of autonomy . Corrupt officeholders are prosecuted under established laws but sometimes exploit political, legal or procedural loopholes . Few cases of high-level corrup- tion have been prosecuted and convicted by the courts . The government, led by the Democratic Party (Demokratska stranka, DS), demonstrated its commitment to fight corruption when in October 2008 the police arrested the mayor of Zren- janin and a prominent politician of the governing DS on charges of corruption 16. The 2004 law on conflicts of interest did not include judges and lacked effec- tive monitoring and sanctioning procedures . According to the EU Commission, more than one-third of state officials did not declare their assets in 200817 . To more precisely regulate ministers’ conflicts of interest, the Law on Government was amended in November 2007, and a Code of Conduct of Public Servants was adopted in February 2008 . In October 2008, the parliament adopted the Law on the Anti-Corruption Agency, an independent government body envisaged to supplement the existing Anti-Corruption Council and to become the new institutional focus of corruption prevention . The gencyA monitors and enforces the rules regulating conflict of interest and the financing of political parties . The parliament also adopted laws on the criminal liability of legal entities and public procurement in October and December 2008 . In addition, it amended the Law on Financing Political Parties to replace the monitoring and enforcement functions of the Republican Electoral Commission and the parliamentary com- mittee on finances with the envisaged Anti-Corruption Agency . National minorities, Roma, women and lesbian, gay, bisexual and transgen- der people still face widespread discrimination in Serbia . Incidents of violence against persons belonging to national minorities increased in the wake of Kosovo’s declaration of independence . Extremist political groups insulted and attacked non-governmental organizations and individual advocates of human rights . According to the Council of Europe’s Human Rights Commissioner, Roma are not only the most marginalized and discriminated group, but often
15 Zdravko Zlokapa / Dušan Damjanović, Modeli organizacije lokalne samouprave . Slo- venija, Hrvatska, Bosna i Hercegovina, Makedonija i Srbija . Beograd 2008 (PALGO centar), 206, available at
Stability of Democratic Institutions
Democratic institutions perform their functions in principle, but the role of Serbia’s parliament is weakened by inefficient procedures, a lack of capacity and political posturing . For example, the newly established parliament was not able to start its legislative session in July 2008 because the Serbian Radical Party (Srpska radikalna stranka, SRS) and the Democratic Party of Serbia / New Serbia (Nova Srbija, NS) bloc obstructed the parliament’s work . The parties argued that their concerns were not placed on the parliamentary agenda and that signing the Stabilization and Association Agreement (SAA) with the EU would repre- sent an implicit acknowledgment of Kosovo’s independence . In addition, the SRS demanded an investigation of alleged police brutality at an SRS-organized protest against the extradition of the indicted war criminal Radovan Karadžić,
18 Ibid ., 35 . 19 Ibid ., 26 . 20 Ibid ., 15 . 21 Zaštitnik građana, Redovan godišni izveštaj za 2008 . godinu . Beograd 2009, 42-43, avail- able at
23 Data available at the site of the Serbian Parliament, available at
Political and Social Integration
Serbia’s party system is fundamentally established and moderately polar- ized, but weakly rooted in society . The parliamentary elections of 11 May 2008 were won by the Coalition for a European Serbia (Za Evropsku Srbiju, ZES) led by the Democratic Party (DS) . The ZES obtained 39 .3 percent of the votes and emerged as the strongest political force, controlling 102 seats in the 250-seat parliament . The Serbian Radical Party received 30 .1 percent of the votes and preserved its position as the main opposition party (78 seats) . These results further strengthened the socioeconomic and socio-cultural cleavages in the Serbian party system . The socioeconomic cleavage reflects not only the historical distinctions between a small, educated urban middle class, larger traditional rural groups and the industrial workforce, but