VZCZCXRO2300
RR RUEHAG RUEHAST RUEHDA RUEHDBU RUEHFL RUEHKW RUEHLA RUEHLN RUEHLZ
RUEHNP RUEHPOD RUEHROV RUEHSK RUEHSL RUEHSR RUEHVK RUEHYG
DE RUEHBW #0244/01 0431112
ZNR UUUUU ZZH
R 121111Z FEB 10
FM AMEMBASSY BELGRADE
TO RUEHC/SECSTATE WASHDC 0788
INFO EUROPEAN POLITICAL COLLECTIVE
RHEHAAA/NATIONAL SECURITY COUNCIL WASHINGTON DC
RHMCSUU/EUCOM POLAD VAIHINGEN GE
RUEKJCS/SECDEF WASHINGTON DC

UNCLAS SECTION 01 OF 04 BELGRADE 000244 
 
SENSITIVE 
CODEL 
SIPDIS 
H FOR LYNNEA SHANE 
 
E.O. 12958: N/A 
TAGS: PGOV ECON MARR PREL OREP SR
SUBJECT: SERBIA: SCENESETTER FOR THE FEBRUARY 18-21 VISIT OF CODEL 
POMEROY 
 
Summary 
 
------- 
 
 
 
¶1.  (SBU) Your visit to Serbia 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 rival, 
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; 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. 
 
 
 
Ongoing Political Reform 
 
------------------------ 
 
 
 
¶3.  (SBU) EU accession benchmarks for Serbia require additional 
improvements in judicial independence and efficiency, improved rule 
of law, and sustained economic growth, as well as reducing 
opportunities for corrupt practices.  While the current government 
has made significant progress on reform compared to preceding 
governments, it relies upon a cumbersome multiparty coalition, 
which at times leads to poor governmental coordination and 
fragmented reform efforts.  Serbia must approach reform 
comprehensively -- reducing corruption, strengthening the rule of 
law and embracing good governance and a more active role for 
ordinary citizens in public decision-making. 
 
 
 
Euro-Atlantic Integration 
 
------------------------- 
 
 
 
¶4.  (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 
 
BELGRADE 00000244  002 OF 004 
 
 
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. 
 
 
 
¶5.  (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 mostly 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.  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. 
Russia recently has begun to raise the rhetoric's temperature with 
anti-NATO op-eds from the local Russian Ambassador, and comments 
from the Russian Ambassador to NATO that Serbia would have to 
"choose between NATO and Kosovo." 
 
 
 
Kosovo and Regional Relations 
 
----------------------------- 
 
 
 
¶6.  (SBU) Despite the recognition of Kosovo's independence by 65 
countries and its membership in international organizations such as 
the IMF, World Bank and Miss Universe, 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 likely plans 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 as well as serious trans-border issues such as 
drug trafficking and trafficking in persons.  Failure to do so will 
complicate Serbia's path to the EU. 
 
 
 
¶7.   (SBU) Serbia has defined regional cooperation as one of its 
top foreign policy priorities and has claimed to seek to repair 
relations with its neighbors with mixed results.  While improving 
relations with Hungary and Slovenia, Serbia has yet to come to 
terms 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 
 
--------------- 
 
 
 
¶8.   (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 
 
BELGRADE 00000244  003 OF 004 
 
 
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 
 
--------------- 
 
 
 
¶9.  (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. 
Average Serbs perceive the privatization process as a disaster, 
seeing their once prestigious firms sold for fire sale prices to 
shady investors, who later declared bankruptcy and fled.  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 
 
---------------- 
 
 
 
¶10. (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 are now slowly returning to a productive 
level 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. 
 
 
 
Your Return to Kraljevo 
 
----------------------- 
 
 
 
¶11.  (SBU) In contrast to its more prosperous times in the 1970s, 
the city of Kraljevo today is firmly ensconced in Serbia's rustbelt 
and suffers from sustained high unemployment exceeding 25%. 
Kraljevo's once vigorous industries that sustained the local 
population were sold to unreliable investors that led to the 
unemployment of thousands of local blue-collar workers.  Once a 
thriving military locale, the drawdown of the local military 
presence also has diminished employment opportunities.  Local 
politics is infused with resentment stemming from the lack of 
economic opportunities and aggravation with the influx of displaced 
persons and refugees from the 1990's who have settled in Kraljevo. 
Of the municipality's estimated population of 100,000, about 20,000 
are displaced persons from Kosovo and roughly 700 are refugees from 
Croatia and Bosnia-Herzegovina.  After 2000, Kraljevo's city 
government was largely run by a bloc of nationalist parties; 
however, in March 2009, the Socialist Party of Serbia (SPS) -- the 
party of Milosevic -- joined forces with Tadic's coalition to give 
the DS-bloc a one-vote majority in the local assembly.  Mayor 
Ljubisa Simovic (DS) assured us last autumn that his government is 
stable despite its narrow majority.  Potential Turkish investments 
in roads and Kraljevo's airport may be the start of a revival of a 
regional role for the historic and proud city. 
 
BELGRADE 00000244  004 OF 004 
 
 
Comment 
 
------- 
 
 
 
¶12. (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. 
Your return visit to Kraljevo after so many years will send an 
important personal message that we continue to engage with Serbia 
on all levels and that our friendship is a long-term investment in 
Serbia and its people.  End Comment. 
WARLICK