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 You are in: Under Secretary for Political Affairs > Bureau of European and Eurasian Affairs > Bureau of European and Eurasian Affairs Releases > Bureau of European and Eurasian Affairs Remarks > 2004 > March

The Current Situation in Serbia

D. Kathleen Stephens, Deputy Assistant Secretary for European and Eurasian Affairs
Testimony Before the Subcommittee on Europe, House International Relations Committee
Washington, DC
March 17, 2004

Thank you for inviting me to testify before your committee today, Mr. Chairman. I am pleased to have this opportunity to share with you some of the transformations that are taking place today in the Republic of Serbia – to share how far we have come in our relationship, to underscore our continued commitment to a stable and prosperous Serbia and to outline the serious challenges that remain before us.

Just over a year ago, on March 12, 2003, Serbia was rocked by the assassination of Prime Minister Zoran Djindjic. Rather than crumble in the face of this violent attack on the republic’s democratic institutions, Serbian leaders stood firm and fought back by launching a sweeping crackdown on organized crime and official corruption. The investigation into the assassination revealed to the Serbian public a nexus between organized crime, corrupt government officials and networks opposed to cooperation with the International Criminal Tribunal for the former Yugoslavia (ICTY). The public was appalled by the assassination and welcomed the emergency measures instituted in its immediate aftermath, in the belief that Serbia’s leaders were serious about completing the reform process that started with the ouster of Slobodan Milosevic on October 5, 2000.

Unfortunately, the energy and optimism that flourished in the spring of 2003 dissipated over the course of the summer. The Zivkovic government found itself caught up in a series of public controversies and political scandals that eroded public confidence and political support. In November 2003, Serbia’s third attempt to elect a republic president failed due to insufficient voter turnout; a candidate from the extremist Serbian Radical Party stunned observers by capturing almost half the votes cast. Parliament became bogged down in extended debate on confidence motions challenging the government’s leaders. In November 2003, Prime Minister Zivkovic called early elections.

Election Results

Alarming headlines reporting the results of the December 28th parliamentary elections might have led readers to believe that Serbia had returned to the Milosevic era. It did not – but we were concerned. The ultra-nationalist Serbian Radical Party received the largest number of votes, 28 percent of the vote, but not enough seats to form a government. Milosevic’s Socialist Party received only 8 percent. What the headlines failed to highlight was that democratic parties captured more than 60 percent of the ballots cast.

Our analysis shows that the Serbian electorate has remained remarkably stable in the three years since the end of the Milosevic regime. In fact, democratic parties received a larger percentage of the vote in December than they did when the Democratic Opposition of Serbia (DOS) coalition ran against Milosevic in September 2000. The democratic bloc is fragmented, however: as a result, 9 percent of the pro-democratic, anti-nationalist vote (more than 450,000 votes) went to parties which failed to meet the 5 percent threshold necessary to win seats in parliament. Had these parties combined tickets with one of the larger democratic parties, the democratic bloc would have captured 23 additional seats. Under Serbia’s Milosevic-era electoral rules, however, these “lost” seats went disproportionately to the party with the largest plurality – the Radicals. Thus, although the Radicals received approximately a quarter of the vote, it now has a third of the seats in Parliament. One of the first acts of the new Parliament was to correct this anti-democratic anachronism by lowering the parliamentary threshold.

On March 3, 2004, after two months of negotiation, Parliament confirmed a minority three-party coalition government led by former Yugoslav President Vojislav Kostunica. The new government has presented a legislative program that focuses on domestic issues: adopting a new constitution, harmonizing Serbia’s legal framework with EU standards, building state union institutions with sister republic Montenegro, and fighting corruption. Parliamentary leaders have called for new presidential elections in the late spring, so that Serbia will have both a new Constitution and new president by June 28.

