05 June 2007

Notes on a Russian overture

Aeroflot’s interest in buying Serbia’s JAT Airways is ultimately about European business, not murky geopolitics.

By Eric Jansson
Published by BIRN's Balkan Insight, 5 June 2007

With Kosovo’s political future up for grabs, a common temptation is to view every Russian overture toward Serbia through the lens of geopolitical intrigue. This temptation persists in business as in politics, since successive Serbian governments since 2000 have retained state ownership of large public enterprises, thereby preserving direct state influence over a giant portion of Serbia’s economy.

What does one make, then, of the overtures presently being made by Aeroflot, the Russian state-owned airline, toward its Serbian counterpart, Jugoslovenski Aerotransport, better known as JAT?

Returning from meetings on Russia’s Black Sea coast, Velimir Ilic, Serbia’s infrastructure minister, last week delivered the news: not only does Aeroflot hope to purchase JAT, it promises to invest lavishly, pay off the Serbian carrier’s sizeable debts and – here’s the political miracle – maintain JAT’s existing workforce of 1,700 employees.

The deal is not done, only proposed, but from the perspective of government ministers in Belgrade it must look sweet. Privatisation of public enterprises is on their agenda, but, with labour unions unwilling to give significant ground, the way forward looks difficult.

A job-saving deal over JAT could prevent some unneeded headaches while helping to preserve some of the political capital Serbia’s new government will need if it intends to move forward with the more urgent restructuring and privatization of bigger public enterprises like Elektroprivreda Srbije, the power utility, and Naftna Industrija Srbije, the oil company.

So, undoubtedly from the Serbian side, politics is in play – though much less Kosovo than the state budget.

However, to view the proposed deal as seen by Aeroflot and its owner, the Russian state, one must look beyond Serbia and the Balkans to the evolving dynamics of European economy, paying particular attention to the fast-changing airline industry.

Here one finds a dizzying variety of factors in play. These include the underperformance of big, traditional airlines based in slow-growing western European economies; the European Union’s “open skies” containment of its own most dynamic competitors; the novel reality of competition between Russian airlines operating internationally; the increasing scarcity of “virgin” markets in which emerging international competitors can establish new hubs; and a regional market left exposed by the failure of Balkan airlines to establish dominant market share in southeast Europe.

First, a look at big, underperforming western airlines – specifically Alitalia, in which the Italian state holds a 49.9 per cent stake. Alitalia is ailing, and Rome wants out. The Italian government aims to privatize 39.9 per cent of the carrier, if not its entire stake. Aeroflot, by contrast, is currently buoyed financially by booming demand for air travel in a swiftly-growing Russian economy, and in Alitalia it sees for the first time an opportunity to expand westward through acquisition.

For Aeroflot, an Alitalia deal would utterly dwarf any deal with JAT. Aeroflot’s fleet of 92 aircraft is smaller than Alitalia’s fleet, yet almost seven times bigger than JAT’s. Both Aeroflot and Alitalia are members of the powerful air carriers’ SkyTeam alliance, in which their combined capacity would be formidable.

With the Balkan market placed geographically between Moscow and Rome, Aeroflot as an owner of both Alitalia and JAT would be well positioned as a powerful force in Balkan air travel, internally and externally.

Under such circumstances, Aeroflot would be an indirect beneficiary of the conservatism and protectionism that, while fading, still characterises the western air industry.

Twelve months ago, the European Union signed a deal with countries of the western Balkans, setting in place preliminary agreements to establish a European Common Aviation Area, including non-EU member states, by 2010. However, the EU stopped short of extending its “open skies” regime to the western Balkans, even as it extends it to markets as far afield as the United States and, potentially, Japan.

The consequence is less competition in the Balkan skies, including non-entry for the EU’s most dynamic competitors, the discount airlines, some of whom have lobbied Brussels unsuccessfully for equal-terms access to the Balkan region.

In such a market, Aeroflot, a conservative company itself, sees a chance to compete – and compete it must, for other Russian airlines are pushing it to do so.

Last month AirBridge, a consortium led by Boris Abramovich, chief executive of KrasAir, a major Russian carrier, completed its purchase of Hungary’s indebted national carrier Malev. The purchase will give KrasAir a vital springboard for competition in central Europe, which Aeroflot thus far lacks.

