MACEDONIA & NATO MEMBERSHIP: DEFENSE REFORMS ON

C O N F I D E N T I A L SECTION 01 OF 07 SKOPJE 000105

SIPDIS

SIPDIS

DEPT FOR EUR/SCE, EUR/RPM
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DEFENSE FOR OSD/POLICY:WINTERNITZ

E.O. 12958: DECL: 01/31/2016
TAGS: NATO PREL MARR MASS MK
SUBJECT: MACEDONIA & NATO MEMBERSHIP: DEFENSE REFORMS ON
TRACK; POLITICAL & ECONOMIC REFORMS KEY OBSTACLES

REF: STATE 7173

Classified By: P/E CHIEF SHUBLER, REASONS 1.4 (b) & (d).


1. (C/REL NATO) SUMMARY: Macedonia is in its 7th MAP cycle
and has made significant progress in meeting its defense
reform goals, but still falls short in terms of meeting
political and economic MAP criteria. To be considered a
strong candidate for NATO membership by mid-2007, with a view
to receiving an invitation in 2008, we believe Macedonia
should meet the following key criteria:

Strengthen democracy and the rule of law, and combat
corruption by :

--conducting free and fair parliamentary elections in 2006
that meet internationally-accepted standards;

--fully implementing the judicial reforms package to
strengthen the independence and efficiency of the judiciary;
and,

--showing significant progress in aggressively prosecuting
high-profile corruption cases.

Create a better business environment by:

--meeting the milestones established for World Bank-financed
projects on real estate and cadastre registration, and
implementing judicial reforms regarding contract enforcement;
and,

--completing in a transparent manner the privatization of the
state energy distribution and generation companies, with full
accountability for the use of funds derived from that action.

Continue defense reforms by:

--pursuing defense personnel downsizing while ensuring
equitable representation of ethnic minorities in the Armed
Forces, but in a manner that ensures qualified personnel are
selected and that training and promotion standards are not
lowered.

This message develops these key criteria further and
addresses additional political, economic, and defense issues
and goals.

End Summary.

KEY POLITICAL CRITERIA:


2. (SBU/REL NATO) Electoral Reform: The 2005 local elections,
as noted by OSCE and other international and domestic
observers, were marred by serious electoral irregularities in
some areas, including ballot-stuffing, group voting, and some
election-day violence. Since then, the GOM has worked with
OSCE experts to draft an electoral code that addresses
electoral system concerns raised by the International
Community (IC) in relation to the 2005 and other past
elections. The electoral code is in the parliamentary review
process, and Parliament is expected to pass it by mid-March.

--Electoral Bodies: In addition to revising the electoral
code to strengthen administration of upcoming parliamentary
elections in summer 2006, the government recently addressed
long-held IC concerns regarding inadequate funding, housing,
equipment, and staffing for the State Electoral
Administration (SEC),which is responsible for administering
the elections. The SEC now has an adequate budget; initial
staffing; new offices; and sufficient equipment to allow it
to perform its core functions. The SEC Secretariat already
is undertaking planning and initial steps to prepare for the
2006 parliamentary elections.

--Parliamentary Elections: The key test of the strength of
Macedonia,s democratic system will be the 2006 parliamentary
elections. The IC is working with the government, political
party leaders and party cadres, and the state electoral

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bodies to help ensure free and fair elections, as judged by
OSCE/ODIHR and other international and domestic monitors.
Key Message: Should Macedonia fail this task, it would call
into question the country,s readiness to present itself as a
strong candidate for a NATO membership invitation in 2008.


3. (C/REL NATO) Judicial Reform: The Parliament in December
2005 passed a package of 11 constitutional amendments
strengthening the independence and efficiency of the
judiciary. The amendments sharply curtail the role of
Parliament in selecting judges, who will now be selected and
dismissed by an independent State Judicial Council. The
Parliament is expected to pass bylaws to implement the
amendments in the first half of 2006. Key Message: By
mid-2007, the government should have passed and implemented
the draft Law on Courts to allow trials of serious crimes and
organized crime cases, and should implement a court case
management system assigning cases to judges on a random
basis; implement and use the Law on Witness Protection as
appropriate in prosecuting organized crime cases; and enforce
asset forfeitures in money-laundering or other serious crime
cases.


