VZCZCXYZ0002
PP RUEHWEB

DE RUEHVJ #0140/01 0411613
ZNR UUUUU ZZH
P 101613Z FEB 10
FM AMEMBASSY SARAJEVO
TO RUEHC/SECSTATE WASHDC PRIORITY 1381
INFO RHEFDIA/DIA WASHINGTON DC
RUEAIIA/CIA WASHINGTON DC
RUEKJCS/JCS WASHINGTON DC
RHEHNSC/NSC WASHDC
RUEKJCS/SECDEF WASHDC

UNCLAS SARAJEVO 000140 
 
SENSITIVE 
SIPDIS 
 
DEPARTMENT FOR H AND EUR/SCE 
 
E.O. 12958: N/A 
TAGS: PGOV PREL OVIP ECON BK
SUBJECT: SCENESETTER FOR CODEL POMEROY 
 
¶1. (SBU) SUMMARY:  You are visiting Sarajevo when frustration 
over the failure of government at all levels is higher than 
at any time since the failure of the April Package of 
constitutional reforms in 2006.  Governmental gridlock has 
been further fueled by conflicting visions among Bosnia's 
ethnic groups as to the future internal configuration of BiH 
as well as increased nationalist rhetoric in the run-up to 
the 2010 general elections.  These factors combine to hinder 
the chances for BiH politicians to enact much-needed reforms 
to increase state functionality.  Furthermore, inter-ethnic 
tensions are growing.  We, along with EU partners, embarked 
on a full-force engagement in October 2009 to find common 
ground among Bosnia's political leaders on a package of legal 
and constitutional reforms necessary to move Bosnia down the 
path of NATO and EU integration.  However, to date our joint 
efforts have not been able to overcome narrow political 
interests.  As we continue urging leaders to agree on 
constitutional reform, we are also pressing leaders to 
complete defense reform.  Progress on the latter, along with 
political reform, will increase BiH's chances for obtaining 
NATO MAP status.  Your engagement with BiH interlocutors will 
add an important voice to the need for greater 
democratization in Bosnia's parliamentary processes, a 
necessary part of Bosnia's EU and NATO integration.   END 
SUMMARY. 
 
U.S. Policy in Bosnia 
--------------------- 
 
¶2. (SBU) Our policy in Bosnia has been straightforward and 
has enjoyed bi-partisan support for 14 years since the 
signing of the Dayton Peace Accords.  We seek to maintain 
Bosnia as a single state and to ensure that the state is 
strong enough to take its place and meet its obligations as a 
member of NATO and the EU.  Any talk of partition is 
destabilizing and dangerous.  At the same time, we have 
sought to ensure that power in Bosnia remains decentralized 
enough so that no group -- Bosniaks, Serbs, or Croats -- 
feels disenfranchised by the others.  Finding the right 
balance remains a work in progress.  You will want to stress 
with your interlocutors: 
 
--our government's concern for Bosnia's future; 
 
--our commitment to continued engagement and to the 
territorial integrity and sovereignty of the country; 
 
--and our support for a stable, functional, and democratic 
Bosnia capable of taking its place in Euro-Atlantic 
institutions. 
 
Ethnic Groups have Conflicting Visions 
-------------------------------------- 
 
¶3. (SBU) The fundamental problem in Bosnia remains that the 
state lacks legitimacy among the three largest ethnic groups, 
as Bosniaks (Muslims), Serbs (Orthodox), and Croats 
(Catholic) differ in their visions about the kind of Bosnia 
in which they want to live.  Bosnia, as currently configured, 
includes two entities:  the Federation, which is largely 
Bosniak and to a lesser extent Croat; and the Republika 
Srpska (RS), which is predominantly Serb.  Our policy in 
responding to these divergent visions is that there must be 
"no unilateral abolition of the entities, no secession of 
entities, and no third entity." 
 
Bosniaks 
-------- 
 
¶4. (SBU) Bosniaks who make up close to 50 percent of the 
country's total population, want a strong, centralized state 
with governing structures that include minimal 
ethnicity-based checks and balances.  Some seek to abolish 
the Republika Srpska, which many Bosniaks consider a product 
of genocide and ethnic cleansing during the 1992-1995 war. 
Others have raised in recent discussions a desire to remove 
the Dayton provision for the right of the entities to veto 
state legislation, a mechanism that has been significantly 
overused by the Bosnian Serbs. 
 
