Identifier
Created
Classification
Origin
07BELGRADE907
2007-06-25 14:14:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Embassy Belgrade
Cable title:  

AMBASSADOR MEETS ECONOMY MINISTER

Tags:  EFIN ECON EINV KIDE KPRV SR 
pdf how-to read a cable
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DE RUEHBW #0907/01 1761414
ZNR UUUUU ZZH
O 251414Z JUN 07
FM AMEMBASSY BELGRADE
TO RUEHC/SECSTATE WASHDC IMMEDIATE 1068
INFO RUEATRS/DEPT OF TREASURY WASHDC IMMEDIATE
RUCPDOC/USDOC WASHDC
UNCLAS BELGRADE 000907 

SIPDIS

SENSITIVE
SIPDIS

USDOC FOR 4232/ITA/MAC/EUR/OEERIS/SSAVICH

E.O. 12958: N/A
TAGS: EFIN ECON EINV KIDE KPRV SR
SUBJECT: AMBASSADOR MEETS ECONOMY MINISTER

REF: Belgrade 882

SUMMARY
-------

UNCLAS BELGRADE 000907

SIPDIS

SENSITIVE
SIPDIS

USDOC FOR 4232/ITA/MAC/EUR/OEERIS/SSAVICH

E.O. 12958: N/A
TAGS: EFIN ECON EINV KIDE KPRV SR
SUBJECT: AMBASSADOR MEETS ECONOMY MINISTER

REF: Belgrade 882

SUMMARY
--------------


1. (SBU) The Ambassador met with new Minister of Economy Mladjan
Dinkic for the first time on June 20 to review the economic agenda
for the new government. Dinkic, leader of the G17 party, said that
he personally favors a partition of Kosovo but said that preserving
momentum on Euro-Atlantic relations and ties between Serbia and the
U.S. is necessary. He pledged that Russian economic interests would
not be awarded special treatment in Serbia, notwithstanding Russian
support on Kosovo. Bankruptcy will be used for companies that
cannot be sold by other means, and he said that a decision already
had been made to move some 200 enterprises into bankruptcy. With
regard to relations with the IMF, he was non-committal, saying there
is discussion of a precautionary, "but no one is pushing." END
SUMMARY.


2. (SBU) The Ambassador met with Minister of Economy Mladjan Dinkic
for the first time on June 20. Dinkic leads a ministry that took on
much greater responsibilities based on the coalition agreement and
the subsequent law on ministries. It obtained foreign trade and
export control from the now-eliminated Ministry of International
Economic Relations; it took employment from the Ministry of Labor
and Social Affairs; it acquired regional development, including
supervision of the quasi-bank Fund for Development, and it took
tourism from the Ministry of Trade (which now handles only internal
trade issues.). Dinkic, whose party captured just over six percent
of the vote and 19 deputy seats to become the junior partner in the
new Kostunica government, was accompanied by one aide, while econ
chief and USAID LES joined the Ambassador.


3. (SBU) The Ambassador opened the discussion by asking Dinkic, as
leader of one of the three coalition parties, for his views on
likely developments in regard to Kosovo. Serbia is in a tough
position, the Ambassador noted, pursuing a hardline stance on Kosovo
while seeking Euro-Atlantic integration. We must face the reality
that Kosovo will be independent, the Ambassador said, but find a way

to pursue our bilateral agenda at the same time.


4. (SBU) The situation is not pleasant, Dinkic said. Since 2001
Serbia's relations with the U.S. have improved steadily, but now a
single political issue separates us. His view is that partition
would be best, Dinkic said, but neither party to the dispute
welcomes this stance. The best course would be for the U.S. to show
a bit more flexibility; then it would be in a position to request,
and expect, more flexibility from President Tadic and Prime Minister
Kostunica. It is not possible to change the view of the Serbian
side "100 percent," he warned, but the Kostunica government must try
to solve this issue in some way that permits it to move forward on
integration and maintain good relations with all states.


5. (SBU) The Ambassador noted that the U.S. agrees wholeheartedly
with four of the main goals of the Kostunica platform; only on the
fifth, Kosovo, is there disagreement. Serbia should not permit its
stance on one issue to defeat progress on the other four. It is
unlikely that we will agree on Kosovo, the Ambassador said, but we
must move forward nonetheless. Dinkic agreed that this is the only
option.