also the emerging gap between the winners and losers of recent economic reforms . Whereas the SRS and the newly established Serbian Progressive Party (SNS) combined more left-wing, interventionist economic policy positions with nationalist-traditionalist posi- tions on socio-cultural issues, DS linked more liberal economic policies with pro-European, modernist sociocultural positions .27 The SRS and SPS as parties associated with the Milošević regime have become less clearly opposed to par- ties associated with the democratic opposition movement against Milošević, indicating a weakening of the authoritarian-democratic cleavage . The main loser of the 2008 elections was the coalition of former Prime Minister Koštunica’s Democratic Party of Serbia (DSS) and the New Serbia (NS) party, which lost 4 .5 percentage points and 17 seats in comparison in the elections of January 2007 (now 12 .1 percent of the vote and 30 seats) . The electoral alliance led by the Socialist Party of Serbia (Socijalistička partija Srbije, SPS) performed better than expected, winning 7 .8 percent of the vote (20 seats) . The Liberal Democratic Party (Liberalno-demokratska partija, LDP), a DS splinter party, at- tained 5 .4 percent of the vote and 13 seats . In addition, seven representatives of ethnic minorities returned to parliament, as the electoral threshold of five percent does not apply to their parties .28
26 Radikali najavili nastavak borbe za mandate, Danas, 13 February 2009, available at
If these alliances and parties are taken into consideration, the Serbian parlia- ment of July 2008 can be described as moderately fragmented . However, the ZES and the SPS-led alliances integrate several smaller parties and thus are likely to be less coherent than the single party organizations . ZES consists of the center-left DS, the G17 Plus party of economic reformers, the Serbian Renewal Movement (Srpski Pokret Obnove, SPO), two regionalist parties – the Sandžak Democratic Party and the League of Vojvodina Social Democrats – and one rep- resentative of an ethnic Croatian party . Of these arties,p G17 Plus formed its own parliamentary group . The SPS had a coalition with het United Serbia (Jedinstvena Srbija, JS) party and the Party of United Pensioners of Serbia (Partija ujedinjenih penzionera, PUPS), the latter of which established its own parliamentary group . A conflict between the imprisoned SRS Chairman Vojislav Šešelj, who was on trial by the International Criminal Tribunal for the Former Yugoslavia in The Hague, and its deputy chairman, Tomislav Nikolić, over the signing of the Stabilization and Association Agreement with the EU led Nikolić to resign and create his own Serbian Progressive Party (SNS) in September 2008 . The newly established SNS controlled 21 of the SRS’s 78 former seats in parliament . In October 2008, the SNS sought to demonstrate its center-right political orienta- tion by renouncing the longstanding SRS aim of uniting ethnic Serb-dominated parts of Bosnia and Croatia . Altogether, 23 individual parties were represented in parliament at the beginning of 2009, indicating a much higher degree of fragmentation . This situation led President Boris Tadić to propose higher thresholds for register- ing and retaining political parties, the replacement of the proportional by a majoritarian electoral system, and a reduction in the number of parliamentary deputies 29. On 12 June 2009, the parliament adopted a law on political parties that imposed stricter conditions for the registration of political parties, requir- ing 10,000 signatures of adult citizens every eight years in order to register and to prove the continued activity of the party . Parties of national minorities and parties having at least one elected member of Parliament do not have to renew the signatures every eight years . Trade unions have little influence and are best organized in the state sec- tor of the economy . In April 2009, trade unions organized a demonstration in Belgrade to protest against the government’s austerity measures .30 A tripartite Socioeconomic Council was created in 2005 to facilitate a social dialogue, but has not become a core institution of interest intermediation and economic policy coordination . On 13 May 2009, the parliament amended the law on economic
29 Vera Didanović, Šta je Tadić stvarno mislio, Vreme, 07 May 2009, available at
