Serbia 2014

Total score

57.32 change: -0.19

Quick facts

  • 7.16 million
Unemployement rate:
  • 19.7 %
  • 43.87 billion $
GDP growth rate:
  • -1.81 %
GDP per capita:
  • 6120 $

Score and comments

Political Freedom
Free and Fair Elections

Elections in Serbia are generally free and fair. Since there were no national elections in 2013, the country’s Freedom Barometer rating did not change since last year. However, in January 2014 the strongest party in parliament – the Serbian Progressive Party (SNS) had called for early elections to take place on March 16th, less than two years after the last one, in May 2012. Despite this incident, the elections could be described as free and highly competitive. Biased reporting by the media (those under government influence), irregularities connected to the financing of election campaigns, and some reported cases of vote-buying have raised concerns.Hopes are up that the problem of biased reporting could be solved by a media law that was adopted in August this year. This law

sets a deadline for media privatization for July 1st 2015. On the other hand, the problem of party financing has not been considered to be a serious one. A law concerning this matter was passed in 2010 but hasn’t been implemented yet. Vote-buying occurs more or less in the whole Western Balkans region (maybe with the exception of Croatia). The underlying problems are the (previously mentioned) deficient rules regarding party financing and poverty. This makes some parts of the Serbian population on the fringes of society (e.g. the Roma minority) prone to selling their votes. However, vote-buying has so far not proven to be able to influence election results on the national level and remains more of an issue in local and regional elections.

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Absence of Unconstitutional Veto Players

There are no traditional unconstitutional veto players in Serbia. The EU candidate has legal and institutional frameworks in place, which guarantee the independence of the civilian government. Within those boundaries strong interest groups that wield soft powers do exist. One of the most influential ones is the Serbian Orthodox Church (SOC). It`s influence has grown significantly in the last decades. By many considered the cradle of the Serbian national and cultural identity, it is able to influence socio-political processes. The current reformist government, composed of former Milošević loyalists, is making solid progress towards EU membership and away from the ethno-nationalist obsession with Kosovo. Talks between Pristina and Belgrade are continuing and parallel Serbian

institutional structures in Kosovo have been abolished. The Orthodox Church rejects the concept of an independent Kosovo state and is set to disrupt the normalisation process. Recent opinion surveys indicate that the SOC is losing prestige, as a series of unearthed affairs is implicating high-ranking church officials to misconduct and sex scandals. Some analysts suggest that the current reformist government might use those scandals to leverage the SOC in line. Extreme nationalist and ultra-right organisations in Serbia are growing in influence. Old ties to the political elite continue to exist, further strengthening confidence of those organisations. Some have branched out into politics, nearly entering parliament in the parliamentary elections of 2014. The military complies with the rules set by a civilian government. However, it lacks transparency regarding structure, authority, activity and funding of different sectors and secret services. A potential role of military structures in protecting International Criminal Tribunal for the former Yugoslavia (ICTY) fugitives remains unclear. The military is trying to restore public confidence, also by engaging in public relations.

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Freedom of Press

The press in Serbia is partly free. As the Balkan Investigative Regional Network (BIRN) points out, soft censorship “is having profoundly insidious effects on media freedom and on the development of sustainable media markets in Serbia”. The reasons for this judgment which is supported by Freedom House’s findings have been described in last years’ comments: non-transparent ownership structure and a lack of public control leads to self-censorship and biased media which is rather a tool of politics than a watchdog. In the course of last year Serbia has made a small step backwards, dropping from 6,4 in 2012 to 6,3 in 2013.

Rule of Law
Independence of the Judiciary

Serbia`s judiciary is still recovering from a number of sequential, unsuccessful reforms, most of which actually worsened the situation, enhancing instead of diminishing political party control. This branch of government has remained by far the biggest obstacle to the rule of law and freedom. It is derisory, inadequate and displays little separation from the executive. Reforms were unsuccessful also in that they even worsened the access to justice by certain ethnic minorities. Political influence on courts or onto public prosecutors is strong. Leading politicians boast with convictions or charges put against crony businessmen or other highly unpopular offenders as if it was their own immediate accomplishment, whereas they hide behind judicial independence wherever there is public