Yet, with a western “outpost” in Budapest, KrasAir will find itself pressed hard by big EU airlines, for Hungary is “open skies” territory. By contrast, opting to compete from Belgrade, Aeroflot could hope to benefit comparatively from weak competition in the immediate surrounding region. Most major European carriers run just one route in and out of Belgrade, and none compete for the small but fast-growing Balkan market.

With Belgrade as a regional hub, an Aeroflot-owned JAT could be expected to exert greater commercial leverage than any other carrier in the region, while exploiting international outlets as well.

What’s in it for Aeroflot is money and market share, pure and simple. If such a deal goes through, Belgrade’s romantics may well speak of Orthodox brotherhood, but once again they will have lost the plot.

02 June 2007

Life on the amputation waiting list

By Eric Jansson and Neil MacDonald
Published by Financial Times, 30 May 2007

Even in Serbia’s sharpest moments of division, one idea seems to unite the country. “The only issue we can almost completely agree on,” says Slobodan Milosavljevic, a government minister from the pro-western Democratic party “is that Kosovo is an integral part of Serbia and that it has to stay Serbian territory.”

Unfortunately for this overwhelming majority, which comprises Serbia’s pro-European Union reformers, ultra-nationalists and everything in between, much of the rest of the world disagrees.

This year, members of the United Nations Security Council aim to forge an agreement on the “final status” of Kosovo, a breakaway province of 2m people. While international negotiations have rolled on, many people on the ground – Kosovo’s ethnic Albanian secessionists included – are beset by feelings of powerlessness and drift. “Kosovo is poisoning the political atmosphere,” says Dejan Anastasijevic, one of the few Belgrade journalists to have backed the notion of “supervised independence” being advanced by the UN’s special envoy for the province.

Kosovo has been occupied by Nato since 1999, when the western military alliance intervened to stop the former Yugoslav regime’s persecution of the province’s 90 per cent ethnic Albanian majority. The intervention triggered an escalation in which thousands perished and hundreds of thousands fled as refugees. The UN has since overseen the province but struggled to resolve ethnic tensions that continue to flare, frequently against Serbs, and most disastrously in a three-day pogrom in 2004.

Because the previous Security Council deal on Kosovo, Resolution 1244, reaffirms former Yugoslav borders, Belgrade argues that there is no legal basis for imposing independence. Yet because Nato intervened on the ethnic Albanian side and the US and other countries have issued veiled endorsements of independence, Kosovo’s one-time guerrilla leaders likewise consider their goal within reach.

International debate over the province deprives both sides of a way to break the deadlock. Earlier this month, Sergei Lavrov, Russia’s foreign minister, reiterated Moscow’s view that the proposal advanced by Martti Ahtisaari, the UN envoy and former Finnish president, was “unacceptable”. Whether Russia, which publicly sympathises with the Serbs, would use its veto in the Security Council to block a resolution permitting independence remains to be seen. But western diplomats, who once doubted such a scenario would arise, are no longer sure. Vladimir Putin, Russia’s president, showed little flexibility this month at an EU-Russia summit and a bilateral meeting with Condoleeza Rice, the US secretary of state.

Western diplomats have raised the possibility of a breakthrough “within weeks”, but deadlines over Kosovo have repeatedly slipped before. The six-nation Contact Group consisting of the US, Russia, Britain, Germany, France and Italy pledged to resolve outstanding status issues in 2006, warning that postponement would increase the risk of renewed bloodshed.

Bratislav Grubacic, a Belgrade-based political commentator, says a return to war is out of the question. “Serbia does not have the capacity to go to war. We have an army of 30,000, under equipped, and the police will not go either.” Yet this does not mean Belgrade lacks leverage. “Serbia can be a factor of destabilisation by being stubborn, prolonging the situation and provoking the ethnic Albanians, so Serbia can say, ‘look, they are to blame’,” Mr Grubacic says.

Some analysts predict a surge in violence even if the ethnic Albanian majority is granted “supervised independence” – which in practice could mean a transition to eventual independence with strict political oversight, an extended Nato-led military presence and policing under the European Union, resembling the international regime in Bosnia-Herzegovina.

Some Serbian government ministers imply that “maximal autonomy”, sometimes described as “everything but a seat at the United Nations” for Kosovo, is the only way to avert bloodshed. “What we are talking about here is one logical solution, and another one that is against international law, against elementary economic and political logic, and that some countries are trying to impose,” says Aleksandar Popovic, a government minister from the prime minister’s conservative Democratic party of Serbia.

