VZCZCXYZ0000
OO RUEHWEB

DE RUEHBW #0914/01 1770802
ZNR UUUUU ZZH
O 260802Z JUN 07
FM AMEMBASSY BELGRADE
TO RUEHC/SECSTATE WASHDC IMMEDIATE 1074
INFO RUEATRS/DEPT OF TREASURY WASHDC IMMEDIATE
RUCPDOC/USDOC WASHDC

UNCLAS BELGRADE 000914 
 
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.  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