6. (SBU) The Ambassador noted that Dinkic is in large measure the
architect of Serbia's economic recovery, an area on which we can and
do work together. But one issue on the economic side is troubling:
the push by Russian companies for economic gains. Dinkic replied
that Russian companies would be treated like any others, which
includes the requirement for tenders in any privatization. Only in
natural gas does Russia have a special position, he said, and that
is a function of its monopoly position as supplier.


7. (SBU) Dinkic said that Prime Minister Kostunica had asked that
Trade Minister Bubalo be the Serbian chair of a joint
Serbian-Russian commission on economic relations, although normally
the economy minister would chair. He had agreed. Econ chief asked
about recent Russian interest in a cargo terminal joint venture at
Belgrade airport. Dinkic replied that he had learned of such
interest and had discussed it with President Tadic. Both agreed
that any such deal must be handled transparently, and it would
require a decision by the entire government. The document signed by
the airport's board chair had no legal force, he added.


8. (SBU) The Ambassador turned to the impending privatization of
state-owned oil company Naftna Industrija Srbije. He noted that the
economy minister had publicly advocated selling a majority stake,
but it is not clear whether that will be the coalition policy.
Dinkic replied that the coalition, when formed, had agreed that the
minimum would be the Merril Lynch strategy of immediate sell-off of
25 percent, with management control, to a strategic partner, to be
followed by an increase to 37.5 percent equity via additional
investment. Dinkic said he did favor immediate sale of majority,
but said that Deputy Prime Minister Djelic did not share this view.
We would see what would happen, he said, adding that the finance
minister should join the debate and make his views clear.


9. (SBU) Dinkic said that other deals will move forward. Insurer
DDOR Novi Sad should be sold by the end of the year. The next step
for state airline JAT is to hire a financial adviser to help in the
search for a strategic partner. JAT's maintenance subsidiary would
be tendered soon, he added, and it already had attracted interest
from other companies. The Ambassador asked whether Aeroflot could
be a serious contender for JAT. Dinkic replied that it does appear
to be serious about making an offer.


10. (SBU) Turning to assistance issues, the Ambassador explained
that USAID is cooperating with the Agency for Privatization on
bankruptcy for socially-owned companies that had not found a buyer.
The economic minister replied that he favored completing
privatization via bankruptcy when there is no other option. The
Ministry would move to put several companies in bankruptcy soon,
including the Matroz paper plant. Auctions of such assets would
begin in the autumn, he said. He noted that as central bank
governor, he had taken a tough approach in closing many banks, but
the strategy had paid off in the end.


11. (SBU) The Ambassador brought up one bankruptcy case that had
proved troubling. U.S. company Ocean Atlantic had attempted to buy
property from a bankruptcy auction, but its bid was turned down by
the bankruptcy administrator in what appeared to be an example of
corruption. Dinkic said that he already had decided to change the
director of the Bankruptcy Supervisory Agency.


12. (SBU) Restitution is an issue where we would like to see the new
government move expeditiously, the Ambassador said. The Embassy had
reviewed the draft approved by the previous government, but
restitution claimants who are U.S. citizens had raised several
issues. The Embassy had put together a list of suggestions, and he
passed a copy to the minister. But it is important to move sooner
rather than later, the Ambassador added, to avoid any transformation
of restitution into a major political issue. Dinkic replied that
the Ministry of Finance would be working on the law, but offered to
review Embassy suggestions.


13. (SBU) The Ambassador applauded the way in which the previous
government had worked with U.S. investor Philip Morris to resolve
issues raised by the CEFTA agreement. Such aftercare for
established investors is important. The new government could send a
positive signal to the investment community by quickly coming to
terms with U.S. investor Uniworld, the Ambassador added. An
international arbitration tribunal had recently decided for Uniworld
in its dispute with the Agency for Privatization over the Putnik
travel agency.


14. (SBU) Dinkic said that the Government of Serbia had been told by
its lawyers that further legal avenues for appeal were available,
and it would seek to overturn the arbitration decision. The U.S.
would do the same to protect its legal interests, he added. But the
minister noted that in the Valeant investment dispute, the
Government of Serbia had eventually settled with the claimant. The
Ambassador said that a quick settlement would be welcome, but added
that he understands GOS determination to exhaust its legal remedies.



15. (SBU) Econ chief asked how the Minister regarded the outlook for
an IMF agreement. Dinkic replied that such an option was under
discussion, but no one in the GOS really is pushing for such a deal.
The overall macroeconomic situation is promising, and he added that
slow budget execution would offset to some extent the expansionary
impact of the 2007 budget proposal.

POLT