SERBIA: SCENESETTER FOR THE DECEMBER 19-20 VISIT OF

UNCLAS SECTION 01 OF 03 BELGRADE 001270

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: PGOV ECON MARR SR
SUBJECT: SERBIA: SCENESETTER FOR THE DECEMBER 19-20 VISIT OF
CONGRESSMAN TED POE

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Summary
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1. (SBU) Your visit to Serbia comes as we are rebuilding high-level
contacts with a new, pro-European Serbian government in the wake of
Kosovo's declaration of independence. The recent agreement in the
UN Security Council on the deployment of the European Union's Rule
of Law mission was a crucial step forward which we hope will permit
Serbia to shift its focus from Kosovo to the range of economic and
political reforms necessary for membership in the EU, and to play a
more constructive role in the region. Reforms to date have been
uneven, with significant progress in the defense sector but many
challenges ahead in the economic sphere, particularly in light of
the global financial crisis. End Summary.


Domestic Politics
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2. (SBU) After several years of ineffective governance due to
tension within its ruling coalitions, Serbia elected a democratic,
pro-European president in February and formed a government based on
the same principles in July. President Boris Tadic's Democratic
Party (DS) is the main party in the ruling coalition, and also
controls Serbia's largest city governments. Tadic and his ministers
have laid out an ambitious program of economic and political reform
designed to speed the path to European Union membership. An
inefficient bureaucracy and legislature, combined with internal
political turmoil over Kosovo and a fractious opposition, have thus
far limited progress on Tadic's agenda, however. In addition,
political rivalries among the governing parties - which include the
Socialist Party of former dictator Slobodan Milosevic - have led to
counterproductive infighting and rumors of early elections.


Kosovo
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3. (SBU) Serbia's recent agreement to the deployment of the
European Union's Rule of Law Mission, or EULEX, throughout Kosovo
was a watershed event. With the deployment of EULEX on December 9,
the United Nations ceased responsibility - after nine years - for
police and judicial oversight in Kosovo, transferring many of its
authorities to EULEX and the Kosovo authorities. Serbia agreed to
EULEX's deployment only after receiving assurances from the UN
Secretary General's Special Representative for Kosovo that a
reconfigured UN presence would remain in Kosovo and would continue
to engage with Serbia on specific issues of concern, including
policing, customs enforcement infrastructure, and cultural heritage.
EULEX, to which the U.S. is contributing personnel, has said it
will coordinate with the Serbian government as it carries out its
mission.


4. (SBU) Resolution of the EULEX issue followed Serbia's success in
obtaining the agreement of the UN General Assembly in October to
request an advisory opinion from the International Court of Justice
on the legality of Kosovo's February 2008 unilateral declaration of
independence. The Serbian government has assured us that with these
two issues put aside, it will now work constructively with the
United States and other international partners to promote regional
stability. The next few months will be a crucial test of the
Serbian government's commitment to stop putting Kosovo above other
crucial issues. In particular, we expect Serbia to continue to
advocate respect for the Dayton Accords in Bosnia-Herzegovina and to
improve relations with Croatia by addressing issues related to the
wars of the 1990s, such as refugees.


Euro-Atlantic Integration
--------------


5. (SBU) The top priority of the government of Prime Minister Mirko
Cvetkovic is to pursue membership in the European Union. Serbia
signed a Stabilization and Association Agreement (SAA) with the
European Union in April 2008, and hopes that the EU will soon
implement the associated Interim Trade Agreement (ITA) and grant
Serbia candidate status. Both steps are contingent on Serbia
completely fulfilling its obligations to cooperate with the
International Criminal Tribunal for the Former Yugoslavia (ICTY),
however; most notably, Serbia must still capture and extradite
former Bosnian Serb General Ratko Mladic to face war crimes
charges.


