MACEDONIA: DANGEROUS DRIFT?

C O N F I D E N T I A L SECTION 01 OF 04 SKOPJE 000332

SIPDIS

STATE ALSO FOR INR/B

E.O. 12958: DECL: 07/05/2019
TAGS: PGOV PREL MK
SUBJECT: MACEDONIA: DANGEROUS DRIFT?

REF: SKOPJE 300

Classified By: CDA Tom Navratil for reasons 1.5 (b) and (d).

Summary
--------------


1. (C) PM Gruevski's government continues a very mixed
performance. He and his closest cronies continue to engage
in highly questionable practices on government tenders and in
squeezing EVN, the Austrian-owned electricity distributor.
Substantial judicial reform lags, but Gruevski has directed
the Justice Ministry to take several steps to provide greater
transparency and adherence to European standards (reftel).
The EU will almost certainly grant Macedonia visa
liberalization starting next year, with a good possibility of
recommending a start date for accession talks in their annual
report this autumn. The June 30 resignation of DPM for
Euro-integration Bocevski underscored Macedonia's sluggish
forward progress, but also prompted Gruevski to do some
cabinet-cleaning. Gruevski may be seeking to distract the
public from focusing on the poor performance of his own
government and the economy, where the downturn is likely to
grow more severe, exacerbating societal tensions.
Interethnic and intra-Albanian relations continue to fray as
well. However, VMRO and DUI have recently engaged in more
practical power-sharing, as seen in DUI,s visible
participation in the name talks, agreement to take their
equitable representation/patronage concerns into account in
the revised police law, and allowing DUI to take over
management of the State University of Tetovo. We perceive a
greater willingness on Gruevski,s part to tackle the "name
issue," but he continues to insist on a referendum to avoid
personal responsibility for a historic compromise. End
summary.

Bocevski Rocks the Boat
--------------


2. (C) The sudden June 30 resignation of Deputy Prime
Minister for Euro-integration Ivica Bocevski has touched off
a storm of political rumors and public accusations, with some
observers even questioning whether PM Gruevski -- though he
holds nearly all the instruments of political power -- is
still in control. United for Macedonia leader (and former
VMRO Interior Minister) Ljube Boskoski called for Gruevski to
resign over the weekend, citing the GoM's failures in
achieving Euro-Atlantic integration and managing the economy,
which continues to falter. Nervous GoM ministers and VMRO
insiders have hinted privately to us of dissent within the
party (over which Gruevski is normally reputed to have an
iron grip) over these issues and allegations that Gruevski
cousin (and intel chief) Saso Mijalkov is implicated in a
corruption scandal surrounding the purchase of double-decker
buses made in China.


3. (C) For his part, Bocevski told the Ambassador that as DPM
he never got Gruevski's backing to make the real reforms
necessary to meet key EU benchmarks, adding that he believes
Gruevski may never have wanted real reform in key areas such
as an independent judiciary. When he felt he could make no
more progress, Bocevski said, he had no choice but to resign.
Bocevski senior aide Pero Dimsoski -- a U.S. citizen who
returned to Macedonia to take this position -- told the
Ambassador that Gruevski and Gruevski's chief of staff,
Martin Protoger, pressured him after Dimsoski told the press
that Gruevski must take more responsibility for Macedonia's
Euro-integration.

Ministers Shuffle, but Real Changes?
--------------


4. (C) As Protoger told us July 6, Gruevski took the
opportunity of Bocevski's departure to do some housecleaning
in his cabinet. The PM called the Charge July 8 to run
through the changes. DPM for the Economy Zoran Stavreski
will move over to replace Trajko Slaveski as Finance Minister
(but retains his DPM rank),and Vladimir Pesevski will
replace Stavreski as DPM for the Economy. Ljupco Dimovski
replaces Aco Spasenovski as Agriculture Minister, and Nikola
Todorov takes over from Pero Stojanovski as Education
Minister. Gruevski also confirmed that he will name Vasko
Naumovski to replace Bocevski as DPM for Euro-integration, as
the press has been reporting for several days. Brief bios
paras. 14-17.


5. (C) Gruevski told the Charge that he had considered firing
Justice Minister Mihajlo Manevski -- by most accounts, a
corrupt minister notorious for bullying judges and
prosecutors to secure decisions consistent with his own or
party interests -- but decided not to so as not to be seen as
knuckling under to the opposition SDSM's claim that Manevski
double-dipped by receiving both a government pension and
salary. Gruevski asserted that the pension issue was merely
a systems error that affected about 150 people and amounted
to only $400. Additionally, Gruevski told the Charge that he
was generally satisfied with the ministers from DUI, his
ethnic Albanian partner, and had no plans to seek their
ouster (which would have required DUI's consent). He added
that the only DUI minister he had concerns about was
Environment Minister Nexhati Jakupi, but DUI leader Ali
Ahmeti preferred to keep him on. (Subsequently, DUI Minister
of Economy Fatmir Besimi told us that he may be forced to
resign in the coming weeks over the GoM's handling of EVN,
the Austrian electricity distributor which Gruevski seems
intent on forcing out of Macedonia.)


