NOTE: Freedom House presents separate ratings for Serbia, Montenegro, and Kosovo to provide a clearer picture of the processes and conditions in the three different territories. Doing so does not indicate a position on the part of Freedom House regarding the territorial integrity of the State Union of Serbia and Montenegro; neither does it indicate a position on Kosovo's future status.

Serbia and Montenegro were parts of the Socialist Federal Republic of Yugoslavia (SFRY), a multinational federation comprising 6 republics and approximately 40 ethnic communities. The SFRY broke apart in 1991, and Serbia and Montenegro came to form the new Federal Republic of Yugoslavia (FRY) in 1992. During the 1990s, Serbia was under the authoritarian rule of Slobodan Milosevic, who is on trial at the International Criminal Tribunal for the Former Yugoslavia (ICTY) in The Hague for genocide, war crimes, and explicit abuses of human rights committed in Croatia, Bosnia and Herzegovina, and Kosovo between 1991 and 1999. Montenegro escaped Milosevic's influence in 1998 when it started to direct its own course toward economic liberalization, the establishment of democracy, and full independence.

In September 2000, a united opposition consisting of 18 parties known as the Democratic Opposition of Serbia (DOS) defeated Milosovic in parliamentary elections and removed him from office. Serbia's first post-Milosevic government, inaugurated in January 2001, quickly initiated reforms aimed at building democratic and market institutions. Although many of these reforms were successful and held great promise for Serbia's future, the murder of Prime Minister Zoran Djindjic in March 2003 and subsequent events led to a deceleration and even a stalling of reforms, thus highlighting ongoing weaknesses in Serbia's democratic institutions. The question remains whether future governments will be committed to pursuing democratic reforms.

Today, Serbia and Montenegro belong to the State Union of Serbia and Montenegro, which replaced the FRY in March 2003 and was intended to accelerate the integration of Serbia and Montenegro into the European Union (EU). However, the confederal character of the state union's joint institutions has given preference to priorities of the individual member states and has allowed them to block decisions deemed contrary to their interests. This, in turn, has resulted in poor governance and transformed the joint state into an obstacle to rather than a vehicle for integration. The state union is kept alive exclusively through pressure from the EU, which brokered the deal to create it in 2002.

On March 3, 2004, a coalition of four political parties formed a new government, and Vojislav Kostunica became prime minister. Overall, the Kostunica government has had varying degrees of success in continuing with the reforms initiated by the Djindjic government between 2001 and 2003. On the one hand, the government has vowed to strengthen the rule of law, relieved pressure on the media, and harmonized some legislation with European standards. In 2004, it also pushed through long-awaited amendments to Serbia's electoral legislation that finally allowed for the election of a president after three consecutive failures. On the other hand, in 2004 the government failed to create a consensus for passing a new Constitution. In addition, it weakened relations with the United States and the EU over its reluctance to cooperate with the ICTY and contributed little to resolving problems related to Kosovo and its future status. The government has also been unsuccessful in fighting corruption, giving in to the vested interests of tycoons from the Milosevic era. Transformation of Serbia's economy has stalled as well, owing to the Kostunica government's fear of the social costs of restructuring, particularly the likelihood of mass layoffs.

By mid-2004, the ruling coalition in Serbia had slipped measurably in the polls. As a result, Dragan Marsicanin, the government's candidate for the presidential elections in June, garnered less than half the support received by the four parties in the December 2003 parliamentary election. Voters unequivocally favored candidate Boris Tadic, whose Democratic Party led the government of Serbia from 2001 to 2003 under Zoran Djindjic. The Democratic Party also had a strong showing in local elections held in September 2004. Overall, the party's success demonstrated that the majority of Serbia's active electorate is willing to pursue more dynamic economic and political reforms. Nevertheless, the Serbian Radical Party, the Milosevic ally that opposes democracy and open markets, remains one of the two most popular parties in Serbia. Its commitment to reversing reforms constitutes a palpable threat to the stability of democracy in Serbia.

In 2004, the government of Montenegro focused its efforts on undermining the state union's joint institutions with Serbia and laying the groundwork for a 2006 referendum on independence. The pursuit of economic and legal reforms was less of a priority. In October 2004, the opposition's boycott of the Parliament, which had aimed since 2003 to weaken the government of Prime Minister Milo Djukanovic, foundered when the Socialist People Party, the largest oppositional party, broke ranks and returned to the Parliament. In 2004, the Montenegrin government remained under the constant watch of nongovernmental organizations (NGOs), which now appear to be more influential than the opposition political parties. Like Serbia's government, Montenegro's governing authority showed little or no progress during the year in fighting organized crime and high-level corruption for fear of endangering its vested interests.

