Books on Serbia & Montenegro
% of GDP
Update No: 103 - (28/11/05)
EU opens talks with Serbia
The EU foreign ministers, indeed, decided recently to open economic talks with
Serbia and Montenegro as a precursor to possible membership talks.
The EU's foreign ministers' meeting in Luxembourg recently, granted the mandate
after they agreed that Serbia and Montenegro was ready to negotiate a
Stabilization and Association Agreement (SAA), which would promote economic and
trade relations and aim to regulate issues such as migration and capital
They said, however, that Serbia's hopes of joining the 25-member bloc depended
on the extradition of all war crimes suspects, especially the Bosnian Serb
fugitives Radovan Karadzic and Ratko Mladic, and undertaking substantial
economic, political and judicial reforms.
Serbia welcomed the move and promised to capture war crimes suspects, a top
precondition for the eventual entry.
Prime Minister, Vojislav Kostunica, of Serbia said that his government "is
ready to fulfil those obligations. This is of huge importance for our
country." Serbian officials have suggested 2012 as a possible date for
entry into the EU, long before Turkey, but after Croatia.
Kostunica negotiating Mladic surrender
Kostunica has changed his tune. He used to be adamantly opposed to handing over
war crime suspects to The Hague. But the public mood in Serbia has radically
changed due to the dissemination on TV of a devastating video depicting Muslims
being murdered by Serb troops in the 1992-95 war.
He is negotiating through an intermediary a surrender of former Bosnian Serb
General Ratko Mladic, Belgrade daily "Blic" said on November 16th.
Mladic has been indicted by the International Tribunal for War Crimes in Former
Yugoslavia (ICTY). Serbian authorities claim they have no knowledge of Mladic's
whereabouts, but the ICTY is convinced he's hiding somewhere in Serbia. Court
president Theodore Merron said that Brussels would block Serbia and Montenegro
talks on joining the European Union unless Mladic was arrested by year's end.
Kostunica has taken the warning seriously and "the Hague is now convinced
that he is ready to fulfil the assumed obligation by December 15th, perhaps
sooner," the paper said, quoting unnamed Tribunal sources. According to
"Blic," Kostunica was negotiating with Mladic through a Serbian
businessman with strong ties in Washington, who presented the general an
ultimatum to surrender or to face an arrest.
"Blic" said that negotiations were nearing an end and that the only
outstanding issue was financial protection for Mladic's family in the case of
his surrender. The paper said that Mladic had on several occasions found refuge
in Russia, adding that this route of escape was no longer possible.
Mladic and former Bosnian Serb leader Radovan Karadzic, who is also in hiding,
are accused of war crimes during Bosnia's 1992-1995 civil wars and of
masterminding a massacre of up to 8.000 Muslims in the town of Srebrenica in
Belgrade military commentator Ljubodrag Stojadinovic has said that Mladic told
him on several occasions that he would "never surrender alive."
Stojadinovic said he believed that parts of the secret services, which are out
of state control, were helping Mladic to hide.
EU agreement the top priority
The reformers in Serbia regard the issue of EU entry as Serbia's number one
goal. Serbian Deputy Prime Minister, Miroljub Labus, said that the Stabilisation
and Association Agreement with the EU (SAA) is a cornerstone for Serbia which
will signify that the country has passed half-way from the conflicts and
isolation to full integration into the EU.
Labus said that after concluding this agreement Serbia will have its first
contractual relation with the EU. According to Labus, there are three areas in
which Serbia has to make radical changes, and these are politics, the economy
and the acceptance of EU standards.
As for the politics, parliamentary democracy was introduced in Serbia, but the
system of values which gives meaning to democracy and which is the foundation of
the EU has still not been adopted, Labus said.
The Deputy Prime Minister said that Serbia managed to stabilise and liberalise
the economy, but structural reforms must be conducted, and this does not only
imply the restructuring of public companies.
The purpose of structural reforms is creation of an economy that will be able to
stand competition with economies of other EU countries, Labus said and recalled
that Serbia adopted many laws which were harmonised with EU standards, but now
these laws have to be implemented and institutions for the supervision of that
These changes are necessary regardless of whether we enter the EU or not, the
Deputy Prime Minister said and added that the EU is a partner who will help us
do that more quickly, in an easier way and with less expense.
According to Labus, the most important symbolic act in the accession of a
country into the EU is the abolishment of visas, but for that to happen
Serbia-Montenegro must fulfil a number of conditions, such as the establishment
of integrated border management, signing of readmission agreements with all EU
members, and a single visa regime between Serbia and Montenegro.
German Ambassador to Serbia-Montenegro, Andreas Zobel, said that for Serbia the
SAA will be a foundation on which other elements leading to EU membership will
Honorary Secretary General of the EU Council, Jurgen Trumph, voiced hope that
Serbia will achieve its final goal and enter the EU, although it lags behind
other countries in the region and enters the negotiations later than others.
However, things are easier said than done. The difficulties in Serbia are
enormous, as is attested by the following piece by a local observer:-
Reforming the Inert
By M. Bozinovich
To comprehend the level of faith citizens place in their country, one should
always look at the levels of popularity the domestic currency has among the
citizenry. In the last days of the Roman Empire no one desired the once mighty
Roman coin. In the aftermath of the American revolution people shunned the
central government's Continentals in favour of privately-issued currency... and
in Serbia, ever since the communist revolution in 1945, the captive citizenry
deprived of any other investment options preferred foreign currency sometimes to
the point of awe.
