Enlargement Strategy and Main Challenges 2006 - 2007

eplaced by an Office under the Prime Minister. However, the performance of the Office
remains to be tested. The new law on churches and religious organisations does not guarantee
the equal treatment of religious groups. A comprehensive anti-discrimination law is still
lacking and further efforts are needed to promote tolerance. Further efforts are also needed to
prevent torture. The issue of property restitution remains outstanding.
Measures have been taken to promote the participation of members of minorities in the
education system and their representation in public administration. Problems persisted,
however, in the area of information in minority languages. The interethnic situation in
Vojvodina has continued to improve. The situation in South Serbia remains tense. In Sandžak,
incidents have occurred within the Bosniak community. The Government has adopted a
number of Action Plans concerning Roma people. However, their situation remains
precarious. Local integration of refugees, in particular the most vulnerable ones, remains
difficult.
As regards regional issues and international obligations, Serbia has continued to contribute
to regional co-operation and to pursue policies aimed at improving relations with its
neighbours. Progress has been made concerning regional co-operation in the fields of
aviation, transport infrastructure and energy. Serbia has not yet met its international obligation
to fully co-operate with the ICTY, which is a key priority of the European Partnership. The
Serbian authorities participate in the political talks on the future status of Kosovo, launched in
2005 under UN auspices. However, Belgrade has discouraged the participation of Kosovo
Serbs in the Provisional Institutions of Self-Government. Serbia needs to take a constructive
approach in line with the key priority of the European Partnership.
As regards economic criteria, Serbia has made notable progress towards being a functioning
market economy. Stabilisation and reform efforts need also be continued in order to enable it
to cope with competitive pressure and market forces within the Union.
Consensus on the direction of economic policy and reform has generally been maintained in
2005. Economic growth has continued. The current account deficit has narrowed, helped by
recovering exports. Foreign currency reserves have been boosted by strong capital inflows in
the form of privatization proceeds as well as corporate and commercial banks’ foreign
borrowing. Foreign direct investment (FDI) has continued to grow predominantly related to
privatisation. Monetary policy has been tightened and fiscal consolidation continued in 2005
due to cuts in expenditure and strong tax receipts. General government debt has declined.
Tangible progress has been made in pension reform and company registration. Privatisation of
socially-owned companies and of the banking sector has advanced. Preparations for
restructuring and privatisation of state-owned companies have intensified. There was a certain
progress in creating the necessary regulatory framework for network industries. Economic
integration with the EU advanced.
However, inflation and external deficits remained relatively high. Since early 2006, fiscal
consolidation has stopped. The envisaged acceleration of public investment risks jeopardising
further fiscal consolidation and macroeconomic stability. External debt has risen as borrowing
of the private sector has increased. Unemployment has further risen. Greenfield investment
remained negligible. The enterprise sector remained overall weak, also due to lack of
competition in domestic markets and slow progress in corporate restructuring, privatisation
and market exit procedures. The new bankruptcy legislation is not yet applied frequently.
Capital markets remained in an infant stage. State intervention in the economy has remained
prevalent.
EN 44 EN