Phil Cain in Graz, Austria -

The international court's advisory ruling on July 22 that Kosovo's declaration of independence was not illegal can only help improve business prospects, but there is a long way to go before fears are quashed about government-meddling, corruption and lawlessness.

The international community has stumped up more than €4bn to help Kosovo recover from the war that ended in 1999, but with little lasting economic effect. Unemployment hovers at around 40% and poverty is rife. Yearly GDP per head is just €1,700, or €140 a month. The economy limps along, propped up by the relatively fat wallets of international community personnel and remittances sent by relatives working abroad, although much of this has been badly hit by the recession.

Investors are understandably spooked by a well-founded reputation for endemic corruption, although more decisive action to stamp it out seems to be on the cards. On July 23, the day after the International Court of Justice (ICJ) ruling, the governor of Kosovo's central bank, Hashim Rexhepi, was arrested. He is being detained in connection with an "ongoing corruption and financial investigation into suspicion of abusing official position or authority, accepting bribes, tax evasion, trading in influence and money laundering," the EU prosecutor said.

Poor relation

Kosovo has always been pretty deprived, even during Yugoslav times, a situation that was made worse by the war. But its current economic woes stem, at least in part, from having unilaterally declared its independence from Serbia in February 2008, having been under UN control since 1999, when Serbian forces terrorising the Albanian majority were driven out by Nato.

Eight months after Kosovo's independence declaration, Serbia asked the ICJ to give an advisory opinion on its legality, hoping it might further its cause. In the event, the ruling went more in favour of Kosovo's independence. The twist, however, was that the scope of the ruling was highly restrictive. "It didn't say independence is legal as such, it just said that it is not illegal to declare independence. It did not explore the right to self-determination or succession," notes Ian Bancroft, founder of TransConflict, an NGO operating in the Western Balkans.

The Serbian government is resolutely sticking to its claim. Nevertheless, "from a business and economic perspective, the most important thing is that it removes a lot of doubt," says Bancroft. "If the court had come down against independence, then there would have been a lot of doubt for foreign investors." The ruling might also calm uncertainty arising from persistent rumours that troubled relations between Albanians and the Serb minority might be solved through partition or territorial exchanges with Serbia.

Only 69 nations have recognised Kosovo in the last two and a half years, far short of the 100-plus that Kosovan Prime Minister Hashim Thaci had predicted. Among the big guns withholding recognition are Russia, a staunch ally of Serbia, and China. Closer to home, the EU is split, with objections coming from five of its 27 members, namely Cyprus, Greece, Romania, Spain and Slovakia. Each of those opposed is concerned that giving Kosovo the green light might encourage their own separatists.

More recognitions would go some way to calming investors' fears. "The ruling will definitely help Kosovo secure recognition from other sovereign nations," says Bancroft. Only time will tell exactly how many, however. Complete unity within the EU seems an unlikely prospect. Despite a call from the US for the EU to use the ruling to establish unity on the issue, Spain immediately said it would not let the ruling change its mind.

Neighbour problems

Kosovo, though still nowhere near meeting the entry criteria for joining the UN, is a member of the International Monetary Fund and World Bank with Serbia's consent. In other areas, however, Serbia has been less helpful. "We have a huge problem because Serbia not only refuses to accept independence, but refuses even to accept its existence," says Agron Bajrami, editor of Koha Ditore, Kosovo's biggest newspaper. "Nothing produced here can be exported into or through Serbia. Even planes serving Kosovo cannot enter Serbia airspace, making them far more expensive."

Other aspects of its relationship with Serbia inhibit Kosovo's development. "Its involvement in CEFTA [the Central European Free Trade Agreement] has been inhibited by Serbia's reluctance to recognise the customs of Kosovo," says Bancroft. Visas remain a perennial problem for people with only a Kosovo passport. But the ruling might, over time, help to bring Serbia to the table to solve such problems, according to Bancroft. "It could lead Serbia and Kosovo to talk about such technical issues."

"Serbia should develop a new attitude towards Kosovo more in line with that the EU and, to a greater extent, the US asks of them," says Bajrami. "This is not necessarily full recognition, but just a more constructive position. Such an attitude would improve the perception of the whole region." It is not just about legal niceties, Bajrami adds, it is about improving relationships between people, in particular those between Albanians and Serbs living in Kosovo.

Bancroft notes that the status issue is almost separate from the issue of what Kosovo is like as an institutional structure. Thus, the justice that emerges from a corruption trial in Pristina might lack the headlines of that from an international law court, but could have an equally profound effect.