VZCZCXYZ0001
OO RUEHWEB

DE RUEHBW #0907/01 1761414
ZNR UUUUU ZZH
O 251414Z JUN 07
FM AMEMBASSY BELGRADE
TO RUEHC/SECSTATE WASHDC IMMEDIATE 1068
INFO RUEATRS/DEPT OF TREASURY WASHDC IMMEDIATE
RUCPDOC/USDOC WASHDC

UNCLAS BELGRADE 000907 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
USDOC FOR 4232/ITA/MAC/EUR/OEERIS/SSAVICH 
 
E.O. 12958: N/A 
TAGS: EFIN ECON EINV KIDE KPRV SR
SUBJECT: AMBASSADOR MEETS ECONOMY MINISTER 
 
REF: Belgrade 882 
 
SUMMARY 
------- 
 
¶1. (SBU) The Ambassador met with new Minister of Economy Mladjan 
Dinkic for the first time on June 20 to review the economic agenda 
for the new government.  Dinkic, leader of the G17 party, said that 
he personally favors a partition of Kosovo but said that preserving 
momentum on Euro-Atlantic relations and ties between Serbia and the 
U.S. is necessary. He pledged that Russian economic interests would 
not be awarded special treatment in Serbia, notwithstanding Russian 
support on Kosovo.  Bankruptcy will be used for companies that 
cannot be sold by other means, and he said that a decision already 
had been made to move some 200 enterprises into bankruptcy.  With 
regard to relations with the IMF, he was non-committal, saying there 
is discussion of a precautionary, "but no one is pushing."  END 
SUMMARY. 
 
¶2. (SBU) The Ambassador met with Minister of Economy Mladjan Dinkic 
for the first time on June 20.  Dinkic leads a ministry that took on 
much greater responsibilities based on the coalition agreement and 
the subsequent law on ministries. It obtained foreign trade and 
export control from the now-eliminated Ministry of International 
Economic Relations; it took employment from the Ministry of Labor 
and Social Affairs; it acquired regional development, including 
supervision of the quasi-bank Fund for Development, and it took 
tourism from the Ministry of Trade (which now handles only internal 
trade issues.).  Dinkic, whose party captured just over six percent 
of the vote and 19 deputy seats to become the junior partner in the 
new Kostunica government, was accompanied by one aide, while econ 
chief and USAID LES joined the Ambassador. 
 
¶3. (SBU) The Ambassador opened the discussion by asking Dinkic, as 
leader of one of the three coalition parties, for his views on 
likely developments in regard to Kosovo.  Serbia is in a tough 
position, the Ambassador noted, pursuing a hardline stance on Kosovo 
while seeking Euro-Atlantic integration.  We must face the reality 
that Kosovo will be independent, the Ambassador said, but find a way 
to pursue our bilateral agenda at the same time. 
 
¶4. (SBU) The situation is not pleasant, Dinkic said.  Since 2001 
Serbia's relations with the U.S. have improved steadily, but now a 
single political issue separates us.  His view is that partition 
would be best, Dinkic said, but neither party to the dispute 
welcomes this stance.  The best course would be for the U.S. to show 
a bit more flexibility; then it would be in a position to request, 
and expect, more flexibility from President Tadic and Prime Minister 
Kostunica.  It is not possible to change the view of the Serbian 
side "100 percent," he warned, but the Kostunica government must try 
to solve this issue in some way that permits it to move forward on 
integration and maintain good relations with all states. 
 
¶5. (SBU) The Ambassador noted that the U.S. agrees wholeheartedly 
with four of the main goals of the Kostunica platform; only on the 
fifth, Kosovo, is there disagreement. Serbia should not permit its 
stance on one issue to defeat progress on the other four.  It is 
unlikely that we will agree on Kosovo, the Ambassador said, but we 
must move forward nonetheless.  Dinkic agreed that this is the only 
option. 
 
¶6. (SBU) The Ambassador noted that Dinkic is in large measure the 
architect of Serbia's economic recovery, an area on which we can and 
do work together.  But one issue on the economic side is troubling: 
the push by Russian companies for economic gains.  Dinkic replied 
that Russian companies would be treated like any others, which 
includes the requirement for tenders in any privatization.  Only in 
natural gas does Russia have a special position, he said, and that 
is a function of its monopoly position as supplier. 
 
