Order Code RL30371
CRS Report for Congress
Received through the CRS Web
Serbia and Montenegro:
Current Situation and U.S. Policy
Updated February 7, 2005
Steven Woehrel
Specialist in European Affairs
Foreign Affairs, Defense, and Trade Division
Congressional Research Service ˜ The Library of Congress

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Serbia and Montenegro:
Current Situation and U.S. Policy
Summary
Despite defeats in wars in Croatia, Bosnia and Kosovo, international isolation,
and the impoverishment of his people, Slobodan Milosevic managed to stay in power
in Serbia for over 10 years. His reign came to an end on October 5, 2000, when he
was deposed from power by a popular revolt after he refused to concede defeat in an
election for the post of President of the Federal Republic of Yugoslavia (FRY) won
by his opponent, Vojislav Kostunica. Parliamentary elections in Serbia held in
December 2000 resulted in a crushing victory for the Democratic Opposition of
Serbia (DOS) coalition over the former ruling parties of the Milosevic regime.
Although it achieved some successes, the DOS government was beset with internal
conflicts almost from its beginning, including over cooperation with the Yugoslav
war crimes tribunal. It received its greatest blow in March 2003, when Serbian Prime
Minister Zoran Djindjic was murdered by organized crime figures linked to the
Serbian security apparatus. In the wake of the assassination, the Serbian government
arrested hundreds of organized crime figures. However, some observers question
whether Serbian leaders have the will to extirpate the deeply-rooted connections
between organized crime and political power in Serbia.
On December 28, 2003, the extreme nationalist Serbian Radical Party won a
stunning victory in early Serbian parliamentary elections, but fell short of a majority.
In March 2004, a minority government of democratic parties formed a government
without the Radicals. However, the government depends on the parliamentary
support of Milosevic’s Socialists, who are not in the government. Democratic forces
in Serbia received a boost from Serbian presidential elections in June 2004, which
resulted in a victory for Boris Tadic, a pro-Western, pro-reform figure over a Radical
Party candidate.
In a years-long confrontation with Milosevic, Montenegrin leader Milo
Djukanovic seized control of virtually all levers of federal power on the republic’s
territory. He has sought to achieve an independent Montenegro, but opposition from
the United States, European Union and Russia has stymied these efforts, at least for
the near future. In 2003, under heavy EU pressure, Serbia and Montenegro formed
a loose union of two republics. Montenegro agreed to put off plans for independence
for at least three years. Montenegrin officials say that they plan to call an
independence referendum in 2006, if they cannot negotiate an earlier breakup of the
union.
Since Milosevic’s downfall, Congress has appropriated significant amounts of
aid to Serbia and Montenegro to promote reforms. In each fiscal year from FY2001
to FY2005, Congress conditioned U.S. aid to Serbia on a certification by the
President that a series of conditions had been met by Serbia, above all cooperation
with the Yugoslav war crimes tribunal. The Administration suspended about $16
million in FY2004 aid to Serbia, due to this provision, as well as an additional $10
million so far in FY2005 money. It is possible that the 109th Congress will consider
similar certification provisions in the FY2006 foreign aid bill. This report will be
updated as events warrant.

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Contents
Political Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Current Political Situation in Serbia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Political Situation in Montenegro . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Kosovo and Southern Serbia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Economic Situation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
International Response . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
European Union . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
NATO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
U.S. Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Cooperation with the War Crimes Tribunal . . . . . . . . . . . . . . . . . . . . . . . . . 13
Serbia and Montenegro and the International Criminal Court . . . . . . . . . . 15
U.S. Aid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Congressional Response . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

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Serbia and Montenegro:
Current Situation and U.S. Policy
Political Background
Despite defeats in wars in Croatia, Bosnia and Kosovo, international isolation
and the impoverishment of his people, Serbian strongman Slobodan Milosevic
remained in power for over 10 years. He did this by maintaining tight control over
key institutions (such as the police, army, judiciary and most of the media) as well
as much of the economy. He retained a reservoir of support among some sectors of
the population, such as the elderly and those living in rural areas, in part by appealing
to Serbian nationalism. He also played skillfully on weaknesses and divisions in
Serbia’s opposition.
Milosevic’s reign came to an end on October 5, 2000, when he was deposed
from power by a popular revolt after he refused to concede defeat in an election for
the post of President of the Federal Republic of Yugoslavia (FRY) won by his
opponent, Vojislav Kostunica on September 24, 2000.1 Milosevic’s party, the
Socialist Party of Serbia (SPS) was also trounced in simultaneous elections to the
federal parliament and local governments.
Serbia and Montenegro at a Glance
In February 2003, the Federal Republic of Yugoslavia (FRY) was replaced by a loose
union of the FRY’s two republics, now simply called “Serbia and Montenegro.” Each
republic has its own president, parliament and government, which are responsible for
most government functions on its territory. (Before Milosevic’s rise to power, Serbia
had two autonomous provinces on its territory, Vojvodina and Kosovo, but Milosevic
eliminated many of their powers. Currently Vojvodina retains some elements of
autonomy and Kosovo is under U.N. administration.) The functions of new joint
governing bodies are limited largely to foreign policy and defense.
Area: 102,173 sq. km. (slightly smaller than Kentucky), of which Serbia (including
Kosovo) 88, 361 sq. km., and Montenegro 13,812 sq. km.
Population: 10.39 million (1991 census), of which Serbia 7.82 million (excluding
Kosovo), Montenegro 0.62 million, and Kosovo 1.96 million (est.).
Source: The Statesman’s Yearbook 2001.
1 For detailed accounts of the events leading up to Milosevic’s fall, see Steven Erlanger and
Roger Cohen, “How Yugoslavia Won its Fight For Freedom,” New York Times, October 15,
2000, 1; and R. Jeffrey Smith, “How Milosevic Lost His Grip,” Washington Post, October
14, 2000, 1.