4. (C/REL NATO) Corruption: Macedonia was ranked 104 of 159
countries in the 2005 Transparency International annual
corruption perception index (CPI) report. It dropped several
places compared to 2004, although its overall score remained
the same, at 2.7 out of a possible 10 (10 being least
corrupt.). Combating corruption is one of the government,s
most daunting challenges; very few high-profile corruption
cases have been successfully prosecuted, with even fewer
cases involving a significant sentence as a sanction. Key
Message: To enhance Macedonia,s competitiveness as a NATO
candidate, the Macedonian Public Prosecutor,s office should
successfully prosecute 3-5 high-profile corruption cases by
mid-2007. In addition, the Macedonian courts should
demonstrate that they can try those high-profile corruption
cases in a fair and transparent fashion, as judged by
independent observers (local NGOs, OSCE Rule of Law experts),
and any guilty verdicts should be accompanied by sanctions
that will have a deterrent effect.

OTHER POLITICAL ISSUES AND GOALS


5. (C/REL NATO) Rule of Law: General rule of law weaknesses
hamper Macedonia,s ability to demonstrate progress in
meeting the political criteria of the NATO MAP process. The
Ministry of Interior,s Professional Standards Unit (PSU) has
investigated a number of allegations of police abuse, and has
sanctioned such abuse when it occurred. However, the PSU,s
record is inconsistent, and systems to ensure transparency in
the MOI are inadequate. Similarly, Macedonia,s fall from
Tier 1 to Tier 2 in the State Department,s annual
Trafficking in Persons (TIP) report for 2005 reflected lack
of political commitment to combat aggressively lucrative
organized crime activities, which was also reflected in the
GOM,s continuing lack of a National Action Plan for
combating TIP. The ability of defendants in civil lawsuits
to file interminable, frivolous appeals prevents the
Macedonian courts from enforcing valid judgments -- for
example, ordering the owner of Macedonian TV station &A-18
to repay debts owed to the U.S.-based non-profit Media Loan
Development Fund. By mid-2007, the MOI,s PSU should have
fully investigated and pressed charges, as applicable, in the
majority of alleged police abuse cases alleged to have
occurred in 2006; Macedonian authorities should ensure the
anti-TIP National Action Plan has been approved and
implemented, and Macedonia should demonstrate progress in
moving toward a Tier 1 rating in the annual TIP report for

2006.


6. (SBU/REL NATO) Minority Rights: The final legislative
requirement of the 2001 Ohrid Framework Agreement (FWA) was
met in 2005, but implementation of FWA-mandated measures to
improve minority rights has been uneven. The government needs
to continue steady efforts to implement equitable
representation of minorities in public administration. At
the same time, the government (across ethnic lines) should
guard against fulfilling quotas at the expense of individual

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capacity to perform a job. The GOM also should continue to
implement decentralization that empowers minorities at the
local level, and in a manner that presents Macedonia as a
regional model for consolidating stability through
strengthening inter-ethnic cooperation.


7. (C/REL NATO) Neighborly Relations: Macedonia collaborates
actively with its neighbors and other countries in the
region, and should strive to export its experience as a
positive example of best practices in that regard. It is
working on resolving several outstanding bilateral issues,
including the name dispute with Greece (through talks under
UN auspices),and the question of demarcating its border with
Kosovo. The dispute between the Serbian Orthodox Church
(SOC) and the Macedonian Orthodox Church (MOC) over which
should enjoy primacy among orthodox Christian believers in
Macedonia remains a challenge for the government, which is
working on a draft law on religious communities that would
make it possible for the SOC to officially register as a
religious group in Macedonia. The imprisonment last year of
a SOC Bishop (&Bishop Jovan8) on grounds of inciting
religious hatred for publishing a calendar was roundly
criticized by the international community and many human
rights NGOs. The government should work to ensure passage of
the draft Law on Religious Communities that would help ease
tensions between the MOC and the SOC by allowing an
SOC-affiliated group to receive legal protection as a
recognized religious group in Macedonia. The government also
should continue to work on resolving the name dispute with
Greece through the talks being held under UN auspices.


