Identifier
Created
Classification
Origin
06BELGRADE842
2006-05-26 16:36:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Embassy Belgrade
Cable title:  

SCENESETTER FOR MAY 27 VISIT OF CODEL INHOFE

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SUBJECT: SCENESETTER FOR MAY 27 VISIT OF CODEL INHOFE


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SUBJECT: SCENESETTER FOR MAY 27 VISIT OF CODEL INHOFE


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1. (SBU) SUMMARY. Your visit comes at a time when the future of
Serbia and Montenegro (SaM) is at a critical crossroads. Serbia will
face difficult decisions in the weeks and months ahead on such key
issues as: Kosovo final status, the dissolution of the SaM State
Union, full ICTY compliance (rendering General Mladic to the Hague),
overcoming the suspension of Stabilization and Association Agreement
Talks with the EU, defense reform, and generally accelerating Euro-
Atlantic Security integration. Future Serbian government positions,
policies and actions regarding the critical issues outlined above
will be a clear indicator as to whether or not Serbia is committed to
its goal of European integration, NATO membership, and regional
stability or turn to nationalism and isolation. Your visit will
center on Serbian President Boris Tadic and Foreign Minister Vuk
Draskovic. Both leaders have been advocates of PfP and eventual NATO
Membership, generally constructive over Kosovo final status (although
still opposed to independence),and outspoken on Serbia's need to
fulfill its international obligations to the Hague. You may use this
opportunity to send a strong message that the U.S. is committed to
keeping Serbia on the road of Euro-Atlantic integration.


2. (SBU) Additionally, we hope that you will use your visit to
support the SaM defense reform process and encourage a stronger
bilateral U.S.-SaM military relationship. We believe that now is the
right moment to support defense reform. Doing so will greatly
enhance our ability to achieve our multiple security sector goals.
The SaM government has recently signed a WMD non-proliferation
agreement and is in the process of moving forward on a bilateral
SOFA, and a security cooperation agreement that includes Article 98
guarantees. Signature of the latter agreement could pave the way for
initiation of IMET and FMF programs soon. As we move forward with
these initial steps, and attempt to re-start our mil-to-mil programs,
we are remaining strongly firm on PIFWC (Mladic) conditionality for
PfP membership. By strengthening the hand of the reformers we can
further marginalize the old guard and eventually drive them out

entirely. This could also lead to a further erosion of possible
clandestine support for Mladic and others. The reformers are on the
rise here, but they can still lose to competing reactionary forces
within SaM governmental and military institutions. END SUMMARY


3. (SBU) Political Situation.


A. (SBU) Dissolution of the SaM State Union. On 21 May 2006
Montenegro held an independence referendum. Montenegrin voters had
the choice of returning full sovereignty to Montenegro with a Yes
vote or opting to remain part of the SaM State Union with a No vote.
Previously, the European Union brokered a deal with the Montenegrin
Government and opposition to establish a 55 Percent threshold for
independence. On 23 May 2006 the OSCE certified that the Montenegrin
referendum was free and fair. As of 24 May 2006 preliminary official
results indicate that 86.1 Percent of all eligible voters turned out
with independence garnering 55.5 Percent of the vote while 44.5
Percent favored the State Union. With the referendum's success, the
Montenegrin government will in the upcoming weeks move to dissolve
the State Union, declare independence, and seek bilateral
recognition. SaM Foreign Minister Vuk Draskovic and Serbian
President Boris Tadic offered messages of support and understanding
to Montenegro. In their respective statements, both leaders
respected the expressed will of the Montenegrin people and emphasized
that both states must work closely together in the future on common
economic and security interests.


B. (SBU) Political Uncertainty in Serbia. The Serbian minority
coalition government of Prime Minister Vojislav Kostunica maintains a
slim five-seat majority in parliament only with the support of the
Socialists of former authoritarian leader Milosevic. The prospects
of Kostunica's fragile minority government lasting until its mandate
expires in December 2007 are uncertain. The EU's suspension of SAA
talks on 3 May 2006 due to the Serbian Government's failure to
apprehend and deliver General Mladic to the Hague led to the
resignation of Deputy Prime Minister Miroljub Labus and eroded the
Government's reformist credentials. Further, Prime Minister
Kostunica did not anticipate the success of the Montenegrin

