Serbia 2015

Total score

56.9 change: -0.42

Score and comments

Political Freedom
Free and Fair Elections

In January 2014, the strongest party in parliament – the Serbian Progressive Party (SNS) - called for early elections on March 16, just two years after the previous ones, held in May 2012. The elections ended by an overwhelming victory of the SNS-led coalition (48.4% of the votes, resulting in 158 out of 250 seats). The SNS built a coalition with the Socialist Party of Serbia (SPS), creating a more than four-fifths majority in the Parliament. Those elections could be described as free and highly competitive. The biggest concerns are related to the intimidation of voters by the representatives of the governing parties at some polling stations, to the lack of critical and analytical reporting in the mainstream media (both printed and electronic) and to continuing shortcomings in the

voters’ register. Each governing party since the introduction of the multiparty democracy declined to tackle the problem of the party financing in a serious way, misusing resources of the state institutions and public companies for financing their election campaigns. A law on this matter, adopted in 2010, has still not been implemented properly.  

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Absence of Unconstitutional Veto Players

Authorities in Serbia have effective power to govern without interference of the unconstitutional veto players. However, corruption among the officials, organized crime and very low level of prosecutions by the judiciary creates a space for unconstitutional activities within the state. Serbia declined in Transparency International’s 2014 Corruption Perceptions Index for six places, ranking now as 78 out of 175 countries, because anti-corruption measures adopted by the government still didn’t bring success. Serbian Orthodox Church (SPC) showed in the past that it can have significant influence on public opinion. However, due to scandals by the church high-ranking officials during recent years, the capacity of the SPC to influence is seriously reduced. Police forces successfully dealt

with the nationalist groups in September 2014, ensuring the first LGBT Pride Parade to take place in Belgrade since 2010.  

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Freedom of Press

The freedom of the press in Serbia further deteriorated. Despite adopting three media laws which would streamline the country’s legislation with EU legislation in the course of EU accession, the implementation has not occurred. The state still controls media through the advertisement market. Self-censorship among journalists is still widespread. The Balkan Investigative Regional Network (BIRN) as a source for free and independent media faced threats and attacks by state officials while criticizing the government of the Prime Minister Aleksandar Vučić. He himself labeled the network as “liars” and “spies” who were spreading false information. Hate speech remains a fact in Serbian media, especially in the online-media. Although the general idea of privatizing media is

positive, the way it is done in Serbia does not support expectations for the improvement of the quality of reporting. Media house B92 used to be one of the flagships of the uprising against the Milošević’s regime. Since it was sold to a private investor in spring this year, critical journalism came to an end. It remains to be seen whether Serbia, in this respect, will follow Bulgaria’s or Macedonia’s path.  

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Rule of Law
Independence of the Judiciary

The situation in judiciary remains the most important stumbling block for the rule of law in Serbia. There was no major improvement in 2014 and there hardly would be any soon - several sequential reform attempts proved counterproductive and compromised the very idea of “reform”. Nonetheless, the official “strategy of judicial reform 2013-2018” is still valid and partially implemented. Judiciary is far from independent or efficient. There is a lot of political influence on the courts or public prosecutors. But occasional direct political pressure is near neglect as compared to corruption or criminal or crypto-political control over parts of justice system. Backlog of cases rose to 3 million. Repealed sentences and re-trials are rather a rule than an exception. The usual length of

criminal proceedings is measured in years. Access to justice has been further hindered by the introduction of notary system and attempts to grant de facto monopoly in many fields to the freshly licensed notaries. Following the three months strike of solicitors between late 2014 and early 2015 which had paralyzed the courts, the government had to review the law and level the field for all registered lawyers. As Freedom House noted, the situation in Serbia’s prison is gradually improving, even though overcrowding and inadequate access to healthcare are still serious issues. The Amnesty International acknowledged a small progress being made in prosecution of war crimes.