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CRS-2
The victor in the election was a coalition of often-feuding opposition parties
called the Democratic Opposition of Serbia (DOS). The DOS agreed on a joint slate
of candidates for the federal parliament and local elections. They named Vojislav
Kostunica as their joint candidate to run against Milosevic for the federal Presidency.
Kostunica’s main advantages, according to many observers, were a reputation for
honesty and his long-standing, unwavering opposition to Milosevic. Kostunica, a
former law professor, sharply criticized the Milosevic regime’s cynical manipulation
of the law and legal system, as well as the often lawless behavior of those close to the
regime. He emphasized the need for the rule of law in Serbia, similar to that
practiced in other European countries and the United States. Kostunica holds
strongly nationalist views. He has been a fierce critic of United States and NATO
policy in Kosovo and Bosnia. This may also have made him popular with many
Serbs. After their victory in federal and local levels, the DOS swept to further
victories in elections for the Serbian parliament on December 23, 2000. On January
25, 2001, the parliament approved a DOS government led by Prime Minister Zoran
Djindjic.
However, soon after the DOS took power, tensions arose between supporters of
FRY President Kostunica and Serbian Prime Minister Djindjic. These conflicts
slowed reforms and disillusioned many Serbs, who once had high hopes that
Milosevic’s overthrow would lead to a dramatic improvement in their living
standards. One key subject of dispute was cooperation with the International
Criminal Tribunal for the former Yugoslavia (ICTY). On June 28, 2001, the Serbian
government transferred Milosevic to the ICTY to face war crimes charges. Serbian
Prime Minister Zoran Djindjic defended the transfer of Slobodan Milosevic and other
indictees, saying they were needed so that the FRY could receive vitally-needed
international aid. Kostunica condemned the transfer of Milosevic as illegal and
claimed that he had not been informed of the move beforehand. The DSS left the
Serbian government in August 2001.
The DOS government received another blow on March 12, 2003, when Djindjic
was assassinated by two gunmen as he got out of his car in front of the Serbian
cabinet office. Serbian police soon learned that organized crime figures linked to the
Serbian security apparatus were responsible for Djindjic’s murder. One of Djindjic’s
accused assassins, now in custody, was a senior officer of the Special Operations
Unit (JSO). The JSO conducted highly sensitive operations for the Milosevic regime,
reportedly including war crimes in Bosnia and Kosovo. Djindjic allowed it to
continue operating after Milosevic’s fall because its leader, Col. Milorad Lukovic
(known as “Legija”), had provided support to the democrats during the anti-
Milosevic uprising. The gunman told interrogators that he killed Djindjic after Legija
(who had since retired and become the head of the powerful Zemun organized crime
gang) told him Djindjic was planning to dissolve the JSO and send its members to
the International Criminal Tribunal for the Former Yugoslavia (ICTY) for war crimes
trials. Other sources say that the assassination was motivated primarily by fears of
a crackdown on organized crime.

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CRS-3
In the wake of the murder, Serbian police arrested thousands of persons
suspected of links with organized crime. Legija escaped arrest until May 2004, when
he turned himself in to Serbian police. The trial of Djindjic’s killers opened in
Belgrade in December 2003. Observers hoped that the assassination would trigger
a clean-up of organized crime and high-level corruption in Serbia. However, in a
March 2004 report, the International Crisis Group, a respected international think-
tank, said that close ties between top government officials, officers in the military and
security agencies, organized crime figures, and former Milosevic cronies, continue
to exist, and pose a key stumbling block to reform.2
Current Political Situation in Serbia
The increasingly instability of the ruling DOS coalition led the Serbian
government to call early parliamentary elections on December 28, 2003. The results
reflected public disillusionment with the performance of the previous government
and resurgent nationalism in Serbia. By far the largest party in the 250-seat
parliament is the Serbian Radical Party, which won 82 seats. Milosevic’s Socialist
Party of Serbia won 22 seats. Democratically-oriented parties won the remaining
seats. Kostunica’s Democratic Party of Serbia (DSS) won 53 seats, the Democratic
Party won 37 seats, and the G-17 Plus party won 34 seats. The monarchist and
moderate nationalist Serbian Renewal Movement, in coalition with the New Serbia
party, won 22 seats.
After two months of sometimes bitter wrangling, Kostunica assembled a
minority government of democratic parties, consisting of the DSS, G17 Plus, and the
SPO/NS. The DSS received the interior and justice ministry posts, which are key in
the fight against organized crime and corruption. G17 Plus plays an important role
in economic affairs. Its leader, Miroljub Labus, is Deputy Prime Minister, and
Mladjan Dinkic is Finance Minister. The parliament approved the new Serbian
government on March 3, 2004. There have also been changes in the joint Serbia and
Montenegro government. The new Foreign Minister is Vuk Draskovic, leader of the
SPO. The new defense minister is Prvoslav Davinic.
The most controversial aspect of the new government is its dependence on
support from the SPS, which does not have ministers in the government but provides
it with a majority in parliament. During initial post-election discussions in January,
representatives of Serbia’s democratic parties and U.S. officials expected that the
DSS, G17, and SPO/NS would form a majority government of democratic parties
with the DS, or at least a minority government with the support of the DS.3
However, bitter recriminations between DSS and DS leaders, some of which
Kostunica believed to be tainted with corruption, led to the collapse of these efforts.
In justifying his overtures to the Socialists, Kostunica asserted that they have
2 International Crisis Group, Serbia’s U-Turn, March 26, 2004, available on the ICG
website at [http://www.crisisweb.org].
3 Discussions with U.S. officials and Serbian political leaders, January 2004.

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CRS-4
reformed themselves since they were in power under Milosevic, a claim that many
analysts would dispute.
On June 13, 2004, Serbia held a presidential election. Although the Serbian
presidency is not a powerful post, analysts viewed the election as a key indication of
Serbia’s democratic development and orientation toward Euro-Atlantic institutions.
A victory for the candidate of the extreme nationalist Radical Party, Tomislav
Nikolic, would have been viewed as a serious setback for Serbia’s path toward
integration with Western institutions. Nikolic was opposed by Democratic Party
leader Boris Tadic and Dragan Marsicanin of the DSS. In the first round of the vote,
Nikolic won 30.6% of the vote. Tadic took second place with 27.37%. In a surprise
result, wealthy businessman Dragoljub Karic won 18.23%. Karic, a prominent
business figure in the Milosevic era, ran on a populist program. In a blow to the DSS
and the government, their candidate, Dragan Marsicanin, received a mere 13.3% of
the vote. In the June 27 runoff between the two top first-round finishers, Tadic beat
Nikolic 53.53% to 45.1%.
Tadic’s victory was greeted with relief by Western governments, who feared the
potential impact of a Nikolic victory. These results confirmed the growing strength
of Tadic’s pro-Western Democratic Party but also continuing support for the
Radicals. If the current, weak government collapses and early parliamentary
elections are held in 2005, as some analysts expect, the DS may have a good chance
of leading a more reformist and pro-Western government than the current one.4
Major Political Parties and Groups in Serbia
Democratic Party (DS): The DS was the largest party in the 2001-2003 democratic
coalition government. It established a reputation for pro-Western pragmatism under its
former leader, Prime Minister Zoran Djindjic. This reputation has also hurt the party
among some Serbs, who have seen it as opportunistic, riddled with corruption, and too
eager to appease the West. Djindjic was assassinated in March 2003 by organized crime
figures associated with the former Milosevic regime. It suffered a substantial decline in
support in the December 2003 elections but began to recover its strength when it went
into opposition in 2004. Its popularity has also been boosted by its new leader, former
Defense Minister Boris Tadic, who won Serbian presidential elections in June 2004.
Democratic Party of Serbia (DSS): The DSS is led by Vojislav Kostunica, formerly
Yugoslav President and now Prime Minister of Serbia. Like other democratic parties, the
DSS favors democracy, the rule of law (a particular interest of Kostunica’s), and free
market reform, but has a markedly nationalist orientation. It was highly critical of the
decision to transfer Milosevic to war crimes tribunal in June 2001 and has continued to
strongly criticize the tribunal. The DSS plays the leading role in the current Serbian
government, established in March 2004. Its popularity has fallen since it has taken a
leading role in the government.
G-17 Plus: Formerly a non-partisan economic reform group, G-17 Plus registered as a
4 For more on the June 2004 Serbian Presidential elections, see Serbia: 2004 Presidential
Elections, by Julie Kim, CRS Report RS21856.

