AMBASSADOR'S 5/24 MEETING WITH DEPUTY PRIME

C O N F I D E N T I A L SECTION 01 OF 03 BELGRADE 000737

SIPDIS

SIPDIS

FROM THE AMBASSADOR FOR U/S BURNS, EUR A/S FRIED, EUR PDAS
DICARLO AND FRANK WISNER
NSC FOR ANSLEY

E.O. 12958: DECL: 05/25/2017
TAGS: ECON EFIN PREL PGOV SR
SUBJECT: AMBASSADOR'S 5/24 MEETING WITH DEPUTY PRIME
MINISTER DJELIC


Classified By: CLASSIFIED BY AMBASSADOR MICHAEL C. POLT FOR REASONS 1.4
(B) AND (D)


1. (c)SUMMARY: AMBASSADOR MET WITH DEPUTY PRIME MINISTER
DJELIC ON MAY 24 TO REVIEW HIS PLANS FOR CARRYING OUT THE NEW
GOVERNMENT'S ECONOMIC PROGRAM. UPBEAT AND ENERGETIC - TO THE
POINT OF BEING COCKY - DJELIC EMPHASIZED THAT HE WOULD
INVEST HEAVILY IN BUILDING GOOD RELATIONS WITH DIFFERENT
PARTS OF THE GOVERNMENT, INCLUDING THE PRIME MINISTER AND HIS
FREQUENT RIVAL, ECONOMY MINISTER AND G17 LEADER DINKIC. ON
POLICY ISSUES, HE EMPHASIZED THAT THE GOS WILL SEEK
RESUMPTION OF SAA TALKS WITH THE EU BEFORE PRESENTING ITS
REVISED 2007 BUDGET TO THE PARLIAMENT IN THE SECOND HALF OF
JUNE. AMBASSADOR REMINDED DJELIC THAT THE SECRETARY FACES AN
END-MAY DECISION ON CERTIFYING SERBIA'S ICTY COOPERATION AND
DESCRIBED COOPERATION TO DATE AS INADEQUATE. ON ECONOMIC
POLICY, DJELIC SAID THAT THE GOS WOULD MOVE IMMEDIATELY TO
RESTART PRIVATIZATION OF STATE OIL COMPANY NIS AND INSUROR
DDOR. HE WAS CAUTIOUS ON PROSPECTS FOR AN IMF PRECAUTIONARY
PROGRAM, SAYING THAT THE GOS WOULD CONSULT WITH THE FUND TO
SEE WHETHER ITS REVISED BUDGET WAS CLOSE ENOUGH TO IMF
PARAMETERS TO SUPPORT A NEW PROGRAM. DJELIC IS SMART AND
ENERGETIC, BUT NEEDS MORE TIME TO ABSORB THE REALITIES OF
THIS ODDLY CONSTITUTED GOVERNMENT AND SERBIA'S PRECARIOUS
RELATIONSHIPS WITH THE INTERNATIONAL COMMUNITY BEFORE HE CAN
REALISTICALLY HOPE TO ACCOMPLISH HIS ASSIGNED TASKS. END
SUMMARY


2. (SBU)Ambassador Polt held a one-hour introductory
meeting with an ebullient Deputy Prime Minister Djelic on May

24. Djelic, the top-ranking Democratic Party official in the
new Kostunica government and a former finance minister and
banker, used the meeting to explain how he sees his role in
the new government and set out his key goals. Building a
strong relationship with the Prime Minister to buttress his
role as the "clear no. 2 in the government," without
reference to party distinctions, would be key, he said, and
he already had invested considerable time to working out the
relationship with Kostunica, whom he described as "very
business-minded." The former Credit Agricole banker also
noted that he was working to build a better relationship with
Economy Minister Dinkic. President Tadic also will be
brought into key economic decisions, he added.


3. (c)Djelic, whose formal appointment is as deputy prime
minister for EU integration, said lamented the fact that ICTY
Prosecutor Carla Del Ponte would be his charge when she
arrives in Belgrade on June 4 to discuss ICTY cooperation,
but he also said that the exchange of documents with the
Hague tribunal already had been restarted. Djelic said he
had been surprised to learn that this exchange had more or
less ceased in November. "The whole story is absurd," he
said.


4. (c)Restarting Stability and Association talks with the EU
before presenting a new budget to Parliament in the second
half of June would be important, Djelic said. This would
permit the new government to show results and armor itself
against Radical charges that Serbia's Western friends would
not support the new government. The deputy prime minister
argued that the entire episode with appointment of Radical
leader Nikolic as Parliament speaker had served a purpose in
demonstrating to all Serbians what a Radical government would
be like, with status as a Russian province. Now the new
government must show Serbia that it will move forward on
integration, he said, so the bar should not be set so high as
to deny Serbia this step forward. U.S. support of the new
coalition would be important, he added.


