Serbian President Tomislav Nikolic has been in office for just over two months. But his rule is already raising alarm bells in Washington and Brussels over a number of issues.
The latest came this week when parliament confirmed an old Nikolic political ally, Jorgovanka Tabakovic, as head of Serbia's central bank. That move came just days after lawmakers moved to strip away much of the bank's political independence.
The U.S. ambassador to Serbia said the process represented "a failure of the rule of law."
Peter Stano, spokesman for European Union Enlargement Commissioner Stefan Fuele, echoed the criticisms.
"We are concerned about the content of the new amendments to the law on the central bank and also about the process, because it seems that the procedure was quite rushed and the law -- which is a very important piece of legislation -- was not consulted on appropriate levels, including not being consulted with the European Commission," Stano said.
Downgrade
The Standard & Poor's (S&P) ratings agency on August 7 cut Serbia's sovereign-debt rating to double B minus, partly in response to the changes at the central bank and partly because of the agency's negative outlook on the country's economy as a whole. The Serbian dinar fell to a record low in trading against the euro after the S&P announcement.
The new law, which passed on August 4, creates a parliament-appointed supervisory body and gives parliament the power to appoint the bank's top management. Even before the bill passed, National Bank of Serbia Governor Dejan Soskic and Vice Governor Bojan Markovic resigned, complaining that the bank was being politicized.
On August 8, three more members of the bank's Council of Governors -- including council President Bosko Zivkovic -- also tendered their resignations.
Lawmakers from the ruling coalition defended the measure by saying it was intended to increase coordination between the policies of the bank and those of the government.
The legislative changes and the appointment of Tabakovic raised serious concerns that Nikolic is wavering on his stated commitment to European integration.
An economist by training, Tabakovic is a senior member of Nikolic's Serbian Progressive Party, a shrewd political insider selected for a post usually assigned to an apolitical technocrat. She was born in Kosovo and has been associated with Serbian nationalist movements throughout her political career.
Dragomir Jankovic, a consultant with the Vienna-based European Economic Institute, says the developments send a bad signal to investors and international institutions. "Believe me, all international institutions and creditors will look very badly on this because they will realize that the government will control the monetary system, which means foreign-currency reserves and everything else that the central bank does," Jankovic says.
"Second, I am sure this will reflect badly on domestic currency policy, the movement and the stability of prices because the central bank will try to behave in a way that is suitable for the government."
Dmitar Bechev, a senior policy analyst with the European Council on Foreign Relations, argues that Tabakovic's appointment to head the central bank reflects the political constraints President Nikolic faces as he tries to fill top posts in the government from supporters in a party that was largely built around his charismatic personality and the single issue of Serbian nationalism.
"Tabakovic's appointment is yet another example of this, because here is somebody who was his right hand -- and normally these people should be in the cabinet, not in the central bank," Bechev says. "But it means they are short of anybody really to put in all those commanding positions. So he is ready to sacrifice a top party functionary for a position which normally goes to a technocrat and not really to this type of person."
Jorgovanka Tabakovic is the new head of Serbia's central bank.
Tabakovic's selection follows a series of controversial appointments by Nikolic, who assumed the presidency on May 31.
In June, Nikolic named fellow nationalist -- and head of the Serbian Socialist Party of former Yugoslav strongman Slobodan Milosevic -- Ivica Dacic as his prime minister.
Last month, parliament approved a cabinet that included some surprising choices. Perhaps the most surprising was Culture Minister Bratislav Petkovic, a Belgrade pastry-shop owner who is a theater director by training -- and who holds staunch nationalist views.
In September 2011, Petkovic addressed a Belgrade rally in support of ethnic Serbs in Kosovo. "This is not the end of history, you know. We lived through communism and we will live through democracy, so do not despair. We have nothing to lose," he told the rally. "We are at the bottom and our ascent is yet to take place. May God help us."
It is still unclear how the hard-line appointments will translate into policy.
With the first couple months of Nikolic's presidency behind us, it is still difficult to say with certainty, for example, whether his top priority is trying to reassert Serbian control over Kosovo, a former Serbian province that unilaterally declared independence in 2008, or advancing Serbia's bid for European integration and membership in the EU.
EU Hopes
Serbia received full candidate-member status in March, just a couple months before Nikolic was elected.
Rinna Kullaa, a fellow with the Wilson Center in Washington and a professor of history at Finland's University of Jyvaskyla, attributes the uncertainty to Nikolic's inexperience and to the different constituencies he must address.
"Whereas he has expressed a very strong commitment towards EU integration directly to Brussels and to EU leaders, as well as to some other leaders in Europe, sometimes in the domestic press he has expressed views of a different type of commitment towards Kosovo being part of Serbia," Kullaa says.
"So there has been a kind of a fluctuation in his statements, which I think shows that he is new to his job, that he has not had very much experience giving international interviews or talking to the press or with the duties of the head of state."
Analyst Bechev argues that "nationalist posturing" is a feature of Serbia's political landscape and not automatically a cause for concern. The solid nationalist credentials of Nikolic and his coalition government could give him the flexibility to make compromises on Kosovo that other leaders could not make.
"I think that would be really positive because up to now it was mainly the Democrats who owned this pro-European agenda and, of course, the Socialists were in the coalition, but it was very much [former President Boris] Tadic's project," Bechev says. "If the new coalition proves that it is equally committed to being pragmatic on Kosovo in order to move closer to the EU, that would be definitely the positive scenario."
In the meantime, Bechev cautions that Dacic's government -- and Tabakovic's central bank -- have their hands full with an economy on the brink of collapse despite a 1 billion euro ($1.2 billion) International Monetary Fund (IMF) loan program that has been frozen since February over IMF concerns about the country's budget deficit.
Unemployment is about 25 percent and the economy has contracted for the last two consecutive quarters.
"One indicator you might want to look at is the interest rate Serbia is selling short-term bonds on -- it is 13 percent. Which is staggering if you think about the figure," Bechev notes."I mean, for the likes of Spain and Italy, 6 percent is already prohibitive, and here is Serbia trading at 13, which basically tells you what investors think about the economic situation there."
Robert Coalson wrote this story based on reporting from Belgrade by RFE/RL Balkan Service correspondents Branka Trivic and Branka Mihajlovic. Rikard Jozwiak contributed from Brussels and Golnaz Esfandiari from Washington