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Current government of the PM Aleksandar Vučić owes much of their popularity and domination to hopes for corruption-free country which they awoke in 2012. However, previously arrested tycoons did not have their trails concluded. Meanwhile, numerous revelations on the members of the ruling majority showed their conflict of interest, or suspicious ways they had obtained university diplomas or various benefits, or other indicators of direct or indirect corruption. Giant infrastructure projects, as well as management of the major public-owned companies, are kept away from public eye, mainly via contracts with foreign partners whereby parts of the domestic legislation are suspended, via direct government intervention circumventing the institutions in charge, or even via direct pressure

on investigation media or NGOs. Independent regulatory bodies are neutralized - sidelined at best or subject to dirty media campaigns at worst. In April 2015, Transparency Serbia, the local partner of the Transparency International, in their report on the first year in office of the PM Vučić, noticed some improvements, such as enacting of the law on whistleblowers, start of restructuring of some public-owned enterprises, lowering the budget deficit, accelerating the construction permit procedure, or introducing elements of e-government. But the overall conclusion was that majority of promises were not met. Most parts of the adopted anti-corruption action plans were not executed. Ad hoc task forces for various elements of anti-corruption combat were established and disbanded without clear guidelines resp. subsequent evaluation. Most of them failed to deliver. Meanwhile, the government poorly cooperated with independent regulatory or auditing or ombudsman bodies. The amended “professionalization” in the public sector companies was not implemented as stipulated. In 2014, Serbia fell regarding the Corruption Perception Index, ranking as 78th of 175 countries and scoring 41, while in 2013 it was 72nd (of 177), with the score 42.

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Protection of Human Rights

Overall human rights situation in Serbia is stagnant, halfway between the horrible 1990s and the desired EU standards. Disappearances and extrajudicial killings seem to be a matter of the past. But occasional police brutality, arbitrary arrests and ill treatment in custody remain as problems. The conditions at workplace and lack of rights to unionize in much of the private - especially in huge grey economy - sector, child or other forced labour and sex trafficking are worrisome. Freedom of assembly, opinion and expression, highly valued amid memories of the 1990s, is recently often curtailed to undesired critics of government. De facto bans to some gatherings or indirect pressure on media and websites not least hinder the normal political dialogue but also nourish the anyway aggressive

polarization in society. Respect for minority rights is still uneven. While bigger ethnic minority groups such as Hungarians or Bosniaks actively promote their rights through electoral process and through participation in government at various tiers, smaller resp. more dispersed ones such as Albanians resp. Romany still receive just minor improvements. The discrimination of small or new religious communities, of non-Serb orthodox churches and of the bigger of the two Islamic communities, coupled with tax exemption without auditing and immunity and impunity of the biggest church SPC are all due to the obsolete law as of 2006. Overcoming the past is still a painful task. While acknowledging that terrible crimes were done during the 1990s in the name of Serbia or Serbs, officials deny the genocidal nature of the war crimes in Srebrenica in 1995, thus actively sabotaging international efforts in genocide prevention. The area where progress was indisputable is LGBT rights. By mid-2015 it was clear that LGBT Pride rallies would be held in Belgrade each year. Several government officials openly confronted homophobia and cooperated with LGBT organizations. An expected next step might be regulation of same-sex unions, thus providing at least basic socio-economic equality to same-sex couples. Yet another area where Serbia was – more or less rightfully - praised by the EU was the treatment of Syrian war refugees.    

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Economic Freedom
Security of Property Rights

Private property is not adequately protected in Serbia. The main problems within the judiciary system are strong out-of-the-court influences on the judiciary, mostly by persons connected to the political elite, as well as partiality of the courts in their rulings. Enforcement of contracts is very ineffective, due to slow, uncertain and expensive legal processes. Corruptive practices are widespread, including in the judiciary. The practice of a long restructuring process of state owned enterprises (SOE), which are legally exempted from collections from their creditors during the restructuring, seriously restricts property rights. Furthermore, the executive power can pose itself above the rulings of the Constitutional Court, which ruled the above mentioned practice to be unconstitutional,

by a directive that is protecting 17 largest SOEs. Ownership of agricultural land is restricted to Serbian nationals only, but foreign nationals can acquire land by opening a domestic legal entity, thus this regulation affects only foreign natural persons. The new law on conversion of the right of usage of land into land proprietorship is envisaged to make property rights clearer and easier to uphold.