8. (SBU/REL NATO) Border Issues: The only remaining
contentious border issue is, as mentioned above, the
unresolved demarcation of Macedonia,s boundary with Kosovo,
which was delineated in a 2001 agreement between Belgrade and
Skopje. Pristina does not recognize the 2001 agreement, and
is unwilling to consider demarcating the border with
Macedonia until after final status is resolved.


9. (C/REL NATO) POW and Holocaust Issues: There are no
unresolved POW issues. The government receives high marks
from the Israeli government and in the State Department,s
International Religious Freedom report for handling Jewish
community restitution issues. Ground-breaking for a
Holocaust memorial site in downtown Skopje took place in
2005, and Jewish community representatives generally express
satisfaction with the government,s actions to resolve
outstanding property claims.

KEY ECONOMIC CRITERIA:


10. (SBU/REL NATO) Business Climate: The government has made
significant economic reform progress in a number of areas,
including recent implementation of a &one-stop shop window8
that has significantly reduced the time required for
registering a new business. However, more needs to be done
to create an economic climate that will attract increased
investment (FDI was slightly lower in 2005 than in the
previous year) and bring official unemployment figures down
from their current high of 37 percent (taking the grey
economy into account, the actual rate is closer to 25
percent).


11. (SBU/REL NATO) Macro-Economic Achievements: The
government,s most significant economic achievement has been
the maintenance of fiscal discipline, combined with
consistent macroeconomic stability. The economy has grown at
a consistent rate of 2 to 4 percent from 2002 to 2005. The
government budget deficit is low (-0.6% in 2005),inflation
minimal (0.5% in 2005),the currency is stable, and the level
of debt-to-GDP (40%) is manageable. In 2005, the Government
signed agreements for three-year programs with both the
International Monetary Fund (IMF) and World Bank. Both
Standard & Poor,s and Fitch Rating Service rated Macedonia
at or near investment grade for sovereign debt. In December
2005, Macedonia successfully sold 150 million euros worth of
euro bonds and used the proceeds to purchase its London Club
debt in order to lower its debt servicing costs.


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12. (SBU/REL NATO) Foreign Investment & Economic Freedom:
Despite significant progress, business investment, both
domestic and foreign, is low; the current account deficit is
relatively high; and GDP growth rate is not strong enough to
significantly lower unemployment or the poverty rate.
Macedonia ranks 57th in the Heritage Foundation,s 2005 Index
of Economic Freedom, behind A-3 partners Albania (52nd) and
Croatia (55th). If the government fails to take the
following steps, among others, to enhance the business
climate, FDI levels and economic growth will remain anemic:

--Key Message: Business environment ) the government should
meet the milestones for World Bank-financed project on real
estate and cadastre registration, and implement judicial
reforms regarding contract enforcement.

--Key Message: Privatization ) the GOM should privatize the
energy distribution (ESM) and generation (ELEM) companies in
a transparent manner and should fully account for the use of
funds derived from that action. It also should sell its
remaining shares in the privatized Macedonian
Telecommunication company.

KEY DEFENSE CRITERIA:


13. (C/REL NATO) Overall Progress. Macedonia continues to
progress well on defense reforms. In 2005, Macedonia met its
goal of restructuring 60% of the Army of the Republic of
Macedonia's (ARM's) units in accordance with their Strategic
Defense Review (SDR). By the end of 2006, the GOM expects
90% of the ARM,s units will have been restructured.


14. (C/REL NATO) Additional defense reform milestones
completed under a dynamic and proactive CHOD include:
reorganization of the General Staff and 1st Mechanized
Infantry Brigade; transfer of the Air Force to the ARM's Air
Wing; and establishment of the Joint Operations Command as
the ARM's Maneuver Force Headquarters. The ARM also took the
first steps in 2005 toward assuming full host nation support
responsibilities by assigning officers and Non-Commissioned
Officers (NCOs) to NATO Headquarters-Skopje. The MOD will
establish a Host Nation Coordination Center by mid-2006.