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CRS-5
political party in early 2003. It won 34 seats in the December 28, 2003 parliamentary
elections. It is perhaps the most pro-Western and pro-economic reform force in the
government, where it holds key posts in the government dealing with the economy.
However, its strength has declined as the government’s popularity has decreased.
Serbian Radical Party (SRS): An extreme nationalist party, led by Vojislav Seselj, who
is now facing war crimes charges at Yugoslav war crimes tribunal in The Hague.
Although ostensibly anti-Communist, the SRS held posts in the Milosevic regime, which
cost the SRS dearly in the 2000 elections. However, the SRS surged in popularity as the
pro-Western and pro-reform government’s fortunes waned. The SRS condemned
cooperation with the war crimes tribunal, government corruption scandals, and poor
living standards, and slightly moderated its warlike, anti-Western rhetoric. The SRS won
a spectacular victory in the December 2003 elections, becoming by far the largest party
in the Serbian parliament. However, it did not win a majority on its own and is viewed
as a pariah by democratic parties, and is therefore in opposition.
Serbian Renewal Movement (SPO)/New Serbia: The SPO is a democratically-oriented,
nationalist, pro-monarchist party, led by Serbia and Montenegro Foreign Minister Vuk
Draskovic, who has had a reputation for political unpredictability. It formed an electoral
coalition with a smaller group called New Serbia.
Socialist Party of Serbia (SPS): The SPS is the successor to the Serbian branch of the
Yugoslav Communist party. Under the leadership of Slobodan Milosevic, the party used
nationalism to dominate Serbian politics from the late 1980s until its defeat in the 2000
elections. The SPS was further weakened by Milosevic’s transfer to the Yugoslav war
crimes tribunal in June 2001. Its influence continues to decline, but it remains a
significant force in Serbian politics. The SPS won 22 seats in the December 2003
elections, even fewer than in 2000. It is not in the government, but its support is crucial
for the government to have a majority in parliament.
Political Situation in Montenegro
Since 1997, Montenegro has been controlled by an anti-Milosevic faction of the
local Socialist Party led by Milo Djukanovic. In October 1997, Djukanovic was
elected President of Montenegro. As Djukanovic consolidated his grip on power
in Montenegro, a cold war developed between Montenegrin leaders and the
Milosevic regime. Milosevic did not allow Montenegro to participate in setting
federal policies. For his part, Djukanovic moved to seize control of virtually all of the
levers of power in Montenegro, except for air traffic control and the Yugoslav army
contingent in the republic. Djukanovic successfully sought relief from Western
sanctions against the FRY and received Western aid to boost Montenegro’s economy.
After Milosevic’s fall, efforts by Montenegrin leaders to push forward with
independence from Yugoslavia were stalled by intense international pressure,
particularly from the European Union. In addition to their concerns about the impact
Montenegrin independence might have on the situation in Serbia and Montenegro,
EU officials are also concerned that the collapse of Yugoslavia could hurt the
chances of keeping Kosovo as part of the Serbia and Montenegro union.

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CRS-6
On March 14, 2002, EU foreign policy chief Javier Solana brokered an
agreement between Serbia and Montenegro on restructuring the relationship between
the two republics. The FRY would be formally abolished and the country would be
renamed “Serbia and Montenegro.” A “union of states” would have a popularly
elected parliament, a president chosen by the parliament, and a government. It would
deal with foreign affairs, defense, international economic relations, economic
relations between the republics, and the protection of human and minority rights.
The two republics would attempt to reform and harmonize their economies in line
with EU standards. The agreement would allow either state to declare independence
after three years. The agreement asserts that Serbia would inherit the FRY’s
sovereignty over Kosovo as laid out in U.N. Security Council 1244. In February
2003, the Federal Republic of Yugoslavia was formally dissolved and “Serbia and
Montenegro” came into being as the new joint state.5
The Montenegrin government collapsed in April 2002, when two pro-
independence parties, the Social Democratic Party and the Liberal Alliance,
condemned the agreement and withdrew their support. In July 2002, the Liberals
made an surprising political move by allying themselves with the anti-independence,
formerly pro-Milosevic SNP to form a government with a one-vote majority, ousting
the Djukanovic’s Democratic Party of Socialists (DPS). The government was
criticized by the Organization for Security and Cooperation in Europe when they
passed legislation to restrict media freedoms and change election laws.
On October 20, 2002, Montenegro held parliamentary elections. The DPS and
Djukanovic made an impressive political comeback. A DPS-led coalition won an
absolute majority of 39 of the 75 seats in the parliament. An SNP-led bloc won 30
seats, and the Liberals won 4. Presidential elections were scheduled for December
22, 2002. Fearing an opposition boycott which could depress turnout and therefore
invalidate the vote, Djukanovic resigned as President on November 26, 2002 and
was elected to the post of Prime Minister by the parliament. Djukanovic’s concerns
about the presidential vote proved correct when the results of the December 22 vote
were invalidated due to low turnout. After a repeat presidential election failed for the
same reason in February 2003, former Prime Minister and Djukanovic supporter Filip
Vujanovic was elected as President when a third election was held in May 2003.
Observers have noted that Montenegro is a small republic with few industries
and resources, it is highly dependent on trade and, allegedly, smuggling. Since
coming to power, Djukanovic and other Montenegrin leaders been accused of
complicity with smuggling operations and organized crime activities, sometimes in
cooperation with the Italian Mafia figures. Italian police say they are investigating
Djukanovic’s possible role in a long-standing cigarette-smuggling operation.
Montenegrin leaders claim these charges of criminal conduct by top-ranking officials
have been fabricated by domestic opponents and some European countries to
undermine Montenegrin efforts to secure independence.
5 For more on the Serbia and Montenegro union, see CRS Report RS21568, Serbia and
Montenegro Union: Prospects and Policy Implications, July 11, 2003.

