SERBIA: DINKIC ON POLITICS AND ECONOMICS

UNCLAS SECTION 01 OF 02 BELGRADE 000635 SENSITIVE SIPDIS USDOC FOR 4232/ITA/MAC/EUR/OEERIS/SSAVICH E.O. 12958: N/A TAGS: ECON EFIN SR SUBJECT: SERBIA: DINKIC ON POLITICS AND ECONOMICS REF: BELGRADE 527 SUMMARY -------------- ¶1. (SBU) In a June 30 meeting with Charge, Deputy Prime Minister and Economics Minister Mladjan Dinkic railed against an ongoing media witch hunt targeting him, which he said was manipulated by the ruling Democratic Party. President Tadic needed to take decisive action to publicly support him, or he would consider leaving the government, a threat he has made - and followed through on - several times in the past. Despite these internal political feuds, Dinkic was optimistic that Serbia had turned the corner in the economic crisis and hoped the IMF would be amenable to Serbia's situation. End Summary. MEDIA TO BLAME -------------- ¶2. (SBU) In their first meeting, Mladjan Dinkic, Leader of G17 Plus and Deputy Prime Minister, told the Charge that media attacks unfairly labeled him as the culprit for corruption and all things wrong in the government. Dinkic specifically blamed the "Kurir" tabloid for nearly continuous daily accusations against him. Such slander, he said, must be prosecuted, but it was not. He said he wanted to see stricter media standards for all. DEMOCRATS MAKE DINKIC THE CULPRIT -------------- ¶3. (SBU) Dinkic blamed his coalition partner the Democratic Party (DS) for the attacks, which he said made him "guilty for all the bad news in Serbia." Dinkic said he was frustrated with President Boris Tadic (DS) who he said did not publicly defend him against such attacks. "The government must protect me," Dinkic said, noting that Tadic was defending Socialist leader and fellow Deputy Prime Minister Ivica Dacic (SPS) and even Progressive Party (SNS) deputy leader Aleksandar Vucic, of the opposition. "If they do not, then why should I stay in this game [of government]," Dinkic asked rhetorically. Going further, Dinkic said public companies were financing such tabloids, such as "Pravda," "because President Tadic has ordered them to do so." He assured the Charge that he was "politically with the government" but that such character assassinations signified a "dangerous destruction of moral norms," which he would no longer tolerate. SERBIA'S ECONOMY STABLE - BUT GOVERNMENT INDECISIVE -------------- -------------- ¶4. (SBU) Dinkic said that Serbia had weathered the worst of the current economic crisis and, while acknowledging that the economy was currently stagnating, he was optimistic that the situation would improve by the end of the year. "Once the rest of Europe recovers, it will recover here," he said. Dinkic took credit for the "economic plan that had saved the skin of all of us (Serbia)," citing his efforts to stabilize the domestic labor market, focus on infrastructure investment, provide start up loans to new businesses, and pressure large retailers to pay their domestic suppliers in a timely fashion. ¶5. (SBU) Dinkic said he knew what needed to be done to further fix the economy, but argued it would only work if the government was more publicly decisive. He said the government needed to take a harder stand against tycoons who were now running previously state-owned companies into the ground. He also called for decisive action against workers who were taking strikes to the street, as well as better dialogue with trade unions. He called for tougher tax collection against evaders. ¶6. (SBU) Dinkic argued against any efforts by the government to implement a tighter fiscal policy during the economic downturn. He said raising the Value Added Tax, currently at 18%, would be "catastrophic" at this time, and assured the Charge that Serbia could finance a 4.5% public deficit this year, even though this exceeded the 3% benchmark previously agreed to with the IMF (reftel). Instead he argued for funding the deficit through bilateral and IFI loans geared toward budget support and specific infrastructure projects. Dinkic also said he opposed further freezing of public wages or pensions, arguing that this would only further depress domestic consumption. IMF SHOULD BE FLEXIBLE BELGRADE 00000635 002 OF 002 -------------- ¶7. (SBU) Dinkic said he expected the IMF to "understand" Serbia's situation and cited a series of statistics showing that Serbia was performing better than other European countries, noting Serbia's GDP had only fallen 3.5% this year, compared to the EU's 4.5% drop. Compared to other European countries, Serbia has the "space to further borrow," Dinkic said. The GoS would urge the IMF team to be flexible when it visits in August and would make these same points to IMF Managing Director Murilo Portugal during his visit to Serbia in early July. COMMENT -------------- ¶8. (SBU) Dinkic's comments about the media slander against him and the DS complicity have become his standard talking points with us. Nonetheless, the tabloid accusations thrown against him are serious. Despite his frustrations with the DS, Dinkic seems unwilling at this stage to break the government coalition. Although Dinkic has brought down governments before, he also knows that his position is weak: G-17 Plus's popularity has fallen sharply since it won 25 seats in the 2008 parliamentary elections as part of the "For a European Serbia" coalition; it might not even pass the 5% bar if it had to run on its own in new elections. Economically, Dinkic is forever the optimist. Although he believes the worst has past, we do not expect the IMF to be as understanding as he predicts. End Comment. BRUSH