In a recent speech commemorating the World Savings Day, the governor of the
Serbian Central Bank, Radovan Jelasic, acknowledged this "traditional"
Serbian reality with a revealing statistic that the foreign currency denominated
savings rose by 28% in the past 6 months while the domestically denominated
accounts barely moved.
Indeed, increase in savings is a good thing, but the fact that the foreign
currency is winning the popularity contest among the Serbian financial public is
an alarming testament to the faith and confidence citizens have in their own
state and its institutions.
It took the IMF, a foreign supranational outfit, to force moves on the
escalating Serbian inflation and government spending that aids it. The degree of
reform inertness in Serbia is so high that it takes an outsider to prompt
Erosion of Credibility
The credibility erosion of the Serbian national currency is also eroding the
credibility of the Central Bank and its effectiveness in maintaining stable
The Serbian central bank did acknowledge this erosion in May when the
"Monetary Council established that the high level of euroisation limits the
efficiency of the monetary policy measures due to a strong presence of foreign
currency denominated or indexed component in the banks' balance sheets."
The policy prompt for this declaration was to "contain inflationary
pressures" so the Council pulled out the big gun in monetary control - the
Reserve requirement (RR) is a percent of the deposited moneys banks are supposed
to keep in the vaults and not use for lending. The higher the RR the more money
is restricted from being given to the public (decrease in liquidity) whose
reduced spending capacity curbs the level of prices.
In a bizarre move, however, the central bank then proceeded to lower the reserve
requirement on domestic Dinar- denominated bank assets but increased the RR by
3% on foreign currency deposits. "The reduction in the reserve requirement
rate on the dinar basis will produce a release of approximately 1 billion dinars
of dinar liquidity which the banks will then be able to use to finance their
lending activity," said the Press Release from the Governor's Cabinet. The
Council and the Governor apparently forgot that it was the Dinar that was
inflating and not the Euro.
Then, at the end of May, inflation of the Dinar was slowly passing the 10% mark.
Five months later the inflation rose 7% more.
It took the IMF, in the beginning of November, to shake up some sense among the
policy makers in Serbia and prompt the Governor to raise the reserve
requirements on foreign currency deposits to a whopping 39%.
"We did not want to raise the reserve requirement on foreign currency
deposits," recently said the Governor to the Serbian daily Danas but -- in
an attempt to deflect blame for making the correct policy decision -- the
governor adds that "since the IMF insisted on this solution at all
cost" well... the Governor did the right thing.
Granted, Jelasic does not have a clear legislative mandate for his Central Bank
and one is wanton in seeking that among the legal jungle that defines the
Serbian Central Bank, let alone the main staple of any central bank - stable
prices. Since the collapse of the Milosevic regime, it was the force of
personality of the previous governor Mladjan Dinkic, that stabilized the
monetary system in Serbia.
"Nobody in Serbia is interested what inflation means - how corrosive for
the entire economy it is," says Jelasic.
Indeed, the Governor is correct on this point, but what he said recently was
also true in May when a demonstration of a pro-active monetary policy was
possible and could have had substantial impact on inflation.
Without legislative and institutional credibility, the Governor's lack of grasp
of the inflation control has eroded the last vestige of monetary credibility
that Serbia had painstakingly acquired since the fall of the Milosevic regime.
Some even question whether the whopping reserve requirement of 39% that would
freeze any developed economy could have any effect on inflation in Serbia.
Jelasic vows that more of the same could be in the offing. "Theoretically,
the reserve requirements could be raised further," says Jelasic.
Porsche to invest in retail outlet in Belgrade
The Porsche company in Serbia-Montenegro started work on a retail and service
centre in Belgrade by investing 8.5m Euro, ANSAmed reported.
Speaking at the official opening of the construction site, the general director
of Porsche Belgrade, Max Wittefeld, said the 8,000 square-metre centre for the
sale of Audi, Seat and Porsche models, should be completed in July 2006. He said
there will be 70 new job openings in the centre and announced that Porsche will
start the construction of two more facilities in Belgrade, worth 10 million
Euro, in spring next year and employ another 200 people.
Montenegro-Serbia leaders meet to discuss Kosovo talks
Top leaders from Serbia-Montenegro met recently to map out a strategy for the
upcoming UN mediated negotiations on Kosovo's future status, saying the troubled
province cannot become independent. After the closed door meeting, a statement
said that "the principle" of keeping international borders intact in
Europe should also be respected during the Kosovo negotiations, which were
expected to start in the later part of November, New Europe reported.
The Serbia-Montenegro leaders said they would like to resolve the problem and
are open for "a compromise," but added that there should be no
"imposing of solutions" during the negotiations with
independence-seeking Kosovo Albanian officials. The late night meeting was held
in Belgrade and was attended by presidents and prime ministers of both Serbia
and Montenegro. The United Nations, which has been looking after the
administration of Kosovo since NATO's 1999 air war against Serbia, appointed
former Finnish president, Martti Ahtisaari, to mediate the Kosovo negotiations.
The major point of discord continues to be that Kosovo's 90-percent ethnic
Albanian majority wants independence, while the Serbian minority and its leaders
want Kosovo to remain a part of Serbia.