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CRS-7
Major Political Parties in Montenegro
Democratic Party of Socialists (DPS): The largest party in Montenegro, the DPS is the
successor to the Montenegrin sister party of the Socialist Party of Serbia. In 1997, Milo
Djukanovic, its leader, broke with Milosevic, taking most of the party with him.
Although comprised of former Communists, the DPS espouses support democracy, free
market reform and closer ties with the West.
Liberal Alliance of Montenegro: A small opposition political group that strongly
supports Montenegrin independence, political and economic reform, and a pro-Western
foreign policy. It criticizes the DPS for its Communist past, its lack of commitment to
a truly democratic Montenegro, and charges that it has manipulated the economy for the
personal gain of Djukanovic and his cronies. However, its alliance with the Socialist
People’s Party in 2002 laid it open to charges of opportunism.
People’s Party of Montenegro (PP): Like the DPS, the PP favors political and
economic reform and closer ties with the West. However, it is more strongly in favor
with closer ties with Serbia than the DPS. The PP was a member of the governing
coalition with the DPS until December 2001, when it quit the government in protest
against a DPS plan for Montenegro’s independence.
Social Democratic Party (SDP): A center-left party that shares similar domestic and
foreign policy goals with the DPS. It strongly favors independence.
Socialist People’s Party (SNP): The SNP was formed from the minority faction of the
former Yugoslav communist party in Montenegro that remained loyal to Milosevic. It
strongly favors close ties with Serbia and opposes independence.
In November 2002, a Moldovan woman charged that she was kept in a
Montenegrin brothel and abused by top Montenegrin officials. A Montenegrin
deputy prosecutor was arrested on sex trafficking charges. A Montenegrin court later
threw out the charges, claiming the woman’s testimony was insufficient to warrant
a trial. U.S. officials expressed disappointment with the decision. Montenegro’s
chief prosecutor stepped down in July 2003, amid the scandals. In September 2003,
a group of independent experts, appointed by Organization for Security and
Cooperation in Europe and the Council of Europe, issued a confidential report on the
sex trafficking claims. The Montenegrin government has said it will implement the
suggestions made in the report to strengthen Montenegro’s efforts in the fight against
trafficking, as well as to “completely clarify” the case of the Moldovan woman. In
June 2004, the government established a national coordinator to fight human
trafficking.
The EU’s firm insistence that Montenegro will only be permitted to join the
EU as part of a more closely integrated union with Serbia remains a stumbling block
to pro-independence forces in Montenegro. A referendum on independence could be
held in 2006, three years from the time when the Serbia and Montenegro union
constitution was approved. Some observers say that such a referendum could be
risky for the government, given its declining popularity in public opinion polls and
the at best wafer-thin majority for independence among people in Montenegro.
Montenegrin leaders are opposed to the holding of direct elections to the union

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CRS-8
parliament in February 2005, perhaps due to fears that the elections might serve to
further legitimize the union.
Kosovo and Southern Serbia
Kosovo was an autonomous province within Serbia until 1990, when its
autonomy was eliminated by Milosevic. The move provoked the province’s ethnic
Albanian majority to non-violent resistance then, by 1998, armed revolt by the
Kosovo Liberation Army. In order to put a halt to the conflict (including atrocities
by Serbian forces) and restore the province’s autonomy, the United States and other
NATO countries launched an campaign of air strikes against Serbia between March
and June 1999. In June 1999, Milosevic agreed to withdraw his forces from Kosovo,
permitting a NATO-led peacekeeping force to be deployed. Under the terms of U.N.
Security Council Resolution 1244, Kosovo is governed by a U.N. Mission in Kosovo
(UNMIK), until an autonomous Kosovo government can run the province itself.
UNSC 1244 does not say what Kosovo’s final status should be, but supports the
territorial integrity of the FRY.6 Direct dialogue between Belgrade and the Kosovo
government began in October 2003 but has achieved few results so far.
Serbia’s democratic leaders say they support implementation of UNSC 1244.
They strongly oppose independence for Kosovo, an outcome favored by virtually all
ethnic Albanians, who make up over 90% of the population of the province. Serbian
leaders have expressed frustration at the inability of the U.N. Mission in Kosovo
(UNMIK) and KFOR, the NATO-led peacekeeping force in the province, to provide
conditions for the return of Serb refugees to their homes and for Serbs remaining in
the province to have a normal life. These frustrations were underlined by sweeping
anti-Serb riots in Kosovo in March 2004, when 19 Serbs were killed, over 900
injured, 4,500 Serbs were driven from their homes, and many Serb homes and other
property were destroyed. KFOR, UNMIK, and local police largely proved unwilling
or incapable of stopping the rioters.
In April 2004, the Serbian parliament approved a “decentralization” plan for
Kosovo. The plan would set up autonomous Serb regions in northern Kosovo,
similar in some ways to the current division of Bosnia into “entities” under weak
central control. Under the proposal, Serbian-majority areas in Kosovo would be
controlled by local Serb authorities, with their own police. Ethnic Albanian
authorities would control the rest of the province, although Serbs in those areas
would have personal and cultural autonomy, and Kosovo as a whole would remain
part of Serbia. Such a plan would have the benefit, from Belgrade’s point of view,
of consolidating its control over northern Kosovo, where most Serbs in the province
now live, and where important economic assets, such as the Trepca mining complex,
are found. Ethnic Albanian leaders strongly oppose the idea for these very reasons.
International officials support some degree of decentralization to local governments,
but fear the Serbian plan could lead to the eventual partition of the province along
ethnic lines, which could in turn spark renewed violence over disputed areas. They
6 For more on Kosovo, see CRS Report RL31053, Kosovo and U.S. Policy, by Steven
Woehrel and Julie Kim.