The Economy

Many analysts believe that much of the Radicals’ electoral success can be attributed to protest votes – i.e., voters expressing their dissatisfaction with government scandals and little improvement in the average citizen’s standard of living. Polling data confirms that economic issues – jobs, pensions, inflation – are foremost in voters’ minds. Although the economy has been stabilized, growth is anemic and unemployment high. Overall unemployment is 20-30%, but it is as high as 80-100% in some areas -- creating fertile ground for the messages of nationalist and populist politicians. Although price and currency stabilization halted a dramatic rise in poverty during the 1990s, 20% of Serbs live at or under the poverty line.

Current economic data paint a picture of fragile macroeconomic stability, threatened by continued microeconomic weakness and a lack of growth. Key indicators are mixed. GDP may have grown by as little as 1.5% in 2003, somewhat slower than in the previous two years. Although the previous government worked closely with the IMF to successfully stabilize macroeconomic indicators and increase fiscal discipline, non-financial sectors of the economy remain dominated by loss-generating socially-owned enterprises. Lack of jobs is a key source of public dissatisfaction. And, as Serbia has yet to address restructuring of large enterprises, the situation is likely to get worse before it gets better.

Economic reform is always difficult, but it has shown results. The average monthly wage in Serbia has increased from an equivalent of 50 Euros in October 2000 to 164 Euros today. Real wages have risen by 123%. Per capita GDP has increased from less than $1000 in 2000 to about $1940 in 2003. Unfortunately, this is only half of the level it was in 1989.

This Administration’s commitment to economic cooperation is an important part of our overall policy to stabilize the Balkans, including Serbia and Montenegro.. The United States has invested USD 622 million in supporting Serbia and Montenegro’s development, USD 123 million of which has been dedicated to facilitating economic reform. In FY2003, the United States Government provided over $31 million in economic-related assistance to Serbia. Our assistance focuses on strengthening those institutions that will promote and sustain economic reform and the transition to a market economy. Through USAID, we are providing assistance to enact macroeconomic reform, improve bank supervision, strengthen the central bank, prepare for WTO accession, restructure and privatize troubled enterprises, reform tax policies and enhance the business and investment environment. U.S. Treasury representatives advise their Serbian counterparts on rationalizing tax policy, controlling public debt, rehabilitating troubled banks and combating financial crime. We closely coordinate our economic assistance activities with other major donors.

On December 4, 2003, Secretary Powell removed one of the last Milosevic-era sanctions by restoring Normal Trade Relations to Serbia and Montenegro. This created a new opportunity to promote positive economic cooperation as a key pillar of our bilateral relationship. With the restoration of NTR, trade will now depend on continuing progress on economic reforms. We want to increase opportunities and protection for U.S. business, and demonstrate to a skeptical Serbian public the mutual benefits of economic cooperation. In 2003, thanks to investments by American firms including U.S. Steel, Philip-Morris and IBM, the United States Was the largest source of new foreign investment in Serbia, investing approximately USD 900 million. We want to continue and increase U.S. investment in Serbia as it rebuilds and reforms its economy.


Our bilateral assistance to Serbia is tailored to help Serbia build the institutions necessary for an open democratic society to take root and prosper. This assistance to Serbia – USD 100 million in FY04 – represents almost a quarter of the State Department’s SEED budget, reflecting the critical role that a democratic Serbia and Montenegro plays in ensuring long-term peace and stability in the Balkans. In addition to economic reform, this assistance supports democratic governance, the rule-of-law, and independent media. In addition to SEED funds, the State Department also provides assistance to strengthen Serbia’s export and border control programs. We intend to continue to work closely with the Congress to ensure that our assistance package is targeted to support US interests in Serbia and Montenegro.

