SCENESETTER FOR MARCH 23-24 VISIT OF CODEL

UNCLAS SECTION 01 OF 02 BELGRADE 000434

SIPDIS

SENSITIVE
SIPDIS

DEPT FOR EUR/SCE
DEPT FOR H - PLEASE PASS TO OFFICES OF SENATOR VOINOVICH

E.O. 12958: N/A
TAGS: OREP PREL PGOV SR
SUBJECT: SCENESETTER FOR MARCH 23-24 VISIT OF CODEL
VOINOVICH



1. (SBU) Your visit comes at a critical moment for Serbia
in this difficult year of big decisions on Kosovo, the
future of the State Union and European integration. The
death and burial of Slobodan Milosevic last week provided
insights into a country that is exhausted and frustrated
with the political system and its leaders. It is less
rage than indifference and hopelessness. While the
nationalists are clearly the only ones who can muster the
80,000 people we saw in the streets of Belgrade on
Saturday, we would venture that none of the parties were
able to focus the emotions of last week on a convincing
future for this numbed electorate. In the difficult
months ahead, we will continue to stress Serbia's future
as a part of a free, democratic and modern Europe. Your
visit can help reinforce that message.


2. (SBU) There were contradicting signs in the week
following Milosevic's death about Serbia's readiness to
put the difficult years of the 90's behind it. The
government stood firm against pressure from the
nationalists on any suggestion of a state funeral or
manipulation of the courts to allow Milosevic's family to
return. They did make certain allowances, however, that
permitted some of the political exploitation of the
deposed dictator's passing. But there was quite a bit of
open commentary, in various newspapers and from different
sources, about Milosevic's negative role in bringing war,
chaos and decline to Serbia, and anecdotal reports that
suggested most people simply did not want to return to the
Milosevic story. The military and the Church for the most
part stayed away and those state institutions that were
forced to participate, e.g., the museum where his coffin
finally was placed for two days for final respects,
protested in a public and prominent way. More significant
than the staged event in front of the parliament, was the
fact that the government and the DS did not find a way to
use Milosevic's end as a way to rally support for the
future.

Continued Pressure on ICTY Cooperation


3. (SBU) In fact, we fear the government may focus on the
wrong lessons from last week's events. There are already
signs in the press and in private discussions with the
Ambassador and business leaders that the government will
seek an extension of the EU's hard April 5 "deadline" for
Mladic's turnover to The Hague. The EU has already
bureaucratically frozen the stabilization and association
talks on the ground here but promise to make that
suspension more formal in early April. The government is
feeling the pressure even more as Milosevic's death and
the recent suicide death of another Serb inmate at The
Hague have only deepened popular distrust and antipathy
towards the ICTY. We should not let up on Mladic at this
point. The Ambassador is stressing in his public
statements the "moral compact" part of Serbia's ongoing
reconciliation with the past as a key to building Serbia's
future. He is seeing Kostunica on March 20 to press him
to seize the moment and transfer Mladic before the EU
closes the door on April 5.


4. (SBU) Popular discontent with The Hague
notwithstanding, there are ample signs that the government
has less to fear from the unreconstructed nationalists
than Saturday's numbers in the street might indicate. The
Socialist Party (SPS) has backed down from its threats
last week to bring the government down (its votes keep the
coalition in power) and it is almost certain that given
their fading support and divided leadership, early
elections would be their death knell. While recent polls
show that the radicals and the socialists would win the
majority of votes if the elections were held tomorrow,
most observers here agree that the Radical Party (SRS) is
simply not ready to go to elections now. A more
significant conclusion from the polling data is the
increasing drop out rate of voters across the board, but
particularly in the democratic block. Mladic and an
opening to Europe will have a dramatic impact in bringing
those disaffected democrats back. We need to continue to
press Kostunica and Tadic to seize this opportunity.


5. (SBU) On Kosovo, the government continues to engage
responsibly on decentralization talks, while it insists
that it will never accept Kosovo independence. You should
welcome the progress in the latest round of
decentralization talks in Vienna (March 17) and encourage
both Tadic and Kostunica to continue their constructive
engagement. US Special Envoy Wisner as well as Ahtisaari

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and senior British officials have delivered "private
messages" to both Tadic and Kostunica about status. It
would be helpful for you to acknowledge those discussions
without getting into details, stressing the need for
Serbia to support an outcome that will balance the will of
the Albanian majority in Kosovo and their own aspirations,
which we share, for a leadership role in a stable south
central Europe that is fully integrated in Euro-Atlantic
institutions.


6. (SBU) While Mladic conditionality continues to block
Serbian participation in Partnership for Peace, there are
numerous opportunities for promoting Euro-Atlantic
integration that remain untapped. This includes the State
Partnership Program, which continues to drift because of
delays in the government's consideration of a pending
bilateral Status of Forces Agreement (SOFA). In addition
to the SOFA, there are two other key agreements waiting
for implementation or further government consideration,
including a Ground Lines of Communication (GLOC) Agreement
with NATO (ratified but not yet entered into force); and a
bilateral Security Cooperation Agreement with us, with our
required Article 98 guarantees. We have recently gotten
assurances from senior officials in Kostunica's cabinet
that the government may be ready to move forward on these
agreements. You should encourage both Kostunica and
Minister of Defense Stankovic to complete these agreements
quickly and to look for creative ways to use
implementation to promote Serbia's interest in closer
security ties with both the United States and NATO. On
the non-proliferation front, Serbia continues to cooperate
with us closely and we are looking to build further on
recent GoS progress in destroying unneeded manpads.

STATE UNION


7. (SBU) While Montenegro is proceeding with plans to hold
a referendum May 21 on the future of the State Union, the
Serbian government appears to be all but in denial on the
issue. The government refuses to discuss the possibility
of Montenegrin independence and its implications until
after the referendum, although it has said it would
respect the outcome of the referendum either way. The
prospect of the State Union's dissolution is not as
emotionally charged an issue for the Serbian public as
Kosovo's future status is. There is speculation that a
"gray zone" result (the pro-independence side receiving
more than 50 percent but less than the 55 percent required
by the EU to recognize Montenegro's independence) would
cause a degree of instability and backlash among the pro-
independence voters, but most agree that the State Union
as it exists now is dysfunctional, and the Serbian public
seems resigned to its possible dissolution.

ECONOMIC OUTLOOK


8. (SBU) In addition to the political and strategic
challenges the shaky coalition government faces, it must
also grapple with the challenge of building sustained
prosperity to deliver rising incomes to a long-deprived
population. Per capita income is USD 3,226, compared to
USD 8,416 in Croatia, and unemployment hovers around 19
percent. The minister of labor and social policy
reported in October that some 20 percent of Serbians live
with incomes below the poverty line of USD 2.90 a day.
The Government has made significant progress, with the
banking sector now largely privatized and the economy
producing strong growth. However, Serbia still is not
receiving significant levels of foreign direct investment
(FDI),which is the key to increasing exports and
employment. Investors face numerous structural barriers,
including extreme difficulty in land transactions, but the
political uncertainty surrounding Kosovo status
negotiations plays a role, as well.


9. (SBU) Your visit here is a great opportunity for a
friend of Serbia to relay an encouraging but tough message
to Serbia's democratic leadership. They need to hear that
we are convinced that Milosevic's era is over and that we
are focused on the future. But that will require Serbia
to continue the difficult and wrenching process of
reconciliation. Mladic and the ICTY are only a small part
of that process, but a critical element for building a
Euro-Atlantic future.

POLT