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 -------------- ¶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 -------------- ¶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 -------------- ¶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 -------------- 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 -------------- ¶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 -------------- ¶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 -------------- ¶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 -------------- ¶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 -------------- ¶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 -------------- ¶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 -------------- ¶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