During a visit to Serbia in 2003, Collin Powell strongly hinted that real possibilities existed that by June of 2004 Serbia could be accepted into NATOs Partnership for Peace (PfP) at a conference in Istanbul, provided Mladic and Karadzic get arrested. Since noone among Serbian politicians was willing to risk a bullet to satisfy this provision as did former Prime Minister Djindjic for arrest of Milosevic, artificial NATO hopes were maintained by the optimistic media which, in all likelyhood, was projecting the hopes of the politicians, in particular, Serbia's Defence Minister Prvoslav Davinic.

So sudden ending of the artificial media hype of the PfP membership at the Istanbul Summit in June may be an indicator of the tremendous disappointment that swept not only the Serbian politicians but also the struggling Serbian weapons industry.

For the politicians, NATOs rejection is a culmination of their own hopeful naiveté, personified in the appointed Army Minister Prvoslav Davinic, whose preference for optimistic rather then realistic platitudes may have mismanaged the PfP campaign altogether and given many false hopes. For the Serbian weapons industry, a sector of great capacity and a long tradition of excellence, the rejection erased hopes for infusion of EUROs in a time when finances are so dry that they cannot even jumpstart a production for an already signed contract with a US weapons distributor.

Conspicuously absent in the disappointment discussion is the Serbian Military whose officers cadre is still, according to the budgetary advisor for the Defense Ministry Radisa Djordjevic, too old. While some in the aging officer cadre may have viewed the PfP as an ideological anathema in the first place, the concrete financial insecurity of these officers may make indifference an atoning virtue in times when military is no longer a sure ticket to a lifestyle of luxury. The average military pay of 270 Euros itself takes away nearly 49% of the defense budget while only 10% of that budget is set aside for the weapons purchases and modernization. Compounding the insecurity is the ongoing intra-union quarrel with Montenegro over the amount of money Montenegro is to pay for the army not to mention the unclear military doctrine that typically breeds resource misallocation, and all in times when NATO has clearly demonstrated that they are in the Balkans to stay.

Defense Minister Prvoslav Davinic

Unfounded Optimism?

Since the collapse of PfP as a possible source of military funds, the key to the Serbia's military ills, according to the always optimistic Davinic, is the Army Reform Fund that, according to him, is a repository of nearly $5 billion in hidden capital in addition to the captive capital of the tertiary business layers associated with the military such as restaurants, inns, cars, houses... Citing Romania as a model case, Davinic sees a similar $2 million World Bank loan as an additional infuser of necessary funds that are suppose to house some 15,000 homeless war veterans, raise the pay and the pensions for the military personnel, improve military hospitals...  while the Fund's surplus, the gem of Davinic's story of optimism, is suppose to modernize the Serbian military.

On the other hand, Davinic is officially uncertain whether the Fund should be a public affair with specific transparency contours... or a secret military affair towards which some see his personal predisposition.

Similarly, the proposed outline of the military doctrine also emanates with Davinic's optimism as it banks on Serbia's "professional capabilities" that he claims were demonstrated during the pogrom of Serbs by Kosovo Albanians in March of this year when the army stood aside. These "demonstrated" professional capabilities, according to Davinic, are suppose to be employed against the emerging main military threat - terrorism. Although this proposal has not yet moved from the ink on the paper (known as Nacrt strategije), recent heavy security during Serbia's basketball friendly with the USA, where no less then 5 different security agencies were engaged, clearly indicates this new emphasis as much as it illustrates a desire to demonstrate to the Americans the new and emerging military doctrine that has clearly abandoned "scorch earth policy" that gave them an atrocious rap in Kosovo.

While from the perspective of effectiveness the emerging Serbian military strategy - away from huge infantry and towards a small and professional special forces units - may indeed be a sound one, it is, at least for this moment, a pipe dream. During the presidential campaign Boris Tadic, himself knowledgeable in military matters, indicated that a professional army in Serbia may be a long way off because military professionalism is contingent on the scope and size of the domestic economy: a professional soldier costs upwards of $50,000 which is the tax money Serbia does not have.

Nor can the cash strapped, nearly insolvent Serbian weapons producers, themselves in search of agents of salvation, fund the military... yet that is.

Business of Military Armaments

Serbian weapons industry is a significant contributor to the scope and size of the Serbian industry. It directly employs nearly 20,000 and up to additional 100,000 is employed in some supportive productive capacity. From the social perspective then, Serbia's weapons industry implicates lives of some half-million people.

Pinning hopes on a gun: NATO based gun clearly signals Serbia's desire to integrate in the Western military alliance. The M21 is a Kalashnikov-based M90 that fires 5.56mm NATO ammunition. Fitted with a reflex optical sight of low power, and backup red-dot iron sights it mounts the BG-15 grenade launcher, or a copy of it that fires 40mm NATO Low-Velocity ammunition. Most parts are of light alloy or plastic composite.

However, the industry is an epitome of a wasted capacity as it operates at no more then 20% of its potential. Zastava in city of Kragujevac, for example, is capable of making 100,000 rifles yet it is only recently, in August, that the Serbian military placed an order for 500 (!) of its highly sophisticated and desired M21 handhelds. In a twist of irony, it was the government of Macedonia that was the first modest bidder to these NATO based weapons set to pay 150,000 Euros.

In an apparent breakthrough with at least one NATO member, the defense ministry recently succeeded in lining up a contract with the Turkish army for an undisclosed amount and with a firm commitment to production, development and joint sale of arms. Although few details of the agreement were revealed, Serbia's president is in talks for "further widening of bilateral and multilateral cooperation between the two countries."

Given Serbia's low capacity to meet the demand, the Turkey agreement may initially be a low intensity agreement that may, nevertheless, bring some infusion of funds necessary to restructure the excess capacity.

According to the defense ministry, 75% of the capacity is a definitive subject for reform that will cost at least $160 million with problems very typical of a government owned property: low liquidity, anti-profit planning, poor accounting and capital management, retarded technological know-how estimated to be in a 15 year trail... Furthermore, fiscal policy of the government that is survival-driven and not incentive-minded complicates the production planning and a cost structure: in January, for example, import duties were slapped on input components necessary for production of goods contracted by the US firms.

The Base of Good Prospects

The glimpses of hope for the weapons industry are, in fact, numerous. It has a 150 year old tradition of making highly praised weapons; it employs over 400 extremely well qualified researchers; it controls a huge level of employment and capital that failure cannot be an option, both politically and economically.

The government, however, does not envision the success of the industry as a completely private sector. According to the Colonel Vukasin Filipovic, Ministry of Defense has identified 6 "strategically important" arms producers where it wants to maintain a majority stake and has dully commissioned American financial firm Deloitte & Touché to uncover their capital inventory and make privatization recommendations with the government's desires in mind. The hope is that the other nine firms implicated in the weapons production chain will be wonderful investment opportunities for those seeking a ground level entrance in the Balkan's weapons business. It is plausible that Turkey's arms deal with Serbia may have been motivated with this opportunity in mind.

Although for the foreseeable future Serbian military will no longer be a big daddy to the weapons industry, government's vision of the restructured weapons industry may view the relationship in reverse. While this may further erode military's once mighty political role in Serbia, absence of a coherent civilian vision for the military goes hand in hand with general absence of certainty in the region chief of which is (internally) unreliable union between Serbia and Montenegro as well as (largely external) perpetuating attacks on Serbia's sovereignty over its province of Kosovo.

Hailed in the West as a man skillful in military matters, we are yet to see whether the elected President Tadic can preside over turning the tide towards certainty.