“You know, the 1938 Munich Agreement was also imposed. Part of a democratic country was removed from it by the decision of some other players, and they said it was because we would have peace, and you remember what happened later. I do not see a better parallel.”

Kosovo’s ethnic Albanian leaders refuse to alter their position that Serbia, through the former regime’s cruel treatment of ethnic Albanians before and during the war, lost the moral rights to the province. They decry Belgrade’s “cynical” citations of international law.

Optimists hope relations between leaders in Belgrade and Pristina, Kosovo’s provisional capital, will improve after an outcome is determined. Last year tensions over another sensitive secession died down after Montenegro voted to dissolve its political union with Serbia. But Montenegro was a separate republic before it broke away. Kosovo remains legally a Serbian province. despite its UN administration and Nato occupation.

Partition could yet emerge as a compromise option, but only with further negotiations under less restrictive terms, some analysts say. Such a move would introduce additional complexities, likely prolonging the debate further. Western diplomats warn of endless Serb stalling, while Serb negotiators insist that “serious talks have not yet happened.”

A siren song in Europe's 'ecological black hole'

By Eric Jansson
Published by Financial Times, 30 May 2007

If planners in communist-era Yugoslavia had prized public health over industrial might, perhaps they would not have built a massive oil refinery, petrochemical complex and fertiliser plant upwind from the humble city of Pancevo, 20 km north of Belgrade.

If Nato, when it bombed Serbia in 1999, had prioritised the protection of Pancevo’s civilian population above the destruction of these facilities, perhaps it would not have smashed them all at once. The resulting infernos unleashed what local residents grimly quip was like a “science experiment” of intermingled toxins, wafting into town and seeping into the nearby Danube river.

But the 75,000 residents of Pancevo and 45,000 in surrounding villages must live with the toxic legacy of their 20th century as it is, not as they would wish it to be. Many are determined that the current century should be kinder to them. Hence, green activism – which barely registers a blip elsewhere in Serbia – is locally on the ascendant.

Few people in the Balkans have campaigned more justifiably for an environmental clean-up. Last year a survey commissioned by the European Commission and the Council of Europe called Pancevo “the ecological black hole of Europe”.

In January, an air quality study conducted by the Italian National Research Council’s Institute for Atmospheric Pollution found that benzene levels in Pancevo’s industrial zone were 10 times greater than the European Union limit of five micrograms per cubic metre of air.

Residents complain of physical suffering. “Sometimes you feel like your stomach is upside down, you have a headache, you’re slow, drugged,” says Nenad Zivkovic, a reporter for Pancevac, the city’s weekly newspaper.

Nonetheless, local campaigners say they have struggled to persuade the government that their plight is urgent. They disagree with political leaders in Belgrade on how best to measure pollution. Outside interventions such as the Italian study have so far failed to bring the two sides into full agreement.

Aleksandar Popovic, the Serbian government minister in charge of environmental affairs until earlier this month when he switched to energy and mining, says Pancevo has created “its own rule” for measuring pollution, contradicting standard EU methods the government prefers to observe.

Where Pancevo’s emergency warning system measures hourly averages of pollutants, including benzene, EU limits are based on annual averages. In Pancevo’s urban zone, the annual average benzene contamination last year was almost nine micrograms per cubic metre – excessive but still within the EU’s limit for industrial zones, says Mr Popovic.

“Benzene is carcinogenic only if you are exposed to a very large amount over a very large amount of time, years and decades. So we can go through 120, 160, 1,000 [micrograms] inhaling it briefly, and nothing will happen to us,” he says.

Local activists are unmoved. Zoran Stanizan, a high school teacher who has spearheaded a series of public protests, says that recent hourly averages have exceeded 220 micrograms per cubic metre, a level considered seriously unsafe by residents. Under such conditions, “the clouds of pollution sometimes look like British fog”, he says.

Mr Popovic and other ministers assert that Pancevo’s environmental clean-up has moved forward with remarkable speed. For example, all but 19 of the oil refinery’s formerly leaky 140 storage reservoirs, which the government calls the main source of unwanted emissions, have been rebuilt, air tight. Yet state officials receive little credit for their efforts, locally.

