VZCZCXRO4239
PP RUEHDBU RUEHFL RUEHKW RUEHLA RUEHNP RUEHROV RUEHSL RUEHSR
DE RUEHSQ #0332/01 1911350
ZNY CCCCC ZZH
P 101350Z JUL 09
FM AMEMBASSY SKOPJE
TO RUEHC/SECSTATE WASHDC PRIORITY 8382
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE 0539

C O N F I D E N T I A L SECTION 01 OF 04 SKOPJE 000332 
 
SIPDIS 
 
STATE ALSO FOR INR/B 
 
E.O. 12958: DECL: 07/05/2019 
TAGS: PGOV PREL MK
SUBJECT: MACEDONIA: DANGEROUS DRIFT? 
 
REF: SKOPJE 300 
 
Classified By: CDA Tom Navratil for reasons 1.5 (b) and (d). 
 
Summary 
------- 
 
¶1. (C) PM Gruevski's government continues a very mixed 
performance.  He and his closest cronies continue to engage 
in highly questionable practices on government tenders and in 
squeezing EVN, the Austrian-owned electricity distributor. 
Substantial judicial reform lags, but Gruevski has directed 
the Justice Ministry to take several steps to provide greater 
transparency and adherence to European standards (reftel). 
The EU will almost certainly grant Macedonia visa 
liberalization starting next year, with a good possibility of 
recommending a start date for accession talks in their annual 
report this autumn.  The June 30 resignation of DPM for 
Euro-integration Bocevski underscored Macedonia's sluggish 
forward progress, but also prompted Gruevski to do some 
cabinet-cleaning.  Gruevski may be seeking to distract the 
public from focusing on the poor performance of his own 
government and the economy, where the downturn is likely to 
grow more severe, exacerbating societal tensions. 
Interethnic and intra-Albanian relations continue to fray as 
well.  However, VMRO and DUI have recently engaged in more 
practical power-sharing, as seen in DUI,s visible 
participation in the name talks, agreement to take their 
equitable representation/patronage concerns into account in 
the revised police law, and allowing DUI to take over 
management of the State University of Tetovo.  We perceive a 
greater willingness on Gruevski,s part to tackle the "name 
issue," but he continues to insist on a referendum to avoid 
personal responsibility for a historic compromise.  End 
summary. 
 
Bocevski Rocks the Boat 
----------------------- 
 
¶2. (C) The sudden June 30 resignation of Deputy Prime 
Minister for Euro-integration Ivica Bocevski has touched off 
a storm of political rumors and public accusations, with some 
observers even questioning whether PM Gruevski -- though he 
holds nearly all the instruments of political power -- is 
still in control.  United for Macedonia leader (and former 
VMRO Interior Minister) Ljube Boskoski called for Gruevski to 
resign over the weekend, citing the GoM's failures in 
achieving Euro-Atlantic integration and managing the economy, 
which continues to falter.  Nervous GoM ministers and VMRO 
insiders have hinted privately to us of dissent within the 
party (over which Gruevski is normally reputed to have an 
iron grip) over these issues and allegations that Gruevski 
cousin (and intel chief) Saso Mijalkov is implicated in a 
corruption scandal surrounding the purchase of double-decker 
buses made in China. 
 
¶3. (C) For his part, Bocevski told the Ambassador that as DPM 
he never got Gruevski's backing to make the real reforms 
necessary to meet key EU benchmarks, adding that he believes 
Gruevski may never have wanted real reform in key areas such 
as an independent judiciary.  When he felt he could make no 
more progress, Bocevski said, he had no choice but to resign. 
 Bocevski senior aide Pero Dimsoski -- a U.S. citizen who 
returned to Macedonia to take this position -- told the 
Ambassador that Gruevski and Gruevski's chief of staff, 
Martin Protoger, pressured him after Dimsoski told the press 
that Gruevski must take more responsibility for Macedonia's 
Euro-integration. 
 