BELGRADE 00000842 002.4 OF 004


referendum and now faces the task of reconstructing the Serbian
Government by integrating the existing State Union Foreign and
Defense Ministries. The reconstruction of the Serbian Government
poses two key issues -- the future of Foreign Minister Vuk Draskovic
and who will exercise command and control of the Armed Forces.
Foreign Minister Draskovic due to his pro-western and progressive
stances on PfP/Nato, the Hague and Kosovo is a target of the
nationalist Radicals and Socialists. The latter have stated that
they will not support his nomination to Kostunica's cabinet in
Parliament. However, the exact mechanism to transfer the foreign and
defense ministries has not yet been determined and Kostunica may seek
to avoid a parliamentary showdown over Draskovic. With regards to
control of the Armed Forces, the Serbian constitution specifies that
President Tadic is the commander-in-chief of the Armed Forces in both
peace and war. However, specific responsibilities and decision-
making authority over defense matters is still a subject of debate.
There are strong indications that the Prime Minister may insert
himself along with the President or worse undermine the President's
authority over the Armed Forces. This may have a potentially
negative effect on defense reform.


C. (SBU) Future of Democracy. The government's mandate extends until
December of 2007, but there is constant speculation about early
elections. For the government, the incentive would be to secure
passage of a new Serbian constitution, one of Kostunica's highest
priorities as a legacy for his government. The government might also
seek political cover on the Kosovo issue, a risky issue for any party
in power. While recent polls show that the reactionary and rabid
nationalist radical and the socialist parties could win the majority
of votes if the elections were held tomorrow, most observers here
agree that a unified or well-led Democratic bloc of parties could
continue to lead Serbia in the future despite all the challenges. A
more significant conclusion from the polling data is the increasing
drop out rate of voters in the democratic bloc. ICTY compliance, PfP
Membership and an opening to Europe will have a dramatic impact in
bringing those disaffected democrats back. We will continue to press
Serbia's leadership (civilian and military) to seize this
opportunity. President Tadic is the leader of Serbia's democratic
opposition and largest democratic party. His leadership in the
months to come will be critical for the survival of democracy in
Serbia.


4. (SBU) Key Challenges.


A. (SBU) Kosovo. The Serbian government continues to engage
responsibly on decentralization talks, while it insists that it will
never accept Kosovo independence. Any discussion should welcome the
progress in the latest round of
decentralization talks and protection of religious sites in Vienna
and encourage military and civilian leadership to continue
constructive engagement. Of note, US Special Envoy Wisner as well as
UN Envoy Ahtisaari have delivered "private messages" to both
President Tadic and Prime Minister Kostunica about the likely outcome
of Kosovo status talks. There is no need to acknowledge these
discussions, but do stress as appropriate 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.


B. (SBU) ICTY Cooperation. Serbia continues to feel the consequences
from its failure to comply with the ICTY. The EU's recent suspension
of SAA talks with Belgrade resulted from the Serbian Government's
inability to locate, arrest and render indicted war criminal General
Ratko Mladic to the Hague. Congress has required that the USG
(delegated to the Secretary) determine by May 31 whether or not
Serbia is fully complying with its ICTY obligations; non-
certification would result in the suspension of assistance to central
government bodies. Full ICTY compliance continues to be a policy
condition for Serbia's entry into PfP. Of note, the Serbian Security
Services have improved their efforts and shown greater determination
to locate Mladic. We have also seen some incremental indications of
increased political will on the part of Prime Minister Kostunica to
ensure Mladic's handover to ICTY. We would also recommend that you

BELGRADE 00000842 003.4 OF 004


reinforce the need for continued progress on ICTY, particularly with
regard to Mladic. In the end, the Mladic issue remains the key
impediment to Serbia's integration in Euro-Atlantic political and
military structures.


5. (SBU) Status of Defense Reform.


