BELGRADE (Reuters) - An Austrian bank advertisement longer than a soccer pitch wraps tightly around the former interior ministry in Belgrade, giving it a flashy facade masking a darker past still haunting Serbia.
A decade after strongman President Slobodan Milosevic fell in a popular uprising on October 5, 2000, the old ministry remains a ruin of the 1999 NATO bombing, evoking both the promise of a better European future and the wounded core of Serbia itself.
Since the overthrow of Milosevic, who supported warring Serbs in Croatia and Bosnia as communist federal Yugoslavia tore apart, the formerly pariah Balkan country of 7.3 million people has been at peace and embraced a market-style democracy.
Yet the lives of ordinary people have not improved as much as hoped and Serbia lags even impoverished Albania in progress towards coveted European Union membership.
Serbia faces a long, hard slog to approach EU standards of living as it suffers from reform fatigue and wariness of foreign investors towards its leaden, state-dominated economy.
“We are not afraid of bombs any more, our image has improved and we no longer defy the international community,” said Boris Begovic, a University of Belgrade economics professor, summing up the feelings of many.
“But what helped us survive the 1990s was the hope that everything would change when he (Milosevic) was gone. Now we don’t have that hope.”
Serbia was spared the devastation of ground wars in Bosnia or Croatia. But NATO bombed key Serbian roads, the power grid and industrial sites in 1999 to stop Milosevic’s war to defeat and expel the separatist majority Albanians of Serbia’s Kosovo province, leaving major economic scars.
By 2009, the economy was just 74 percent of its size in 1989, according to Miladin Kovacevic of Serbia’s statistics agency. By contrast, most formerly communist East European countries have boomed and joined the EU in the past decade.
Hurt by the global financial slump that led to an IMF loan, the economy shrank three percent last year. Unemployment is near 20 percent. Corruption, red tape and limited competition plague the economy, deterring foreign investors.
More than a quarter of jobs are in inefficient state-owned enterprises or the government.
Serbia has attracted some major foreign investment, including from Italy’s Fiat SpA FIA.MI and US Steel (X.N). Italians, Austrians and Greeks are major banking players and Greece’s OTE (OTEr.AT) has long held 20 percent of state-owned Telekom Srbija, with a majority stake to be sold next year.
Yet total foreign investment in the largest emerging Balkans economy has fallen sharply during the economic crisis and its dinar currency has lost a third of its value since 2008.
The shabby capital also needs a major facelift, but investors continue to be doubtful. “We remain on the sidelines in Serbia,” Unicredit bank said in a September report.
Barclays Capital reached a similar assessment in May. “Serbia is showing signs of reform fatigue just at a time when the country is called on to pick up the reform effort,” it said. “We do not see enticing investment opportunities at this stage.”
Since 2000, pro-Western political forces have been under sustained pressure from nationalists who had backed Milosevic, stunting efforts to undertake more ambitious market reforms.
Diplomats say Belgrade, once the envy of the old Communist bloc for its relative personal freedoms and prosperity, may have to wait another 8-10 years to join the EU, although last year Serbians won visa-free travel to most of the 27-nation bloc.
President Boris Tadic asserted in a recent New York speech that Serbia had made great strides in a decade to boost its democracy, economy and rule of law, and had lured a total of nearly 15 billion euros ($20.2 billion) in foreign investment.
But the legacy of Milosevic, who died in 2006 while on trial for war crimes in The Hague, still retards Serbian progress towards EU-style stability and prosperity. Serbia still grapples with nationalist nostalgia and ambivalence about its past.
In 2008, the government arrested Bosnian Serb wartime leader Radovan Karadzic and extradited him for trial before the U.N. war crimes court in The Hague. He had been living openly in Belgrade disguised as a spiritual guru.
But Belgrade has yet to round up Bosnian Serb wartime commander Ratko Mladic and wartime Croatian Serb leader Goran Hadzic to join Karadzic in The Hague -- and it must do so to qualify for EU membership.
“Despite the great interest in accession to the EU and in apprehending Mladic and Hadzic, the new Serbian government has yet to confront its past honestly and fully,” Sabrina Ramet, a senior researcher at the Centre for the Study of Civil War in Oslo, wrote in a recent article.
A major setback was the 2003 assassination by organised crime hitmen of the politician some Serbs saw as the John F. Kennedy of their generation, Prime Minister Zoran Djindjic.
“Much of the reformist energy of the Milosevic-era opposition was wasted in the early years of the new democratic regime on internal political struggles,” said Fred Cocozzelli, an expert on post-conflict reconstruction in the Balkans at St. John’s University in New York City.
“It was always questionable whether internal reforms were done, not only legal reforms but mental reforms,” said Croatian President Ivo Josipovic, who has acted to improve long fraught relations with Belgrade since taking office last year.
“They lost several wars. Firstly Slovenia, then in Croatia, then Bosnia, then they lost Montenegro as part of (the Yugoslav) federation,” he told Reuters. Then came Serbia’s possibly most crushing defeat -- the loss of Kosovo, where ethnic Albanians declared independence in 2008.
Serbia has spent much effort lobbying against diplomatic recognition of Kosovo. This month however, Tadic, under great EU pressure, agreed to negotiate with Pristina for the first time.
Even if the nationalist opposition takes power after 2012 -- current polls suggest a close contest -- most analysts expect Serbia to move towards the EU aided by more foreign investment. In question, however, is the pace of change.
“Talk that there have been no changes and that we do not live according to a different standard I think is cynical,” said Ivan Vejvoda, a former adviser to Djindjic and now executive director of the Balkan Trust for Democracy.
“Serbia has really done a lot over these past ten years. Is it enough? No. Could it have been faster? Absolutely.”
Additional reporting by Ivana Sekularac and Jaksa Scekic in Belgrade, Daniel Bases in New York; Editing by Mark Heinrich