Serbia 2013

Total score

57.51 change: 0.52

Quick facts

  • 7.22 million
Population growth:
  • -0.46 %
Unemployement rate:
  • 23 %
  • 33.7 billion $
GDP growth rate:
  • -1.8 %
GDP per capita:
  • 10600 $

Score and comments

Political Freedom
Free and Fair Elections

Elections in Serbia are generally free and fair, although the local and national elections were set on the very same day in 2008 and in 2012, which gave some advantage to the bigger parties. The electoral process has constantly improved since 2000, although the campaign reporting in media lacks necessary quality and unbiased analysis of the different party’s policies. The greatest problem remains the inadequate reporting on sources and costs financing of the election campaign, despite a law which requires political parties publish a full and comprehensive financial report on the costs of their election campaign and on its financial sources. The influence of money-politics is high. The president, who can only serve two terms, is elected every five years. The members of

the National Assembly are elected for four-year terms. Political pluralism and participation is strong in Serbia, although MPs rarely risk expressing their opinion if it differs from the official one of their political party. The general threshold is 5%, except for the national minorities (0.4% per representative), which could be misused. The government coalition consists of more than 25 parties, due to the proportional election system, in which the whole country makes one electoral unit.

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Absence of Unconstitutional Veto Players

The unresolved issue of statehood for the mostly Serbian population in four districts in Northern Kosovo influences Serbian domestic and foreign policies decisively. These four districts, being officially part of the Kosovo province, harbor shadow businesses and organised crime not completely in range of Serbian forces. Kosovo unilaterally declared independence in 2008. Russia, which rejects the independence of Kosovo, is among Serbia`s most important international allies. In return, Russian authorities and investors enjoy a preferred status in Serbia. Russian companies hold significant assets in Serbia. Russian energy giant Gasprom Neft owns 56% of shares of Serbian NIS, responsible for 9% of Serbia`s GDP and 12% of tax revenues. Serbia is also one of the few European

jurisdictions inclined to cooperate with Russian authorities. Unearthed scandals indicate that powerful interest and business groups are able to influence police, media, the judiciary and legislation. The privatisation of state assets has repeatedly been subject to lack of transparency and manipulation. In 2012, the Serbian government launched a crackdown on organised crime and corruption to aid the country’s bid to join the European Union – leading to the fall of Miroslav Miskovic, one of the region`s most enigmatic business tycoons. In recent years, extreme nationalist and ultra-right organisations have increased their influence and outreach. Under the cloak of Serbian patriotism, some enjoy the support of right-wing political organizations and selected members of the Serbian Orthodox Church (SOC). The influential SOC is often hesitant to condemn acts of violence towards members of the LGTB community. The military complies with the rules set by government. However, the lack of transparency regarding structure, authority, activity and funding of different sectors and secret services gives reason for concern.

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Freedom of Press

The press in Serbia is partly free and its levels have remained stagnant over the last few years. There is widespread self-censorship among journalists. The ownership structure of media is not transparent and politicians successfully and regularly exert pressure on the press to write on behalf of their interest. Hate speech is used in tabloids without judicial consequences. A press council should guarantee freedom of the media, but since the members of the board are chosen according to their political affiliation, the body is not meeting expectations. A draft law on public information and media is being discussed with the aim to bring more transparency in media financing. As the EU’s progress report mentions, the press is still insufficiently analytical and balanced.

Rule of Law
Independence of the Judiciary

The Serbian judiciary is derisory, inadequate and displays little separation from the executive. Several recent attempts at reforms have even worsened the situation, reinforcing rather than removing political criteria regarding both the organization of courts and selection of judges. Legal uncertainty is common, backlog is huge and courts are inefficient and slow. Political influence on courts or onto public prosecutors is strong. Corruption by outside influences - such as by business lobbies or by organised crime syndicates and even by religious authorities - are widespread. A considerable number of solicitors have allegedly joined the corrupt practices in the judicial process. ‘Military departments’ of civilian courts, which had replaced military ones following

the 2005 reform, have still been influenced by the army and secret service. This has hindered, particularly, the prosecution of war crimes. There has been no lustration at all, in spite of the serious breaches of professional codes during the 1990s and prior. In Serbia the lack of the rule of law is the single most difficult obstacle to freedom.

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Corruption is rampant in Serbia. It is mainly confined to the political and administrative sectors, although it is prevalent through the health care and education systems, where it is the most visible and irritating to citizens. At the local level, construction permits top the list of vulnerable areas. Political parties have been the main catalysts of corruption. A partitocratic system is maintained through almost total control of appointments and employment in the (huge) public sector, circumvention of public procurement procedures, nontransparent transfers, donations, sponsorships and advertising. Financing of political party activities is regulated, yet implementation is little more than a facade. Media are a part of the problem due to non-transparent ownership structures

preventing effective de-centralisation, politically aligned oligopolies bipartisan marketing and non-transparent budget transfers to media. The Agency for Combating Corruption started its work in 2010, yet its activities are still sporadic, while occasionally biased. It has created a publicly available on-line database of public officials, including their income and property. The interest of CSOs in the anti-corruption matter is increasing and a government-inspired anti-corruption campaign was launched in late 2012. It led to the arrest of the country’s biggest tycoon. Subsequent effects on political corruption have not yet materialised.