Market Economy
Institutional Framework
Since 2000, Serbia has established an institutional framework of market competition, but the influence of the informal and state sectors remains signifi- cant . According to the World Bank’s 2008 Doing Business survey, the business environment deteriorated in Serbia relative to 180 other countries 33. Whereas registering property was considered less costly than in previous years, dealing with construction permits became more time-consuming . Entrepreneurial deci- sions are constrained by legal uncertainty, widespread corruption and red tape . On 8 July 2009, the parliament adopted a Law on the Control of State Aid and a new Competition Law, both of which were required to comply with EU competition-policy rules . The new competition law enabled the Commission to fine companies that abuse their dominant position, provided more precise criteria for the definition of relevant markets and strengthened the operational independence of the Commission . The banking system and capital market are differentiated and oriented to international standards, but their dependence on foreign capital makes them vulnerable . In 2007, foreign banks owned about 75 percent of assets in the bank- ing sector . Of the 34 banks operating in Serbia in 2008, the state held a majority in four banks . Foreign exchange denominated and indexed loans comprised 74 percent of total loans in 2008 . The sharp decline fo capital inflows in fall 2008 and the associated depreciation of the Serbian dinar contributed to a rapid increase
31 Zoran Stojiljković, Građani Srbije i demokratija – između nezadovoljstva i nepoverenja i uslovne i oročene podrške, in: Zoran Lutovac (ed .), Birači i apstinenti u Srbiji . Beograd 2007, 9-62, 25 . 32 Ibid ., 20-21 . 33 World Bank, Doing Business 2009 . Washington/D .C2008, . 132, available at
34 International Monetary Fund, Republic of Serbia . Country Report 09/158 . Washington 2009, 35, available at
Agency sold 626 socially owned companies and obtained revenues of approxi- mately 800 million euros . The remaining socially owned companies have not yet been conclusively privatized 37. In December 2007, the parliament adopted a Law on the Free Distribution of Shares in six state-owned companies to citizens as well as to former employees .
Socioeconomic Performance
Serbia’s government is generally committed to macroeconomic and fiscal sta- bility, which however has been seriously challenged by the external shock of the global financial crisis and by more expansive fiscal policies in 2007/08 . Serbia’s current account deficit had already widened to approximately 17 .1 percent of the GDP before the crisis in fall 2008, caused by high capital inflows, strong domestic demand and a relatively weak export performance rooted in the lack of competitive domestic production . In winter 2008/09, capital outflows exceeded the inflows38 . The dinar lost 20 percent of its value against the euro between September 2008 and April 2009 .39 Industrial production and trade declined significantly . Foreign direct investment inflows decreased to approximately 2 .5 billion U .S . dollars in 200840 . At the same time, the inflation rate nearly doubled and reached 11 .7 percent (annual average), which continued to be one of the highest in Southeast Europe .41 High inflation prevented the central bank from lowering interest rates in order to improve access to capital . The general government deficit increased to 1 .9 and 2 .5 percent of GDP in 2007/08, respectively . Since approximately two-thirds of government expendi- tures consist of pensions and public wages based on legal entitlements, gov- ernmental discretion over spending cuts is restricted . Simultaneously, Serbia’s external debt grew further and reached 63 .6 percent of the GDP at the end of 2008, with the private sector debt accounting for more than 70 percent of the total external debt .42 In October 2008, the government appealed to the International Monetary Fund (IMF) for a Stand-By-Arrangement (SBA), which was approved on 16 January 2009 and envisaged a credit of 394 million euros . The deterioration of Serbia’s external and financial environment necessitated a new SBA on 15 May 2009 . The new SBA amounted to 2 .9 billion euros and was extended until mid-April 2011 .
