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2001 In Review: Southeastern Europe Reintegrates Into 'European Family'

The past year has been one of noteworthy progress for southeastern Europe in terms of economic recovery and political integration with the West. RFE/RL's Ron Synovitz reports that much of the progress for the region as a whole is the result of reforms made by Belgrade since the ouster of former Yugoslav President Slobodan Milosevic.

Prague, 13 December 2001 (RFE/RL) -- Southeastern Europe saw its share of violent conflict during the past year, including ethnic Albanian insurgencies in Macedonia and southern Serbia.

But NATO Secretary-General Lord George Robertson and European Union foreign policy chief Javier Solana have said they think 2001 could be remembered as the year that saw "the last of the Balkan wars" and the start of the region's reintegration into the "European family."

The ouster of former Yugoslav President Slobodan Milosevic in October 2000 and his transfer to the UN war crimes tribunal in The Hague at the end of June set the stage for significant policy shifts on Yugoslavia by NATO and Western governments.

Carla Del Ponte, the chief prosecutor for the UN's war crimes tribunal, welcomed Milosevic's transfer to the court as marking the start of Belgrade's cooperation with the international community: "The transfer of Slobodan Milosevic marks the real beginning of cooperation by Yugoslavia, and I would like, specifically, to thank [Serbian] Prime Minister [Zoran] Djindjic and the government of Serbia for the key role they played."

But although Milosevic's transfer helped boost Belgrade's ties with the West and cleared the way for substantial aid pledges from the United States, it also brought about a political crisis that saw Yugoslav Prime Minister Zoran Zizic resign in protest.

That crisis was eased when Zizic was replaced by another member of his Montenegrin Socialist People's Party -- Dragisa Pesic.

Pesic has pledged to make the preservation of the Yugoslav Federation his top priority and announced that his main foreign policy goal would be to further reintegrate Yugoslavia into the international community after a decade of isolation under Milosevic.

The issue of sending indicted war crimes suspects to The Hague has continued to haunt Belgrade. In November, Del Ponte told the UN Security Council that Pesic's government and Yugoslav military officials are obstructing the cooperation of Serbian officials with the war crimes tribunal: "Instead of taking a clear stand on cooperation with the tribunal, the federal authorities are doing everything possible to stop even limited cooperation by the [Serb] Republic authorities, who have been most helpful."

Del Ponte went so far as to accuse the Yugoslav Army of harboring indicted war crimes suspect and former Bosnian Serb military commander General Ratko Mladic: "I regret to inform the council that Ratko Mladic is residing in the former Republic of Yugoslavia under the official protection of the Yugoslav Army. As an officer of the Yugoslav Army, General Mladic is said to enjoy military immunity and he is being shielded from both national and international justice."

A new view of Belgrade has clearly emerged during the past year within NATO. Instead of seeing the Yugoslav Army as a potential enemy, the alliance has begun to treat it as a force that can contribute to Balkan stability.

The most visible sign of this policy change came in the spring after simultaneous uprisings by ethnic Albanian guerrillas broke out in southern Serbia's Presevo Valley and across much of northern Macedonia.

In late May, signaling a new spirit of cooperation, NATO said it would allow Yugoslav forces to patrol a 5-kilometer buffer zone around Kosovo for the first time since NATO air strikes in 1999. Ethnic Albanian insurgents had been using the zone as a safe haven from which to launch incursions.

U.S. State Department spokesman Richard Boucher announced the policy shift: "At this point, NATO has authorized Yugoslav security forces to resume security operations throughout the [buffer] zone. The commander of [the NATO-led] Kosovo force will retain overall authority under the terms of the Military Technical Agreement [of June 1999]. But KFOR, the Kosovo forces, are not in the zone. It's a zone that has been demilitarized, and now the Yugoslav forces are coming back in."

The Yugoslav deployments also resulted in the creation of a liaison network with NATO ground troops who, only two years earlier, had been considered by Belgrade as an enemy.

Yugoslav President Vojislav Kostunica hailed the resolution of the Presevo Valley crisis as confirmation that far more can be achieved by working together with the international community than by using the failed military approach of the ousted Milosevic regime.