6. (C) According to Macedonian law, had Gruevski sought to
replace seven or more ministers this would have meant a full
change in government and could have caused some political
upheaval such as re-negotiating Gruevski's coalition deal
with DUI. It would have also meant a delay of up to 40 days
to form the new government. As it stands now, the opposition
in parliament can only raise concerns about the portfolios of
the ministers to be replaced, and the new ministers will be
in place as soon as July 10.

Economic Slide Continues, No Real GoM Response
-------------- -


7. (SBU) Dreary economic news continues to flow in. GDP in
the first quarter was down 0.9%, with nearly all sectors
reporting flat or negative growth. DPM Stavreski tried to
spin this performance as a success of GOM policies, noting
greater downturns in other countries. He predicted positive
GDP growth in the third and fourth quarters, but did not
explain the assumptions on which he based this forecast.
Indeed, key economic indicators are showing a different
picture. Industrial output fell by 11.1% from January to
May. The trade deficit for the same period reached $951
million, or 10% of GDP. Exports are down 43.4%, and imports
dropped by 32.9%.


8. (SBU) FDI in the first quarter was only $70.7 million,
none of which are greenfield investments; most consisted of
reinvested profits, re-capitalization, and/or already present
foreign investors bringing in more equipment and assets. Net
private transfers, which include remittances, were down by
38.6% in the first quarter, thus pushing the current account
deficit to $445 million (5% of GDP). Budget revenues from
January to May were down over 10%, mostly due to the sharp
decline of 25% in VAT collections (VAT accounts for about 40%
of total revenues). At the same time, expenditures were up
by over 21% as the GOM will apparently not give up
unproductive projects. Trying to cover the budget and
current account gaps, the GOM just recently sold another
Eurobond, collecting 175 million euros at an interest rate of
9.875%. In addition, it continuously borrows domestically by
selling denar and forex T-bills with different maturities.
Responding to a loosened fiscal policy, monetary policy is
very tight, resulting in increasing interest rates. Despite
its apparent need to take on an IMF standby agreement to
stanch the flow, the GoM seems resolved to take commercial
loans to cover its budget obligations, viewing the IMF and
its conditionality/scrutiny as a last resort.

"Name" and Albanian Woes
--------------


9. (C) The heat is also being turned up on the "name issue"
and interethnic relations. UN Mediator Nimetz was in Skopje
July 6-7, then went to Athens. Gruevski told the Charge July
8 that the visit was positive and progress may be possible,
"depending on the Greeks." Meanwhile, the DUI and VMRO
leaderships have been locked in what Protoger told us were
"serious but positive" negotiations on a raft of DUI demands,
ranging from the rights and roles of DUI ministers, GoM
spending in predominantly e-Albanian municipalities, the
draft law on the Interior Ministry, implementation of the
language law, and a host of others.


10. (SBU) Intra-Albanian discord is also on the rise. DPA
leader Menduh Thaci formally released his proposal for a new
interethnic agreement -- intended to replace the Ohrid
Framework Agreement -- on July 6. Thaci has admitted to our
EUSR colleagues that this new document is nothing more than a
way to score points against DUI, and Thaci may use his
proposal as a way to coalesce other smaller e-Albanian
parties into his orbit. Among other things, Thaci's
"political contract" calls for consensual government
decision-making (i.e., the e-Albanian party in government
gets a veto),Albanian as an official language, and that one
of the three most powerful political offices (Prime Minister,
President, Speaker) always be held by an e-Albanian. (More
on this issue septel.)

DUI "Retakes" University
--------------


11. (SBU) DUI made its own power play July 2 when, armed with
an order from then Education Minister Stojanovski, its
loyalists entered the State University of Tetovo (SUT) and
summarily dismissed Acting Rector Agim Vela and the entire
university Senate (vice rectors and deans). While they are
at pains to claim that this is not the case, DUI's actions
are strikingly similar to what DPA did in 2006 when it joined
the government, marched in with thugs, and eventually
installed its own rector, Sadi Bexheti (who is now DPA's
mayor of Tetovo). The university is now quite tense, with
"off-duty" police loyal to DUI "maintaining order" and
keeping faculty and staff loyal to DPA off the premises. For
his part, Bexheti and Vela told us July 8 that they will
fight the issue in the domestic courts and the European Court
of Human Rights.