Certification/ICTY Cooperation

In order for Serbia to succeed, it must meet its international obligations. The most important unmet obligation – an unresolved legacy of the Milosevic era – is that of apprehending and transferring to The Hague those indicted for horrendous war crimes. To that end, for the past four years, Congress has conditioned SEED and other assistance to Serbia, requiring that assistance be suspended by a certain date unless the Secretary of State certifies that Serbia is “cooperating with the International Criminal Tribunal for the former Yugoslavia including …the surrender and transfer of indictees or assistance in their apprehension, including making all practicable efforts to apprehend and transfer Ratko Mladic.”

When Congress first included a certification provision for Serbia in the FY01 SEED budget, cooperation with the Tribunal was virtually non-existent. Serbia has come a long way since then. A total of 23 indictees have gone from Belgrade to The Hague. This number includes two presidents, including Slobodan Milosevic. Serbia and Montenegro has institutionalized procedures for cooperating with the Tribunal through legislation and through the National Council for Coordination with the ICTY, which reviews and responds to requests from the ICTY Prosecutor for access to witnesses and documents. Serbia’s amended Law on ICTY cooperation has made it much easier for government officials to receive national security waivers, allowing them to cooperate with ICTY investigators and testify in Tribunal proceedings. And, since the creation of the state union and the assassination of PM Djindjic in March 2003, Belgrade officials have increased their efforts to locate and arrest fugitive ICTY indictees.

The Serbian government has also created a special prosecutor and court dedicated to war crimes cases. An important test for this new court began on March 9, 2004, with the opening of the trial of seven defendants accused of participating in the deaths of approximately 200 POWs and civilians at the Ovcara Farm near Vukovar in Croatia in 1991. This is only the most recent domestic prosecution of war crimes charges in Serbian courts. Last September, the Belgrade District Court convicted and sentenced four defendants for the abduction and murder of seventeen Muslims in October 1992. The Special Prosecutor is also in midway through the case against a leader of the “Skorpion” paramilitary unit charged with the murder of ethnic Albanians in Podujevo, Kosovo in 1999.

Despite improved efforts by the Serbian government in 2003 to locate and arrest these fugitive indictees, we believe that as many as 16 ICTY indictees spend a preponderance of their time in Serbia. This includes Gen. Ratko Mladic, indicted by ICTY in connection with the massacre at Srebrenica and other crimes, as well as three high-ranking generals whose indictments ICTY made public in October 2003 and who are now living openly in Belgrade. The United States – and the international community – speak with one voice on this: it is unacceptable that these individuals have thus far eluded justice.

Without speaking to Secretary Powell’s upcoming decision, I can say that the Administration is not presently satisfied with Belgrade’s level of cooperation. As a member of the United Nations, Serbia and Montenegro is obligated to cooperate fully with the Tribunal, a UN institution. Cooperation means applying full effort to locate, arrest and transfer fugitive indictees, as well as making witnesses and documentary evidence available to the Tribunal. We are particularly focused on our effort to see Ratko Mladic brought to justice.

As noted earlier, the state union and republic governments have come a long way on ICTY cooperation in the past three and a half years. While we commend Serbia for establishing institutions to facilitate cooperation with the Tribunal, the international community also expects Serbia to render indictees to face justice before the Tribunal. Our expectations extend beyond establishing procedures for cooperation – plainly stated, we are looking for results. With Ratko Mladic still at large, the three recently-indicted generals living freely in Belgrade and twelve other indictees unaccounted for, this Administration cannot be satisfied with the current level of cooperation with the Tribunal.

In the past two months, Secretary Powell, Under Secretary Grossman and Under Secretary Larson have personally pressed home to Serbia’s new leadership the need to resolve Serbia’s outstanding ICTY obligations, including especially transferring Mladic to the Tribunal. I delivered the same message when I met with Serbian leaders in Belgrade on March 4. Cooperation with the Tribunal is the key to Serbia and Montenegro’s future integration into Euro-Atlantic institutions, including membership in NATO’s Partnership for Peace and progress toward a Stabilization and Association Agreement with the EU. We will continue to press this obligation.