Instead, they have been hit by efforts to shame them into faster action. Last November, when Boris Tadic, the Serbian president, made a rare appearance in Pancevo, local officials sounded the city’s emergency warning sirens upon his arrival. The incident placed the president in an awkward position, but Mr Stanizan claims it yielded a flurry of positive attention from public officials, including a fresh visit from Mr Popovic and money for emergency repairs.

Much work remains to be done. But, if nothing else, Pancevo’s siren story shows that some Serbian citizens, arguably Europe’s gloomiest cynics, have started to believe again that they can directly influence their elected leaders.

Doing business in Serbia's unpredictable climate

By Eric Jansson
Published by Financial Times, 30 May 2007

For one nervous moment earlier this month, Vuk Hamovic, one of Serbia’s most successful private businessmen, thought political risk might force his company out of the country. Energy Finance Team (EFT), his electricity trading and investment group, chose at the end of 2000 to locate its trading floor and largest office in Belgrade. The move marked a moment of personal triumph for Mr Hamovic.

Based in London through the 1990s, he had helped bankroll Serbia’s democratic opposition under the regime of Slobodan Milosevic, the former Yugoslav president. The democratic bloc’s sudden ascent to power in October 2000 signalled Mr Hamovic’s moment to invest in his native country.

EFT has since grown quickly. Now operating in 17 central and east European countries, it posted turnover of almost €600m in 2006.

But when power-sharing negotiations within Serbia’s “democratic bloc” faltered and ultra-nationalists appeared poised to re-enter government, Mr Hamovic and his colleagues drew up emergency plans that would have moved EFT’s trading floor from Serbia to Hungary. If ultra-nationalists had taken control, “we would have packed our bags and gone,” he says.

Risks to EFT’s operations would have been acute, since it is feared that an ultra-nationalist resurgence would raise the threat of international sanctions. “Even a 48-hour blockage could have triggered defaults on key contract obligations, with huge implications,” says a company spokesman.

It never happened. Risks vanished when Serbia’s democratic reform parties cut an 11th-hour deal blocking the ultra-nationalists from power, under intense diplomatic pressure from the US and the European Union.

Yet EFT’s flash crisis of confidence provided a stark reminder of how unpredictable Serbia’s investment climate remains, despite the country’s surging economy. Serbia’s reformers have clung to power since 2000, but they have been divided throughout by competing visions and bitter partisan rivalries. Amid the infighting, economic reforms have sometimes raced forward and sometimes stalled.

Few companies have felt compelled to consider leaving altogether, as EFT did. On the contrary, investors’ interest is growing quickly as Serbia consistently registers brisk economic growth while showing plenty of capacity for more, even by east European standards.

The ultra-nationalists’ brief chance at power was anomalous – many big investors ignored it – and the market’s confidence rose again when it passed.

However, many companies find themselves stymied by failures of state officials to adhere to timelines for the conception and introduction of reforms. Political wrangling frequently stands in the way of faster economic growth.

A prime example is the restructuring and privatisation of large, inefficient public enterprises, none bigger than the state-owned oil company Nafta Industrija Srbije (NIS) and electricity utility Elektroprivreda Srbije (EPS). Action on both was held up for years under the last government of Vojislav Kostunica, which focused more intently on Kosovo’s status and constitutional reform before calling inconclusive early elections that extended the delay.

With Kosovo’s status up for grabs this year, the government’s primary focus is likely to remain elsewhere. But investors still regard restructuring and privatisation as an important opportunity and an important test for the new government.

Mr Kostunica is promising to act. The prime minister has announced plans to attract new investments worth €3bn to the energy sector by 2010. A large portion of this sum is anticipated in the form of privatisation revenue from NIS, while one-third will cover construction of a new gas pipeline. Restructuring of EPS is likewise to go ahead, as should privatisation of big state-owned insurers.

Branko Pavlovic, a former privatisation chief under Mr Kostunica who now advises trade unions on privatisation issues, predicts the government will bide its time. NIS and EPS together employ about 80,000 workers. Although their unions officially profess support for privatisation, as Mr Pavlovic says he urges them to do, he also claims that union officials are poised to resist “realities of privatisation” such as slow wage growth.

A clash with these big unions will give government officials an excuse to avoid effective restructuring and privatisation of the big state-owned companies, Mr Pavlovic says.