criticism of inefficient, under-professional, obviously corrupt or biased legal institutions. Somewhat better efficiency in the most notorious criminal cases, at least as regards prosecuting and indicting, was achieved at a high cost of executive power interfering (through back channels) into the work of the bodies in charge. The extent of the presidential pardons and parliament`s amnesty since mid-2012 was huge indeed, which visibly impacted crime rates and their structure. The backlog of cases in most courts, including the constitutional court, is enormous. As many as 82% of citizens (asked by the Transparency International`s Global Corruption Barometer 2013) found the judiciary corrupt, more than for any other state institution. In the Serbia Progress Report 2013, the EU noticed a gigantic backlog of cases, but showed lots of restraint, even bureaucratic approach in commenting the extraordinary political or other social developments in Serbia relevant for the situation in judiciary. Among recommendations, the Judicial Academy was invited to become the mandatory entry point for new judges. According to the EU, impartiality of judges “continued to be broadly ensured”. Nevertheless, hard facts and figures indicated at the return or even upward mobility of a number of judges who had violated professional ethics during 1990s or prior.

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Corruption is among the most often discussed topics. Citizens (as the Global Corruption Barometer 2013 showed) perceived political parties, the judiciary, the public administration, education and health care services, the police, the media and the legislative bodies as the most corrupt. Much of the post-2012 political change - as well as of the electoral success of the SNS in spring 2014 - owed to huge expectations of citizens met by the PM Vučić`s promises to have minimised corruption and brought more integrity and accountability into politics. Yet words still speak louder than actions. Strong political party control over public sector companies, themselves the backbone of the “party-state”, persists. Even the most obvious mismanagement is all too slowly sanctioned.

Details of giant public-private partnerships (in energy, urban infrastructure, car industry, etc.), especially when based on inter-governmental, or agreements with foreign companies, are kept confidential and are declassified only partially and upon public pressure. Despite improvements in public procurement due to implementation of a new law (transparency of procedures, fresh rules for the low-value procurements, publishing the assessed value of procurements and new rules on contracts with same suppliers), there is still plenty of room for increasing transparency. Lobbying is not regulated. Implementation of the law on financing of election campaigns is scarce. The law on whistle-blowing is still in draft status. The executive branch and independent anti-corruption regulatory bodies play the blame game. The legal system needs more consistency and more participation of citizens in the phase of drafting the laws (especially in identification of the corruption-vulnerable areas). Very good news has been the adoption of the new law on media, stipulating the retreat of the government from the ownership in media, coupled with more transparent and scarce – temporary and project-based only – public financing of the broadcasters. Promising - on a longer run though – also are the visible changes in the mindset of the leading transparency-monitoring (and some other) NGOs, who increasingly, however cautiously, accepted liberal approach and rhetoric on combating corruption. However, parallel to that, the “National Strategy for the Struggle Against Corruption”, adopted in 2013, fell short of noticing the links between economic dirigisme and corruption, in spite of the otherwise strong pro-market rhetoric of the current Government. The country`s CPI has, amid all those divergent and turbulent developments, shown considerable improvement, from 39 in 2012 to 42 in 2013, placing Serbia next to BiH. Both are ranking as 72nd of 177 countries of the world.

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Protection of Human Rights

The risk of kidnapping, unlawful killing or disappearance is now low - a remarkable improvement as compared to the 1990s` or immediate post-2000 period. In contrast to fears that had followed their rise to power, post-2012 government leaders promised to respect and advance human rights. That included a promised reform of the security sector, breaking the secret code of silence regarding war crimes across, and unlawful killings within Serbia borders during 1990s and declassifying citizens` files made by secret services since WW2. Explanation for several past extrajudicial murder cases was offered and suspects arrested, but doubts have remained that it was just a tip of an iceberg. For instance, a number of mysterious deaths of conscript soldiers during the early 2000s are still

unexplained. A draft law is expected on opening of the secret files. Restitution of private property continues in spite of sabotage attempts by interest groups within the government. War crimes trials continued, amid new discoveries of mass graves in Serbia and Bosnia. Nevertheless, fears remained over future government policies on human rights, mainly caused by obtrusive leadership and debating style of the PM Vučić and his SNS peers. Arbitrary arrests and police brutality are still a huge problem in Serbia. Whereas the judiciary is devastated (slow, inefficient, biased, corrupted) it has been hard to tell which particular arrests had been indeed arbitrary and who was to blame for keeping in custody people who were later acquitted. Besides, there were cases of ill treatment in custody. As a new disturbing moment, during the spring 2014 flooding there were several arrests due to “spreading false rumors” on the number of casualties via online social networks. Online media who had published disturbing claims about government officials` mismanagement or unsuitability were hacked, but perpetrators were rarely discovered. In spite of the law against discrimination, or because of its inconsistency with other laws, treatment of new or small or alternative religious communities is unequal. Romany, LGBTs and leading human rights` NGO activists are at the top of those endangered: defamed in government-proxy tabloids without opportunity to defend, be cleared and compensated, they subsequently are often attacked, or their premises vandalized. The LGBT Pride rally in Belgrade, as perhaps the key litmus test of the respect of human rights, exactly because it is so unpopular, was year and again banned for security reasons, or it was ordered to stay indoors. In September 2014, it was held, under heavy police protection.