15. (C/REL NATO) Personnel Reductions: The Ministry of
Defense (MOD) and ARM have been less successful in carrying
out the personnel reductions called for in the SDR. To date,
they have made the easy cuts, mostly personnel transfers.
For example, the MOD gave up the border security mission to
the new Border Police. It also divested itself of the people
and offices that are now independent governmental agencies,
such as the Rescue and Protection Directorate and the Crisis
Management Center. The MOD must cut approximately 1,200
military and civilian personnel to complete its personnel
reductions plan. The new draft Law on Defense will open up
the possibility of retiring excess officers with 25 years of
service, but that measure does not apply to the civilians at
the Ministry.


16. (C/REL NATO) Equitable Representation: Equitable
representation of minorities in the armed forces continues to
increase. Ethnic Albanians, for example, now constitute
nearly 12 percent of the total force; the percentage is
higher among the NCOs (15 percent) and soldiers (16 percent).
However, there is clear evidence that the coalition ethnic
Albanian governing party (DUI) is pressuring the military to
accelerate the pace of integration, especially within the
officer and NCO ranks, even if that means lowering standards
for promotions and professional development courses. Key
Message: The government, including its ethnic Albanian
coalition partners, should be reminded that equitable
representation, which we support, nevertheless must not be
implemented by placing unqualified personnel in positions of
responsibility.


17. (C/REL NATO) Defense Spending. Macedonia continues to
devote between 2.2-2.4 percent of its GDP to defense
spending. This year the defense budget is 6.201 billion
Macedonian denars (approximately 124 million USD),about 2.25
percent of GDP. Although that figure is two million dollars

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less than in 2005, it represents a net increase, since
spending on functions such as border security and crisis
management are no longer part of the MOD 's budget. Defense
spending is expected to remain consistent in the near to
mid-term; this predictability is assisting the MOD in
managing its defense modernization programs for at least the
next five years.


18. (C/REL NATO) Modernization. Macedonia has offered NATO
eleven (11) units under the NATO Operational Capabilities
Concept, ranging from an infantry company to a special forces
company, helicopter detachment, engineer platoon, and
demining squad. Some of these units are ready now; others
will not be fully operational until the end of 2007. The ARM
is rightly focusing its resources, both domestic and
international, on getting these units fully operational, both
in terms of equipment and training. The U.S. will provide $5
million in Foreign Military Funding in FY06, most of which is
also being targeted for these "declared" units. One million
U.S. dollars in Global Peace Operations Initiative funds have
also become available, which the ARM would like to spend on
readying their military police battalion for deployment.
Macedonia also is an active participant in the Partnership
for Peace (PfP),participating in over 15 different exercises
in 2005, including hosting NATO's "Cooperative Associate"
Exercise in Skopje last November.


19. (C/REL NATO) Global War on Terrorism (GWOT). Macedonia
continues to be a net contributor to security, its armed
forces earning high marks for their performance in GWOT
operations. Macedonia,s troop contributions to the GWOT
demonstrate that it can be a meaningful contributor as a
future NATO member country as well. In December 2005,
Macedonia increased its participation in Iraq by deploying
five more staff officers above its normal 35-man rotation.
In Afghanistan, it is deploying eleven officers/NCOs with the
Headquarters of the Southeastern Europe Brigade (SEEBRIG),
rotating its four medical personnel with the Adriatic
Charter's Joint Medical Team, and increasing from 19 to 21
the personnel it has attached to the German Battle Group in
Kabul. By the end of February, Macedonia will have increased
its contribution to NATO Operations in Afghanistan from 23
personnel to 36. Including the personnel assigned to Iraq
and U.S. Central Command Headquarters, it will soon have a
total of 78 personnel deployed overseas. That figure
represents a considerable commitment for Macedonia. While we
expect the GOM to remain committed to participating in
international military operations, the ARM will continue in
the future to have to rely on other countries for strategic
transport and logistical support in-theater.


20. (C/REL NATO) Interoperability with NATO. The combined
effect of six ARM rotations in Iraq, eight ARM rotations in
Afghanistan, PfP exercises, and U.S. FMF/IMET support has
directly improved the ARM's capabilities and interoperability
with NATO. Not every unit of the ARM has benefited from this
exposure, however. Many conscript units focus mainly on
fulfilling garrison duties. Nevertheless, the performance of
Macedonian units in Iraq and Afghanistan has been exemplary,
and should be taken as a demonstration of the ARM's potential
as a future NATO member.


