Serb coalition in doubt after liberal scrapes win

Serbia's pro-Western president Boris Tadic has won re-election in a contest with nationalist Tomislav Nikolic, but his narrow victory may only have set up a fresh struggle over the country's future course.

Analysts say it puts the survival of Serbia's ruling coalition in question as it braces for the secession of Kosovo, the Albanian-dominated province, which has Western backing for a declaration of independence in the next few weeks.

Mr Tadic won Sunday's presidential election by 50.5 per cent to around 47.8 per cent, according to a partial count by the state electoral commission, which reported many spoiled ballots.

In a 2004 presidential race, Mr Tadic beat Mr Nikolic easily by some nine percentage points, in what the West saw as a welcome sign that the reactionary nationalism which fuelled war in the 1990s over the break-up of Yugoslavia was steadily weakening.

"There is no winner here," said Dragoljub Zarkovic, editor-in-chief of weekly news magazine Vreme. "Formally, it seems Boris Tadic will be President for the next five years, but in essence the moral winner is Tomislav Nikolic."

Mr Zarkovic saw it as a telling comment on the split in Serbian society that, seven years after ousting former autocrat Slobodan Milosevic, Serbs seemed still equally divided between hardline nationalism and a pragmatic, pro-Western course.

Analysts said the election turned on economic issues and the outcome was the most meagre endorsement of post-Milosevic reforms that many Serbs feel have benefited only the few.

The EU saw it as a referendum on how Serbia should react to Kosovo's independence. Mr Tadic says EU membership must remain the top priority. Mr Nikolic advocated turning to Russia.

Slovenia, holding the rotating EU presidency, welcomed Mr Tadic's victory as "support for (Serbia's) European course", without commenting on the narrow margin.

Former US envoy William Montgomery warned in advance of the vote that the West had misread Milosevic's defeat as proof that Serbia had renounced nationalism. It must not make the same mistake by assuming a Mr Nikolic defeat on Sunday would mean smooth sailing for Kosovo's independence, he said.

Serbia's mediaeval heartland has been run by the UN since Nato drove out Serb forces in 1999 to halt ethnic cleansing during a counter-insurgency war in which thousands of civilians - mainly Albanians - were killed by Serb forces.

Serbian Prime Minister Vojislav Kostunica made coalition ally Mr Tadic look like a junior partner over the past year, driving an uncompromising line on Kosovo with strong backing from Russia as Mr Tadic strove for a balanced approach.

Mr Kostunica wants a hardline response to independence, including diplomatic sanctions against the West, repudiation of the EU and measures to strangle the province economically. A few days ago, he announced he would not support Mr Tadic's re-election.

With Mr Nikolic as head of state, Mr Kostunica would have secured support for a confrontational policy. But Mr Tadic wants Serbs to put their future prosperity ahead of any bitterness they feel over the loss of Kosovo, and pursue an EU future.

The battle over that choice of course must now be fought.

Analysts said the collapse of the coalition could come soon, with Mr Kostunica's refusal to accept a proffered political agreement with the EU and insistence that Serbia actively oppose deployment of a planned EU supervisory mission to Kosovo.

Mr Tadic's Democratic Party "will threaten early parliamentary elections and Mr Kostunica will threaten to form a government with (Nikolic's) Radicals", analyst Djordje Vukadinovic said.

But analysts were split on whether the coalition would fall, triggering a snap election as Kosovo declares its independence.

"Mr Kostunica will no longer be able to decide on everything in this government," political analyst Dragan Bujosevic said. "The President will now have greater influence."

Fact box

The re-election of pro-Western liberal Boris Tadic as President of Serbia on Sunday is expected to soothe investor concerns about the country's stability ahead of the imminent declaration of independence by its Kosovo province.

Here are key facts about the Serbian economy.

• The economy grew by an estimated 7.5 per cent last year, after posting growth of 5.7 per cent in 2006 and 6.2 per cent in 2005. But foreign investments fell by more than 30 per cent last year on worries of political instability.

• Serbia has sold some state monopolies since 2000, when the fall of autocrat Slobodan Milosevic marked the opening up of the economy, but must still privatise many mid-size companies as well as some large state firms such as the telecom monopoly, car maker Zastava, and JAT Airways.

• The country hopes to attract at least $6 billion a year from sell-offs and foreign investment until 2010.

• Standard & Poor's revised Serbia's outlook to stable from positive in November due to fiscal policy loosening, but affirmed its "BB-" long term and "B" short term foreign and local currency sovereign credit ratings.

• Fitch kept its rating at BB- with stable outlook in November but noted that political risk "remains a material constraint on Serbia's sovereign rating."

• Serbia's dinar currency currently trades at 82.6 to the euro after a three-year high of €76.8 last October.

• Average salaries are around €370 a month, with unemployment at 30 per cent. The cost of living rose by seven per cent last year.