A. (SBU) General. With the disruptive effects of the political and
economic situations, the military setting in Serbia and Montenegro
remains mixed in terms of the state of defense reform, armed forces
capabilities, and mil-to-mil relations. In some of these areas, much
has been accomplished in the past two years. In laying the ground
work for reforms, SaM has produced a Defense Strategy, White Paper,
and just recently a Defense Doctrine. These may only be temporary or
transitory, but these products do lay out a direction for the Armed
Forces in terms of orientation towards PfP, NATO, and in general
Euro-Atlantic institutions. The White Paper defines the
participation in Peacekeeping Operations as one of the three primary
missions of the armed forces, and commits the country to long-term
reductions in personnel and equipment. The Strategic Defense Review
(SDR) with parliamentary ratification hoped for by the end of 2006.
This document, which lays out the details of what in the future will
be the Serbian armed forces organization, as well as numbers of
personnel and equipment, has been reviewed thoroughly by
representatives of the DAO and the National Defense University. Far
from perfect, we do believe the military is generally headed in the
right direction in terms of orientation, size, missions, and
capabilities.


B. (SBU) Orientation. This change in orientation has not always been
smooth or easy for the Armed Forces. In the past few years, over 50
General Officers, and hundreds of Colonels have been retired.
Education and focusing of the military leadership on concepts of
civilian control, transparency, and western military standards has
been key. We are in the process of growing the bilateral
relationship further through agreements such as SOFA and a Security
Cooperation Agreement. Passage and implementation of these
agreements would go a long way in giving us the tools to assist their
defense reform needs, and help ensure a military orientation and
posture that would be in our interests. At the heart of defense
reform is the Deputy Chief of the General Staff, Major General
Zdravko Ponos. General Ponos is the author of the Armed Forces
Strategic Defense Review and the catalyst for defense reform within
the General Staff. He enjoys the strong support of President Tadic
and is expected to be the next Chief of the General Staff.


C. (SBU) Moving Forward and The Bilateral Agreements. It is
important that we look for ways to engage further. While Mladic
conditionality continues to block Serbian participation in PfP, there
are numerous opportunities for promoting Euro-Atlantic integration
that remain untapped. This includes the State Partnership Program,
which remains on hold due to the government's continued consideration
of a bilateral Status of Forces Agreement (SOFA). In addition to the
SOFA, an ACSA, a Security Cooperation Agreement (with our required
Article 98 guarantees) all remain emphasis items. In this regard, we
have recently received assurances from senior officials in the
government may be ready to move forward on these agreements. You
should encourage President Tadic and General Ponos to continue to
push the government 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.



6. (SBU) The Economy, U.S. Assistance and Perceptions of U.S.


A. (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 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

BELGRADE 00000842 004.4 OF 004


strong growth, about 6.5 percent last year. While the government has
been successful in pushing forward reform in some areas, more legal
and regulatory reform is still necessary. Often new laws are found
to have significant problems after Parliament approves them.
Privatization is moving forward in some areas but has slowed, largely
due to political reasons, with reference to large industrial
companies left over from the socialist era.. The government also
still faces the daunting task of restructuring the large monopoly
enterprises, such as power and telecoms, that continue to burden the
economy; however, the GOS is moving forward on privatization of the
oil company, consistent with its commitment to the IMF. Serbia did
attract a fair amount of foreign investment in 2005, about USD 1.5
billion, but it still is not receiving significant levels of
greenfield investment, 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.


B. (SBU) Over the last year, we have refocused our public diplomacy
and assistance efforts on the economy. We have eschewed relations
with Milosevic-era tycoons and kleptocrats in favor of a visible
public campaign to associate the U.S. with the demoralized SaM middle
class. We have made it clear that our aid will be in the form of
tangible projects to support domestic and foreign investment and the
creation of jobs through small and medium enterprise development.
Slowly we are making some gains in improving our negative public
image here, a challenge in a country where foreigners are viewed with
distrust and where the U.S. is recognized as a powerful but
unfriendly country.


7. (SBU) Moving Serbia in the Right Direction. There is still strong
respect for American power and recognition of our commitment to
deliver on our promises. That gives us considerable leverage to help
move Belgrade in the right direction on Defense Reform, ICTY and
Kosovo and an opportunity to strengthen the hand of reformers
committed to Serbia's full integration in Euro-Atlantic structures.
Your visit here is a great opportunity to relay encouraging messages
to political and military leaders in Serbia. They need to hear that
we are ready to declare the Milosevic's era as 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. The military can play an
important role in that process. By becoming one of the institutions
leading the country towards Euro-Atlantic integration, it could help
inspire other changes in the country.

POLT