VZCZCXRO2207
PP RUEHPOD
DE RUEHPOD #0231/01 1841155
ZNR UUUUU ZZH
P R 031155Z JUL 07
FM AMEMBASSY PODGORICA
TO RUEHC/SECSTATE WASHDC PRIORITY 0314
INFO RUEHPOD/AMEMBASSY PODGORICA 0337

UNCLAS SECTION 01 OF 04 PODGORICA 000231 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: PGOV PREL AMGT ECON EINV MW
SUBJECT: SCENESETTER FOR A/S FRIED VISIT TO MONTENEGRO 
 
SENSITIVE BUT UNCLASSIFIED 
 
 
 
Summary 
 
------- 
 
 
 
¶1.  (SBU) Welcome to Montenegro. Your visit comes as the 
Montenegrins continue to debate their new draft constitution. 
The Montenegrin leadership continues its pro-West, pro-American 
stance, while looking to maintain good relations with Moscow and 
Belgrade, particularly on Kosovo.  The result is a studied 
neutrality. The strong pro-business, pro-investment climate 
created by the GoM over the past years took several hits 
recently, as the junior coalition partner sided with the 
opposition to halt further privatizations, particularly in 
energy and infrastructure. The GoM remains a receptive 
interlocutor, eager to develop strong ties with Washington and 
to prove itself a reliable partner.  A year after independence, 
no major political figure raises objections to Montenegro's 
renewed independence. The renewed prospect of indictments in an 
Italian court against former PM Djukanovic for cigarette 
smuggling in the 1990s attracted a brief flurry of interest, 
which is already fading. Nine months after officially becoming 
an Embassy, post is tentatively moving closer to acquiring the 
attributes of an Embassy, classified communications capability 
and the ability to provide consular services   End Summary. 
 
 
 
Draft Constitution 
 
------------------ 
 
 
 
¶2. (SBU) Montenegro after nine months of debate has yet to adopt 
its new constitution as an independent state, and the draft 
remains heavily bracketed.  The major areas of contention are 
"heritage" issues, such as the national anthem and flag, 
recognition of specific religious faiths, and the name of the 
most common language (what was Serbo-Croatian).  The EU and 
Council of Europe have insisted that the constitution create a 
"civic" state, but ethnic minorities continue to seek special 
carve outs  for political representation, language, religion, 
and culture.  The Parliament and parties have also not decided 
how to incorporate Council of Europe suggestions, made through 
its Venice Commission  to depoliticize the judiciary. The 
constitution can either be adopted by a vote of 2/3 of all MPs 
(54 of 81 votes), requiring support from opposition MPs (as the 
government has only 41 seats), or by a majority of MPs (41), 
followed by a public referendum.  Adoption of the constitution 
is highly unlikely before the fall. In the meantime, the old 
Montenegro constitution of 1992 (promulgated by Milosevic) is 
the governing document). To date, the prolonged transition has 
not created major problems, and the Council of Europe's deadline 
for a new constitution is next spring, before the Presidential 
election of May 2008.  However, as the parliament elected in 
September 20006 is also the constitutive assembly charged with 
drafting the new constitution, a government crisis leading to 
new elections could cause problems in adopting the charter. 
 
 
 
Kosovo 
 
------ 
 
 
 
¶3. (SBU) The GoM has taken a stance of studied neutrality on 
Kosovo, wishing neither to offend the USG, Albania, and its own 
ethnic Albanian minority (5% of the population) on the one hand, 
nor Serbia, Russia, and its own ethnic Serbian population (32% 
of the population) on the other.  The MFA has told post that it 
would support a unified EU position on Kosovo. The central 
concern of the GoM is that stability, regionally but also 
particularly within Montenegro, be maintained. UNHCR estimates 
that up to 12,000 refugees (mainly ethnic Serbs and Roma) could 
enter Montenegro in case of disturbances in Kosovo. In 1999, 
over 100,000 IDPs from Kosovo (primarily ethnic Albanians but 
also including Serbs and Roma) entered Montenegro - equal to 1/6 
of the local population.  Most but not all have returned home. 
 
