SERBIA: SCENESETTER FOR THE FEBRUARY 17-19 VISIT OF CODEL

UNCLAS BELGRADE 000188 SENSITIVE C O R R E C T E D C O P Y (SENSITIVE CAPTION ADDED) SIPDIS E.O. 12958: N/A TAGS: PGOV ECON MARR SR SUBJECT: SERBIA: SCENESETTER FOR THE FEBRUARY 17-19 VISIT OF CODEL VOINOVICH Summary -------------- ¶1. (SBU) Your visit to Belgrade comes at a time when Serbia's pro-European government is stable and recently achieved key milestones in its path to EU membership. To keep making progress, however, Serbia must stop allowing the Kosovo issue to undermine its broader foreign policy approach and shift its focus to the economic and political reforms necessary for membership in the EU. Reforms to date have been uneven, with significant progress in the defense sector and many challenges ahead in the economic sphere, particularly as the economic crisis threatens to lead to sustained labor and social unrest. End Summary. Domestic Politics -------------- ¶2. (SBU) Serbia's democratic, pro-European government has remained intact since its installation in July 2008 despite its razor thin parliamentary majority. President Boris Tadic's Democratic Party (DS) is the main party in the ruling coalition, and also controls Serbia's largest city governments. Tadic's ultranationalist nemesis, the Serbian Radical Party (SRS), splintered in autumn 2008 when top SRS officials split to form the Serbian Progressive Party (SNS). Claiming a pro-European orientation while cultivating its nationalist electoral base, the SNS is now Serbia's largest opposition party; it polls roughly even (at around 30%) with Tadic's DS. However, despite recent local electoral victories and a nationwide petition effort, the opposition is unable to provoke early elections. The main threat to the governing coalition's stability continues to be political infighting among the governing parties. Euro-Atlantic Integration -------------- ¶3. (SBU) Top Serbian officials have repeatedly emphasized that Serbia's top foreign policy objective is to gain EU membership. Over the past several months Serbia has achieved significant milestones including gaining visa liberalization with Schengen countries on December 19, formally submitting an application for EU membership of December 22, and "unfreezing" and implementing the Interim Trade Agreement with the EU on February 1. (EU ratification of Serbia's Stabilization and Association Agreement remains conditioned on Serbia's full cooperation with the International Criminal Tribunal for the Former Yugoslavia (ICTY); most notably, Serbia must capture and extradite ICTY indictees Ratko Mladic and Goran Hadzic.) Over the past year, however, Serbia's pro-European foreign policy focus has been blurred by Belgrade's efforts to cultivate closer relations with the Non-Aligned Movement (NAM),China, and Russia. - The NAM has been a particular focus as part of Serbia's efforts to slow down Kosovo recognitions, and China and Russia as appreciation for their support on the UN Security Council in regard to Kosovo. ¶4. (SBU) While Serbia cooperates 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 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. Public debate on NATO has increased in recent months as nationalist figures attempt to use the issue to gain political traction and some in the governing coalition make increasingly forward-leaning statements in favor of the Alliance. Kosovo and Regional Relations -------------- ¶5. (SBU) Despite the recognition of Kosovo's independence by 65 countries and its membership in international organizations such as the IMF and World Bank, Belgrade continues to claim that Kosovo is part of Serbia. Since Kosovo's independence in February 2008, Serbia has launched a diplomatic offensive in the UN and around the globe to prevent additional states from recognizing Kosovo. During his May 2009 trip to Belgrade, Vice President Biden clearly stated that the United States and Serbia have "agreed to disagree" over Kosovo's status. This spring the International Court of Justice is expected to issue an advisory opinion to the UN General Assembly on the legality of Kosovo's unilateral declaration of independence, as Serbia requested. Regardless of the opinion, Belgrade may attempt to force a reopening of status talks on Kosovo. While we do not expect Serbia to recognize Kosovo, we continue to encourage the Government to find a modus vivendi with its neighbor so it can address the necessary quality of life issues for Serbs in Kosovo. Failure to do so will complicate Serbia's path to the EU. ¶6. (SBU) Serbia has defined regional cooperation as one of its top three foreign policy priorities and has sought to repair relations with its neighbors with mixed results. While improving relations with Hungary and Slovenia, Serbia has yet to make amends with Macedonia and Montenegro, particularly after the two countries recognized Kosovo in October 2008. Serbia has generally played a constructive role in the Butmir process in Bosnia-Herzegovina. We expect Belgrade to take advantage of the opportunity to improve troubled political relations with Croatia after incoming Croatian president Ivo Josipovic assumes office in mid-February. Security Issues -------------- ¶7. (SBU) Defense reform is 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 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 -------------- ¶8. (SBU) Serbia's economy is still shaped by the wars, sanctions and economic neglect of the 1990's. The country is trying to make up for lost time, but the economic liberalization process has been drawn out, with limited tangible benefits for average Serbians. When the global financial crisis hit, Serbia was quick to reach out to the IMF and in May 2009 signed a $4 billion Stand-By Arrangement. Since then, the Serbian dinar has been relatively stable; however, in recent weeks, the dinar has come under pressure. The IMF agreement constrains the Serbian government budget deficit to 4.5% for 2009 resulting in a freeze on pensions and public sector wages. With limited new foreign and domestic investment over the last two years the economy is struggling to create jobs and labor pressure is building. Strikes and acts of civil disobedience have increased as more companies fall behind on payments and face bankruptcy. Because unions do not have strong central leadership, local pressures have not become national. Bilateral Issues -------------- ¶9. (SBU) Vice President Biden's May 2009 visit to Belgrade added a new impetus to our bilateral relationship, which had been strained following Kosovo's declaration of independence in February ¶2008. Our diplomatic relations have now returned to normal and we are working to reinforce the Vice President's message that we can agree to disagree on Kosovo's status while building on other areas of our bilateral relationship. Our main priorities include assisting Serbia on its path to Europe, building on our positive mil-mil relationship, and expanding economic and business ties. In the coming months we will also be seeking to update a woefully outdated extradition treaty with Serbia. Comment -------------- ¶10. (SBU) Now is an important time for Serbia to decide whether it wishes to spend the year in a quixotic quest to reopen Kosovo status or devote full attention to winning EU candidacy status. 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. With nearly all key political figures viewing you as a favorite son, you will be well positioned to deliver the messages Belgrade needs to hear. End Comment. WARLICK