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CRS-9
also believe it could set a bad example for the region, resulting in renewed calls to
partition Bosnia, southern Serbia, and Macedonia.7
International officials have criticized Serbia for continuing to support “parallel
structures” that cement its control over Serb-majority areas at the expense of
UNMIK’s authority. They also criticized Kostunica and the Serbian government for
(successfully) calling on Kosovo Serbs to boycott Kosovo’s October 2004
parliamentary elections as well as Kosovo government institutions. They have noted
that such a move isolates Kosovo Serbs at a time when UNMIK is devolving more
powers to the Kosovo government and the international community is preparing in
mid-2005 to assess Kosovo’s readiness to begin talks on the province’s final status.
The issue of Kosovo’s status may have become more complicated due to the
dissolution of the Federal Republic of Yugoslavia and the establishment of a much
looser relationship between Serbia and Montenegro in February 2003. The charter
establishing the new union describes Kosovo as part of Serbia, a provision that has
been denounced by Kosovar Albanians. Kosovar Albanians claim that since the FRY
no longer exists, Kosovo can no longer be considered part of it according to UNSC
Resolution 1244, and will be free to choose (via a referendum) independence. On the
other hand, Serbia claims that the deal between Serbia and Montenegro, which was
heavily promoted by representatives of the international community, was intended
to forestall the further disintegration of states and regions in the former Yugoslavia,
and demonstrated international opposition to Kosovo’s independence.
With the help of the international community, Serbia has had success in
defusing an insurgency in the Presevo valley region, ethnic-Albanian inhabited areas
of southern Serbia comprising the of municipalities of Presevo, Medvedja and
Bujanovac. In March-May 2001, NATO troops in Kosovo permitted the phased
reintroduction of Yugoslav forces into a demilitarized zone bordering Kosovo that
ethnic Albanian guerrillas had used as a springboard for attacks on Serbian territory.
Under pressure from the international community, the guerrillas disbanded in May
2001. Western countries pressed Serbia to seek a peaceful settlement to the conflict
by dealing with some of its underlying causes, including the ethnic balance of local
police and the economic situation in the area.
In February 2001, Serbian Deputy Prime Minister Nebojsa Covic put forward
a peace plan for the region. The plan called for boosting the participation of ethnic
Albanians in local government and police, with help from the Organization for
Security and Cooperation in Europe. Local elections were held in July 2002 in the
region. Ethnic Albanian parties now control the local governments of Presevo and
Bujanovac, while Serb groups control Medvedja. However, the problems in the area
are not completely solved. Some ethnic Albanians complain of discrimination, and
occasional violence continues. In response to a boycott call by local ethnic Albanian
leaders, almost no ethnic Albanians voted in the Serbian parliamentary elections in
December 2003. Local leaders said that the Serbian election law made no provision
for setting aside seats for ethnic minorities who cannot meet the requirement of
winning 5% of the vote to enter the parliament.
7 International War and Peace Reporting, Balkan Crisis Report, no. 405, February 10, 2003.

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CRS-10
Moves toward final status talks in Kosovo in 2005 could have an impact on the
stability of southern Serbia. Some local ethnic Albanian leaders have called for their
region to be joined to Kosovo, if Kosovo becomes an independent state. Tensions
in the region were increased by the January 2005 death of a local ethnic Albanian
man, shot by Serbian soldiers as he attempted to cross the border from Macedonia
illegally.
Economic Situation
The democratic leadership in Belgrade faced daunting economic challenges
when it took over from the Milosevic regime in 2000. The FRY’s economy suffered
from years of economic mismanagement, economic isolation and the lingering effects
of NATO air strikes in 1999. Many key enterprises and banks were controlled by
regime cronies who managed them poorly and stole large sums from them.
According to FRY officials, Serbia’s Gross Domestic Product (GDP) in 1999 was
only 45% of its 1990 level. Unemployment was about 35% in 2000. Conflicts in the
former Yugoslavia left the FRY with over 800,000 refugees and displaced persons
to care for, or about 10% of the country’s population. In the final year of his rule,
Milosevic increased the money supply in order to fund reconstruction projects after
the Kosovo war, fueling inflation and the depreciation of the dinar, Serbia’s currency.
The inflation rate for 2000 was 70%. The country suffered from high levels of
internal and external indebtedness. Budget deficits at all levels of government,
including pension and other social welfare arrears, amounted to 8-10% of GDP.
There was a tangle of bad bank debts and interenterprise arrears, amounting to 80%
of GDP. There was also an external debt of $11.6 billion, or about 140% of GDP.8

In 2001, the new FRY and Serbian governments embarked on a comprehensive
economic reform program. They conducted prudent fiscal and monetary policies that
have reduced inflation. Price controls have also been eased. They made some cuts
in public spending, particularly in funding for police and military forces. The fiscal
and budgetary systems are being overhauled to make them fairer and more
transparent. The country’s foreign trade regime has been liberalized. Reform of the
banking sector has begun. A law on foreign direct investment was passed, and Serbia
has moved quickly to privatize “socially-owned” firms. Foreign direct investment
remains low, but increased substantially in 2003, even after Djindjic’s murder. One
recent deal involved the sale of the Sartid steel works to U.S. Steel in September
2003. By the end of 2003, the Serbian government had sold off many of the most
attractive firms slated for privatization. However, many Serbian firms will have to
undergo painful structural changes in order to become efficient. Others will go
bankrupt.
These reform policies have had mixed results so far. Gross Domestic Product
rose by 5.5% in 2001, 4.0% in 2002, 2.2% in 2003, and an estimated 6.5% in 2004.
Much of the increase in GDP has been due to growth in the service sector, including
8 Paper presented by FRY Deputy Prime Minister Miroljub Labus at December 12, 2000,
donor coordination conference, available from the EU/World Bank website at
[http://www.seerecon.org].

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CRS-11
retail trade. Industrial production has picked up as well. Consumer price inflation
has been sharply reduced; it stood at 7.8% at the end of 2003. Inflation spiked to as
high as 11.5% year-on-year in November 2004 but is expected to decline again in
2005, due to the sound macroeconomic policies pursued by the government.
However, unemployment remains very high, 31.7% of the workforce in October
2004. As large companies are restructured, more people could lose their jobs,
although the government has sought to stimulate the growth of small and medium
enterprises. Average real monthly wages increased from about 50 Euros in 2000 to
164 Euros in 2003.9 However, poverty remains a problem. A World Bank estimate
put 10% of the population of Serbia and Montenegro under the poverty line, defined
as 60 Euros (about $73) a month.
Serbia and Montenegro’s economic policies have been supported by the
International Monetary Fund and other international financial institutions. In May
2002, the IMF extended a three-year, $889 million loan to Serbia and Montenegro,
after disbursing the final part of a $249 million standby loan offered in 2001. In
January 2005, the IMF said the country needed to fight rising inflation, cut its large
current account deficit (13% of GDP in September 2004), and move faster on
enterprise restructuring and banking reform, especially implementing laws on
bankruptcy. Serbia and Montenegro’s foreign debt continues to be substantial, at
$12.6 billion in September 2004. However, debt forgiveness deals with the Paris
Club in 2002 and the London Club in 2004 has reduced some of the pressure on the
country’s finances.10
Under Djukanovic, Montenegro pursued a separate economic policy from
Serbia. It made more progress on privatization than Serbia under Milosevic, and its
switch to the Deutschmark (and later the Euro) limited the damage of Milosevic’s lax
monetary policies. However, the republic’s few industries need extensive
restructuring, and its economy is heavily dependent on trade with Serbia and foreign
countries. Moreover, some have complained about corruption in the privatization
process.
9 Testimony of Deputy Assistance Secretary of State D. Kathleen Stephens before the House
International Relations Committee, Subcommittee on Europe, March 17, 2004.
10 Global Insight report on Serbia and Montenegro [http://www.globalinsight.com], October
2004; Economist Intelligence Unit Country Report on Serbia and Montenegro, January
2005; documents from the Donor Coordination Meeting for Serbia and Montenegro,
November 18, 2003, which can be found at [http://www.seerecon.org].