12. (SBU) SUT has always been a troubled institution,
including its history as an illegal university beginning in

1994. After it became a state university 10 years later, it
has been essentially treated as a fiefdom of whichever
e-Albanian party is in government. Most e-Macedonians and
many e-Albanians tell us SUT is often chaotic and -- at best
-- just another relatively poor public university. DUI's
efforts to persuade the public -- and us -- that its actions
are legitimate ring hollow.

Comment: Icebergs Ahead
--------------


13. (C) Gruevski has in the past been reluctant to fire
ministers, even poor performers (as most are),but rumors
persist that there is increasing unhappiness with the current
slate from within VMRO. Even this relatively modest shuffle
allows him to distract the public from focusing on issues
such as the economy, the name issue, interethnic relations,
and criticism of Gruevski for moving too slowly toward
Euro-Atlantic integration. As Macedonia continues to drift
in the wrong direction on many of these issues, Gruevski,s
responses seem too small and too slow as he clings to his
preferred positions and approaches. He will need to make
bold course changes to meet Macedonia,s major external and
internal challenges successfully. End comment.

Brief Ministerial Bios
--------------


14. (SBU) Valdimir Pesevski, Deputy PM for the Economy:
Pesevski was born in 1970, and takes up the DPM slot from his
previous position as Director General of SEAF (Small
Enterprise Assistance Funds) South Balkan Fund based in
Belgrade, Serbia. He has been there since 2005, covering
SEAF projects in Macedonia, Serbia and Montenegro.
Previously, he worked in SEAF Macedonia moving up the ladder
to Director's position. He received his BA in Electrical
Engineering at the University of Saints Cyril and Methodius
in Skopje in 1993 and then began his career as a Research
Assistant in the Macedonian Institute for Energy and Computer
Science. In 1995 he moved to the MBRC (Macedonian Business
Resource Center),a USAID-funded project, where he worked as
a consultant providing general management and financial
consulting services to medium and large Macedonian companies.
Pesevski joined SEAF-Macedonia's local management team in

1998. He received his MBA (with distinction) from Sheffield
University, where he has also been guest lecturer in the
Executive MBA program at the campus in Thessaloniki. He also
advised the President of Macedonia on economic policies for
SMEs following the conflict of 2001 and is an active member
of the National Entrepreneurship and Competitiveness Council.
He speaks fluent English.


15. (SBU) Vasko Naumovski, DPM for Euro-integration:
Naumovski was born in Skopje in 1980, and takes up the DPM
slot from his previous position as Assistant Professor at the
New York University Skopje. During the 2009 presidential and
municipal elections, he was a frequent pro-VMRO-DPMNE
television commentator/analyst. He received his BA in
International Law at the University of Saints Cyril and
Methodius in Skopje in 2003, and from there he pursued two
masters degrees, one in European Studies at the
Rheinische-Friedrich-Wilhelms University of Bonn, Germany,
and the second in International Law at the University of
Saints Cyril and Methodius in Skopje. He received his Ph.D.
in International Law from the same institution in 2008.
Prior to his employment at New York University Skopje he was
a project analyst for a project on coordination of foreign
aid with UNDP and the Ministry of Justice. Naumovski
attended a six-week Study of U.S. Institutions (SUSI) program
in the U.S. in 2008. He speaks fluent English.


16. (SBU) Ljupco Dimovski, Minister of Agriculture: Dimovski
was born in Veles in 1959, and takes up the Agriculture
portfolio from his previous position as Deputy Minister of
Transport and Communications. He received his BA in
international finance and banking at the University of Saints
Cyril and Methodius in Skopje. He began working in 1986 as
deputy director at Tehnometal-Vardar AD Skopje, a trading
company. In 1998 he became the Director General of Electric
Industries Skopje. In 2005 he became the Director General of
Parks and Forests Skopje (a public company). Dimovski served
as Secretary General of the Socialist Party of Macedonia from
2004 to 2005. He speaks English and Spanish.


17. (SBU) Nikola Todorov, Minister of Education: Todorov was
born in 1978 and takes up his position as Minister of
Education from his previous position as head of the Skopje
Cadastre (land registry) office. In recent years the
cadastre office, with funding from the World Bank, undertook
major customer-service reforms and moved to a modern new
facility, making it one of the best-run cadastres in the
region, according to World Bank sources. Todorov was advisor
to the former director of Public Enterprise for Management of
Residential and Commercial Properties of the Republic of
Macedonia. He is the son of Stojan Todorov, who recently
resigned as Secretary-General of the Government. He has a
law degree; English-language ability unknown.
NAVRATIL