37 Ibid ., 67 . 38 International Monetary Fund, Serbia (above fn . 34), 8 . 39 Ibid ., 4 . 40 European Bank for Reconstruction and Development, available at
To restore the fiscal balance, the government froze all wages and salaries in general government and public enterprises in nominal terms until 2010 . The resources of the ministries, and allocations to ministries, as well as local gov- ernments were cut . Income taxes on dividends and royalties, excise taxes, as well as property and car taxes were increased . Pensions of civil servants were frozen for 2009 and 2010, higher salaries in the public sector were cut by 10-15 percent, and the number of public employees was reduced by 10-13 percent (current level: 60,000-80,000) 43. The recession is expected to cause a drop in the GDP and a reduction of the large current account deficit . In the pre-crisis years of 2007 and 2008, Serbia’s real GDP had grown by 6 .9 and 5 .4 percent, respectively 44. With a gross national income of 9,830 U .S . dollars per capita in 2007 (at current exchange rates), Serbia belongs to the upper-middle income countries of the world and ranks lower than Croatia and Bulgaria, but higher than Macedonia or Bosnia and Herze- govina 45. The period of economic growth through 2008 and Serbia’s relatively effective strategy of poverty reduction had effected a decline of poverty and unemployment rates . According to a survey of living standards conducted in 2007, 6 .6 percent of the population lived below the national poverty line of 8,883 dinars (152 U .S . dollars) per month . Whereas this absolute poverty rate declined between 2002 and 2007, the Gini coefficient of income inequality increased from 30 in 2002 to 37 in 2007 46. The relative poverty rate (60 percent of median consumption per adult equivalent) was 14 .6 percent in 2007 .47 The unemployment rate decreased to 14 percent in 2008, but surveys indicate that the real unemployment rate is lower due to the size of the informal sector . Other indicators of social exclusion have been more negative . For example, the rate of long-term unemployed did not decrease during the economic boom years and the share of long-term unemployed among the total number of un- employed even increased to 81 .2 percent in 2007 .48 This high share indicates a very low mobility of job seekers and a relatively rigid official labor market . Many unemployed persons and individuals who are not accounted for in the official statistics work in the informal sector, which is estimated to comprise
43 Ibid ., 59 . 44 Ibid ., 27 . 45 World Bank, World Development Indicators, available at
Welfare Regime
Although social safety nets do not cover all risks for all strata of the population, poverty is generally confined to unemployed, less-educated and elderly persons . Roma are particularly disadvantaged . Social assistance, pension, unemployment and health insurance schemes compensate for broad social disparities, but these schemes are limited in scope and quality . The replacement rate of net pensions to net wages was 54 .9 percent in 2007 .49 Voluntary private pension funds have existed since January 2006 . The average life expectancy at birth, which can be interpreted as an aggregate measure of health system effectiveness, increased to 71 and 76 years, respectively, for the male and female population in 2006, but remained well below the EU averages 50. Existing long-term care services cover only a small part of the elderly population . In January 2008, the pension systems for employees, self-employed persons and farmers were integrated into a single system in order to improve the administrative efficiency . In May 2009, the parliament adopted a new law on employment and unemployment insurance in order to create a more flexible and competitive labor market .
Sustainability
Environmental concerns tend to be subordinated to economic growth efforts . Serbia’s intensive agricultural production has caused problems of soil pollution and water eutrophication . The infrastructure of wastewater and solid-waste treatment has been neglected for years and requires significant investment . Electricity and heating production relies mostly on lignite and brown coal, which are combusted in outdated power plants that are inefficient and cause significant pollution .51 In May 2009, the parliament adopted a set of environmental laws required for alignment with EU legislation . The laws inter alia refer to chemicals, packaging waste, solid waste treatment, air protection, and environmental protection . The existing laws on environmental impact assessment and on environmental protec- tion were amended . In September 2007, Serbia also ratified the Kyoto Protocol of the UN Convention on Climate Change . However, in October 2008, the EU
49 Ibid ., 113 . 50 Ibid ., 81 . 51 UN Economic Commission for Europe, Environmental Performance Reviews: Republic of Serbia . Second Review . New York, Geneva 2007, 5-6 . 322 Gordana Brusis
Commission noted that the administrative structures required to implement the Protocol were not in place 52. It is uncertain as to whether and how Serbia will be able to effectively tackle this new and ambitious regulatory framework . Both state and private institutions for education, training, research and de- velopment are present . According to the EU Commission, public spending on education accounted to 3 .7 percent of the GDP in 2007, which is well below the EU average .53 Serbia also remained significantly below the average of OECD member countries in comparative studies of learning achievements, such as the Program for International Student Assessment (PISA) 54. The education system is still highly centralized and inefficiently organized (e . g . there is a high number of very small schools) .