National Democratic Governance. The state union became almost entirely dysfunctional and irrelevant in 2004 owing to the continued usurpation of its decision-making powers by the republic-level governments of Serbia and Montenegro. During the year, for example, the Montenegrin government announced that it would avoid its constitutional obligations and not hold direct elections for the assembly of the state union in 2005. Creation of the Joint Court of Serbia & Montenegro, which is tasked with matters of constitutional law, has still not been completed. Government ministers and deputies at the state level remain answerable to their member states rather than the public. The joint military, for its part, lacks democratic oversight.

Although there is broad consensus about the creation of democracy in Serbia, the Serbian Radical Party, one of the two largest oppositional parties, remains more focused on nationalist and extreme political rhetoric and policies than on serious reform efforts. Although the minority government inaugurated in March 2004 is weak, it creates a reasonable balance of power between the government and the Parliament that was not present in the 2001-2003 period. In general, the constitutional mechanism of the dual executive causes instability, because the president, while having no formal policy prerogatives, often takes issue with the government on specific points. By not disclosing secret files from the Communist era, the government has demonstrated an inability to reform the state security service, which was implicated in the 2003 assassination of Zoran Djindjic.

Despite the opposition boycott, the Montenegrin Parliament and government worked without interruption in 2004. In October, the boycott collapsed and the Socialist People Party returned to the Parliament. Although the opposition does not support independence for Montenegro, the Socialist People Party now appears willing to accept the outcome of a referendum on independence scheduled for spring 2006. Montenegro's judiciary, although formally independent, is subject to government influence. While it avoids cases that could harm state officials, it is quick to fine oppositional leaders for libeling incumbents. The ruling Democratic Party of Socialists, which is a direct successor to the pre-1989 Montenegrin Communist Party, appears to be unable to control factions within the state security service that resist reforms and use their position for political purposes.

While there is public support for democratic principles in Serbia, not all major political parties seem to be endorsing it equally as the only legitimate form of polity. Powers are balanced between the Parliament and the executive, and ongoing reforms have strengthened the independence of the judiciary. However, the police refuse to disclose secret files from the Communist era, and the government has failed thus far to reform the secret service. Security services, including the military, interior, and secret services, are not under democratic oversight. Serbia's new rating for national democratic governance is set at 4.00.

Although support among the population and politicians for democratic principles in Montenegro is strong, there is no consensus among the state's major political parties about independence. Agreement will be possible only after a referendum on independence in 2006. The government has substantial influence over the Parliament and the judiciary. Likewise, the Montenegrin secret police are dominated by the ruling party, which continues to block its reform. Montenegro's new rating for national democratic governance is set at 4.50.

Electoral Process. In 2004, the Parliament removed Serbia's voter turnout requirement and finally made possible the first election of Serbia's president since 1998. The Parliament also removed the 5 percent electoral threshold for ethnic minority parties. The new Law on Financing Political Parties, which made the process by which parties receive and manage their funds more transparent, became effective on January 1, 2004, but it was largely not adhered to during the June 2004 presidential elections. In its electoral report, the Organization for Security and Cooperation in Europe praised the electoral process, assessing that elections in Serbia are generally held in agreement with democratic and European standards. Economic themes and corruption are becoming more dominant in local electoral campaigns. The 2004 presidential and local elections indicated a slump in the government's popularity and an increase in popularity of the pro-reform Democratic Party. However, the 2004 elections also bolstered the morale of the Serbian Radical Party, which is still one of the most popular parties in the country.

In 2004, Montenegro held local elections in three municipalities. The parties campaigned less on local and more on national issues such as independence and corruption. The campaign was followed by increased political activity from top party leaders and national incumbents. The elections' mixed results showed that the electorate is fairly divided between the government coalition parties (which favor independence) and the opposition (which favors joint state with Serbia), with a slight bend toward the former. Electoral legislation and practice in Montenegro in 2004 accorded with European standards.

Serbia's electoral process rating improves from 3.50 to 3.25 owing to the positive development in both electoral legislation and electoral process, which is seen in the removal of the turnout requirement for presidential elections and the 5 percent electoral threshold for ethnic minority parties in Serbia.

Montenegro's electoral process rating improves from 3.50 to 3.25 owing to the conduct of local elections in agreement with European standards.

Civil Society. Despite expectations, the Serbian government failed again in 2004 to adopt legislation defining the status of NGOs. The old legislation (from the 1980s and 1990s) is restrictive and unfavorable to the development of the civil sector. For example, NGOs are not allowed to form or operate if they are not registered with the police. NGOs are also forbidden to take up any economic activity for self-support and are liable for taxes. After the cooperation between the government and the civil sector in 2001, the impact of Serbian civil society on the government's public policy vanished entirely in 2004. The government supports civil society actors in budgetary matters, but this alone is insufficient for the comprehensive development of the civil sector. Substantial funds for NGOs are provided by international donors. Throughout 2004, the media regularly followed the civil sector's activities, and several NGO leaders went on TV to discuss political issues; unfortunately, the increase in public stature that resulted from their appearances did little to influence the government to change its attitude. In Serbia, the public remains less supportive and more suspicious of NGOs than in Montenegro.

