WHAT'S AT STAKE: SCENE-SETTER FOR YOUR VISIT TO

C O N F I D E N T I A L SECTION 01 OF 02 BUCHAREST 000512

SIPDIS

SIPDIS

FOR EUR ASSISTANT SECRETARY FRIED FROM THE AMBASSADOR

E.O. 12958: DECL: 05/05/2017
TAGS: PGOV PREL RO
SUBJECT: WHAT'S AT STAKE: SCENE-SETTER FOR YOUR VISIT TO
ROMANIA

Classified By: Ambassador Nicholas Taubman for 1.4 (b) and (d)


1. (C) When you arrive next week, Romania will be in the
middle of an unprecedented 30-day suspension period for
President Basescu. Barring further surprises in this soap
opera, a May 19 national referendum will decide his fate;
odds are he will be returned to office, perhaps by a wide
margin. Yet domestic political developments over the next
weeks and months will impact directly on whether Bucharest
will continue to serve as a model U.S. partner in Europe --
including in the expeditionary "new NATO" -- or whether it
will scale back its geopolitical aspirations and focus inward
on the economic here-and-now of an also-ran EU member. Also
at stake is the credibility of Romania's warring political
institutions--parliament, the prime minister, and the
presidency--and along with it the country's long-term
political health. As Prime Minister Tariceanu and opposition
leader Geoana, along with their allies in the post-Communist
old guard, rush to strip away the President's remaining
levers during this suspension period, our interests could be
trampled on as well. There are signs of growing influence of
Russian-influenced oligarchs on economic and energy policy;
backtracking in the fight against corruption; and a
quickening Euro-centric policy drift. The latest government
makeover has undeniably set back day-to-day governance and
policy continuity. There are risks that we may see follow-on
impacts on key equities, including Romania's next generation
strike fighter procurement and the privatization of a major
auto plant that two U.S. manufacturers are actively vying
for. In short, the stakes are high during your visit, and
you have a chance to make a real impact.


2. (C) You will hear for yourself that the rules of the
suspension game continue to change. Despite the PM's
assurances that the referendum would be conducted under
existing laws, the Constitutional Court declared on May 3
that legislation lowering the threshold for removing a
sitting President (from a majority of all registered voters
to a simple majority of all cast votes) meets the
constitutional smell test. The Court has not yet issued its
detailed argumentation as to whether the decision applies to
Basescu's upcoming referendum test or only to future
referenda. Rumors abound of as yet uncorked political games
and "scenarios." I gave an interview to a Romanian weekly
this week in which I made the point that the political actors
cannot tilt the table in a genuinely democratic contest. We
want you to put down a marker that while politics can be
rough, it has to be played according to democratic rules.
That said, Basescu and his political allies are confident
they will prevail despite the Court decision, and recent
polling data supports this.


3. (C) Outwardly, interim President Vacaroiu has assumed a
caretaker role. However, the absence of the pro-American
Basescu from the Supreme Defense Council (CSAT) gives an
opening for mischief-making, including ramming through a
policy decision to implement PM Tariceanu's aim of
withdrawing all Romanian troops from Iraq by year's end. New
Defense Minister Melescanu goes further, and argues that
Romania is overcommitted militarily and should reduce its
overseas commitments from the current 17-1800 troops to 7-800
troops overseas. Another concern is a new national security
law that would strip the Presidency of its current powers
over foreign policy and the intelligence services. The
legislation, prepared by the Prime Minister's allies, would
reportedly shift control of the intelligence services to the
PM, take wiretapping authority away from the current domestic
service, and place it under a new authority controlled
directly by the Parliament -- a recipe for disaster, You
should express our concern that changing the basic terms of
reference governing the intelligence services could undermine
our extraordinarily close cooperation in this area.