Ministers Shuffle, but Real Changes? 
------------------------------------ 
 
¶4. (C) As Protoger told us July 6, Gruevski took the 
opportunity of Bocevski's departure to do some housecleaning 
in his cabinet.  The PM called the Charge July 8 to run 
through the changes.  DPM for the Economy Zoran Stavreski 
will move over to replace Trajko Slaveski as Finance Minister 
(but retains his DPM rank), and Vladimir Pesevski will 
replace Stavreski as DPM for the Economy.  Ljupco Dimovski 
replaces Aco Spasenovski as Agriculture Minister, and Nikola 
Todorov takes over from Pero Stojanovski as Education 
Minister.  Gruevski also confirmed that he will name Vasko 
Naumovski to replace Bocevski as DPM for Euro-integration, as 
the press has been reporting for several days.  Brief bios 
paras. 14-17. 
 
¶5. (C) Gruevski told the Charge that he had considered firing 
Justice Minister Mihajlo Manevski -- by most accounts, a 
corrupt minister notorious for bullying judges and 
prosecutors to secure decisions consistent with his own or 
party interests -- but decided not to so as not to be seen as 
knuckling under to the opposition SDSM's claim that Manevski 
double-dipped by receiving both a government pension and 
salary.  Gruevski asserted that the pension issue was merely 
a systems error that affected about 150 people and amounted 
to only $400.  Additionally, Gruevski told the Charge that he 
was generally satisfied with the ministers from DUI, his 
ethnic Albanian partner, and had no plans to seek their 
ouster (which would have required DUI's consent).  He added 
that the only DUI minister he had concerns about was 
Environment Minister Nexhati Jakupi, but DUI leader Ali 
Ahmeti preferred to keep him on.  (Subsequently, DUI Minister 
of Economy Fatmir Besimi told us that he may be forced to 
resign in the coming weeks over the GoM's handling of EVN, 
the Austrian electricity distributor which Gruevski seems 
intent on forcing out of Macedonia.) 
 
¶6. (C) According to Macedonian law, had Gruevski sought to 
replace seven or more ministers this would have meant a full 
change in government and could have caused some political 
upheaval such as re-negotiating Gruevski's coalition deal 
with DUI.  It would have also meant a delay of up to 40 days 
to form the new government.  As it stands now, the opposition 
in parliament can only raise concerns about the portfolios of 
the ministers to be replaced, and the new ministers will be 
in place as soon as July 10. 
 
Economic Slide Continues, No Real GoM Response 
--------------------------------------------- - 
 
¶7. (SBU) Dreary economic news continues to flow in.  GDP in 
the first quarter was down 0.9%, with nearly all sectors 
reporting flat or negative growth.  DPM Stavreski tried to 
spin this performance as a success of GOM policies, noting 
greater downturns in other countries.  He predicted positive 
GDP growth in the third and fourth quarters, but did not 
explain the assumptions on which he based this forecast. 
Indeed, key economic indicators are showing a different 
picture.  Industrial output fell by 11.1% from January to 
May.  The trade deficit for the same period reached $951 
million, or 10% of GDP.  Exports are down 43.4%, and imports 
dropped by 32.9%. 
 
¶8. (SBU) FDI in the first quarter was only $70.7 million, 
none of which are greenfield investments; most consisted of 
reinvested profits, re-capitalization, and/or already present 
foreign investors bringing in more equipment and assets.  Net 
private transfers, which include remittances, were down by 
38.6% in the first quarter, thus pushing the current account 
deficit to $445 million (5% of GDP).  Budget revenues from 
January to May were down over 10%, mostly due to the sharp 
decline of 25% in VAT collections (VAT accounts for about 40% 
of total revenues).  At the same time, expenditures were up 
by over 21% as the GOM will apparently not give up 
unproductive projects.  Trying to cover the budget and 
current account gaps, the GOM just recently sold another 
Eurobond, collecting 175 million euros at an interest rate of 
9.875%.  In addition, it continuously borrows domestically by 
selling denar and forex T-bills with different maturities. 
Responding to a loosened fiscal policy, monetary policy is 
very tight, resulting in increasing interest rates.  Despite 
its apparent need to take on an IMF standby agreement to 
stanch the flow, the GoM seems resolved to take commercial 
loans to cover its budget obligations, viewing the IMF and 
its conditionality/scrutiny as a last resort. 
 
