KOSOVO: COM ADVISES FINANCE MINISTER SHALA ACTION

C O N F I D E N T I A L SECTION 01 OF 03 PRISTINA 000036

SIPDIS

SIPDIS

DEPT FOR EUR, EUR/SCE, DRL, INL, AND S/WCI, NSC FOR BRAUN,
USUN FOR DREW SCHUFLETOWSKI, USOSCE FOR STEVE STEGER, OPDAT
FOR ACKER

E.O. 12958: DECL: 01/22/2018
TAGS: PREL ETRD ECON EAID EAIR ETTC PTER KTFN UNMIK
KV, YI
SUBJECT: KOSOVO: COM ADVISES FINANCE MINISTER SHALA ACTION
ON BUDGET, KOSOVO SERB PROJECTS, AND POST-STATUS PLANNING

REF: 07 PRISTINA 829

Classified By: COM TINA KAIDANOW FOR REASONS 1.4 (B) AND (D)


1. (C) SUMMARY: In a January 15 meeting with new Minister
of Economy and Finance Ahmet Shala, COM emphasized the
importance of demonstrating government support for the Kosovo
Serb community through implementation of meaningful projects
in minority areas, with real budgetary resources behind them,
pointing out that this would be a real test of Kosovo,s
commitment to support its minorities. She also urged
continued fiscal responsibility and restraint and encouraged
Shala to engage his ministerial colleagues in active dialogue
during the ministry's budget review process in order to
develop a coherent, consolidated and prioritized budget plan
that can be presented to the Prime Minster as already vetted
through and supported by the ministries. COM noted that the
desire to "fix" all of the problems in the Kosovo Electric
Corporation (KEK) could quickly bust Kosovo's budget, and a
meeting with new Minister of Energy to outline short- and
long-term priorities to address KEK's problems should happen
soon. COM further warned that contingency planning should
intensify in order to deal with any punitive measures taken
by Serbia after status that could create unexpected
expenditures. END SUMMARY.


2. (C) COM met new Minister of Economy and Finance (MFE)
Ahmet Shala on January 15, noting that it is a welcome sign
of the new government's serious intent that well-regarded
Shala has been appointed to the position. Shala was
previously Deputy Managing Director of Socially-Owned
Enterprises with the Kosovo Trust Agency, where he faced
intense public scrutiny, but successfully oversaw the
privatization of many of these enterprises. COM acknowledged
the myriad tasks requiring Shala's attention and action in
the coming days, and emphasized the need to assess and
prioritize key goals as soon as possible.

Ahtisaari and Serb Minority Projects are Top Concerns


3. (C) Shala noted that he is already preparing to assess
goals, workplans and short-term priorities in consultation
with other government colleagues. An immediate priority
stipulated by Prime Minister Thaci in a recent meeting with
all ministers was finalization of the Ahtisaari package and
of all status-related legislation. Shala noted that the new
government needs to represent all members of the Kosovo
community, minority communities as well as Kosovo Albanians.
The MFE is ready to assume this role by financing projects
that will build Kosovo's future and promote democracy. Shala
insisted that the Kosovo people are ready for this to happen,
and even some Kosovo Serbs are ready for this change. The
MFE has been tasked, he added, with identifying minority
projects that will truly benefit Serbs, and reassure them
that their decision to remain in Kosovo is the right choice.
Minister Shala expressed optimism that these projects will be
able to lessen the political pressure Serbs feel within their
own communities. While the world looks to us to take action,
Shala continued, the government needs to ask Kosovo Serbs how
they can be participants without looking like traitors to
their communities. Shala asked COM to encourage Serbs and
other minority groups to reach out to the government, so the
government can accommodate them.


4. (C) COM acknowledged the difficulty of finding
Serbs willing and able to resist strong community pressure
against participation in the Kosovo government, and agreed
this is a crucial challenge. She stressed that proving
Kosovo can take care of its minority communities was crucial,
and emphasized again that the test would be concrete projects
with solid funding for Serb areas. These projects should not
require huge sums of money, but they will come under scrutiny
and require significant political resolve. COM reiterated
that USOP is ready to provide political and technical support
and would work with the ministry to identify appropriate

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projects. (Note: USOP is preparing specific ideas in this
regard that it will soon take up with both Shala and PM
Thaci. End Note.)

Provide Assurance to International Community, Assess
Priorities


5. (C) Minister Shala recognized that the new government,
and particularly the MFE, would face intense public scrutiny
during the first 100 days of the Thaci administration. He
said he needed to determine priorities and design action
plans, as the IMF, World Bank and international donors would
be watching and making requests. Shala asserted that the MFE
would act and speak in a way that would inspire confidence
and gain the blessing of the international community. Above
all, Shala said he did not want anything the MFE does to
cause nervousness in the international community.