5. (c) The Ambassador agreed on the importance of restarting
SAA talks, stating that both the U.S. and the EU are looking
for reasons to move forward. The U.S. faces a decision on
whether it can certify Serbia's ICTY cooperation and thereby
avoid withholding part of our assistance. Handing Djelic the
USG's 11-point suggestions on active steps for ICTY
cooperation, the Ambassador reminded Djelic that the
so-called action plan of the previous government had yielded
no results. The U.S. would like to lean forward, the
Ambassador said, but we need a visible signal of Serbia's
determination to find Mladic and reinvigorate ICTY
cooperation, not "vague assurances."


6. (c) One of the next steps for the Spring Coalition
government would be the decree on National Security Council
operations. Reform of the security services in general would

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be a DS priority, Djelic said, He pointed out that Tadic
already had said publicly that Rade BULATOVIC was too
identified with partisan politics to remain as the
"professional" head of the BIA intelligence service. The
sentencing on May 23 of the killers of former Prime Minister
Dzinjic had brought home to DS leaders the importance of
reforming the security service: "This cancer has to be put
out." He added that completion of the Stambolic (the murdered
former Communist leader) prosecution is a priority.



7. (SBU)Besides EU integration, his portfolio will include
coordination on all economic and financial issues, relations
with the IMF and other international financial institutions,
charting a course on sustainable development, and
coordinating the fight against poverty, Djelic said.
President Tadic had defined his role as "prime minister in
waiting," Djelic optimistically said, and it was important
that he lead by working through and supporting ministers and
not attempt to run individual ministries.


8. (SBU) With regard to IFI cooperation, Djelic pledged a
"radical acceleration" of cooperation with the World Bank,
seeking to close five loans based on more favorable IDA terms
before the window closes with the end of the Bank's fiscal
year on July 1. He also said that the GOS would work out a
country economic memorandum with the Bank. With regard to
the IMF, the deputy prime minister was more circumspect,
noting that when a high-ranking IMF delegation official
arrives in June, the GOS will present its budget to see
whether it could provide the basis for an IMF precautionary
agreement. (Note: the April Fund mission targeted a budget
turnaround of 5 percent of GDP, and Djelic has said publicly
that he is skeptical.)


9. (SBU) The GOS will move forward with privatization of the
first tranche of Naftna Industrija Srbije, the state oil
company, Djelic said. It also will restart the suspended
tender for DDOR Novi Sad, one of the two state-owned insurors
that dominate the market. The GOS also should move to sell
the other remaining banks and non-financial institutions,
including Dunav insurance. (Note: Dunav is controlled by a
key political associate of Prime Minister Kostunica; the GOS
has yet to announce which party will control which
state-owned companies.) Djelic said he expected the German
G8 presidency to single out Ukraine and Serbia for work on
capital market reforms, he added.


10. (SBU) Foreign investors also would be a key constituency
for the new government, Djelic said. The problems of
existing investors would be solved, because he understands
quite well that the most important assessment of Serbia's
business climate is that of established investors, whose
views potential investors usually solicit. The government
would honor its commitments to Philip Morris, he added.
Ambassador Polt interjected that corruption is a key obstacle
for foreign investors, raising the current Ocean Atlantic
issue as one example. The USG had invested USD 12 million in
commercial court reform and was disappointed with the
handling of the bankruptcy sale from which the U.S. investor
sought - unsuccessfuly - to buy development property. Djelic
said that he was aware of this issue and pledged to resolve
it. When looking at the Commercial Court, he added, the glass
is not half full, but rather pretty empty.
.


11. (SBU) When the deputy prime minister mentioned that he
looked forward to working again with U.S. assistance
programs, Ambassador Polt ran down USG priorities: job
creation, which absorbs 70 percent of our assistance,
strengthening of democratic institutions, by which we include
civil society, and rule of law. Another priority is
exchanges, especially for youth, to help overcome the
isolation that Serbia has endured over the past 15 years. In
general, the U.S. assistance program has moved away from work
with the central government, the Ambassador added, to focus
more on municipalities and the private sector.


12. (SBU) Ambassador Polt also raised the restitution law
that the outgoing government had approved in one of its last
acts. Djelic immediately criticized it as a "crazy law,"
especially in its promise of EUR 4 billion in compensation.
It is time for the GOs to address this issue, he said, but
the draft must be revised. Ambassador Polt noted that the
Embassy would provide comments on the current draft law, and

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he urged addressing the issue before it became another major
political liability for Serbia.
POLT