“They will spend as much time as possible not doing it, and they will try to maintain as much control as possible.” This is because NIS and EPS are not only companies but patronage machines, each providing offices for “more than 1,000” appointees, typically selected along party lines.

Investors hope more pertinent market criteria will determine the fates of NIS, EPS and other big state-owned companies. But some acknowledge that the government must proceed with care. For example, Mr Hamovic, who insists that EFT has no interest in buying EPS despite persistent rumours, argues that the electricity utility cannot be effectively restructured until electricity prices are allowed to rise closer to international market levels. “There are no overnight answers,” he says.

Serbia's economy shows plenty of room for improvement

By Eric Jansson
Published by Financial Times, 30 May 2007

Pedestrians in the underground walkway beneath Terazija, one of downtown Belgrade’s busiest avenues, stroll past one of Serbia’s most unusual retail ventures. Hangup, a minuscule but stylishly-appointed shop, is just big enough to accommodate a shop assistant, perhaps two customers and Hangup’s merchandise. It specialises in one thing only: wooden coat hangers.

“I buy my coat hangers there. I think everyone does now,” says Danica Popovic, a liberal economist at the University of Belgrade.

As elementary as Hangup’s business is, Mrs Popovic says that the peculiarities of Serbia’s post-socialist economy play a role in ensuring its survival. Where else in Europe can a hyper-specialised retailer of a low-priced item hope to survive in a busy town centre location? One factor is Serbia’s uneven application of bankruptcy law to larger companies, says Mrs Popovic. Robna Kuca, the Yugoslav “socially-owned” retail chain where Belgraders typically bought coat hangers during the communist era, has slumped to a state of near-collapse.

Because it declared bankruptcy in advance of European-standard legislation introduced last year, and because Robna Kuca’s creditors also declared bankruptcy, the process has been muddled. The chain’s privatisation was expected to be this year, but political obstacles got in the way.

Another factor is lingering market isolation. While a few big Europeans retailers have entered the market, operators such as Tesco, Carrefour and Ikea have so far stayed away.

Regional companies loom larger. Global sellers of fast moving consumer goods have yet to open full-scale operations in Serbia. Local businesses and consumers thus remain insulated, in part, from the full impact of globalisation, including the super-abundance of inexpensive products undercutting local specialist suppliers.

“The coat hanger salesman is one of the winners in this situation, but Serbia as a whole is a loser,” Mrs Popovic says.

When economists say Serbia’s economy continues to operate far below capacity, this is often what they mean. The economy is growing impressively, but there remains vast room for improvement.

Gross domestic product (GDP) grew about 6 per cent last year, a steady repeat of 2005. Inflation, which dogged Serbia two years ago, has been tamed with the help of a determined central bank, shrinking last month to an annual rate of 3.3 per cent.

A robust banking sector, now 80 per cent owned by European Union-based banks after a series of big privatisations, is spurring rapid rises in commercial investment and consumer spending.

Despite recent political uncertainties that have stalled some market reforms, successful privatisation deals demonstrate Serbia’s renewed magnetism as the largest market in the former Yugoslavia, with strong interest expressed from both western and eastern European investors.

Serbia’s effort since 2000 to transfer ownership and economic initiative to the private sector has clearly worked, Mrs Popovic says.

Trade statistics offer vital evidence. Total exports are up by 370 per cent since 2001, growing faster than imports, although import volume is still double the level of exports.

The coat hanger shop’s owner and supplier typifies the trend. Weber International, a private Serbian company, manufactures 3m locally-made coat hangers a year, exporting to Germany and Italy on top of sales in Serbia.

Radovan Jelasic, the central bank governor, says he is “very, very confident about where Serbia is heading”. Yet he adds that more can be done to liberalise the economy, which he describes as “captive” to large, inefficient public enterprises.

“We have already broken some of the big taboos. Serbs now know it does not matter if the company that owns your bank is not Serbian, but they still think that the question of who owns the power lines running down your street is a patriotic issue,” Mr Jelasic says.

Restructuring and privatisation of large public enterprises – such as the power utility, oil company and the state-owned companies that still dominate the insurance sector – is essential, the governor says.

But he adds that sales this year would be premature: “This year would be better spent preparing strategies for privatisation rather than taking concrete steps.”

The primary risk is that political will may falter in the near term, as Serbia’s discordant pro-democratic bloc sets to work in the new government installed earlier this month, says Vuk Djokovic, director of CEVES, the Centre for Advanced Economic Studies.

