BULGARIANS DISCUSS IRAQ, JOINT BASES,

C O N F I D E N T I A L SECTION 01 OF 04 SOFIA 000372 SIPDIS SIPDIS E.O. 12958: DECL: 03/13/2016 TAGS: PREL MARR ECON KCRM KDEM LY IZ BG SUBJECT: BULGARIANS DISCUSS IRAQ, JOINT BASES, CRIME/CORRUPTION, AND DEMOCRACY PROMOTION Classified By: Ambassador John Beyrle, reasons 1.4(b) and (d). ¶1. (U) This is an action request, please see para 4. SUMMARY AND ACTION REQUEST -------------- ¶2. (C) EUR DAS Mark Pekala met March 9-10 with Bulgarian officials to discuss, inter alia, Bulgaria's follow-on mission in Iraq, ongoing negotiations on the use of Bulgarian military bases by U.S. forces, Washington's concern about organized crime and corruption, and efforts to promote democracy in the Black Sea region. Pekala's contacts included Foreign Minister and deputy Prime Minister Kalfin, Interior Minister Petkov and Chief Prosecutor Velchev, as well as deputy ministers of defense and finance, the deputy governor of the central bank, the AmCham president, and members of the parliamentary Defense and Foreign Affairs Committees. Kalfin said Bulgaria's ambassador-designate would travel to Baghdad March 14-23 to present his credentials and search for new premises. He also said the Bulgarian follow-on mission in Iraq would be ready to deploy to Camp Ashraf in mid April. ¶3. (C) On the joint military bases, Pekala's contacts in both the government and the center-right opposition expressed strong willingness to conclude an agreement, but Kalfin noted that there were still sensitive issues to be overcome. Newly-appointed Chief Prosecutor Boris Velchev spoke frankly about the problems of organized crime and high-level corruption, and outlined credibly his intention to confront both. Pekala's counterparts responded positively to his message that Bulgaria could play an important role in helping to "move the frontiers of freedom eastward" in the Black Sea region. He also assured Bulgarian officials and MPs that the U.S. would continue to work for the release of the Bulgarian nurses imprisoned in Libya. END SUMMARY. ¶4. (C) Action request: Kalfin asked for USG support for ambassador-designate Valeri Ratchev's trip to Baghdad March 16-23. We understand that secure transportation and lodging have been arranged through CENTCOM channels. We request that the Department seek through Embassy Baghdad and appropriate U.S. military channels to support Ratchev's effort to find a suitable location in the Green Zone for the Bulgarian embassy. We also request Department support for appropriate-level meetings with Embassy Baghdad and U.S. military officials to help Ratchev gain a better understanding of the context in which he will be working. Ratchev is a former army colonel who was most recently the deputy commandant of the Bulgarian military academy. He can be reached in Baghdad by satellite phone at 00882 16211 57051. PARTNERS, ALLIES AND FRIENDS -------------- ¶5. (C) In each of his meetings, DAS Pekala described Bulgaria as a good friend, a valued ally and a strong partner. He said that the U.S. strongly supported Bulgaria's entry into the European Union on January 1, 2007, because the inclusion of Bulgaria and Romania will be good for the countries involved, good for the region, good for the U.S., and good for Europe. Pekala outlined the Administration's focus on promoting democracy and explained how Bulgaria could play an important role in the Black Sea region. He thanked the Bulgarians for the difficult political decisions to re-deploy military forces to Iraq, double the size of their contingent in ISAF later this year, and negotiate an agreement on the presence of U.S. forces in Bulgaria. ¶6. (C) Kalfin noted that these and other decisions, while politically difficult because of limited public support, were being taken on the basis of Bulgaria's "strategic partnership" with the U.S. He noted that the Bulgarian Socialist Party (BSP) had run on a platform of immediate withdrawal from Iraq, but Bulgarian soldiers were nevertheless currently training with U.S. military police in preparation for deployment to Camp Ashraf next month. Pekala agreed and added that the only dark cloud on the horizon was the Bulgarian government's perceived inability or unwillingness to deal with the problems of corruption and SOFIA 00000372 002 OF 004 organized crime. The U.S. wanted to bring its economic and commercial relationship up to the same level as its political and strategic relationship, but the prevalence of organized crime and corruption made this more difficult than would otherwise be the case. JOINT BASES -------------- ¶7. (C) Kalfin professed to have been surprised by what he described as the "last-minute" inclusion of five additional facilities and a significantly higher troop ceiling in the latest U.S. draft of the proposed Defense Cooperation Agreement. He described the resulting problem as mainly one of public presentation rather than substance, but said the U.S. requests went well beyond the Bulgarian negotiator's original mandate and