 
 
Political Situation 
 
------------------- 
 
 
PODGORICA 00000231  002 OF 004 
 
 
 
 
¶4.  (U) The independence referendum held in Montenegro on May 
21, 2006 was widely considered free, fair, and transparent by 
international observers.  Turnout was 86.5 percent, with 230,661 
voters (55.5 percent) supporting independence and 185,002 voters 
(44.5 percent) against.  On June 3, parliament officially 
accepted the referendum results and declared Montenegro 
independent, restoring sovereignty after 87 years. 
 
 
 
¶5. (SBU) A year after independence, no major political figure 
raises objections to Montenegro's renewed independence. Serbian 
nationalist opposition parties, such as the SNS, and centrist 
parties like the Socialist People's Party (SNP) have yet to 
embrace the literal symbols of independence (flag, anthem, 
etc.), even while they fully engage in the political life of 
independent Montenegro. 
 
 
 
¶6.  (U) Montenegro joined the OSCE on June 22, 2006, the UN on 
June 28, 2006, and the Council of Europe on May 11, 2007.  The 
U.S. recognized Montenegro on June 12, 2006, and announced the 
establishment of diplomatic relations on August 15, 2006.  The 
U.S. Consulate officially became an Embassy on October 5, 2006; 
nine other NATO countries, Russia, and China also have resident 
embassies in Montenegro. 
 
 
 
¶7. (SBU) On September 10, 2006 Montenegro had its first 
Republic-wide parliamentary elections, with the ruling DPS/SDP 
coalition winning an absolute majority in parliament, with 41 of 
81 seats. OSCE considered the voting "generally in line" with 
international standards.  The big change in the status quo 
occurred after the election, when PM Milo Djukanovic decided to 
step down in favor of former Justice Minister Zeljko Sturanovic. 
 
 
 
 
¶8. (SBU) The opposition is fractured into three blocs, with the 
formal Leader of the Opposition being Andrija Mandic, head of 
the nationalist Serbian People's Party (SNS).  Mandic, while 
personally disposed to pursue good relations with the U.S., is 
not above creating controversy over agreements with the U.S. in 
order to play to his nationalist voter base by attacking the 
GoM. SNS is in coalition with the Serbian Radical Party, with 
the Radicals gaining one seat in the Montenegrin Parliament. 
Unlike the other opposition groupings, a slim majority of the 
"Serbian List" opposes NATO (but not EU) membership for 
Montenegro. 
 
 
 
¶9. (SBU) The second opposition bloc is the Movement for Change 
(PzP), headed by the charismatic and populist Nebojsa Medojevic. 
PzP is pro-independence, pro-EU, but lukewarm on NATO. Medojevic 
is extremely critical of past and current privatizations, and is 
suspicious of foreign investment. 
 
 
 
¶10. (SBU) The remainder of the opposition comprises: the 
Socialist People's Party (SNP), which is re-positioning itself 
away from its past ties to Belgrade as a civic party; and 
several smaller nationalist parties, variously representing 
ethnic Serbs, ethnic Albanians, or Bosniaks.  (The miniscule 
ethnic Croat party is in the ruling coalition with one seat.) 
 
 
 
¶11. (U) Prime Minister Zeljko Sturanovic took over from 
long-time PM Djukanovic last fall as the head of a pro-Western 
coalition government. Like Djukanovic, Sturanovic's primary 
foreign policy goals are EU and NATO membership and he would 
like to ally Montenegro closely with the United States. 
Domestically, the government's track record on fully 
implementing needed democratic and economic reforms is generally 
positive, with some room for improvement.  Privatization of 
remaining infrastructure (airports, railroad, and the port of 
Bar) and the energy sector is on hold, after the smaller 
coalition partner, the Social Democratic Party (SDP), sided with 
the opposition in June to halt the sale of a large 
thermoelectric plant and associated coal mine to En+ Group, a 
Russian firm owned by Oleg Deripaska. President Putin criticized 
the cancellation of the privatization in a June 24 meeting with 
Montenegrin President Vujanovic in Zagreb, adding it will 
discourage future foreign investment. 
 