Management
In the period under review, three governments held office in Serbia . The first cabinet was led by Prime Minister Koštunica and consisted of the Democratic Party of Serbia, the Serbian Renewal Movement and the New Serbia party . Lacking a parliamentary majority, Koštunica’s government depended on the support of the Socialist Party of Serbia and, in some cases, also the support of other opposition parties . The elections of January 2007 led to the formation of a majority government consisting of the DS and G17 Plus, in addition to the previous governing parties . This cabinet took office in May 2007 and was again headed by Koštunica . After Kosovo’s declaration ofindependence on 17 Febru- ary 2008, the governing parties disagreed over whether Serbia should sign the Stabilization and Association Agreement with the EU and its member states or whether such signing would imply a recognition of Kosovo . The breakup of the governing coalition resulted in new elections that were won by the DS and its allies in May 2008 . The DS-led electoral alliance “For a European Serbia” formed a coalition government together with the SPS . The new government under the leadership of Prime Minister Mirko Cvetković controlled a majority of the seats in parliament but required the support of six deputies representing ethnic minorities .
Level of Difficulty
On the one hand, unresolved statehood problems and the economic, social and political legacies of the Yugoslav wars have burdened Serbia’s path to de- mocracy and the implementation of a market economy . On the other hand, Ser-
52 Commission of the European Communities, Serbia 2008 Progress Report (above fn . 5), 42 . 53 Ibid ., 29 . 54 Boško Mijatović (ed .), Reforms in Serbia . Belgrade 2008, 81 . Serbia 323 bia’s population is relatively well educated and the country’s level of economic development has traditionally been relatively high . Ethnic diversity in Serbia proper and the negative effects of the authoritarian Milošević period, such as a distorted, uncompetitive economic structure and widespread corruption, pose additional difficulties for the political leadership . Radical political actors have continued mobilizing behind ethno-political issues, such as the annexation of ethnic Serb settlement areas in Croatia or Kosovo .
Steering Capability
Successive governments have demonstrated a strong commitment to Euro- pean integration and to the reforms required to fulfill EU standards regarding democratic principles, the rule of law and the establishment of a functioning and competitive market economy . The governing majority demonstrated its capacity to implement fiscal ad- justment measures when in April 2009 the parliament approved several laws to reduce public spending and increase tax revenues . However, numerous structural reforms in education, health care, the judicial system, the pension system and public administration have not yet been implemented . The govern- ment failed to achieve parliamentary approval for the new autonomy statute of Vojvodina . The Provincial Assembly had adopted the statute and submitted it for approval by the National Assembly, as envisaged by the Constitution of 2006 . The right-wing opposition parties and also some DS politicians criticized the statute, claiming that it would pave the way to a federalization of Serbia and a future secession of Vojvodina . President Tadić and most DS politicians, including the DS head of the Vojvodina government, supported the statute .
Resource Efficiency
The Koštunica and Cvetković governments have improved the efficient use of government resources in some respects, but have continued to struggle with widespread corruption, political patronage and nepotism . Governing parties still view ministerial posts and public offices as spoilso t reward their supporters and preserve their loyalty . The Koštunica government of May 2007 was segmented in 21 ministries to accommodate the needs and demands of its constituent parties . The Cvetković government had 27 members and 24 ministries, three deputy prime ministers and one minister without portfolio . This large number of offices was required to reflect the composition of parties supporting the government, but led to redundancies and frictions among the different ministries . Since this 324 Gordana Brusis fragmentation entailed high costs and inefficiencies, President Tadić in May 2009 proposed to reduce the number of government ministries from 25 to 15 or 20 .55 The high degree of segmentation and the lack of a political center of power within the government hampered policy coordination in the Cvetković govern- ment . Key politicians of the smaller coalition parties joined the cabinet of Prime Minister Cvetković and used their ministries to sharpen the profile of their par- ties . For example, Mlađan Dinkić, the chairman of G-17 Plus and deputy prime minister responsible for the economy and regional development, opposed the sale of the oil company NIS to Russia’s Gazprom . In contrast to Dinkić, Prime Minister Cvetković is not a member of the Democratic Party (DS) and thus lacks a strong political basis within the leading party of the governing coali- tion . Political power lies outside the government, with Serbia’s President and DS chairman Tadić . An advantage of this constellation has been that previous conflicts between governments and presidents representing different