Serbia Pays High Price for Losing US Aid

Decision to withhold 10 million US dollars may have knock-on effect on the economy and even damage Serbia's chances of joining the EU.

Serbia Pays High Price for Losing US Aid

Decision to withhold 10 million US dollars may have knock-on effect on the economy and even damage Serbia's chances of joining the EU.

American sanctions against Serbia threaten its admission to the World Trade Organisation, WTO, and jeopardise foreign aid and investment and the country's eventual accession to the European Union, bankers and analysts have told IWPR.

On January 14, the US suspended 10 million US dollars of aid to Serbia, saying Belgrade had failed to cooperate with the Hague tribunal.

At the same time, Washington withdrew a number of its officials providing technical support to the Serbian government.

The State Department said it would reconsider its decision if Serbia began to fully cooperate with the tribunal. That implies the arrest and transfer of all outstanding war crimes suspects, especially the Bosnian Serb wartime leader Ratko Mladic.

The US believes the Serbian authorities are able to locate Mladic and hand him over to the tribunal, the State Department said on January 14.

This is the third time the Serbian government has been denied US aid, depriving Belgrade of a potential 39 million dollars over the past few years. The aid was always denied for insufficient cooperation with the tribunal.

The decision will affect aid earmarked for economic reforms such as taxation and admission to the WTO.

Aid to the national airline JAT was also suspended, preventing the carrier from starting direct flights to the US.

Local economic experts maintain the indirect consequences of the US move may include the IMF and World Bank also halting aid to Serbia.

Aleksandar Vlahovic, a former economic minister, told IWPR the loss of 10 million dollars could not be dismissed lightly. The sum represented one-third of the redundancy pay required for workers who will be laid off during the restructuring of large state companies, he said.

Vlahovic predicted that the next US move could be further pressure on the IMF and World Bank to adopt a stricter stance towards Serbia for its failure to fulfil its international obligations.

While the Serbian prime minister, Vojislav Kostunica, made no statement on the move, Boris Tadic, Serbia's president and leader of the opposition Democratic Party, DS, urged the government to come up with a clear plan to solve the Hague problem.

The latest measures of the US government will have an effect on Serbia's citizens, primarily those dependent on the budget, Tadic said.

“I call on the government, which claimed there would be no consequences over failure to cooperate with the Hague, to take urgent measures to prevent further international isolation, economic decline and the impoverishment of our citizens,” he added.

Serbia’s minister for foreign economic relations, Milan Parivodic, said the American decision could adversely affect the republic’s admission to the WTO.

“The formation of a WTO working group for Serbia was scheduled for February 15, but if the US deny support, I'm not sure this will happen,” he said.

Some experts believe the US move will not only deter potential American investors but other multinational companies, as it may increase the perceived risk to their investments in Serbia.

Miroslav Prokopijevic, an economic analyst, told IWPR, “Foreign investors will take such a move on the part of the American administration into account when deciding whether or not to invest capital in Serbia.”

While Prokopijevic said he did not expect the EU to impose sanctions, the punishment meted out by Brussels could be another delay to a feasibility study - the first step for Serbia and Montenegro to take on the road to EU membership - and the beginning of talks on a Stabilisation and Association Agreement, SAA.

Prokopijevic concluded by putting the total potential damage to Serbia at several hundred million, or even a billion, euro.

He warned further that any delays on meeting the country's obligations toward the tribunal may lead to a collapse of the country's macroeconomic stability.

“If this were the case, no one should be surprised if euro then rises from 80 dinars [to 1 euro the current exchange rate] to 200 dinars,” he said.

Budimir Kostic, president of Raiffeisenbank bank, the first bank established in Serbia with 100 per cent overseas funds, said the government needed to act quickly to keep foreign investments flowing.

“The most important thing is to avoid any further deterioration of the existing situation,” he said. “If this were to happen, it would be a bad signal not only for American investors but those from big European countries.”

Some government ministers initially tried to minimise the significance of the American measure, however.

“US pressure was out of proportion,” Predrag Bubalo, economic and privatisation minister, said. Vladeta Jankovic, Kostunica’s adviser on foreign policy, agreed that the situation should not be dramatised.

Miroljub Labus, deputy prime minister, recently appointed as Serbia’s main negotiator on EU accession, told IWPR that all sides were exaggerating the consequences of the move.

“This decision is not the end of the world, as some in the opposition want to portray it,” he told IWPR

“But it should not be ignored. The indirect effects are more important from the direct ones. But I am sure the American administration would not block a single agreement with international financial institutions.”

Labus told IWPR his greatest concern was the impact of the US move on Serbia’s international standing, which may influence other negotiations.

“Full cooperation with the Hague is not only required for us to get American help,” he said. “It represents the pre-condition for a positive outcome to the feasibility study to join the EU.”

Labus said that if the government was to fulfil its goal of joining the EU by 2012, “ we have to get a positive feasibility study from the EC in March”.

Thus far, however, a big question mark hangs over Belgrade’s plans to move ahead towards EU accession.

One negative sign was the decision this week of the EU High Representative, Javier Solana, to cancel his visit to Belgrade, citing Serbia and Montenegro's failure to move forward on cooperation with the tribunal.

While Labus was reluctant to discuss what he called the worst possible scenario, meaning a decision by Brussels also to impose punitive measures, he admitted that if this happened, his reformist G17 Plus party would leave the Kostunica government.

“If G17 Plus has no chance of influencing the European integration of our country, there is no reason to take part in power, either,” said Labus.

Dana Popovic, economics professor at Belgrade University, told IWPR that no wise politician should think of clashing with such a powerful country as the US, on which the financial and political future of his own country depended.

Although the US Ambassador to Serbia and Montenegro, Michael Polt, said the US is ready to reverse its decision on aid in a short time if Serbia meets its obligations to The Hague, Popovic does not believe this will happen.

“Reluctance to cooperate with The Hague... is the only element that distinguishes the DSS [Kostunica's Democratic Party of Serbia] from the other democratic parties,” she said.

If Kostunica did start to cooperate with the tribunal, she added, his minority government might fall, as it would lose the support of the anti-Hague Socialist Party of Serbia, led by Slobodan Milosevic.

“Even if Kostunica wanted to be different, objective circumstances won't let him do it,” she concluded, “so the vicious circle continues.”

Milan Culibrk is a journalist with the Novi Sad daily Dnevnik.

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