SCENESETTER FOR A/S FRIED VISIT TO MONTENEGRO

UNCLAS SECTION 01 OF 04 PODGORICA 000231

SIPDIS

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: PGOV PREL AMGT ECON EINV MW
SUBJECT: SCENESETTER FOR A/S FRIED VISIT TO MONTENEGRO

SENSITIVE BUT UNCLASSIFIED



Summary

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1. (SBU) Welcome to Montenegro. Your visit comes as the
Montenegrins continue to debate their new draft constitution.
The Montenegrin leadership continues its pro-West, pro-American
stance, while looking to maintain good relations with Moscow and
Belgrade, particularly on Kosovo. The result is a studied
neutrality. The strong pro-business, pro-investment climate
created by the GoM over the past years took several hits
recently, as the junior coalition partner sided with the
opposition to halt further privatizations, particularly in
energy and infrastructure. The GoM remains a receptive
interlocutor, eager to develop strong ties with Washington and
to prove itself a reliable partner. A year after independence,
no major political figure raises objections to Montenegro's
renewed independence. The renewed prospect of indictments in an
Italian court against former PM Djukanovic for cigarette
smuggling in the 1990s attracted a brief flurry of interest,
which is already fading. Nine months after officially becoming
an Embassy, post is tentatively moving closer to acquiring the
attributes of an Embassy, classified communications capability
and the ability to provide consular services End Summary.



Draft Constitution

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2. (SBU) Montenegro after nine months of debate has yet to adopt
its new constitution as an independent state, and the draft
remains heavily bracketed. The major areas of contention are
"heritage" issues, such as the national anthem and flag,
recognition of specific religious faiths, and the name of the
most common language (what was Serbo-Croatian). The EU and
Council of Europe have insisted that the constitution create a
"civic" state, but ethnic minorities continue to seek special
carve outs for political representation, language, religion,
and culture. The Parliament and parties have also not decided
how to incorporate Council of Europe suggestions, made through
its Venice Commission to depoliticize the judiciary. The
constitution can either be adopted by a vote of 2/3 of all MPs
(54 of 81 votes),requiring support from opposition MPs (as the
government has only 41 seats),or by a majority of MPs (41),
followed by a public referendum. Adoption of the constitution
is highly unlikely before the fall. In the meantime, the old
Montenegro constitution of 1992 (promulgated by Milosevic) is
the governing document). To date, the prolonged transition has
not created major problems, and the Council of Europe's deadline
for a new constitution is next spring, before the Presidential
election of May 2008. However, as the parliament elected in
September 20006 is also the constitutive assembly charged with
drafting the new constitution, a government crisis leading to
new elections could cause problems in adopting the charter.



Kosovo

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3. (SBU) The GoM has taken a stance of studied neutrality on
Kosovo, wishing neither to offend the USG, Albania, and its own
ethnic Albanian minority (5% of the population) on the one hand,
nor Serbia, Russia, and its own ethnic Serbian population (32%
of the population) on the other. The MFA has told post that it
would support a unified EU position on Kosovo. The central
concern of the GoM is that stability, regionally but also
particularly within Montenegro, be maintained. UNHCR estimates
that up to 12,000 refugees (mainly ethnic Serbs and Roma) could
enter Montenegro in case of disturbances in Kosovo. In 1999,
over 100,000 IDPs from Kosovo (primarily ethnic Albanians but
also including Serbs and Roma) entered Montenegro - equal to 1/6
of the local population. Most but not all have returned home.



Political Situation

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PODGORICA 00000231 002 OF 004





4. (U) The independence referendum held in Montenegro on May
21, 2006 was widely considered free, fair, and transparent by
international observers. Turnout was 86.5 percent, with 230,661
voters (55.5 percent) supporting independence and 185,002 voters
(44.5 percent) against. On June 3, parliament officially
accepted the referendum results and declared Montenegro
independent, restoring sovereignty after 87 years.




5. (SBU) A year after independence, no major political figure
raises objections to Montenegro's renewed independence. Serbian
nationalist opposition parties, such as the SNS, and centrist
parties like the Socialist People's Party (SNP) have yet to
embrace the literal symbols of independence (flag, anthem,
etc.),even while they fully engage in the political life of
independent Montenegro.




6. (U) Montenegro joined the OSCE on June 22, 2006, the UN on
June 28, 2006, and the Council of Europe on May 11, 2007. The
U.S. recognized Montenegro on June 12, 2006, and announced the
establishment of diplomatic relations on August 15, 2006. The
U.S. Consulate officially became an Embassy on October 5, 2006;
nine other NATO countries, Russia, and China also have resident
embassies in Montenegro.