so would require approval by the Council of Ministers (COM). He said that he hoped the COM would approve Ambassador Ivanov's new mandate at its next meeting on March 16. "We can finalize the talks within a few days after the government decision," Kalfin averred. ¶8. (C) Of the remaining issues, "freedom of action" appeared to be the most prominent; Kalfin argued that the agreement must include a commitment to "consult with" or "take into consideration the views of" the Bulgarian government when deploying forces for a combat missions in a third country. Pekala noted in this context that any agreement will respect Bulgarian law and sovereignty, as well as the principles of the UN Charter and the international obligations of both countries. In response to the popular impression that "Bulgarians will be on the outside looking in," Pekala said any public diplomacy effort must stress that U.S. activities on these Bulgarian bases will be transparent to the Bulgarian authorities. ¶9. (C) Kalfin said Bulgarian officials understand that the joint facilities are not intended ever to host nuclear weapons, but the issue is still a sensitive one for the Bulgarian public. Both Kalfin and deputy Defense Minister Yankulova stressed the need to work jointly on the public affairs aspect of the proposed agreement, and to involve Bulgarian NGOs and local-government officials as well. Ambassador Beyrle briefly described his meetings the previous week in Sliven and Yambol, near the two major facilities under discussion. Officials and residents near the location of the proposed joint bases wanted to know "how soon" the U.S. could begin deploying forces. The trick, according to Pekala's contacts, will be to expand this support into other areas of the country. ¶10. (C) Yankulova acknowledged that the GOB "did not make good use of previous opportunities" to explain the basing issue to the public, and she argued for an approach using popular language and concrete examples of how an agreement will benefit Bulgaria. One of the MPs who had participated in FM Kalfin's testimony the previous day put it more strongly: Kalfin's answers to legislators' questions were compelling, but the coverage in the next day's media was "a disaster" because the testimony was closed and only opponents of the agreement spoke to the press afterwards. CRIME AND CORRUPTION -------------- ¶11. (C) Pekala described the overall bilateral relationship as excellent, pointing to a number of "real and practical" areas of cooperation. He noted, however, that one issue stands in the way of reaching an even higher level of partnership and cooperation: the government's failure to deal with the problems of organized crime and corruption. Kalfin's response focused on judicial reform, saying that constitutional amendments now being undertaken would help. Interior Minister Petkov acknowledged the problem, but blamed political interference and lack of internal coordination for the absence of results. He cited as evidence of corruption the case of recently-murdered Ivan Todorov (AKA, The Doctor), information about whom "was stored in the safe of a high-ranking official" of the National Service for Combating Organized Crime. In the corruption case involving the director of the Bulgarian Red Cross, Petkov said he had difficulty finding anyone willing to finalize the SOFIA 00000372 003 OF 004 investigation because of the director's close ties to one of the governing coalition partners. ¶12. (C) Petkov also reiterated his request for an agreement on exchange of information between the MoI and its U.S. law-enforcement counterparts. While assuring Pekala that the current close cooperation with U.S. law enforcement would continue, Petkov again expressed concern that without a bilateral agreement, some of the information-sharing currently undertaken by the MoI could be considered illegal under Bulgarian law. He again raised the possibility of creating a regional training center in Sofia focused on border control and anti-smuggling efforts, including trafficking in persons, drugs, arms, and WMD. ¶13. (C) Petkov said the current case against a member of parliament from the National Movement Simeon II (NMSS) was "a litmus test" of the Coalition's willingness to take on high-level corruption. Petkov presented the case, involving alleged misappropriation of more than USD 10 million when the MP was the director of Bulgaria's only nuclear power plant, to the Chief Prosecutor on March 6. Chief Prosecutor Velchev confirmed this, and added that he would soon request lifting the immunity of "six or seven additional MPs" currently under investigation. In a matter of weeks, Velchev said, he would also have the results of the investigations of two senior members of the judiciary. He said he would reassign a number of department heads -- senior prosecutors whom he cannot legally fire -- in order to replace them with people untainted by Velchev's notoriously corrupt predecessor. Velchev also indicated that he would soon create a