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Protection of Human Rights

In Serbia the risk of kidnapping, unlawful killing or disappearance is low, a remarkable improvement when compared with 1990`s. However, arbitrary arrests are still a huge problem. There are numerous cases of torture and ill treatment in custody. Treatment of refugees and IDPs is poor, similar to that felt by Roma, LGBTs and members of small or new religious communities. Year after year, Gay Pride is banned or kept indoors, for security reasons. Hate speech and vandalism against minority groups or human rights watchdogs is common. Prosecution of war criminals is continuing, albeit slowly, while the law on lustration for human rights abuse during previous (communist or nationalist) autocratic regimes expired without attempts at implementation. There is a high level of

discrimination of women, certain age groups and ethnic minorities in employment. Political partisanship also plays a part in filling public sector jobs, in particular at the local level. Trade union activities are scarce in the private sector, while over-inflated in public sector. Restitution of private property nationalized after 1945, even though lagging behind the overall process of transition, was continuing smoothly during 2012, but slowed down during 2013. During the last couple of years, breakthroughs in fighting domestic violence have been made, mostly due to civil society efforts. However, human trafficking and child labour, including misuse of children for illicit activities, remain a very serious issue.

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Economic Freedom
Security of Property Rights

Protection of property rights is poor in Serbia. Main advantages are good levels of security and an absence of purchasing restrictions of land and property. However, deficiencies of the judiciary system are by far offsetting these modest advantages. Courts are partial and subject to constant political pressure, especially after the introduction of opaque and non-transparent processes of judge selection during the 2010 judiciary reform. Legal protection of private property is poor and enforcement of contracts is slow and uncertain. This is especially the case with government owned enterprises that are late with payment to the private sector, as well as with big corporations that have political backing. Corruption within the public sector is widespread, as well as present in the

judiciary system. It is estimated that between one third to one quarter of total procurement expenses are tunneled into corruption which can total up to 15% of GDP. There is also a high level of costs incurred by business as a result of crime, especially with crime involving money laundering.

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Size of Government: Expenditures, Taxes, and Enterprises

Government consumption is significant burden to private consumption and savings and recent trends are very discouraging. During the recession years, general government expenditures rose from 44.8% of GDP in 2008 to 49.9% of GDP in 2012. At the same time government revenues only slightly increased leaving a huge gap of rising public deficits, which topped at 7% of GDP last year. In the same period of 5 years, public debt rose about 125% in absolute terms. Rising interest expenses, uncontrolled public administrative and procurement spending with high welfare costs will leave spending at very high levels. Very important outflow of budget funds is transfers and subsidies. Large number of government owned unreformed enterprises, unfinished privatization and restructuring processes, squeeze

subsidies money to cover high losses. These transfers are politically subjective, nontransparent and unaudited. Corporate and top marginal income tax rates are at 15%. But only a few pay personal income tax since it is applied to very high yearly wages only. Therefore, taking into account only income tax, the Size of Government score does not provide complete picture. Low income tax asks for exceptionally high payroll taxes which amount to 47.8% of gross wage and additional 15% capital gains tax. Due to high tax costs of legal business and rigid regulation at least 10% of working people are in the gray market, and additional 10 to 15% receive a portion of the wage under the table. Future developments in the score are very vague because of the vibrant political developments.

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Regulation of Credit, Labour, and Business

The main advantage of the regulatory frameworks in Serbia is the relatively easy access to free credit. The financial system is robust and highly integrated, though there are still some capital controls in place. Labor market regulations are very rigid and harmful to job creation. Minimum wage is historically above 50% of average wage in the country, and firing/hiring regulation is very unfriendly to business and new employers. Recently some debate on the topic and subsequent actions were suggested to challenge this problem. Collective bargaining does not represent a high burden to business though it is very present in public sector. Wages in public sector are 30% higher than the private, producing serious distortions to the labor market. Business startup and tax compliance

costs are not significant barriers to growth. Yet the business environment remains harsh due to extremely complicated and slow procedures, very high bureaucracy costs and endemic corruption within both the public and private sectors. A typical example is construction permits, where Serbia ranks 179 out of 185 countries in World Bank's Doing Business Report. If business conditions are to improve, future reforms must address promoting more flexibility in the labor market, increasing efficiency of administration and fighting endemic corruption.

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Freedom to Trade Internationally

Trade freedom is at a high level in Serbia. It is supported by the CEFTA agreement with the region and the SAA agreement with the EU. Still, political uncertainty and undefined institutional structure in Kosovo hamper trade. Tariffs are relatively low, though a bit higher than in the region, but this is annulated with relatively more liberal regulation barriers. Capital control on the other hand still represents a remaining obstacle for international trade, mostly in the service sector. Along the way to EU accession, and especially with the implementation of the recent Belgrade-Pristina agreement, it is expected for trade freedom in Serbia to increase in the next few years.

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