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Size of Government: Expenditures, Taxes, and Enterprises

Size of government in Serbia is excessive, with the government consumption reaching 46.3% of GDP. Lower public revenues led to high budget deficit, which has accumulated in a high public debt of 72.2% of the GDP in 2014, tripling in absolute measures within the last seven years, far above the current fiscal rules limiting the level of public debt at 60% of GDP. Fiscal austerity measures introduced in 2014 were further increased in order to combat one of the highest deficits in Europe (reaching 6.3% of GDP) by a 10% cut in public sector wage bill and pensions. Good fiscal performance could make some of these measures now look obsolete. However, when non-permanent factors are taken into account, there can be no successful consolidation without these measures. Transfers to households, most

notably through the unsustainable pension system (currently there are more people retired than working and paying social security contributions) and subsidies to inefficient state owned enterprises (SOE) make up for a large share of government expenditures. The process of privatization or liquidation of SOEs in restructuring is slow. There has been no success in finding a privatization partner for the renationalized steel mill, which has been operating under losses but cannot receive any government support, as stipulated by the Stability and Association Agreement with the EU. Corporate tax is set at 15% while personal income tax is 10%. The high labour tax wedge of 38.9% is the result of high social security contributions, which is among the main reasons 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.

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Regulation of Credit, Labour, and Business

The business environment in Serbia is not very much oriented toward entrepreneurial activities. Starting a business is an efficient process, being fast and inexpensive, but administrative requirements for business activities are complicated and burdensome. Obtaining a construction permit is a long lasting and extremely expensive procedure, while getting electricity also incurs high costs. Compliance with tax procedures is also burdensome, due to complicated and sometime contradictory regulations and high number of annual payments. The process of licensing is widespread in certain industries, limiting competition and creating rents for license holders. Restrictive regulations of the National Bank regarding international payment operations online are burdensome for the sector of micro and

small enterprises. Labour market regulation rigidities were alleviated by the adoption of the new labour code (the adoption of the law is yet to be transferred to the Index). Working hours’ regulation is flexible, while the duration of fixed-term contracts increased substantially. Changes in severance pay determination led to lower protection of seasoned workers. The minimum wage is still very high, a few percentage points above 50% of the average wage in the country, fostering activities in the shadow economy among older and people with lower education attainment.

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Freedom to Trade Internationally

Freedom of trade is generally upheld in Serbia, which is, alongside Bosnia and Herzegovina, one of the few countries in the region not being a member of the World Trade Organization (WTO), whereby the main reasons for slow accession are non-compliance with the GMO regulations and a dispute with Ukraine on the export of wheat. Its main trade partners are EU countries (most notably Italy and Germany), followed by neighboring countries of the region. The bulk of Serbian international trade is conducted under the SAA with the EU and under Central Europe Free Trade Agreement (CEFTA). The Russian Federation is also a major trade partner, important for being the main energy supplier but also as a market for Serbian agriculture exports. Russian embargo on agricultural imports from the EU in the

wake of political tensions in Ukraine led to a substantial increase of Serbian exports of those goods to Russia, albeit for a brief period of time. Political uncertainty regarding Kosovo hampers trade with this entity, but the ongoing dialogue process facilitated by the EU has improved the situation. Tariffs are mostly low, but tariffs on some agriculture products can be substantial, while regulatory trade barriers persist to make obstacles to free trade. The customs agency burdens trade with complicated procedures and foreign currency regulations for companies are very restrictive. Bad shape of the transport infrastructure leads to high freight cost, hampering trade, with the railroad system being the most detrimental to trade.

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