 
 
PODGORICA 00000231  003 OF 004 
 
 
 
Attracting Investment 
 
--------------------- 
 
 
 
¶12. (U) Montenegro has been successful in attracting foreign 
direct investment (FDI), but so far very little of that has been 
American. In 2006, FDI amounted to over Euros 505 million (USD 
650 million) - 28 percent of GDP - the highest in the region. 
Most that was greenfield investments, as Montenegro nears 
complete divestment of state-owned assets. The GoM plans that 
over the next four years, foreigners will make over a billion 
euros of direct foreign investments into Montenegro. Thanks to a 
receptive attitude toward USAID funded macro-economic reform 
initiatives, the Government has adopted a business-friendly 
investment climate (e.g., 9 percent corporate tax rate, full 
repatriability of profits).  Much of the FDI in 2006 was 
purchase of real property, with Russians, British and Irish 
leading the way.  In April 2007, a U.S.-based firm landed the 
Euros 8 million (US$ 10 million) contract to produce independent 
Montenegro's first passports. 
 
¶13. (SBU) Recent opposition-led efforts in the parliament, 
supported by the the smaller government coalition partner (the 
SDP), have delayed not only further privatization, but may lead 
to other steps tending to discourage investment. No movement is 
seen on revising the overly restrictive labor law, which greatly 
inhibits labor mobility. Additionally, the opposition party PzP 
continues to propose that completed privatizations be not only 
reviewed, but "cancelled" (revoked) if the terms were 
"disadvantegeous" to Montenegro. 
 
Economy and Tourism 
 
------------------- 
 
¶14. (U) Montenegro's GDP in 2006 was 1.93 billion Euros (2.65 
billion USD), according to initial Ministry of Finance figures, 
or 3590 Euros (4920 USD) per capita, and real GDP growth in 2006 
was 8.5%. However, the economy has yet to exceed peak numbers, 
reached in 1989 (the economy began to slip already in 1990, 
before war and sanctions). The two single largest contributors 
to GDP were tourism, and the aluminum smelter KAP, each 
accounting for about 17% of GDP. Tourism, both overnights and 
revenue, continues to grow at rates in excess of 10% a year, and 
the independent World Travel and Tourism Council has for three 
years projected Montenegro as its fastest growing destination 
over the coming decade.  The number of visitors -- 952,000 in 
2006, spending 322 million Euros  -- is still below the peak 
1989 number. The number of visitors in the 2007 season is ahead 
of predictions, which were for 1.1 million visitors spending 350 
million Euros. Aluminum production is steady, with revenues 
slightly due to world prices. 
 
Defense and Security 
 
-------------------- 
 
 
 
¶15. (SBU) The Montenegrin leadership strongly believes their 
country's future lies within PfP, and eventually NATO and the 
EU.  Unfortunately, the opposition (even those supportive of a 
good relationship with the U.S.) had seen the May 1 SOFA and 
April 19 Article agreements as fulcrums upon which to lever 
attacks on the GoM. A persistent pattern of attacks on both 
agreements, fed by misinformation, persisted until early June. 
While the opposition leadership has accurate information --post 
verified this point -- they told the embassy that they are 
looking for hooks upon which to hang attacks on the GoM.  They 
have played up sharply the EU dislike of Article 98 agreements, 
and have painted a false scenario whereby Montenegro would have 
to choose between NATO and EU memberships. The GoM is aware of 
the actual situation, but the message has gotten lost in the 
noise. One recent public opinion poll reports a significant drop 
in support for NATO membership; another (NDI) poll indicates 
fairly steady support for NATO. 
 