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Economic Freedom
Security of Property Rights

Protection of property rights is at a low level in Serbia. The main problems are deficiencies within the judiciary: courts are usually partial and under strong political influence. This was even deepened after the 2010 judiciary reforms which were pushed through in a non-transparent manner. Another worrisome issue is the lackluster enforcement of contracts (which is slow, inefficient and not guaranteed). Examples range from publicly owned enterprises who do not pay their liabilities within the legal deadline to private companies owned by the politically connected. However, good scores are noted in the field of security level and absence of purchasing restrictions on land and property. High costs of crime to business are still present, especially with crime involved in money laundering.

Furthermore, corruption within the public sector is widespread, including the judiciary. The most affected area are public procurements. It is estimated that one third to one quarter of total procurement expenses on consolidated level is connected to corruption. The new Law on Public Procurement whose implementation began in January of 2013 has provided some improvement in this regard, but not as much as envisaged.

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Size of Government: Expenditures, Taxes, and Enterprises

Government consumption poses a significant burden to private consumption. Active fiscal policy during the recession years raised general government expenditures from 44.8% of GDP in 2008 to 49.9% of GDP in 2012. At the same time government revenues increased only slightly, thus the emerging gap in public finance had to be filled with a high deficit, which stood at 5.7% of GDP in 2013. In the last 6 years (2008 – 2013), Serbian public debt rose from 8.78 to 20.14 billion euros. Rising interest expenses, uncontrolled public administrative and procurement spending, an overpaid and overstaffed public sector and most notably high pension costs will leave government spending at very high levels. Transfers and subsidies comprise a very important outflow of budget funds. Large number of

government owned unreformed enterprises alongside companies in unfinished privatization and restructuring processes, demand high pecuniary supplements to cover high losses. The transfers are usually subject to political influence, nontransparent and unaudited. Corporate and top marginal income tax rates are at 15% (few citizens actually pay it, since it is applied to very high yearly wages only). Low income tax therefore must be accompanied by very high payroll taxes which amount to 47.8% of gross wage and additional 15% capital gains tax. This high tax wedge is the main reason for high shadow economy activities – either working completely without contract or applying only minimum wage only while the rest of the salary is paid in cash. High tax costs of legal business and rigid regulation with complicated red tape further fuels this situation.

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Regulation of Credit, Labour, and Business

Relatively free credit regulation is one of main advantages of regulatory framework in Serbia. The financial system (which is dominated by foreign banks) proved robust to the recession, and is highly integrated with foreign markets although there are still some capital controls in place. Receiving income and direct payments from abroad in foreign currency is still highly controlled. Labor market regulations are very rigid and harmful to job creation. The adoption of the recent labor law is yet to be transferred into the Freedom Barometer Index. It introduced necessary practices, especially in the field of severance pay determination and non-permanent employment. The minimum wage is still very high, a few percentage points above 50% of the average wage in the country, and firing and hiring

regulations are not promoting new employment. Collective bargaining does not represent a high burden to business in the private sector, although the extended validity of collected bargaining remains a problem. Collective bargaining in the public sector involves higher public expenditures, with 30% higher wages on average than in the public sector. Although starting a business alongside tax compliance costs does not provide significant obstacles in Serbia, the business environment is not business friendly due to extremely complicated and slow administrative procedures, very high bureaucracy costs and endemic corruption. An extremely bad example are construction permits, where Serbia ranks 182 out of 189 countries in World Bank's Doing Business report.

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Freedom to Trade Internationally

Trade freedom is at the high level in Serbia. It is supported by the Central Europe Free Trade Agreement with regional countries and Stabilization and Accession Agreement with the EU. Serbia is the only country in the region alongside Bosnia and Herzegovina that is still not a member of WTO. Still, political uncertainty and undefined institutional structure on Kosovo hamper trade with this entity. Tariffs are relatively low, with relatively more liberal regulation barriers. Capital control on other hand still represent obstacle for international trade, mostly in the service sector. Along the way to EU accession, and especially with the implementation of recent the Belgrade - Pristina agreement, it is expected for trade freedom in Serbia to increase in following years.

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