Riza Halimi, the ethnic Albanian mayor of Presevo, confirmed that most of southern Serbia's ethnic Albanian population is happy that a major battle was averted near their homes: "We are satisfied with this kind of conclusion to the situation. There will be new circumstances after the return of Yugoslav troops in the buffer zone and a larger role for the international institutions. We have successful cooperation with KFOR and the United Nations Mission in Kosovo. And therefore, we have the possibility of reaching a peaceful resolution to the crisis in southern Serbia.

On the economic front, the London-based European Bank for Reconstruction and Development (EBRD) singled out Yugoslavia this year for achieving "the most dramatic progress on structural reforms" out of all the countries of Eastern and Central Europe and the former Soviet republics.

Since Milosevic's ouster, the new Yugoslav government has worked quickly to reestablish ties with financial institutions like the International Monetary Fund, the World Bank, and the EBRD.

International economic sanctions against Belgrade were lifted in January. In February, Yugoslavia launched negotiations for accession to the World Trade Organization and began preliminary talks with the European Union on a Stabilization and Association Agreement.

In March, Yugoslavia granted its first foreign bank license. By May, most non-tariff restrictions on Yugoslavia's imports were abolished. And in June, the IMF approved a $250 million standby loan agreement for Yugoslavia.

Michael Taylor, a specialist on Yugoslavia for the London-based Economist Intelligence Unit, described the IMF agreement as a major achievement for Belgrade: "It's a kind of seal of approval on the authorities [in Belgrade]. The IMF says the authorities are going in the right direction. They've already implemented reforms so far. There are more things they've got to do, but [the IMF is] not saying that these reforms are impossible. If it had been the other way around -- if [the standby agreement] hadn't been approved -- I think that would have been a major reversal for Yugoslavia."

Serbia implemented comprehensive tax reforms in June and adopted a new Western-backed privatization law. Yugoslavia's currency exchange rate system also has been unified. The price controls and subsidies of the Milosevic era were halted by the Serbian government in late 2000.

The Serbian government also has pushed forward with its work on drafts of a new enterprise law, a foreign investment law, and an antitrust law.

But despite the rapid reforms, there are still many problems for officials in Belgrade to tackle.

State- and socially owned firms in Yugoslavia are still plagued by a lack of capital, large ongoing business losses, unclear ownership structures, and budget constraints.

The two-tiered banking sector that has been in place since the late 1980s is in deep crisis. By the end of last June, many of the 81 banks in Serbia and 11 in Montenegro were deemed insolvent. Most bank assets were concentrated in six large, state-owned banks. Five of those were found to be insolvent in audits by the Yugoslav central bank.

The energy sector, one of the areas worst affected by the NATO air strikes of 1999, still has urgent reconstruction needs. And telecommunications services have yet to be liberalized.

The most critical economic issue for Yugoslavia is how to deal with more than $12 billion in debts owed to foreign lenders. Belgrade began debt-reduction talks in November with the Paris Club of government lenders and the London Club of commercial creditors. Ultimately, any decision on a debt write-off is up to those institutions.

But Belgrade this year won support for a large debt write-off from senior officials in international financial institutions -- like the EBRD's chief economist, Willem Buiter.

"There has to be serious write-downs. If ever anything was obvious, then that is," Buiter says. "We're talking about debt forgiveness. [Yugoslavia is] a country that is deeply indebted and simply cannot get out of that situation given the state it finds itself in after 10 years of Milosevic and economic isolation."

Buiter says the ramifications of Belgrade's reorientation toward the West also is having a positive impact on the economies of southeastern Europe as a whole.

The EBRD's latest transition report suggests that, despite ongoing poverty amid a global economic downturn, southeastern Europe is now in a phase of economic recovery.

The rebound was first registered in 2000 after three years of recession and nearly a decade of trade restrictions due to the wars of the 1990s.

The EBRD predicts the final growth figures on southeastern Europe will be strong for 2001 -- at about 4 percent -- largely due to reform progress by Yugoslavia and continuing economic recovery in Romania.