 
 
¶16. (SBU) President Vujanovic appears ready to provide the 
necessary leadership to energize his nation and military for 
eventual participation in GWOT. In Washington in early May, he 
told Secretary Gates that Montenegro wants to send a small 
number of officers to GWOT (probably Afghanistan) in 2008. 
Vujanovic signed the SOFA with Secretary Rice on May 1, and has 
defended the GoM's conclusion of the Article 98 agreement on 
April 19 through an exchange of diplomatic notes.  The GoM has 
established, and is rapidly expanding it Defense Ministry, and 
the 2007 defense budget is 2.4% of GDP. The GoM delivered its 
Presentation Document to NATO in early May, after joining the 
 
PODGORICA 00000231  004 OF 004 
 
 
Partnership for Peace on December 14; the Document commits 
Montenegro to spending 2% of GDP on defense. 
 
 
 
¶17. (U) Montenegro's Presentation Document states it seeks to 
become a member of NATO. It will conduct the Planning and Review 
Process (PARP), and develop an Individual Partnership Program. 
It seeks consultations on its Individial Partnership Plan (IPAP) 
and Membership Action Plan (MAP). It has established both a 
Mission to NATO, and a Partnership for Peace Council, chaired by 
the PM. 
 
 
 
Fighting Corruption 
 
------------------- 
 
 
 
¶18. (U) Sturanovic has created a broad-based task force to 
tackle corruption and increase public confidence in state 
institutions.  He named his highly-capable Deputy Prime Minister 
Gordana Djurovic to head the team, with day-to-day tasks 
directed by Vesna Ratkovic, formerly a a deputy minister of 
Justice and most recently in charge of USAID's now ended Rule of 
Law program.  He also named opposition MP's and watchdog NGO 
members to the force.  Vanja Calovic, the head of the watchdog 
NGO MANS and a member of the force, was just named as the most 
respected public figure in Montenegro in a public opinion poll. 
Corruption is seen as existing at all levels, and many many 
Montenegrins list corruption as the country's biggest problem 
(along with low living standards).  In this process, 
implementation of existing legislation will be key. 
 
 
 
Former PM Djukanovic 
 
-------------------- 
 
 
 
¶19. (SBU) Milo Djukanovic, who led Montenegro from the 
reintroduction of multi-party democracy in 1991, to independence 
in 2006, declined to seek reappointment as Prime Minister after 
his party won the September 2006 parliamentary election.  He was 
reelected as party president on May 20.  In late June, the 
Italian news agency ANSA reported a renewed possibility that 
Djukanovic could be indicted in Bari on cigarette smuggling 
charges, dating back to UN sanctions busting in the 1990s. The 
story has gotten wide prominence dating back to the 1990s, and 
the latest iteration got only brief if prominent attention 
locally. 
 
 
 
U.S. Chancery 
 
------------- 
 
 
 
¶20. (SBU) The Embassy is housed in a USAID-owned structure which 
is modern and in a park-like setting near the center. Space is 
cramped and personnel share offices. The post lacks classified 
communications capability or any CAA space. After months of 
circular debate on a way forward Washington agencies now seem to 
have agreed on the installation of secure modular units which 
will serve as a short to intermediate solution until 
construction of a NEC. Podgorica was placed on the top 80 list 
in June '07. Modest necessary staffing growth, e.g. RSO, second 
pol/econoff and GSO can be accommodated, albeit in tight 
quarters until the construction of the NEC. 
 
 
 
Visa Issuance 
 
------------- 
 
 
 
¶21. (SBU) The constant complaint about Montenegrins having to 
travel to Belgrade to apply for non immigrant visas can only be 
expected to grow louder once the GoM begins issuing its own 
passports in the Spring of next year. A recent OBO team looked 
at ways of adapting existing space to create a consular section 
at post, but money seems to be a major stumbling block to 
implementing this needed change in post profile. 
BARNES