7. (SBU) On September 10, 2006 Montenegro had its first
Republic-wide parliamentary elections, with the ruling DPS/SDP
coalition winning an absolute majority in parliament, with 41 of
81 seats. OSCE considered the voting "generally in line" with
international standards. The big change in the status quo
occurred after the election, when PM Milo Djukanovic decided to
step down in favor of former Justice Minister Zeljko Sturanovic.





8. (SBU) The opposition is fractured into three blocs, with the
formal Leader of the Opposition being Andrija Mandic, head of
the nationalist Serbian People's Party (SNS). Mandic, while
personally disposed to pursue good relations with the U.S., is
not above creating controversy over agreements with the U.S. in
order to play to his nationalist voter base by attacking the
GoM. SNS is in coalition with the Serbian Radical Party, with
the Radicals gaining one seat in the Montenegrin Parliament.
Unlike the other opposition groupings, a slim majority of the
"Serbian List" opposes NATO (but not EU) membership for
Montenegro.




9. (SBU) The second opposition bloc is the Movement for Change
(PzP),headed by the charismatic and populist Nebojsa Medojevic.
PzP is pro-independence, pro-EU, but lukewarm on NATO. Medojevic
is extremely critical of past and current privatizations, and is
suspicious of foreign investment.




10. (SBU) The remainder of the opposition comprises: the
Socialist People's Party (SNP),which is re-positioning itself
away from its past ties to Belgrade as a civic party; and
several smaller nationalist parties, variously representing
ethnic Serbs, ethnic Albanians, or Bosniaks. (The miniscule
ethnic Croat party is in the ruling coalition with one seat.)




11. (U) Prime Minister Zeljko Sturanovic took over from
long-time PM Djukanovic last fall as the head of a pro-Western
coalition government. Like Djukanovic, Sturanovic's primary
foreign policy goals are EU and NATO membership and he would
like to ally Montenegro closely with the United States.
Domestically, the government's track record on fully
implementing needed democratic and economic reforms is generally
positive, with some room for improvement. Privatization of
remaining infrastructure (airports, railroad, and the port of
Bar) and the energy sector is on hold, after the smaller
coalition partner, the Social Democratic Party (SDP),sided with
the opposition in June to halt the sale of a large
thermoelectric plant and associated coal mine to En+ Group, a
Russian firm owned by Oleg Deripaska. President Putin criticized
the cancellation of the privatization in a June 24 meeting with
Montenegrin President Vujanovic in Zagreb, adding it will
discourage future foreign investment.



PODGORICA 00000231 003 OF 004



Attracting Investment

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12. (U) Montenegro has been successful in attracting foreign
direct investment (FDI),but so far very little of that has been
American. In 2006, FDI amounted to over Euros 505 million (USD
650 million) - 28 percent of GDP - the highest in the region.
Most that was greenfield investments, as Montenegro nears
complete divestment of state-owned assets. The GoM plans that
over the next four years, foreigners will make over a billion
euros of direct foreign investments into Montenegro. Thanks to a
receptive attitude toward USAID funded macro-economic reform
initiatives, the Government has adopted a business-friendly
investment climate (e.g., 9 percent corporate tax rate, full
repatriability of profits). Much of the FDI in 2006 was
purchase of real property, with Russians, British and Irish
leading the way. In April 2007, a U.S.-based firm landed the
Euros 8 million (US$ 10 million) contract to produce independent
Montenegro's first passports.


13. (SBU) Recent opposition-led efforts in the parliament,
supported by the the smaller government coalition partner (the
SDP),have delayed not only further privatization, but may lead
to other steps tending to discourage investment. No movement is
seen on revising the overly restrictive labor law, which greatly
inhibits labor mobility. Additionally, the opposition party PzP
continues to propose that completed privatizations be not only
reviewed, but "cancelled" (revoked) if the terms were
"disadvantegeous" to Montenegro.

Economy and Tourism

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14. (U) Montenegro's GDP in 2006 was 1.93 billion Euros (2.65
billion USD),according to initial Ministry of Finance figures,
or 3590 Euros (4920 USD) per capita, and real GDP growth in 2006
was 8.5%. However, the economy has yet to exceed peak numbers,
reached in 1989 (the economy began to slip already in 1990,
before war and sanctions). The two single largest contributors
to GDP were tourism, and the aluminum smelter KAP, each
accounting for about 17% of GDP. Tourism, both overnights and
revenue, continues to grow at rates in excess of 10% a year, and
the independent World Travel and Tourism Council has for three
years projected Montenegro as its fastest growing destination
over the coming decade. The number of visitors -- 952,000 in
2006, spending 322 million Euros -- is still below the peak
1989 number. The number of visitors in the 2007 season is ahead
of predictions, which were for 1.1 million visitors spending 350
million Euros. Aluminum production is steady, with revenues
slightly due to world prices.