“The mid-term prognosis for Serbia’s economy is good, but the capacity of this administration to go on with reforms is limited. Political will is lacking throughout the whole civil service,” Mr Djokovic says.

Only when reformers succeed in opening the market further will the post-socialist hangups that have become fixtures of Serbia’s economic landscape eventually disappear.

Additional reporting by Vesna Hadzivukovic

Taming Serbia's wild raspberries

By Eric Jansson
Published by Financial Times, 30 May 2007

The refrigerated trucks come under cover of darkness, rolling through the little valleys of central Serbia’s fertile fruit-growing region, around the farming town of Arilje. In June and July, when the raspberry harvest comes in, thousands of private smallholders rush to sell their freezer-friendly Willamette berries to the highest bidder. Many cut deals with the pirate truckers who pay in cash, load up at night and leave by morning, local industry experts say.

Some growers benefit financially from these on-the-spot deals, although the pirates are notorious for pricing high and then paying low. But the losers are many. Growers lose the security of guaranteed contracts, legitimate traders lose predictable supply, and the state loses revenue in unpaid fees and evaded taxes.

The biggest loser is Serbian agriculture as a whole. Once the world’s largest exporter of frozen raspberries, Serbia now ranks third, according to the Serbian Chamber of Commerce.

Mira Bojovic, deputy general manager at Zemljoradnicka Zadruga Arilje (ZZ Arilje), the region’s largest farmers’ co-operative, speaks of “chaos in the market”. Piracy is just one symptom, not the cause, of broader problems faced by Serbia’s farmers, who toil in a “legal vacuum” created by unfinished economic reforms.

ZZ Arilje is a prime example. The co-operative boasts impressive capacity, with more than 3,000 smallholders in its membership. In a good year, it can produce and export 8,000 tonnes of raspberries, about 9 per cent of Serbia’s raspberry exports. But in 2006 it exported just 6,000 tonnes, due directly to colder weather and indirectly to market woes.

A big difficulty is access to credit. Legislative reforms introduced since 2000 have not taken into account the existence of co-operatives such as ZZ Arilje, a complex private, member-owned agricultural organisation that pre-dated Serbia’s communist-era collective farms. “Ownership transformation” is thus an urgent need, Mrs Bojovic says. “The capital of the co-operative is not legally defined yet, so we are not in a position to take advantage of state loans.”

Meanwhile, the market has been flooded with new companies over the past two years – small-scale cold storage and trading companies formed by individuals specifically to take advantage of state loans with fixed 2 per cent annual interest and built-in grace periods for late payment. The commercial credit available to ZZ Arilje is much more expensive with interest rates of about 2 per cent a month and no grace period. This means that new entrants can operate comfortably with much smaller profit margins than market leaders can afford.

Under such circumstances, ZZ Arilje’s members, none of whom farms more than two hectares, are increasingly tempted to sell shares of their harvest to small traders. Such defections sap the co-operative’s efficiency, to the detriment of its member-growers.

While domestic market competition is flourishing, such imbalances have become a drag on Serbian raspberries’ international competitiveness, says Petar Radosavljevic, general director of Malina Produkt, a large cold storer and exporter.

Local demand for Serbian raspberries has been driven up sharply by the many new cold stores and traders, while harvest volume and international demand grow less quickly. Consequently, local wholesale buyers last year paid up to €0.80 per kilogramme. By contrast, competitors in Chile, another important raspberry growing country, paid just €0.50 per kilogramme, Mr Radosavljevic says.

One way to restore Serbia’s international berry clout, the big exporters say, is to diversify into blackberries while adding value, for example, with flashy packaging and branding. Another way is to complete economic reforms and establish a better legislative basis for fairer domestic competition. Slobodan Milosavljevic, Serbia’s new agriculture minister, may do just that. He carries pro-market credentials as a cabinet veteran from the country’s first reform government under Zoran Djindjic, following the pro-democracy putsch in 2000.

“Serbia desperately needs economic reforms to be continued and finished in the next few years,” Mr Milosavljevic says. Part of this work will be closing legal vacuums such as the one in which ZZ Arilje is stuck. But to do this, the government must address in finer detail Serbia’s most fundamental and sensitive post-socialist reform issue – how to define and protect private ownership in law. It will not be easy.