political positions ended when the DS became the leading party in government . In addition, the require- ments of EU integration have led to improved inter-ministerial coordination . Coordinating bodies for EU affairs were set up at the cabinet and working levels . However, the role of the General Secretariat of the Government is still es- sentially limited to administrative, rather than policy coordination . It does not possess an independent capacity to review policies and monitor the implementa- tion of cabinet decisions . Line ministries do not sufficiently consult with other ministries when drafting their bills, thereby shifting coordination tasks to the political level, overburdening cabinet meetings with essentially administrative work and, as a result, producing low-quality legislation .56 As of January 2009, the State Audit Institution was not fully operational, although the National Assembly had appointed five members to the Supreme Audit Council heading the State Audit Institution in September 2007 . As a con- sequence, the parliament was unable to approve the final accounts57 . An internal audit unit was established in the Ministry of Finance, but other ministries still lacked such units . The 2006 Law on Civil Servants defines the scope of the civil service and dif- ferentiates between political appointees and civil servants . It contains unified principles guiding the civil service, including equal access, the rule of law, neu- trality, performance assessment, professionalism, merit-based recruitment and
55 Didanović, Šta je Tadić stvarno mislio (above fn . 29) . 56 Support for Improvement in Governance and Management (SIGMA) / OECD, Serbia . Policy-Making and Co-Ordination Assessment . Paris May 2008, 2, available at
Consensus-Building
The government and all major political actors refused to accept Kosovo’s dec- laration of independence, but the government defended its position on Kosovo by peaceful and diplomatic means and largely in accordance with international law . For example, Serbia requested that the UN General Assembly seek an advisory opinion from the International Court of Justice (ICJ) on the legality of Kosovo’s declaration of independence . Notably, the government refrained from suing states at the ICJ that had recognized Kosovo . Serbia’s political leadership has not yet fully addressed the republic’s responsi- bility in the wars of the nineties . In 2008, the police arrested the wartime, Bosnian Serb President Karadžić and three other indicted war criminals who were then transferred to the International Criminal Tribunal for the Former Yugoslavia (ICTY) in The Hague . Since their creation in 2003, the Office of the War Crimes Prosecutor and the War Crimes Chamber of the District Court Belgrade have been very active in prosecuting war crimes . According to the EU Commission, trials were conducted against 123 individuals suspected of involvement in war crimes in the territory of the former Yugoslavia 61. However, the Council of Europe’s Commissioner for Human Rights noted that “there is an absence of successful transitional justice processes, such as formal truthseeking efforts, reparations to victims, and the vetting of officials who may be implicated in past crimes . ( . . .) there is a tendency for state institu- tions to diminish the role of Serbia in the conflict”62 .
58 Support for Improvement in Governance and Management (SIGMA) / OECD, Serbia . Public Service Assessment . Paris May 2008, 8, available at
Self-critical accounts of Serbia’s role in the Yugoslav wars remain confined to a narrow segment of urban intellectuals . Cooperation with the ICTY is largely driven by the conditionality of external aid and EU accession, not by a broad- based domestic recognition of the necessity of coming to terms with the past .
International Cooperation
Serbia signed and ratified the Stabilization and Association Agreement with the EU and its member states in April and September 2009 . This Agreement entails the gradual liberalization of trade and the institutionalization of regular political cooperation between Serbia and the EU . Serbia has actively participated in regional cooperation initiatives such as the Central European Free Trade Agreement, the Regional Cooperation Council, the Central European Initiative and the Black Sea Economic Cooperation . In December 2008, the Prosecutor of the International Criminal Tribunal for the Former Yugoslavia declared that Serbia’s cooperation with his office had significantly improved . By granting Stand-By-Arrangements in January and May 2009, the IMF sig- nalled its confidence in the government’s capacity and determination to cope with Serbia’s macroeconomic imbalances and implement fiscal adjustment measures as agreed . In May 2009, foreign banks with subsidiaries in Serbia signed a public statement to express their willingness to sustain specific expo- sures in Serbia 63. Serbia has been less cooperative regarding Kosovo . On the one hand, in No- vember 2008 Serbia agreed to the deployment of the EU’s Rule of Law Mission in Kosovo, provided that the Mission would be status-neutral under the umbrella of UNMIK . On the other hand, the government called upon Kosovo Serbs to boycot the elections in Kosovo and organized municipal elections against the will of the UN administration . Serbia also recalled its ambassadors from states that had recognized Kosovo .