Defense and Security

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15. (SBU) The Montenegrin leadership strongly believes their
country's future lies within PfP, and eventually NATO and the
EU. Unfortunately, the opposition (even those supportive of a
good relationship with the U.S.) had seen the May 1 SOFA and
April 19 Article agreements as fulcrums upon which to lever
attacks on the GoM. A persistent pattern of attacks on both
agreements, fed by misinformation, persisted until early June.
While the opposition leadership has accurate information --post
verified this point -- they told the embassy that they are
looking for hooks upon which to hang attacks on the GoM. They
have played up sharply the EU dislike of Article 98 agreements,
and have painted a false scenario whereby Montenegro would have
to choose between NATO and EU memberships. The GoM is aware of
the actual situation, but the message has gotten lost in the
noise. One recent public opinion poll reports a significant drop
in support for NATO membership; another (NDI) poll indicates
fairly steady support for NATO.




16. (SBU) President Vujanovic appears ready to provide the
necessary leadership to energize his nation and military for
eventual participation in GWOT. In Washington in early May, he
told Secretary Gates that Montenegro wants to send a small
number of officers to GWOT (probably Afghanistan) in 2008.
Vujanovic signed the SOFA with Secretary Rice on May 1, and has
defended the GoM's conclusion of the Article 98 agreement on
April 19 through an exchange of diplomatic notes. The GoM has
established, and is rapidly expanding it Defense Ministry, and
the 2007 defense budget is 2.4% of GDP. The GoM delivered its
Presentation Document to NATO in early May, after joining the

PODGORICA 00000231 004 OF 004


Partnership for Peace on December 14; the Document commits
Montenegro to spending 2% of GDP on defense.




17. (U) Montenegro's Presentation Document states it seeks to
become a member of NATO. It will conduct the Planning and Review
Process (PARP),and develop an Individual Partnership Program.
It seeks consultations on its Individial Partnership Plan (IPAP)
and Membership Action Plan (MAP). It has established both a
Mission to NATO, and a Partnership for Peace Council, chaired by
the PM.



Fighting Corruption

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18. (U) Sturanovic has created a broad-based task force to
tackle corruption and increase public confidence in state
institutions. He named his highly-capable Deputy Prime Minister
Gordana Djurovic to head the team, with day-to-day tasks
directed by Vesna Ratkovic, formerly a a deputy minister of
Justice and most recently in charge of USAID's now ended Rule of
Law program. He also named opposition MP's and watchdog NGO
members to the force. Vanja Calovic, the head of the watchdog
NGO MANS and a member of the force, was just named as the most
respected public figure in Montenegro in a public opinion poll.
Corruption is seen as existing at all levels, and many many
Montenegrins list corruption as the country's biggest problem
(along with low living standards). In this process,
implementation of existing legislation will be key.



Former PM Djukanovic

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19. (SBU) Milo Djukanovic, who led Montenegro from the
reintroduction of multi-party democracy in 1991, to independence
in 2006, declined to seek reappointment as Prime Minister after
his party won the September 2006 parliamentary election. He was
reelected as party president on May 20. In late June, the
Italian news agency ANSA reported a renewed possibility that
Djukanovic could be indicted in Bari on cigarette smuggling
charges, dating back to UN sanctions busting in the 1990s. The
story has gotten wide prominence dating back to the 1990s, and
the latest iteration got only brief if prominent attention
locally.



U.S. Chancery

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20. (SBU) The Embassy is housed in a USAID-owned structure which
is modern and in a park-like setting near the center. Space is
cramped and personnel share offices. The post lacks classified
communications capability or any CAA space. After months of
circular debate on a way forward Washington agencies now seem to
have agreed on the installation of secure modular units which
will serve as a short to intermediate solution until
construction of a NEC. Podgorica was placed on the top 80 list
in June '07. Modest necessary staffing growth, e.g. RSO, second
pol/econoff and GSO can be accommodated, albeit in tight
quarters until the construction of the NEC.



Visa Issuance

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21. (SBU) The constant complaint about Montenegrins having to
travel to Belgrade to apply for non immigrant visas can only be
expected to grow louder once the GoM begins issuing its own
passports in the Spring of next year. A recent OBO team looked
at ways of adapting existing space to create a consular section
at post, but money seems to be a major stumbling block to
implementing this needed change in post profile.
BARNES