EU-Serbia accord seen encouraging investors

BELGRADE – The European Union’s decision to initial a key accord with Serbia will help the country achieve the stability and predictability it needs to attract more foreign investment, officials and analysts said yesterday. The Stabilization and Association Agreement, the first step to EU membership, was long blocked by Serbia’s failure to arrest key war crimes suspects from the Yugoslav wars of the 1990s. The EU announced on Monday it would initial the accord to reflect Serbia’s increased willingness to arrest the fugitives, but would only sign the pact and put it into force once the arrests had been made. «I am convinced that now we can count on more foreign direct investments, on more quality capital that will be interested in entering Serbia, which will secure existing economic development and create more jobs,» Radovan Jelasic, Serbia’s central bank governor, said in a statement. Economist Jurij Bajec said the move «is a signal to investors that they can expect an economic environment in line with that of the EU.» Alberto Cammarata, head of the economic department in the European Commission’s Belgrade office, said the initialing of the agreement was a positive signal to investors but added that the actual signing would bring reassurance. «Then investors will know that Serbia is fully on track toward the EU,» he said. «Investors seek predictability.» Steady growth Serbia’s economy has been growing steadily since 2000, when late nationalist autocrat Slobodan Milosevic was overthrown and liberal market reformers took over. Growth was expected to hit 7 percent by year-end, with foreign direct investment seen at between $2.0 and $2.5. billion. Although respectable, it is far below the record $4.0 billion in 2006, reflecting investor hesitation in the first half of this year, when rival parties haggled to form a coalition for almost four months after inconclusive January elections. The deadlock led some to fear that a repeat election, and a shift to nationalism over the likely loss of the breakaway Kosovo province, would propel the ultranationalist Radical Party to power, slowing or even halting reforms in favor of populism. Millstone The cautious attitude has been reflected in ratings. In July, Standard and Poor’s revised down its outlook to stable from positive, keeping the country’s long term rating at BB-. That same month, Fitch kept its rating at BB- with a stable outlook but noted that political risk «remains a material constraint on Serbia’s sovereign rating.» Jasna Matic, a senior Economy Ministry official, said political uncertainty and instability had long been a millstone around Serbia’s neck and the initialing would «have a positive impact on the credit rating.» Sasa Djogovic, an economic analyst, said the move should not be underestimated, «but one should not have high hopes that foreign direct investment will start pouring into the country.» «Once the agreement is signed, Serbia will have access to EU funds which will secure higher growth,» he told Reuters.