Overcoming a legacy of war crimes is not the only challenge that the current leaders of Serbia inherited from the Milosevic regime. Since the conclusion of the 1999 NATO campaign, Kosovo has been administered by the UN Mission in Kosovo (UNMIK). UNSCR 1244 called for the establishment of an interim administration for overseeing the development of provisional democratic self-governing institutions to ensure conditions for a peaceful and normal life for all inhabitants in Kosovo.

The United States government does not support any particular future status outcome for Kosovo. Instead, we are focused on achieving eight standards identified by the United Nations in 2002 as critical for Kosovo's democratic development. These standards are the same we would expect any modern, European society to achieve. The standards address rule of law, functioning democratic institutions, freedom of movement, sustainable returns and the rights of minority communities, the economy, property rights, a dialogue with Belgrade, and the Kosovo Protection Corps.

The United States and our Contact Group partners (UK, France, Germany, Italy, Russia and the EU) have proposed setting a Review Date to evaluate Kosovo's progress towards meeting the internationally-endorsed standards outlined by UNMIK. Under Secretary Marc Grossman rolled out the Review Date strategy with UN SRSG Harri Holkeri and the Contact Group during his visit to the Balkans in November 2003.

The first comprehensive review will occur around mid-2005, and earlier if progress warrants it. If the review is positive, then the international community would be prepared to begin a process -- as yet undefined -- to determine Kosovo’s future status. If the review is negative, we will set a subsequent Review Date. The Review Date process gives shape and focus to the UN-endorsed policy of "standards before status." Its timetable strengthens the will and the ability of the international community and Kosovo to build institutions in Kosovo consistent with international standards for democracy, tolerance and rule of law.

We have not ruled out any future status outcome. But the outcome must be one that enhances regional stability. The leaders and people of Serbia play a major role in this process. A stable, democratic, multi-ethnic Kosovo is in the interest of Serbia and Montenegro and the entire region. Belgrade’s playing a constructive role – for example, supporting the review date process and participating in the Belgrade-Pristina dialogue – is the surest route to ensuring satisfactory resolutions for the issues of greatest concern to the Serbian public: the return of persons displaced from their homes, the security of Serbs living in Kosovo and protection of minority rights. These are also concerns for the UN and for the Contact Group, concern reflected in UNMIK’s Standards for Kosovo.

Serbia hosts the largest number of displaced persons in the region – over 500,000 refugees and IDPs within its borders. Approximately 225,000 of this number are ethnic Serbs who left homes in Kosovo. Although displaced persons have returned to Kosovo at a steadily increasing pace each year since 2000, the overall number of returns is very small. Fewer than 10,000 displaced minorities have returned to Kosovo. Violence against Serbs has declined dramatically since 1999, but the appalling murders of Serbs in Obilic and Gorazdevac in 2003 and in Lipljan in February are compelling evidence that much work remains to be done. We urge all the citizens of Kosovo to cooperate fully with UNMIK, KFOR and the Kosovo Police Service, so that the perpetrators of these crimes can be brought to justice and all residents of Kosovo can enjoy the right to live in a safe and secure environment.

State Union

Just over a year ago, the republics of Serbia and Montenegro redefined their relationship, transforming what had been the Federal Republic of Yugoslavia into the looser state union of “Serbia and Montenegro.” The state union is led by a president and a five-member Council of Ministers responsible for Foreign Affairs, Defense, Internal and External Economic Relations and Human and Minority Rights. All other governmental authority has devolved to the republic governments. Despite the many compromises at the core of the state union structure, differing views about relations between the republics make the future of the joint state uncertain in the minds of many of its citizens.

The republics do agree, however, that accession to the European Union is the key long-term goal of their joint foreign policy. Since the adoption of the state union’s Constitutional Charter in February 2003, both Belgrade and Podgorica have worked to harmonize laws in the two republics so that both are consistent with standards in the EU. Given that the two republics have developed increasingly divergent financial, economic and monetary systems, this has been an arduous process, one that will likely continue for many months.