6. (SBU) While Serbia cooperates actively with NATO via the
Partnership for Peace program, it does not intend to pursue NATO
membership in the foreseeable future. This is partly due to lasting
public anger over the 1999 NATO bombing campaign which forced
then-President Slobodan Milosevic to halt his ethnic cleansing

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campaign in Kosovo. It also reflects both Serbia's interest in
walking a fine line between Russia and the West, and its limited
institutional and financial capacity to undertake numerous
simultaneous international commitments.


Security Issues
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7. (SBU) Defense reform is nevertheless a priority of the Serbian
government, and an area where significant progress has been made.
The Serbian Armed Forces have been right-sized to about 28,000
troops, with further cuts on hold for the time being, pending a
reevaluation of the security environment. Minister of Defense
Dragan Sutanovac (DS) has overseen significant soldier pay
increases, training improvements, and legislation to codify defense
reform, as well as improvements in strategic planning and
procurement. The Ministry has also made progress on disposing of
some excess materiel such as MANPADS, which we are funding. Further
reforms, including a reduction in civilian staff, are needed.
Serbia is an active participant in the National Guard's State
Partnership Program with Ohio, which has been publicly well received
and touted as an example of successful bilateral cooperation.


Economic Issues
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8. (SBU) Serbia has yet to feel the full impact of the global
financial crisis, but some consequences are already apparent:
tightening credit conditions have made it more difficult to obtain a
mortgage, and several major employers have laid off personnel due to
declining demand. The government is nevertheless optimistic that
due to measures they have taken to stabilize the banking system and
protect the national currency (the dinar),Serbia will not be as
severely affected as some other countries.


9. (SBU) Serbia's recent growth has been fueled by large fiscal
expansion and a growing trade deficit. Serbia needs to address
lingering economic issues, including reform of the commercial and
enterprise sectors and privatization of large state-owned
enterprises, in order to become a viable destination for investment
and further integrate into the European market. Serbia's GDP grew
by 7% through the third quarter of 2008, fueled by increased
government spending and a boom in services (transportation,
financial services, and retail trade). The government estimates
2009 growth at 3% to 3.5%. In 2008 the Serbian government signed a
lucrative agreement with car maker Fiat to invest in Zastava, a
state-owned car manufacturer.


Bilateral Issues
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10. (SBU) Relations between the United States and Serbia were
severely strained after Kosovo's declaration of independence, which
the Serbian government continues to view as U.S.-driven and a
violation of its sovereignty and of international law. On February
21, rioters attacked and set fire to the U.S. Embassy after riot
police left their duty stations. (The Serbian government reimbursed
us for the full amount of the damages in December.) Serbia recalled
its ambassador from Washington and restricted the ability of U.S.
mission personnel to meet with high-ranking Serbian officials until
October. These restrictions resulted in an almost complete
cessation of high-level bilateral contacts for most of 2008.


11. (SBU) The bilateral relationship has also been strained by the
case of the fugitive Miladin Kovacevic, a former SUNY Binghamton
basketball player charged with assaulting fellow student Bryan
Steinhauer in a May 2008 bar brawl. Steinhauer was in a coma for
several months due to the severity of the beating. With the help of
a Serbian vice consul who issued a new travel document under
suspicious circumstances, Kovacevic fled the U.S. and remains in
Serbia. He is in pre-trial detention on Serbian charges of assault,
use of a false travel document, and aiding and abetting the misuse
of authority. The Serbian government is trying to persuade
Kovacevic to return to the United States to face justice;
unfortunately, Serbian law forbids the extradition of its citizens,
except to international war crimes tribunals. Senators Schumer and
Clinton have followed the case closely.


Comment
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12. (SBU) This is a time of great opportunity for Serbia: its new
democratic, pro-European government is in position to break out of
the self-imposed prison that was its Kosovo policy and begin to take

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the many difficult and unpopular steps necessary to reform the
country's economy and political system. Our consistent message to
our Serbian interlocutors is the importance of overcoming domestic
political rivalries and grievances with neighboring countries in
order to demonstrate the political maturity and responsibility
necessary for EU membership. End Comment.

MUNTER