6. (C) COM pointed out that communication would be key,
noting that many of the new ministers may find it difficult
to focus on short-term priorities, including the budget. COM
encouraged Shala to actively engage his ministerial
colleagues and their budget personnel in a dialogue to
develop a cohesive plan with concrete suggestions to present
to the Prime Minister. She also asked Shala to give the
international community a sign that the MFE would not start
from scratch and would honor previous commitments to fiscal
responsibility and restraint, even intensifying those
efforts, if possible.


7. (C) Shala promised to be inclusive and not work in
isolation from the other ministries. He noted that he and
Deputy Minister Bedri Hamza have already identified areas
requiring attention, such as tax policy and tax
administration reform, and he expected to have an action plan
to addresses deficiencies very soon. Shala previewed that
the ministry's priorities would be ranked with an eye toward
a post-status donor conference, as well as the need to
identify reforms for medium-term economic sustainability.

The Promises of KEK


8. (C) Referring to promises by PM Thaci during the election
to provide a 24-energy energy supply, COM suggested they
would be difficult, if not impossible to keep. Past funding
given to KEK to address its problems had not yielded many
positive results, and the temptation to try to "fix"
everything could easily become a budget buster. COM urged
Shala to meet with the new Energy Minister very soon to
establish limited funding priorities from a KEK managerial
perspective, based on what makes sense for Kosovo's budget.
She acknowledged the desire for positive and demonstrative
changes at KEK, but cautioned that they would take time and
require political will and significant expenditure. While
many Serbs are not currently paying for electricity, COM
warned that attempts to normalize the payment system now, so
close to status resolution, could cause the government
unnecessary trouble. COM concluded that now is the time to
emphasize commitment to regularized payments and encourage
energy conservation in the rest of Kosovo. Shala said that
he had already met with the Minister of Energy Shiroka-Pula,
and they would meet again soon to discuss long- and
short-term priorities. He also agreed that it would be best
to address Serb enclave energy payment issues in the future,
perhaps as part of a larger donor discussion in relation to
other projects.

Importance of Post-Independence Contingency Planning


9. (C) COM highlighted the prospect of punitive actions by
Serbia following an independence declaration. Though it is
unclear exactly what Belgrade might do, there would certainly
be budgetary implications, which would require additional
spending in areas not previously considered. Worst-case
scenarios must be planned for, including the possibility that

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Serbia would close the border, disrupting trade and movement
of people, and cut electricity transmissions. COM emphasized
the need for intensified and continuing contingency planning,
and for Shala to seriously consider the amount of money kept
in reserve to address the possibility that the government
might need to subsidize food and purchase additional energy
imports.

Shala Already Making Contingency Plans


10. (C) During an informal discussion immediately following
COM's call, Shala noted to EconOff and Treasury Adviser that
he and his deputy have already begun contingency planning
discussions, including an assessment of budget resources
still unallocated that could feasibly be used for an
emergency situation or even placed immediately in reserve.
Shala expressed concern over the possibility of sabotage to
the Ibar canal system post-status. (As reported in reftel,
the canal system supplies essential cooling water to the KEK
Kosovo B power plant.) Noting that Kosovo B could run for a
maximum of six hours after being cut off from the canal,
Shala planned to approach KEK about installing two or three
pumps along the Sitnica river, which runs close to the canal
at certain points. If sabotage occurred, the pumps would
presumably be able to pump water directly into the remaining,
intact portion of the canal system.


11. (C) Shala said he would convene a meeting with the
Kosovo business community to discuss the impact of Serbia
closing the border, including the possibility of developing
new trade relationships with regional suppliers and
re-routing goods through Macedonia. EconOff encouraged Shala
to meet with his counterparts in neighboring countries to
assess alternative sourcing if punitive measures are taken.
This sort of proactive planning would help smooth the way for
assistance requests and alternative routing measures. Shala
said he would appreciate anything Washington could do to
discourage Serbia from implementing any punitive measures.

Comment


12. (C) New Finance Minister Shala is one of PM Thaci's best
cabinet choices. From his previous work with the Kosovo
Trust Agency, Shala gained a reputation from the
international community here as a serious and able public
servant. COM's initial meeting with him was an opportunity
to reinforce the messages conveyed to PM Thaci that
finalizing Ahtisaari legislation and reaching out to the Serb
community are issues of immediate concern and a top
governmental priority. While the new minister will face
challenges and pressures from myriad sources, prioritizing
and preparing for post-status needs -- both expected and
unexpected -- will be critical in the first several weeks of
his tenure. The key to success will be Shala's ability to
engage his ministerial colleagues and coordinate efforts. We
will support him strongly in this effort.
KAIDANOW