Serbs 
----- 
 
¶5.  (SBU) Serbs, after years of attacking the Dayton Accords, 
have now selectively embraced Dayton's entity-based 
structures and weak central state.  But, over the last 
several years they have sought to roll back reforms designed 
to make Dayton work and to advance Bosnia's Euro-Atlantic 
aspirations, arguing that such reforms were not explicitly 
provided for in the Dayton Accords.  Many Serbs would prefer 
the dissolution of Bosnia in favor of the independence of the 
RS.  The RS National Assembly is currently considering a Law 
on Referenda that could open the door later this year to the 
RS populace voicing its opinion on NATO Membership and/or 
secession.  Even the most enlightened Bosnian Serbs continue 
to demand that the RS's status remains unchanged (that is, 
that no further RS autonomy vis-a-vis the state be 
surrendered), regardless of the demands of EU or NATO 
accession. 
 
Croats 
------ 
 
¶6. (SBU) Croats aspire to their own entity, or at minimum 
formal safeguards which guarantee political defense of "Croat 
interests," however defined.  In discussions on political 
reform with the U.S. and the EU, they remain concerned with 
the perception that, while Bosnia has three "constituent 
peoples," the Bosniaks and Serbs each appear to each exercise 
political control in an entity while Croats, in the minority 
in both the Federation and Republika Srpska, do not. 
 
Differing Views on OHR and Transition to EUSR 
--------------------------------------------- 
 
¶7. (SBU) In this divisive environment we are working with our 
European Allies to determine the future of the Office of the 
High Representative (OHR), the international institution 
responsible for overseeing implementation of civilian aspects 
of the Dayton Peace Accords.  Based on a 2008 decision by the 
Peace Implementation Council (PIC), OHR's closure and 
transition to a non-executive, advisory European Union 
Special Representative (EUSR) should occur only after the 
fulfillment of five objectives and two conditions ("five plus 
two"). Most Europeans and the Russians are anxious for 
transition as early as possible, although the Europeans 
declared at the most recent PIC session in November 2009 that 
they will join us in insisting on Bosnia's full completion of 
"five plus two" before closure.  We believe this approach 
would protect the international community's credibility in 
Bosnia and thereby ensure that the EUSR has a stable 
beginning.  Bosnian Serbs seek the immediate closure of OHR. 
Republika Srpska Prime Minister Milorad Dodik has made 
numerous, provocative statements suggesting he will roll back 
OHR's prior state-building efforts as soon as the office 
closes.  Furthermore, he stated at the most recent PIC 
meeting that he will ignore any further use of the HighRep's 
executive "Bonn Powers."  Meanwhile, the Bosniaks' fear of 
Dodik's behavior, combined with the specter of a weakened 
international community, tempts them to obstruct efforts to 
fulfill "five plus two," in order to keep OHR open. 
 
The Need for Constitutional Reform and the Butmir Process 
--------------------------------------------- ------------ 
 
¶8. (SBU) Because Bosnia's fractious politics were impeding 
progress towards EU and NATO integration, the European Union 
and the United States initiated in October an intense joint 
diplomatic effort to resolve impasses on several key reforms 
and modest constitutional changes to make the state more 
functional and put Bosnia back on the path to Euro-Atlantic 
integration (sometimes called the "Butmir" package).  We told 
Bosnia's leaders that reaching agreement on substantive 
constitutional reforms like those suggested in the U.S.-EU 
initiative as well as making concrete progress toward 
completing defense reform would encourage NATO allies to 
support Bosnia in its ambitions for MAP, as well as help 
Bosnia make progress towards EU integration.  However, most 
political leaders failed to show willingness to compromise 
and the initiative, to date, has not brought results.  We 
continue to remind interlocutors at all levels of government 
of the urgent need for them to come up with a constitutional 
reform package which is acceptable to a majority of BiH 
parties and that improves state functionality.  A recent 
decision by the European Court of Human Rights in Strasbourg 
declared certain provisions of the BiH Constitution 
discriminatory, thus increasing pressure to enact 
constitutional reform. 
 
Political Climate Hinders Reform 
-------------------------------- 
¶9. (SBU) The lack of progress on the U.S.-EU initiative on 
constitutional reform illustrated how far apart the parties 
are on reaching substantive agreements that would make a more 
functional state or even resolve outstanding issues like 
state and defense property.  In the meantime, RS Prime 
Minister Milorad Dodik is ever more boldly challenging the 
international community and Bosnia's state institutions by 
laying the groundwork to hold referenda in the RS on 
decisions of the High Representative, and possibly the Dayton 
constitution generally.  With elections approaching in 
October 2010, political leaders from each ethnic group are 
ratcheting up nationalist rhetoric and their maximalist 
demands, thus making it less likely that they will be able to 
reach bold agreements on substantive issues that would 
advance Bosnia's Euro-Atlantic aspirations.  Bosnia's leaders 
may tell you that the apparent conditioning of Membership 
Action Plan (MAP) on constitutional reforms derailed the 
process, but in fact reforms have been stalled for over a 
year.  Any progress on reform will require focusing on the 
necessity of reform now and the fact that Bosnia risks 
getting left behind its neighbors. 
 