Strategic Outlook
Since the end of the Milošević regime in 2000, Serbia has made impressive progress in political and economic reforms aimed at consolidating democracy and the market economy . Until 2008, these reforms were facilitated by a favor- able international economic environment . The global financial and economic crisis has ended this coincidence and poses a serious challenge to Serbia’s newly established political and economic institutions .
63 International Monetary Fund, Republic of Serbia . Country Report (above fn . 34), 13 . Serbia 327
As domestic savings are not sufficient to replace the missing foreign capital, the restructuring and modernization of Serbia’s economy will be delayed . Ac- cess to capital will become more expensive and difficult, resulting in higher thresholds to new investments . The dramatic decline of foreign trade has hit the competitive sectors of the economy and reduced an important source of revenue . To restore macroeconomic stability, rebalance the state budget and comply with IMF conditions, the government was forced to cut public expenditures and jobs . All these developments are likely to exacerbate existing social and political divisions and increase political instability . In particular, the externally-induced economic downturn tends to weaken the societal basis of support for the Demo- cratic Party and other parties with a liberal, pro-European orientation . These parties that have dominated the government since July 2008 have legitimized political and economic reforms by promising that an international economic and political integration would bolster the wealth of most of the population in a midterm perspective . Moreover, these political actors have also referred to the broad benefits of EU integration in order to justify a Kosovo policy that respects international law and uses diplomatic means . From a Serbian point of view, it is somewhat tragic that the hitherto most democratic political elites in Serbian history had to pay the ultimate price for Milošević’s destructive policies and who bore political responsibility when Kosovo declared its independence in February 2008 . Kosovo’s independence has not only been fully endorsed by its Kosovo Al- banian majority population, but has also found broad international support, with diplomatic recognition by the United States, 22 of the 27 EU member states and many neighboring countries . As the independence of Kosovo does not ap- pear to be reversible without waging another war, Serbia’s political leadership should consider accepting an independent Kosovo and should communicate this acceptance to both the public and the citizens . Losing territory may be bitter for those who associate control over this ter- ritory with national pride and identity . One may, however, question whether controlling territory is still an indispensable feature of nationhood in times characterized by transnational integration, functional interpenetration and multi-layered jurisdictions . Moreover, consolidated democracy, socioeconomic development and European integration all constitute objectives that will be more difficult to reach with a backward and unruly Kosovo . It is, however, important that such viewpoints will emerge and gain ground from within Serbian society and politics . The European Union cannot impose such a change of deeply entrenched notions and beliefs . The EU should there- fore not force Serbia to recognize an independent Kosovo as a condition for EU membership . 328 Gordana Brusis
Rather, the EU should provide a clear roadmap for the accession of Serbia that would link precise benchmarks for Serbia with binding commitments for the Union itself . Such a strategy would reinforce the credibility of EU member- ship for citizens and those political actors in Serbia who have based their own political credibility on the promise of European integration . Full cooperation with the International Criminal Tribunal for the Former Yugoslavia should be one benchmark of such a roadmap, but this condition does not have to be equated with arresting the ICTY indictee Ratko Mladić . If the Serbian authori- ties can prove that they have taken serious efforts to capture Mladić, but have been unable to do so, EU member states should enable Serbia to proceed as envisaged by the roadmap . The pro-European parties that have formed the Cvetković government after the elections of May 2008 will have to continue reforming the state institutions in order to prepare the country for EU membership . These reforms include, in particular, establishing an impartial, professional and efficient judiciary and public administration, as well as effective integrity mechanisms preventing cor- ruption . The governing majority has already managed to prepare the legislative foundations for these reforms, but the government will still have to demonstrate the capacity to implement the new legal frameworks . Strengthening the political basis of governmental authority along the lines suggested by President Tadić can help overcome implementation problems if such reforms are accompanied by improvements to the capacities of the parliament, judiciary and public administration . These institutions should be transformed into a functioning arrangement of checks and balances that serve to prevent abuses of executive powers and increase the rationality of executive governance .