¶7. (SBU) Dinkic said that Prime Minister Kostunica had asked that 
Trade Minister Bubalo be the Serbian chair of a joint 
Serbian-Russian commission on economic relations, although normally 
the economy minister would chair.  He had agreed.  Econ chief asked 
about recent Russian interest in a cargo terminal joint venture at 
Belgrade airport.  Dinkic replied that he had learned of such 
interest and had discussed it with President Tadic.  Both agreed 
that any such deal must be handled transparently, and it would 
require a decision by the entire government.  The document signed by 
the airport's board chair had no legal force, he added. 
 
¶8. (SBU) The Ambassador turned to the impending privatization of 
state-owned oil company Naftna Industrija Srbije.  He noted that the 
economy minister had publicly advocated selling a majority stake, 
but it is not clear whether that will be the coalition policy. 
Dinkic replied that the coalition, when formed, had agreed that the 
minimum would be the Merril Lynch strategy of immediate sell-off of 
25 percent, with management control, to a strategic partner, to be 
followed by an increase to 37.5 percent equity via additional 
investment.  Dinkic said he did favor immediate sale of majority, 
but said that Deputy Prime Minister Djelic did not share this view. 
We would see what would happen, he said, adding that the finance 
minister should join the debate and make his views clear. 
 
¶9. (SBU) Dinkic said that other deals will move forward.  Insurer 
DDOR Novi Sad should be sold by the end of the year.  The next step 
for state airline JAT is to hire a financial adviser to help in the 
search for a strategic partner.  JAT's maintenance subsidiary would 
be tendered soon, he added, and it already had attracted interest 
from other companies.  The Ambassador asked whether Aeroflot could 
be a serious contender for JAT.  Dinkic replied that it does appear 
to be serious about making an offer. 
 
¶10. (SBU) Turning to assistance issues, the Ambassador explained 
that USAID is cooperating with the Agency for Privatization on 
bankruptcy for socially-owned companies that had not found a buyer. 
The economic minister replied that he favored completing 
privatization via bankruptcy when there is no other option.  The 
Ministry would move to put several companies in bankruptcy soon, 
including the Matroz paper plant.  Auctions of such assets would 
begin in the autumn, he said. He noted that as central bank 
governor, he had taken a tough approach in closing many banks, but 
the strategy had paid off in the end. 
 
¶11. (SBU) The Ambassador brought up one bankruptcy case that had 
proved troubling.  U.S. company Ocean Atlantic had attempted to buy 
property from a bankruptcy auction, but its bid was turned down by 
the bankruptcy administrator in what appeared to be an example of 
corruption.  Dinkic said that he already had decided to change the 
director of the Bankruptcy Supervisory Agency. 
 
¶12. (SBU) Restitution is an issue where we would like to see the new 
government move expeditiously, the Ambassador said.  The Embassy had 
reviewed the draft approved by the previous government, but 
restitution claimants who are U.S. citizens had raised several 
issues.  The Embassy had put together a list of suggestions, and he 
passed a copy to the minister. But it is important to move sooner 
rather than later, the Ambassador added, to avoid any transformation 
of restitution into a major political issue.  Dinkic replied that 
the Ministry of Finance would be working on the law, but offered to 
review Embassy suggestions. 
 
¶13. (SBU) The Ambassador applauded the way in which the previous 
government had worked with U.S. investor Philip Morris to resolve 
issues raised by the CEFTA agreement.  Such aftercare for 
established investors is important.  The new government could send a 
positive signal to the investment community by quickly coming to 
terms with U.S. investor Uniworld, the Ambassador added.  An 
international arbitration tribunal had recently decided for Uniworld 
in its dispute with the Agency for Privatization over the Putnik 
travel agency. 
 
¶14. (SBU) Dinkic said that the Government of Serbia had been told by 
its lawyers that further legal avenues for appeal were available, 
and it would seek to overturn the arbitration decision.  The U.S. 
would do the same to protect its legal interests, he added.  But the 
minister noted that in the Valeant investment dispute, the 
Government of Serbia had eventually settled with the claimant.  The 
Ambassador said that a quick settlement would be welcome, but added 
that he understands GOS determination to exhaust its legal remedies. 
 
 
¶15. (SBU) Econ chief asked how the Minister regarded the outlook for 
an IMF agreement.  Dinkic replied that such an option was under 
discussion, but no one in the GOS really is pushing for such a deal. 
 The overall macroeconomic situation is promising, and he added that 
slow budget execution would offset to some extent the expansionary 
impact of the 2007 budget proposal. 
 
POLT