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CRS-12
International Response
European Union
Eventual membership in the European Union is a key objective of the foreign
policy of Serbia and Montenegro. The EU has committed itself to admitting Serbia
and Montenegro when it is ready. However, the path to membership may be a long
and difficult one. Serbia and Montenegro hopes to begin negotiations soon with the
European Union on a Stabilization and Association Agreement (SAA). The
agreement would provide a framework for enhanced cooperation between the EU and
Serbia and Montenegro in a variety of fields, including the harmonization of local
laws with EU standards, with the perspective of EU membership. While the
European Union has not conditioned its aid to Serbia on war crimes cooperation, EU
officials have made clear to Serbian leaders that a closer relationship with the EU,
including the SAA, requires Serbian cooperation with the ICTY. Other conditions
include progress in political and economic reforms, and the effective functioning of
the state union of Serbia and Montenegro. On December 1, 2001, the FRY was
granted preferential trading status with the EU. The EU budgeted 195 million Euro
in aid for Serbia in 2004, and an additional 15 million for Montenegro.11
The European Union strongly opposes Montenegrin independence. EU leaders
fear that it would work against greater integration in the region as a whole, possibly
strengthening separatist forces in Bosnia, Kosovo, and Macedonia. EU foreign
policy chief Javier Solana brokered the March 2002 agreement to set up the current
union of Serbia and Montenegro. Although the agreement permits either republic to
leave the union within three years, EU officials at first pressed the two republics to
stay together and to more closely align their economic policies, warning that such
integration would be necessary if Serbia and Montenegro wished to secure an SAA
in the near future or join the European Union in the longer term. However, EU
officials softened their stand in October 2004, when the EU adopted a “twin track”
approach to SAA negotiations with Serbia and Montenegro. Although Serbia and
Montenegro would sign a single SAA with the EU, technical aspects such as customs
tariffs would be negotiated separately with each republic. Although EU leaders
stressed that the “twin track” plan did not signal that they were abandoning their
support for the joint state, many observers (and Montenegrin leaders) viewed it as a
tacit recognition that the joint state was not working.
NATO
On June 19, 2003, Serbia and Montenegro made a formal request to join
NATO’s Partnership for Peace (PFP) program. The United States and NATO have
set several conditions for Serbia and Montenegro’s membership in PFP, including
cooperation with the ICTY (especially the transfer of Mladic to the Tribunal); better
civilian control over the military and security services; and an end to illegal ties with
the Republika Srpska army. Serbia and Montenegro will also have to drop its lawsuit
11 EU Commision, “Federal Republic of Yugoslavia: Country Strategy Paper, 2002-2006,”
from EU External Relations website, [http://europa.eu.int/comm/external_relations/see/
fry/serbia/index.htm].

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CRS-13
in the International Court of Justice against NATO for its air strike campaign against
Serbia in 1999. Leaders in Serbia and Montenegro say they want to join PFP in order
to secure Western aid and advice in reforming their armed forces, including the
establishment of full civilian control.
In 2003, Serbia and Montenegro took the first steps to reform its armed forces,
including by putting the General Staff and intelligence and security agencies under
the control of the civilian Minister of Defense. Hundreds of high-ranking officers
from the Milosevic era were retired or dismissed. Proposed changes include
redrafting defense and national security strategies, and restructuring and reducing the
size of the armed forces along lines suggested for NATO candidate states. However,
U.S. officials have said that Serbia and Montenegro’s prospects for joining PFP
depend on a dramatic improvement in its cooperation with the ICTY, including the
transfer of Mladic to the Tribunal. Serbia and Montenegro does not have troops
deployed to Iraq as part of the U.S.-led coalition there or in Afghanistan.
U.S. Policy
In its policy toward Serbia and Montenegro, the Administration has tried to
support the country’s democratic transition and integration into Euro-Atlantic
institutions. However, the United States has continued to insist that Belgrade meet
its international obligations, including to the International Criminal Tribunal for the
Former Yugoslavia (ICTY). The Administration has advocated Serbia and
Montenegro’s membership in NATO’s Partnership for Peace, if it meets these
obligations and establishes civilian control over its military and security services. On
May 7, 2003, President Bush signed a presidential determination that permits Serbia
and Montenegro to receive U.S. defense articles, services, and assistance. Bush
Administration officials have said that they do not favor independence for
Montenegro. They supported the agreement establishing the union of Serbia and
Montenegro and praised the EU for bringing it about.
Cooperation with the War Crimes Tribunal
The fate of Milosevic and other persons indicted by ICTY has been a
controversial issue in Serbia’s relations with the United States. Milosevic and four
other top leaders of his regime were indicted by the ICTY on May 15, 1999 for war
crimes committed by Yugoslav army and Serbian police forces in Kosovo. ICTY
prosecutor Carla Del Ponte has brought additional indictments against Milosevic for
genocide for his role in the wars in Croatia and Bosnia-Hercegovina.
In each of the past four fiscal years (FY2001-FY2004), Congress has
conditioned U.S. aid to Serbia after a certain date of that year (usually March 31) on
a presidential certification that Serbia has met certain conditions, especially
cooperation with the ICTY. The provisions also recommended that U.S. support for
loans to the FRY be conditioned on the certification. U.S. conditions on aid to Serbia
may have had a significant impact on Serbian cooperation with the Tribunal. Since
the coming to power of Serbian democrats in late 2000, Serbian cooperation with the
ICTY has followed a similar pattern each year: Serbia delivers several indictees to