"Name" and Albanian Woes 
------------------------ 
 
¶9. (C) The heat is also being turned up on the "name issue" 
and interethnic relations.  UN Mediator Nimetz was in Skopje 
July 6-7, then went to Athens.  Gruevski told the Charge July 
8 that the visit was positive and progress may be possible, 
"depending on the Greeks."  Meanwhile, the DUI and VMRO 
leaderships have been locked in what Protoger told us were 
"serious but positive" negotiations on a raft of DUI demands, 
ranging from the rights and roles of DUI ministers, GoM 
spending in predominantly e-Albanian municipalities, the 
draft law on the Interior Ministry, implementation of the 
language law, and a host of others. 
 
¶10. (SBU) Intra-Albanian discord is also on the rise.  DPA 
leader Menduh Thaci formally released his proposal for a new 
interethnic agreement -- intended to replace the Ohrid 
Framework Agreement -- on July 6.  Thaci has admitted to our 
EUSR colleagues that this new document is nothing more than a 
way to score points against DUI, and Thaci may use his 
proposal as a way to coalesce other smaller e-Albanian 
parties into his orbit.  Among other things, Thaci's 
"political contract" calls for consensual government 
decision-making (i.e., the e-Albanian party in government 
gets a veto), Albanian as an official language, and that one 
of the three most powerful political offices (Prime Minister, 
President, Speaker) always be held by an e-Albanian.  (More 
on this issue septel.) 
 
DUI "Retakes" University 
------------------------ 
 
¶11. (SBU) DUI made its own power play July 2 when, armed with 
an order from then Education Minister Stojanovski, its 
loyalists entered the State University of Tetovo (SUT) and 
summarily dismissed Acting Rector Agim Vela and the entire 
university Senate (vice rectors and deans).  While they are 
at pains to claim that this is not the case, DUI's actions 
are strikingly similar to what DPA did in 2006 when it joined 
the government, marched in with thugs, and eventually 
installed its own rector, Sadi Bexheti (who is now DPA's 
mayor of Tetovo).  The university is now quite tense, with 
"off-duty" police loyal to DUI "maintaining order" and 
keeping faculty and staff loyal to DPA off the premises.  For 
his part, Bexheti and Vela told us July 8 that they will 
fight the issue in the domestic courts and the European Court 
of Human Rights. 
 
¶12. (SBU) SUT has always been a troubled institution, 
including its history as an illegal university beginning in 
¶1994.  After it became a state university 10 years later, it 
has been essentially treated as a fiefdom of whichever 
e-Albanian party is in government.  Most e-Macedonians and 
many e-Albanians tell us SUT is often chaotic and -- at best 
-- just another relatively poor public university.  DUI's 
efforts to persuade the public -- and us -- that its actions 
are legitimate ring hollow. 
 
Comment: Icebergs Ahead 
----------------------- 
 
¶13. (C) Gruevski has in the past been reluctant to fire 
ministers, even poor performers (as most are), but rumors 
persist that there is increasing unhappiness with the current 
slate from within VMRO.  Even this relatively modest shuffle 
allows him to distract the public from focusing on issues 
such as the economy, the name issue, interethnic relations, 
and criticism of Gruevski for moving too slowly toward 
Euro-Atlantic integration.  As Macedonia continues to drift 
in the wrong direction on many of these issues, Gruevski,s 
responses seem too small and too slow as he clings to his 
preferred positions and approaches.  He will need to make 
bold course changes to meet Macedonia,s major external and 
internal challenges successfully.  End comment. 
 