In Montenegro, since the passage of important legislation in 1999, civil society has enjoyed a more lax, more liberal environment for its development. The Montenegrin NGO sector is much smaller than Serbia's but appears to be more vibrant. In 2004, several NGOs managed to persuade the government to consider NGO proposals in fighting corruption and protecting the environment. The most active NGOs in Montenegro are those dealing with public issues and public policy. Their existence is dependent primarily on foreign donations, although the government also allocates substantial funds from the state budget. Throughout 2004, Montenegrin NGOs enjoyed more public support for advocacy efforts than did their counterparts in Serbia.

Serbia's civil society rating remains unchanged at 2.75 owing to the failure of the government to improve regulation of the civic sector.

Montenegro's civil society rating improved from 2.75 to 2.50 given the civil sector's growing activism and the government's receptivity to advocacy efforts.

Independent Media. In Serbia, the most important development in 2004 was that the new government stopped harassing and interfering with the editorial practices of private media. This improvement ended the government's custom of applying informal pressure on editors, a policy that had lingered even after the state of emergency was lifted in 2003. This change affected the majority of print and electronic media, which are privately owned. In 2004, the Serbian government maintained control of public media, notably television, which has high public influence. In November, the Parliament adopted the Law on Public Accessibility to Information and appointed a commissioner to disclose information about government work that is of public relevance. However, the law remains unclear about what information is relevant and who decides that question. Additionally, the appointed commissioner was not provided an office, so in practice there is no place where one can submit a request. The quality of the Serbian press deteriorated in 2004 thanks to the increasing popularity of tabloids, which often run fabricated stories and promote hate speech. Journalists continued to be sued by politicians for libel. In response to the increase of fabricated stories, the minister of justice said in 2004 that the government intended to make libel a criminal offense, but the topic was not pursued further by year's end. Journalists are able to form professional associations. Serbian society enjoys free access to the Internet.

In Montenegro, print media are either pro-government or pro-opposition. The only independent daily is Vijesti. Montenegrin national television is not formally under the government's influence, but it openly favors independence from the state union, which has been the major plank in the government's platform since 1998. Montenegrin police did not resolve the May 2004 murder of Dusko Jovanovic, editor in chief of the daily Dan. Jovanovic is believed to have been murdered for harshly criticizing the government and secret service. The inability to resolve his murder created an atmosphere of fear in the media community in Montenegro and the belief that practicing free journalism can be very dangerous.

Serbia's independent media rating improves slightly from 3.50 to 3.25, reflecting a return to the rating prior to the state of emergency now that the government has stopped interfering with the editorial policy of private media and passed legislation aimed at providing free access to information. However, in practice access to information is still denied, legal protections for press freedom are unsecured, and legal penalties for "irresponsible" journalism whether justifiable or not in terms of journalistic ethics remain common practice.

Montenegro's independent media rating remains 3.25 owing to the unresolved murder of Dan editor in chief Dusko Jovanovic and a lack of achievements that otherwise would benefit the sector.

Local Democratic Governance. The new Law on Local Governance in Serbia was adopted in 2002. The legislation failed to entirely harmonize local governance legislation with the 1985 European Charter of Local Self-Governance. The law increased the number of original prerogatives of local authorities but failed to grant substantial fiscal autonomy to local legislatures. Local authorities are able to collect fees to provide utilities (water, garbage collection, and so forth), but the lack of fiscal autonomy prevents them from providing other types of services (such as street repairing or public lighting). Serbian municipalities are allowed only to share in taxes levied at their administrative territory. Municipalities were not returned property that the state took from them in 1996. Local leaders exercise their power independently, especially now that the new law ensures legal protection from national government interference. However, the principle of the dual executive at the local level causes clashes between directly elected presidents and executive councils elected by assemblies, thus bringing about stalemates in a number of municipalities after the September 2004 local elections.

The Montenegrin Law on Local Self-Governance was adopted in July 2003. It gave substantial financial autonomy to local authorities and established a coherent governance structure at the local level. Presidents are elected directly, but their prerogatives are clearly demarcated from those of local assemblies, which facilitates good governance at the local level. The national government, however, interfered with the work of local authorities in the municipalities of Budva and Niksic (where the opposition was in charge) by blocking the municipalities' bank accounts. Municipalities are allowed to hold property, and Montenegrin municipalities can levy their own taxes for providing local services.