21. (C/REL NATO) Crisis Management Center: To get the MOD out
of direct involvement in managing crisis management
operations, the government created the civilian-run Crisis
Management Center (CMC) in 2005. The CMC received an
independent budget in January 2006, but squabbles between the
ethnic Albanian CMC Director and the government over
equitable representation in staffing the center have
prevented it from becoming fully operational. In a region
plagued by frequent floods and occasional earthquakes, the
country,s lack of effective crisis management capacity is
unacceptable. Key Message: The CMC should be adequately
staffed, fully operational, and capable of responding to
disasters by mid-2007. Although equitable representation
should be considered in deciding on personnel, the Center
should be staffed by qualified personnel.

LEGAL ISSUES:

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22. (SBU/REL NATO) There are no significant constitutional or
legal barriers that would prevent Macedonia,s accession to
NATO or its participation in NATO operations. The Macedonian
constitution provides that the Parliament can approve
proposals to join international organizations by a majority
vote. Participation in peacekeeping operations outside the
country requires the approval of a majority in Parliament,
and the government can decide to participate in exercises or
humanitarian operations without Parliament,s approval. Upon
ratification of an accession agreement, the Law on Defense
would have to be amended to harmonize Macedonian law with
NATO,s collective defense provisions, according to
Macedonia,s ANP.

SECURITY/INTELLIGENCE ISSUES:


23. (C/REL NATO) The Law on Classified Information was passed
in March 2005, expanding the responsibilities of the
Directorate for Security of Classified Information to include
all classified information exchanged between the Republic of
Macedonia and foreign countries or international
organizations. According to the government, the provisions
of the Law on Classified Information are consistent with NATO
Security Policy requirements. In addition, the government is
drafting guidelines for Security Officers charged by various
state institutions to ensure the bylaws of the Law on
Classified Information are implemented within those
institutions. In practice, however, political control over
Macedonian intelligence and security agencies results in
occasional leaks of sensitive information to political
parties.


24. (C/REL NATO) Macedonia,s three intelligence services
(Macedonian Intelligence Agency, subordinate to the
President; military intelligence; and the MOI,s
counter-intelligence agency) do not cooperate closely and are
hampered by outmoded missions.

PUBLIC SUPPORT:


25. (SBU/REL NATO) Public support for NATO membership is
strong ) 90 percent in a poll conducted in January (among
ethnic Albanians, that figure reaches 96 percent.) No
government or opposition Member of Parliament has voted
against a deployment of Macedonian troops overseas to support
alliance operations in Iraq or Afghanistan. Prudent
expectations management -- on the part of the government,
USG, and NATO -- will help ensure strong public support
through the Riga Summit and well into 2007.

WATCH OUT FORS:


26. (C) The case of Khalid el-Masri, a German citizen of
Lebanese descent who claims he was flow by the CIA from
Macedonia to Afghanistan for interrogation, has generated
intense press commentary here, most of it negative, over the
past several months. Opposition parties and opinion-shapers
accuse the government of jeopardizing Macedonia,s EU
accession chances by refusing to comprehensively answer
Council of Europe and European Parliament requests for a full
accounting in the case. Relevant government authorities have
responded carefully to COE and EU requests for information,
consistently explaining that they have little information to
provide on el-Masri and his allegations. There has been some
mention in the press of alleged secret CIA prisons on
Macedonian soil, but those stories have not had the same
staying power as the el-Masri case.


27. (C/NOFORN) Macedonia signed an Article 98 agreement with
us in 2003, and the government has expressed concern that it
eventually will come under strong EU pressure to abrogate
that agreement as it works on bring its legislation into
compliance with the EU acquis communautaire. The matter is
treated as a mid-to-long term issue in Macedonia,s EU
membership action plan, but could come up in the course of
future discussions.


28. (C/REL NATO) The government will press for a positive

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statement at the Riga Summit, possibly singling out Macedonia
as a leading NATO membership candidate due to its defense and
political reform achievements, and assuring aspirants that
enlargement will be on the agenda in 2008.
MILOVANOVIC