Military

DATE=6/23/2003

TYPE=BACKGROUND REPORT

TITLE=SERBIA MONTENEGRO FUTURE

NUMBER=5-53992

BYLINE=BARRY WOOD

DATELINE=BELGRADE

CONTENT=

VOICED AT:

INTRO: In March 2002, the European Union persuaded Serbia and Montenegro to join in a new, looser federation, intended to forestall for at least three years Montenegro's drive for full independence. But V-O-A's Barry Wood reports from Belgrade that influential Serb leaders are accusing Montenegrin officials of being reluctant to forge close ties, and some say both territories might be better off as separate states.

TEXT: Serbs are beginning to lose patience with their union with Montenegro. Both policy-makers and ordinary people are saying that, the more the Montenegrin government gets, the more it wants. People laugh at the new country's unwieldy name, Serbia and Montenegro, and its license plate designation of 'SCG' (Serbia Crna Gora). Many people are nostalgic for the traditional 'YU' for Yugoslavia.

But more fundamentally, after six years of virtual independence for Montenegro, and the adoption of the euro as its currency, there is growing doubt that the two territories can be economically reintegrated, as required by the agreement mediated by the European Union.

Economist Milko Stimac is the president of the G-17 Institute, which has been a leader in promoting market-based reform. He believes the new federation can not succeed.

/// STIMAC ACT ///

It has no future. The sooner it ends the better it will be. For both Montenegro and Serbia.

/// END ACT ///

Mr. Stimac points to Montenegro's slowness in implementing market-based reforms, and corruption that he says is even more widespread than in Serbia.

He says Serbia is the clear loser in the federation, as Montenegro pays no tax to support the joint state. Even though its population and economy are less than 10-percent that of Serbia, Montenegro wants its officials to get half the country's top international postings.

But the biggest obstacle, says Mr. Stimac, is the difficulty of what he calls economic harmonization, with Montenegro wanting low internal tariffs, while Serbia wants high tariffs to protect its industries and farmers.

/// 2ND STIMAC ACT ///

We need a functional state, in order to have a normal market, with no barriers, no high custom duties between the members of the union, and without undue expense for one member of the union.

/// END ACT ///

Even the European Union, which essentially drew up the federation agreement, is notably less enthusiastic than it was a year ago. A Dutch E-U diplomat who helped prepare the agreement, Willem Blankert, is no longer convinced that the euro currency is good for Montenegro.

/// BLANKERT ACT ///

Economically, it seems to have become a huge problem. Because they have prices in euros, the currency is the euro, and they have 10-percent inflation this year, 10-percent last year, and 25-percent the year before that. So, prices went 45-percent higher in euros. And there is no escape through a (currency) depreciation mechanism. So, it is very difficult to imagine how they can survive, to sell their hotel rooms, to sell their services.

/// END ACT ///

Montenegro's economy is totally dependent on aluminum exports, tourism, and foreign aid. And it has a high and growing trade deficit, which could destabilize its entire economy.

Diplomats privately admit that the Serbia and Montenegro federation agreement was first of all an effort to buy time, to prevent further fragmentation within the former Yugoslavia. The European Union worried that independence for Montenegro would create irresistible pressure for the independence of the Serbian province of Kosovo, something Serbia strongly opposes.

But in Belgrade, many people are talking of the Czechoslovak model, a peaceful separation of Montenegro and Serbia, not unlike what happened in 1993 between the Czechs and Slovaks. (SIGNED)

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