4. (C) The recent cabinet reshuffle and the previous high
turnover in senior GOR positions means loss of policy
continuity and know-how. Many important positions, including
the Romanian Ambassador to the United States, still remain
unfilled. Tariceanu's new team also appears intent on
overturning many decisions made by the previous
administration. MOD Melescanu, for example, declared that he
is now looking at "all possibilities" for a follow-on fighter
aircraft to replace the ROAF's aging MIG-21s. Previously,
President Basescu and others told us there was just one real
contender--namely a lease-purchase deal for Lockheed-Martin
F-16s and F-35s, which would help cement, for decades to
come, future Romanian interoperability with US forces. A
europhile Prime Minister may lean increasingly towards more
"European" options in the defense field, in which
short-sighted decisions could undermine the unabashedly
Atlanticist strategic direction of the last two Romanian

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governments.


5. (C) Also disturbing is the rising clout of Romania's
oligarchs and their role as a cat's paw for Russian
interests. Since 1989, various moguls have grabbed bits of
the lucrative energy sector, buying in cheaply through
corrupt means, looting the assets, and manipulating
subsidized electricity and natural gas to run dinosaur
industries on the cheap. The GOR is dithering on privatizing
electricity production and gas distribution, since oligarchs
want to manipulate these assets for price breaks. To make
matters worse, Russian interests are now circling many of
these assets and have already purchased a struggling oil
refinery (RAFO). Romania,s position at the crossroads of
several potential energy pipelines means it could play a
positive role in diversifying supplies to the EU, but the
oligarchs appear willing to sacrifice national interests for
their own ones.


6. (C) Another sign of growing Russian ambitions involves
the sale of the now-bankrupt Daewoo automobile plant in
Craiova. Two American companies, Ford and GM, are interested
in buying the factory. Bureaucratic incompetence and
dithering have delayed the privatization process and the
promised June 2007 date for privatization will not be
fulfilled. The GOR now promises a September sell-by date,
but I am skeptical about this new deadline as well. We have
just seen the dark-horse submission of a letter of intent to
bid on the factory by one of Russia,s infamous oligarchs,
Oleg Deripaska. Deripaska already owns an aluminum factory
in Romania and wants to expand his reach within the EU by
purchasing the Craiova factory. The Romanian Prime Minister
claims no knowledge of the bid, but I don,t see this as
plausible, given his intense personal interest in this deal.


7. (C) Finally, many of the best "honest cops" who have
tried to rein in corruption and increase fiscal and economic
oversight (Monica Macovei, for example) have been replaced by
party hacks or inexperienced replacements who are unlikely to
make waves. The potential for a rapid deterioration in the
GOR's fiscal sobriety is also great given the control of the
parliament and the budget by individuals who will want to buy
the electorate,s goodwill prior to this fall,s MEP
elections and next year,s national elections. While the
Europeans have for the most part been silent, some of my
counterparts--most notably the Dutch and Norwegian
Ambassadors--have begun to speak out publicly on the effect
that prolonged political turmoil may have on governance, the
fight against corruption, and on the investment climate. We
need to establish a common front with our EU counterparts to
ensure that current nascent signs of Romanian back-sliding
don't become a full rout.


8. (C) Our message has been getting through. My public
comments about the impact of the political turmoil on
Romania's reputation, and the need to play by democratic
rules, have registered. The decision to hold up Geoana's
U.S. visit likewise got his attention, and that of others.
Yet the 2008 NATO summit announcement was a tangible sign
that we are not simply throwing up our hands and walking
away. We need to continue to find the right balance between
assuring our interlocutors that we are serious about a
long-term partnership that goes beyond political
personalities, and telling them frankly where they are coming
up short or putting our common interests in jeopardy. Your
visit could not be timed better, on the eve of important
decisions on Romania's Iraq deployment and national security
strategy. You can do a lot to consolidate our three bottom
line points: Romania's domestic politics should not
undermine our strategic equities; Romanians need to play by
democratic rules if they want to be our close partner;
Romania cannot slip backwards on fighting corruption and
strengthening the rule of law.
TAUBMAN