Serbia's new rating for local democratic governance is set at 3.75 because the lack of fiscal autonomy at the local level prevents towns and cities from enhancing the quality of existing services and providing new ones. Governance in a number of municipalities is undermined by poor legal solutions that confuse the relationship between the mayor and the assembly's executive council.

In Montenegrin municipalities, executives function without interruption owing to easier relationships with local assemblies. Montenegrin legislation is more liberal and provides higher autonomy for local authorities. However, given the government's occasional interference with local authorities' funds, Montenegro's new rating for local democratic governance is set at 3.50.

Judicial Framework and Independence. In 2004, the new government of Serbia amended several laws pertaining to the judiciary, with the aim of strengthening the independence of judges and harmonizing litigation procedures with European standards. The government failed to protect the rights of ethnic minorities after the escalation of ethnic tensions in Vojvodina in the beginning of the year. The Serbian judiciary in 2004 took up only one war crimes case, while the Kostunica government struggled to avoid cooperating with the ICTY by refusing to hand over war crimes suspects and proposing the voluntary surrender of the suspects.

Despite formal independence, the Montenegrin judiciary seems to be under the influence of the Montenegrin government. For example, it has failed to solve the highly publicized woman-trafficking affair, which dates to 2002 and implicates several state officials in corruption. At the same time, however, Montenegrin courts have demonstrated their efficiency in fining oppositional leaders for libeling incumbents.

Serbia's judicial framework and independence rating remains at 4.25 because the Serbian judiciary is still unable to deal with war crimes cases yet made progress in harmonizing the judicial system with European standards.

For influence of the government on the judiciary and the inability of the judiciary to solve the woman-trafficking affair, Montenegro's rating remains at 4.25.

Corruption. Both the Serbian and Montenegrin governments showed no progress in fighting corruption in 2004. The new Serbian government did not try to investigate the three big corruption scandals from 2003: the sugar affair, the Janjusevic-Kolesar affair, and the Sartid affair. Each of these implicated former or current government officials and were substantiated by reports made by the Council for the Fight Against Corruption. The government ignored these reports, which is indicative of its powerlessness and lack of will to tackle vested interests both in the government and among tycoons who seek to retain economic monopolies.

The Montenegrin government did not make the privatization of large companies more transparent in 2004. Indeed, it was accused of rigging the privatization procedure for the aluminum factory in Podgorica. In addition, Prime Minister Milo Djukanovic is still suspected of having been involved in cigarette smuggling, and one Italian magistrate announced that he might reopen the case.

Because of the Serbian government's lack of will to fight corruption, Serbia's rating remains 5.00.

Montenegro's rating remains unchanged at 5.25 owing to the nontransparent privatization process.

Outlook for 2005. The future of the state union, which was created in 2003 under much arm-twisting from the EU, seems uncertain. It depends on the outcome of the referendum on independence that will be held in Montenegro in spring of 2006, as permitted by the 2003 Constitutional Charter. In the meantime, the so-called twin track, which created the possibility in 2004 for Serbia and Montenegro to pursue EU membership separately and enjoys the support of the European Commission, will enable both Serbia and Montenegro to pursue integration at their own pace. Once the twin track system is in place in 2005, EU assessments of Serbia and Montenegro will no longer focus on the economic harmonization of the two states. In the case of Serbia, for example, the EU focus will be on cooperation with the ICTY.

In 2005, the Serbian government is expected to undertake a restructuring of the public sector, implement new bankruptcy procedures, enliven the privatization that stalled in 2004, restructure state finances, and reduce public spending. Much courage and political determination will be required to tackle these objectives, because serious restructuring of the economy will threaten vested interests. If the Kostunica government remains unwilling to cooperate fully with the ICTY, this will hold back Serbia's progress toward negotiations on the Stability and Accession Agreement with the EU. Serbia will likely try to patch up relations with the United States and the EU by urging war crimes suspects to give themselves up to the ICTY. Serbia could also face early elections in 2005, since the two most popular parties (the Democratic Party and the Serbian Radical Party) are not in the government. The Serbian Radical Party will remain a threat to democracy and a market economy. However, since the parties that removed Milosevic and set the country on the path of reform in 2000 grew aware of the necessity to create a coalition, it is expected that some reformist-oriented coalition will remain in office after these elections.

The Montenegrin government's major goal for 2005 and 2006 is to split from Serbia and achieve independence. It is expected to avoid direct elections for the state union's assembly (which is mandated by the Constitutional Charter for spring 2005) in favor of a referendum on independence. The future of the Djukanovic government seems to be entirely dependent on the outcome of the referendum. Its ability to succeed in this agenda could bring about instability in the region but could also contribute to a quickening of the pace at which Serbia and Montenegro approach the European integration process. Much will also depend on whether the twin track system will enable the countries to move toward the EU faster separately than jointly.