Defense Reform and MAP 
---------------------- 
 
¶10. (SBU) Your visit comes as Bosnia's leaders are frustrated 
over their country's lack of progress towards NATO.  Bosnia's 
Presidency and defense leadership feel that NATO allies 
unfairly passed up Bosnia in December when they allowed 
Montenegro to begin a Membership Action Plan (MAP). At the 
same time, the same Bosnian politicians are aware that 
Bosnia's reform agenda -- including defense reform -- is 
stalled, and Bosnia's defense institutions are facing the 
greatest challenge since the creation of a unified Defense 
Ministry and command structure in 2006.  Since beginning 
Intensified Dialogue (ID) and Individual Partnership Action 
Plan (IPAP) processes in Fall 2008, Bosnia has made little 
progress on its substantive reform objectives.  A 2009 NATO 
assessment, approved by the North Atlantic Council, 
summarized: "The main finding of this assessment is that work 
on reform objectives is seriously hindered by Bosnian 
politics and political change will be essential to BiH's 
success in IPAP."  Bosnia's leaders argued that the Butmir 
process unfairly linked Bosnia's MAP application to 
constitutional changes.  We have stressed to Bosnia's leaders 
that it was the other way around:  Butmir was a response to 
Bosnia's inability to address blockages in its reform agenda. 
 Nevertheless, you may find your interlocutors claiming the 
EU-U.S. initiative derailed their MAP application. 
 
Current Status of the Economy 
----------------------------- 
 
¶11. (U) Bosnia enjoyed healthy growth through 2008, averaging 
six percent per year between 2003 and 2008 with low 
inflation.  This along with important financial sector 
reforms culminated in the signing of a Stabilization and 
Association Agreement with the EU in June 2008.  The boom 
came at a price, however, as the two entities -- particularly 
the Federation but also the RS -- overextended themselves 
with unsustainable social programs for decorated war 
veterans, war invalids, and war victims, without regard to 
actual need, as well as highly-favorable pensions for 
demobilized soldiers.  These programs have created strong 
disincentives to work, contributing to an official 
unemployment rate of 40 percent, yet at the same time failing 
to address poverty.  The economy shrank by three percent in 
2009, and is expected to rebound slightly, by about 0.5 
percent, this year.  The global downturn has also led to a 
steep fall in trade.  Bosnia's merchandise exports for the 
first nine months of 2009 fell by 21 percent and imports by 
26 percent compared with the same nine-month period in 2008. 
Inflation has come down in recent months, and is expected to 
be 1.6 percent for 2010. 
 
IMF Stand-By Arrangement to the Rescue? 
--------------------------------------- 
 
¶12. (SBU) When the global financial crisis struck, the 
economy deteriorated rapidly, and the government turned to 
the IMF.  A $1.6 billion IMF Stand-By Arrangement was signed 
in June 2009, to be disbursed in twelve quarterly tranches 
over three years.  The World Bank is prepared to back the IMF 
program with an additional $100 million budget support 
program, and the EU is offering a similar package worth $150 
million.  Among the key conditions of the IMF program were 
cuts in the 2009 and 2010 budget and legislative measures to 
change the veterans' entitlement system to a more affordable 
needs-based system of social benefits.  However, veterans' 
organizations have been key supporters of the ruling SDA 
party in the Federation, and have exerted steady pressure 
against the IMF-driven reforms.  Although the first tranche 
of the program, worth over $275 million, was disbursed in 
July, the Federation's ability to withstand the internal 
political pressure to stay on the program is shaky.  Bosnia 
failed to implement the necessary legislative reforms in time 
to receive its second IMF disbursement on schedule at the end 
of 2009.  As elections approach, passing these reforms is 
becoming increasingly difficult. 
 
Bosnia a non-permanent UNSC Member 2010-2012 
-------------------------------------------- 
 
¶13. (SBU) Bosnia's two-year tenure on the UN Security Council 
began January 1, 2010.  Having a chair in the UNSC for the 
next two years will make them an important interlocutor on 
global issues.  The pressing question of placing sanctions on 
Iran for its non-compliance with Nuclear Non-Proliferation 
Treaty requirements is an important first step in Bosnia's 
UNSC engagement.  Though Bosnia has pledged normally to 
follow the EU's lead on such issues, the views of 
Muslim-majority nations such as Turkey are likely to be 
weighed in to Bosnia's decision-making process.  You can 
impress on the Presidency members with whom you'll be 
meeting, and who are responsible for foreign affairs decision 
making, the need for Bosnia to side with the United States 
and the EU's principal UNSC members (the UK, France, and 
Germany) on this issue. 
ENGLISH