The European Commission is now conducting a feasibility study to evaluate Serbia and Montenegro’s readiness to negotiate the serious obligations contained in a Stabilisation and Association Agreement, the first step on the path to accession. If the outcome of the feasibility study is positive, the European Commission will initiate negotiation of this contract designed to help Serbia and Montenegro undergo the political and economic transition necessary for a closer relationship with the European Union. The EC has delayed completion of the feasibility study – originally expected in the spring of this year – for a variety of factors, one being Serbia’s record on ICTY cooperation.

Defense Reform

Progress on defense reform has been one of the true success stories for the state union in the past year. Assuming the position of state union Defense Minister after the Djindjic assassination, Boris Tadic immediately undertook a military house-cleaning. He pledged full cooperation with the ICTY, dismissed Milosevic-era generals and senior officers, disbanded the “Military Commission on Cooperation with The Hague” (which, contrary to its name, obstructed cooperation with the Tribunal), and signed an order placing all army and MOD personnel under the obligation to apprehend and/or report any information on fugitive war crimes indictees. Tadic has also implemented a sweeping agenda of defense and security reform, subordinating the military to civilian control for the first time in more than fifty years. Serbia and Montenegro is in the process of adopting new National Defense and Security Strategies, creating a framework to right-size and modernize the military services. These strategies identify NATO not as the enemy but as the objective.

Implementation of these reforms is essential – and we want to help. On May 6, President Bush determined that a bilateral military relationship with Serbia and Montenegro serves the U.S. national interest. We are ready to initiate an International Military Education and Training program to support defense reform in Serbia and Montenegro, as soon as Belgrade signs an Article 98 agreement. We are preparing ourselves for an expanded bilateral military relationship by building up the Office of the Defense Attache at Embassy Belgrade and by engaging state union officials in discussions with our senior military leaders in the region. In November 2003, Defense Minister Tadic and Army Chief of Staff Krga visited AF South. In December, Admiral Johnson returned the courtesy, presiding over the first visit of a U.S. naval vessel to Serbia and Montenegro with a call at the Port of Bar on December 16 and meetings with Defense Ministry and military officials in Belgrade the following day.

On June 19, Serbia and Montenegro formally requested an invitation to join NATO’s Partnership for Peace in a letter to then Secretary General Robertson. Belgrade is aware that two outstanding issues must be resolved before it can be invited into Partnership for Peace: full cooperation with the ICTY and Belgrade’s claims against eight NATO allies in the International Court of Justice. Once these issues are resolved, the United States will support Serbia and Montenegro’s membership in the Partnership for Peace.

Last July, state union Foreign Minister Svilanovic and then Serbian Prime Minister Zivkovic offered to contribute a military unit to an international military operation engaged in the Global War on Terror (GWOT). Although discussions regarding a possible deployment were suspended once parliamentary elections were called in November 2003, we look forward to exploring this option now that the elections are over and republic and state union ministries are being filled. Serbia and Montenegro has also offered diplomatic support for the GWOT, welcoming the fall of Saddam Hussein and offering material support to the new government in Afghanistan.


Milosevic was once described as the first politician to realize that Tito was dead. What we now have is a policy that recognizes that Milosevic is behind bars, that his regime is over and that Serbia is on a new path. Mr. Chairman, even though the challenges that Serbia faces are daunting, we have seen real progress in promoting economic reform and democratic values. There is still work to do. The challenge now is to continue the hard work of consolidating democratic institutions, restructuring the economy and honoring Serbia’s international obligations. We want Serbia to succeed. This is an essential part of our overall policy of promoting Balkan stability. We are watching the new government closely and will judge it on its actions. We now look to the new government to demonstrate its commitment to Serbia’s future. We will be there to assist Serbia if it chooses to continue along the path toward Euro-Atlantic integration.

Released on March 18, 2004

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