special department consisting of hand-picked prosecutors charged with handling cases of high-level government corruption. Velchev said that the overall professionalism of the prosecution service was better than he had expected before taking office. ¶14. (C) Unlike other officials, the recently-appointed Chief Prosecutor made no excuses for the lack of progress against organized crime. "Corruption and organized crime are related," he said, "organized crime exists because state officials are not immune to corruption, and anyone who denies this is not doing a service to Bulgaria." He promised to be "very proactive," and said that he would not wait for the police to bring cases to him. Addressing the Ambassador, he said he would appreciate learning directly about any cases in which Bulgarian officials had solicited bribes from American companies. PROMOTING DEMOCRACY -------------- ¶15. (C) Pekala outlined the USG's four-part strategy for the expansion of freedom in the Black Sea basin: democracy promotion, with countries on the west side of the Black Sea assisting those to the north and east; soft security, including law enforcement and border security, emergency management, and environmental protection; energy security, focused on diversifying the sources of supply and transport; and Euro-Atlantic integration, with Bulgaria and Romania acted as bridges to NATO and the EU for countries such as Georgia, Moldova and Ukraine. On the Western Balkans, the U.S. appreciates Bulgaria's efforts to build confidence between Serbs and Kosovars and would welcome bilateral consultations. ¶16. (C) Kalfin said Bulgaria viewed the Black Sea region through the lens of NATO; he was somewhat dismissive of the "Black Sea Harmony" concept pushed by Turkey and Russia. Nevertheless, he took the point that building confidence among the Black Sea littoral states was a step-by-step process. On Kosovo, Kalfin said that whatever the outcome of the final status talks, "the international community -- not just the EU -- must be present for a long time." In both the Western Balkans and the Black Sea region, Kalfin agreed that the prospect of eventual NATO and EU membership is a major incentive for reform and must be kept open. ECONOMIC ISSUES -------------- ¶17. (C) Pekala told his counterparts that the U.S. would like SOFIA 00000372 004 OF 004 to see many more investments in Bulgaria of the type recently announced or agreed to by AES, Hewlett-Packard and Nu Image. One incentive will be the completion of negotiations on double-taxation treaty (DTT). Deputy Finance Minister Kadiev was optimistic that parliament would pass the necessary changes to the bank secrecy law, and the that DTT could be completed this year. The president of the American Chamber of Commerce noted, however, that widespread corruption, an inefficient and opaque bureaucracy, and an unreformed judiciary were drags on U.S. investment. Large companies could factor these risks into their investment decisions, but small and medium-sized firms would rather go elsewhere. While agreeing with this assessment, Kadiev said that the government recognized the need to attract foreign investment, which was one of the reasons it had proposed a law that would give Bulgaria the second-lowest corporate tax rate in Europe. 18 (C) As tax rates fall, Kadiev said he expects compliance to increase because the costs inherent in cheating begin to outweigh the benefits. Nevertheless, tax fraud -- especially involving value-added tax (VAT) -- continues to be major drain on the revenue side. Organized crime groups are behind large-scale schemes involving fraudulent reimbursement of hundreds of millions of dollars in VAT every year. Kadiev attributed the problem to a corrupt tax administration, the absence of a specialized tax police, the existence of a "political umbrella," and the fact that VAT fraud is not a criminal offense under Bulgarian law. The Finance Ministry loses a comparable amount of money every year from the sale of duty-free fuel, liquor and cigarettes along the country's borders, again largely to the benefit of organized crime figures such as Vasil "The Skull" Bozhkov. ¶19. (C) The deputy governor of the central bank, Tzvetan Manchev, noted Bulgaria's low inflation, stable currency and falling unemployment. He said the Bulgaria's current account deficit -- currently running at about 14 percent of GDP -- was driven by the capital account rather than consumer spending. The central bank would therefore not fight this trend, but was concerned about its sustainability. Manchev said he expected the current account deficit to fall in 2007. In the longer term, additional structural reforms are needed. Manchev singled out greater flexibility in the labor market, the development of the non-banking financial sector (for which Bulgaria could use additional technical assistance),and reform of the education and health-care sectors. ¶20. (U) This message has been approved by DAS Pekala. ¶21. (U) Tripoli minimize considered. Beyrle