The United Nations told Serbia on Friday the ongoing political instability was hurting its credibility and that it could be losing $100 million a year in UN aid if it does not quickly sort out its problems.
"If this stagnation continues, the whole UN system's plan to provide development assistance to Serbia and Montenegro for the next five years will be affected until Serbia obtains political stability with a reform-oriented democratic regime," UN Resident Co-ordinator in Belgrade Francis O'Donnell said.
The statement came only days after Serb parties overcame a six-week deadlock after an inconclusive general election on December 28 and elected a new parliament speaker, with the help of the Socialist party of jailed ex-leader Slobodan Milosevic, making a first step towards forming a coalition government.
This prompted concern in the West that Serbia might not be heading in the right direction. The West has so far hoped that feuding reformers would overcome differences and form a majority coalition, denying any influence to resurgent hard-liners.
"In a worse case scenario, you could look forward to a decade of severe economic decay, massive poverty and the serious erosion of democracy," O'Donnell said in a statement describing what could happen if tainted individuals rose back to power.
Ex-Yugoslav President Vojislav Kostunica, whose party came second in the election, seeks minority government with liberals and royalists, with or without the backing of the centre-left Democratic Party (DS), the major force in the outgoing cabinet.