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CRS-14
the Tribunal just before or, at most, a few weeks after the certification deadline. The
Administration makes the certification as required by the legislation, and urges
Serbia to do more. However, Serbian cooperation then slows, with Serbian leaders
claiming that political and legal obstacles preclude greater efforts. Nevertheless,
more indictees are delivered as the next deadline for certification approaches, and so
on.
This pattern was been broken in FY2004. Due to the Serbian government’s lack
of cooperation with the Tribunal, the Administration did not issue the certification
by the March 31 deadline, and therefore a portion of FY2004 aid to Serbia (estimated
by Administration officials at about $16 million) has been suspended until Serbia’s
cooperation with the ICTY improves. In January 2005, the Administration announced
that because there had been “no improvement” in Belgrade’s cooperation with the
Tribunal, the United States would withhold an additional $10 million in aid from
Serbia. U.S. Ambassador to Serbia and Montenegro Michael Polt said that the aid
cuts could lead to the withdrawal of U.S. technical advisors from Serbian ministries
working on such issues as World Trade Organization membership and economic
reform. However, an Administration spokesman noted that the remaining portion of
the $73.6 million in aid to Serbia would still go to “organizations and programs
outside of the central government that are committed to reform.”12
In an address to the U.N. Security Council in November 2004, ICTY Chief
Prosecutor Carla Del Ponte has said that more than a dozen ICTY indictees spend
most of their time in Serbia, including former Bosnian Serb army chief Ratko Mladic.
In March 2004, the Serbian parliament voted to provide financial compensation and
government benefits for Milosevic and war crimes indictees and their families. The
bill was backed by Prime Minister Kostunica. In December 2004, the Serbian
government confirmed that Mladic was still receiving a pension from the Serbia and
Montenegro military, collected by a member of his family.13 Far from assisting the
ICTY in arresting indictees, Del Ponte said that in July 2004, indictee Goran Hadzic
was observed fleeing his residence in Serbia hours after the ICTY had informed
Serbian authorities of his whereabouts, suggesting the connivance of the Serbian
government in shielding indictees. However, Del Ponte said Serbian cooperation has
improved on providing access to key documents and permission to interview high-
level Serbian witnesses, although some problems remain.
Serbia is attempting to demonstrate that it is capable of prosecuting war
criminals itself. A handful of low-level Serbian war criminals have been tried and
convicted in Serbian courts. In July 2003, Serbia named its own war crimes
prosecutor. It remains to be seen, however, whether the prosecutor will have the
power and political will to bring charges against suspected war criminals among
12 Statement by Richard Boucher, Spokesman, January 13, 2005, from the State Department
website [http://www.state.gov].
13 “Report: Mladic Gets $520-A-Month Serb Army Pension,” Reuters News Agency,
December 7, 2004.

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CRS-15
current and former high-ranking security and military officials.14 The Administration
has assisted this effort, favoring shifting responsibility for prosecuting major war
crimes cases from the ICTY to Serbian courts. However, Del Ponte and others have
expressed skepticism that Serbia has the political will or the judicial capacity to take
on the task in the near future. The United States, along with other countries,
successfully pushed for the adoption of U.N. Security Council Resolution 1503 in
August 2003. The resolution calls for ICTY to complete its investigations by the end
of 2004, its trials by 2008 and all appeals by 2010. Del Ponte and U.S. officials have
warned that Belgrade’s foot-dragging has placed this timetable in jeopardy.
Administration officials have suggested that if Ratko Mladic were turned over
to the Tribunal, it would create a new, more positive environment in cooperation
with the ICTY that could result in the remaining Serbian indictees being tried in
Serbian courts.15 The United States is assisting Serbia’s efforts to prosecute war
criminals itself by providing assistance in such areas as helping to set up witness
protection programs, providing training to judges and contributing funds to help
establish a new Serbian court to try organized crime and war crimes cases.
Serbia and Montenegro and the International Criminal Court
On July 1, 2003, the United States terminated military assistance to Serbia and
Montenegro and 34 other countries that are parties to the International Criminal
Court (ICC) and have not signed agreements exempting U.S. citizens on their soil
from transfer to the ICC for prosecution.16 Serbia and Montenegro authorities
decided to postpone a final decision on whether to sign such an agreement (termed
an “Article 98” agreement in reference to the Rome Statute that established the ICC)
with the United States. Like other countries in the region, Belgrade does not want
to offend the world’s sole superpower. On the other hand, Serbia and Montenegro
also wants to stay on good terms with the EU, its main economic partner and source
of aid, which has strongly urged prospective new member states in central and east
European countries not to sign exemption agreements with the United States on the
grounds that they would undermine the ICC. Serbian officials noted that it would be
difficult to explain to the Serbian public why the government would agree to exempt
U.S. citizens from extradition while the United States insists that Belgrade arrest and
extradite its own citizens to the ICTY.17
U.S. Aid
Due to U.S. and international sanctions on the FRY, the United States provided
little aid to Serbia and Montenegro before FY1999. From FY1999 through FY2001,
14 For more on Serbian ICTY cooperation and U.S. aid conditions, see Conditions on U.S.
Aid to Serbia, CRS Report RS21686, by Steven Woehrel.
15 Discussions with Administration officials, November 2003.
16 Pursuant to Section 2007 of the American Servicemembers’ Protection Act (ASPA; title
II of P.L. 107-206, the FY2002 supplemental appropriation act).
17 Beta news agency via the British Broadcasting Corporation, July 20, 2003. It should be
noted, however, that the ICTY has no institutional relationship to the ICC.

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CRS-16
the United States obligated $136.8 million in aid to Serbia and $137.9 million in aid
to Montenegro. An addition $133.5 million was allocated to the FRY as a whole for
the same period.18 The Administration provided $106.7 million in SEED funding for
Serbia in FY2002 and $60 million for Montenegro. The Administration allocated
$110 million for Serbia for FY2003 and $25 million for Montenegro. It budgeted
$95 million in aid for Serbia in FY2004 and $18 million for Montenegro. In
FY2005, the Administration requested $87 million in SEED aid for Serbia and $15
million for Montenegro. The FY2005 foreign aid measure (P.L. 108-447) provides
$73.6 million for Serbia and $20 million for Montenegro. SEED aid is being used to
help Serbia and Montenegro establish a free market economy. U.S. aid provides
advice on restructuring the banking sector, privatization, tax reform, WTO accession,
fighting financial crime, and providing credit facilities to help small business and
develop a mortgage market. Other SEED aid is aimed at strengthening democratic
institutions and civil society in the two republics, including by supporting the
development of effective local governments.19 Other U.S. aid is targeted at
strengthening Serbia and Motnenegro’s exports and border controls.
Congressional Response
During Milosevic’s reign, congressional action on the FRY focused on
codifying and tightening sanctions against Serbia and denying it most aid, while
providing significant assistance to Montenegro and some democratization assistance
for Serbia. As in previous years, the House and Senate-passed versions of the
FY2001 foreign operations appropriations bills included provisions that would have
implemented these objectives. However, Milosevic’s removal from power
intervened during conference deliberations on the bill (H.R. 4811). The measure,
signed by the President on November 6, 2000 (P.L. 106-429), provided $600 million
for central and eastern Europe in Support for East European Democracy Act (SEED)
funds. An additional $75.825 million in emergency supplemental funding was
earmarked for Serbia, Montenegro and Croatia combined.
From the funds in the bill, the Administration was permitted to provide up to
$100 million for Serbia. The bill did not include an earmark for Montenegro, but the
conference report says that Montenegro “should” receive $89 million. Section 594
of the measure added the condition that no funds from the bill can be made available
for Serbia after March 31, 2001 unless the President certifies that Serbia is “(1)
cooperating with the International Criminal Tribunal for Yugoslavia including access
for investigators, the provision of documents, and the surrender and transfer of
indictees or assistance in their apprehension; (2) taking steps that are consistent with
the Dayton Accords to end Serbian financial, political, security and other support
which has served to maintain separate Republika Srpska institutions; and (3) taking
steps to implement policies which reflect a respect for minority rights and the rule of
law.”
18 USAID, U.S. Overseas Loans and Grants, July 1, 1945-September 30, 2001.
19 USAID Budget Justification to the Congress, Fiscal Year 2005, Annex III Europe and
Eurasia.