Brief Ministerial Bios 
---------------------- 
 
¶14. (SBU) Valdimir Pesevski, Deputy PM for the Economy: 
Pesevski was born in 1970, and takes up the DPM slot from his 
previous position as Director General of SEAF (Small 
Enterprise Assistance Funds) South Balkan Fund based in 
Belgrade, Serbia.  He has been there since 2005, covering 
SEAF projects in Macedonia, Serbia and Montenegro. 
Previously, he worked in SEAF Macedonia moving up the ladder 
to Director's position.  He received his BA in Electrical 
Engineering at the University of Saints Cyril and Methodius 
in Skopje in 1993 and then began his career as a Research 
Assistant in the Macedonian Institute for Energy and Computer 
Science.  In 1995 he moved to the MBRC (Macedonian Business 
Resource Center), a USAID-funded project, where he worked as 
a consultant providing general management and financial 
consulting services to medium and large Macedonian companies. 
 Pesevski joined SEAF-Macedonia's local management team in 
¶1998.  He received his MBA (with distinction) from Sheffield 
University, where he has also been guest lecturer in the 
Executive MBA program at the campus in Thessaloniki. He also 
advised the President of Macedonia on economic policies for 
SMEs following the conflict of 2001 and is an active member 
of the National Entrepreneurship and Competitiveness Council. 
 He speaks fluent English. 
 
¶15. (SBU) Vasko Naumovski, DPM for Euro-integration: 
Naumovski was born in Skopje in 1980, and takes up the DPM 
slot from his previous position as Assistant Professor at the 
New York University Skopje.  During the 2009 presidential and 
municipal elections, he was a frequent pro-VMRO-DPMNE 
television commentator/analyst.  He received his BA in 
International Law at the University of Saints Cyril and 
Methodius in Skopje in 2003, and from there he pursued two 
masters degrees, one in European Studies at the 
Rheinische-Friedrich-Wilhelms University of Bonn, Germany, 
and the second in International Law at the University of 
Saints Cyril and Methodius in Skopje.  He received his Ph.D. 
in International Law from the same institution in 2008. 
Prior to his employment at New York University Skopje he was 
a project analyst for a project on coordination of foreign 
aid with UNDP and the Ministry of Justice.  Naumovski 
attended a six-week Study of U.S. Institutions (SUSI) program 
in the U.S. in 2008.  He speaks fluent English. 
 
¶16. (SBU) Ljupco Dimovski, Minister of Agriculture: Dimovski 
was born in Veles in 1959, and takes up the Agriculture 
portfolio from his previous position as Deputy Minister of 
Transport and Communications.  He received his BA in 
international finance and banking at the University of Saints 
Cyril and Methodius in Skopje.  He began working in 1986 as 
deputy director at Tehnometal-Vardar AD Skopje, a trading 
company.  In 1998 he became the Director General of Electric 
Industries Skopje.  In 2005 he became the Director General of 
Parks and Forests Skopje (a public company).  Dimovski served 
as Secretary General of the Socialist Party of Macedonia from 
2004 to 2005.  He speaks English and Spanish. 
 
¶17. (SBU) Nikola Todorov, Minister of Education: Todorov was 
born in 1978 and takes up his position as Minister of 
Education from his previous position as head of the Skopje 
Cadastre (land registry) office.  In recent years the 
cadastre office, with funding from the World Bank, undertook 
major customer-service reforms and moved to a modern new 
facility, making it one of the best-run cadastres in the 
region, according to World Bank sources.  Todorov was advisor 
to the former director of Public Enterprise for Management of 
Residential and Commercial Properties of the Republic of 
Macedonia.  He is the son of Stojan Todorov, who recently 
resigned as Secretary-General of the Government.  He has a 
law degree; English-language ability unknown. 
NAVRATIL