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CRS-17
The law said that the United States should support the membership of the FRY
to regional and international organizations subject to a certification by the President
that the FRY has applied for membership on the same basis of other former Yugoslav
republics, and has taken steps to settle issues related to state liabilities, assets and
property. It also said that after March 31, 2001, the United States should instruct its
representatives to international financial institutions to support loans to the FRY
subject to the conditions in the Presidential certification on aid to outlined above
(Section 594). The section did not apply to Kosovo, Montenegro, humanitarian aid
or assistance to promote democracy in municipalities.
Another section of the law also prohibited any aid to countries that harbor war
criminals, although this provision could be waived by the Secretary of State if he
provides a determination to Congress that such aid supports the implementation of
the Bosnian peace accords (Section 563).
Members of Congress hailed the transfer of Milosevic to the ICTY on June 28,
2001. On June 29, Senators McConnell and Leahy introduced S.Res. 122. The
resolution praised Prime Minister Djindjic and other Serbian leaders for their
“courage” in transferring Milosevic and called on them to continue to transfer
indictees to the ICTY and to release all political prisoners from Serbian jails. It
expressed the sense of the Senate that the United States should continue to provide
aid to the FRY to support economic, political and legal reforms there. The resolution
was adopted by unanimous consent on July 18, 2001.
FY2002 foreign appropriations legislation (P.L. 107-115) contained the same
conditions on aid to Serbia as in FY2001. The Administration made the certification
on May 21, 2002. Secretary of State Colin Powell pointed to the passage of the war
crimes cooperation law and the surrender of several indictees over the previous few
weeks, as well as the release of ethnic Albanian prisoners from Serbia in March 2002
as justification for the move. Secretary Powell also said that, in the wake of the
certification, the Administration favored working with Congress to restore Normal
Trade Relations (NTR) status for the FRY.
The FY2003 foreign aid appropriations measure was included as part of the
Consolidated Appropriations Resolution for FY2003 (P.L. 108-7). The bill contained
certification provisions on aid to Serbia similar to the FY2001 and FY2002 bills, and
required the President to make the certification by June 15, 2003. Secretary of State
Powell made the certification on June 15, but noted that Serbia and Montenegro still
need to give their full cooperation to the ICTY, including the transfer of Mladic and
Karadzic.
On March 5, 2003, the House passed H.R. 1047, which, among other provisions,
would permit the President to restore Normal Trade Relations (NTR) status to Serbia
and Montenegro, notwithstanding the provisions of P.L. 102-420. P.L. 102-420
imposed conditions on restoring NTR to the FRY, including a Presidential
certification that the FRY had ceased armed conflict with other peoples of the former
Yugoslavia, agreed to respect the borders of the former Yugoslav states, and ended
support to Bosnian Serb forces. In 2002, the House passed a similar measure in H.R.
5385, but the Senate did not consider a companion version before the adjournment
of the 107th Congress.

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CRS-18
The House passed H.Res. 149 on April 9, 2003. The resolution offered
condolences to the people of Serbia and the family of Zoran Djindjic; noted that
implementing reforms and cooperating with the International Criminal Tribunal for
the former Yugoslavia must continue despite the “significant risks” they pose for the
leadership of Serbia and Montenegro; and that the United States should continue to
support the reforms started by Djindjic, including the fight against organized crime
and corruption.
On November 4, 2003, the Administration restored Serbia and Montenegro’s
Normal Trade Relations (NTR) with the United States. The FRY’s NTR status was
suspended in 1992, in response to its role in the war in Bosnia, according to the terms
of P.L. 102-420 (106 Stat. 2149). The legislation permits the Administration to
restore NTR to Serbia and Montenegro if the President certifies that the FRY had
ceased armed conflict with other peoples of the former Yugoslavia, agreed to respect
the borders of the former Yugoslav states, and ended support to Bosnian Serb forces.
Administration officials say the move was made in response to the improved
situation in Serbia, especially in defense reform and cutting links between the Serbian
and Bosnian Serb armed forces. The Administration is currently considering granting
duty-free treatment to some products from Serbia and Montenegro under the
Generalized System of Preferences (GSP), but no decision has been taken on the
issue.
The FY2004 foreign aid appropriations bill was added to an omnibus
appropriations bill (H.R. 2673). The bill contains the certification process as in
FY2001-FY2003, but tightens the provisions by specifically naming the transfer of
Ratko Mladic as one of the steps Serbia must take to cooperate with the ICTY. The
deadline for the certification was March 31, 2004. The Administration declined to
make the certification, resulting in the suspension of about $16 million in U.S. aid
to Serbia. The FY2005 foreign aid appropriations were incorporated into an omnibus
spending bill (P.L. 107-447). It contains the same certification process as the
FY2004 bill, but with a certification deadline of May 31, 2005. The conference
report deleted a Senate provision to deduct from U.S. aid to Serbia an amount equal
to Serbian government aid to indicted war criminals. It is possible that Congress may
consider adding an aid certification provision to the FY2006 bill.
Serbia’s non-cooperation with the ICTY does not seem to have affected its
access to international loans. In December 2004, the IMF announced the release of
a SDR 62.5 ($95 million) tranche of a previously approved loan to Serbia and
Montenegro. The World Bank has also approved loans for Serbia and Montenegro
since the March 31 deadline set by the FY2004 legislation.

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CRS-19
Hungary
Subotica
Sombor
Vojvo dina
Romania
Odzaci
Croatia
Backa
Novi
Palanka
Sad
Resita
Vrsac
Ruma
Pancevo
Sabac
Belgrade
Smederevo
Obrenovac
Loznica
Majdanpek
Negotin
Bosnia
Valjevo
S e r b i a
Zagubica
and
Bor
Herzegovina
Kragujevac
Paracin
Cacak
Zajecar
Uzice
Kraljevo
Bulgaria
Ivanjica
Krusevac
Aleksinac
Mikhaylovgrad
Pljevlja
Nis
Vratsa
Novi
Pirot
Bijelo
Pazar
Polje
Leskovac
Mitrovica
M o n t e n e g r o Ivangrad
Niksic
Sofia
Pristina
Pec
Vranje
Pernik
Podgorica
Kosovo
Kotor
Tivat
Cetinje
Urosevac
Budva
Lake
Kyustendil
Prizren
Scutari
Kumanovo
Bar
A d r i a t i c
Albania
S e a
Ulcinj
Macedonia
Stip
Adapted by CRS from Magellan Geographix.

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