VZCZCXRO0709
OO RUEHIK
DE RUEHVJ #0141/01 0411623
ZNR UUUUU ZZH
O 101623Z FEB 10
FM AMEMBASSY SARAJEVO
TO RUEHC/SECSTATE WASHDC IMMEDIATE 1385
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE PRIORITY
RUEAIIA/CIA WASHINGTON DC PRIORITY
RHEFDIA/DIA WASHINGTON DC PRIORITY
RUEKJCS/JCS WASHINGTON DC PRIORITY
RUEKJCS/SECDEF WASHDC PRIORITY
RHEHNSC/NSC WASHDC PRIORITY

UNCLAS SECTION 01 OF 05 SARAJEVO 000141 
 
SENSITIVE 
SIPDIS 
 
DEPT FOR H AND EUR/SCE 
 
E.O. 12958: N/A 
TAGS: PGOV PREL OVIP ECON BK
SUBJECT: SCENESETTER FOR CODEL VOINOVICH 
 
SARAJEVO 00000141  001.2 OF 005 
 
 
Summary 
-------- 
 
¶1.  (SBU) 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 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, interethnic 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 will 
increase BiH's chances for obtaining NATO MAP status and 
mitigate the threat of surplus weapons falling into the hands 
of malevolent domestic or international elements. Your 
engagement with BiH interlocutors on the necessity to 
complete concrete steps toward defense reform will greatly 
boost our overall chances of success.  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 strong, 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, and Croats differ in their 
visions about the kind of Bosnia in which they want to live. 
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 population, want a strong, centralized state with 
governing structures that include minimal ethnic checks and 
balances.  Some seek to abolish the Republika Srpska (RS), 
which many Bosniaks consider a product of the genocide and 
ethnic cleansing during the 1992-1995 war.  Others have 
raised in recent discussions a desire to remove the Dayton 
provision for vetoes of national legislation at the entity 
level, a mechanism that has been significantly overused by 
the Bosnian Serbs. 
 
Serbs 
----- 
 
¶5.  (SBU) Serbs, after years of attacking the Dayton Accords, 
have now embraced Dayton's entity-based structures and weak 
 
SARAJEVO 00000141  002.2 OF 005 
 
 
central state.  But, over the last several years, they have 
sought to roll back reforms designed to make Dayton work and 
advance Bosnia's Euro-Atlantic aspirations, arguing that such 
reforms were not explicitly provided for in Dayton.  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, i.e. that none of the relative 
autonomy of the RS 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 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.  As per a 2008 decision from the 
Peace Implementation Council (PIC), OHR's closure and 
transition to become the European Union Special 
Representative 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 PIC 
session 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, however, seek the 
immediate closure of OHR.  Republika Srpska Prime Minister 
Milorad Dodik has made numerous, provocative statements 
suggesting he will roll back OHR's state-building efforts as 
soon as the office closes.  Furthermore, he stated at the 
November PIC session that he will ignore any further use of 
the Bonn Powers in the meantime.  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" to keep OHR open.  Party 
for Democratic Action (SDA) President Sulejman Tihic at the 
PIC session went so far as to declare that OHR's closure "in 
this complex political and constitutional situation" could 
lead to conflict. 
 
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, and would 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 
 
SARAJEVO 00000141  003.2 OF 005 
 
 
constitutional reform. 
 
Political Climate Hinders Defense 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 entity-level referenda on 
decisions of the High Representative.  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 defense reform will require 
focusing on the necessity of reform now and the fact that 
Bosnia risks getting left behind its neighbors. 
 
-- You may wish to clearly tell your interlocutors that 
progress on defense reform is a necessary, though not 
sufficient, condition for gaining U.S. support for Bosnia's 
MAP bid. 
 
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, they 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 
vociferously 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 
expect your interlocutors to accuse the EU-U.S. initiative of 
derailing their MAP application. 
 
-- It would be helpful to remind Bosnia's Presidency and the 
Minister of Defense that the defense reform agenda remains 
incomplete; 
 
-- point out that progress towards NATO is merit based; 
 
-- and remind them that without reform, those obstacles 
identified in recent assessments are likely to be identified 
in subsequent assessments. 
 
Surplus Arms and Ammo Are Dangerous, Costly 
------------------------------------------- 
 
¶11.  (SBU) A special challenge, and one you may be able to 
help on, is the issue of destroying surplus arms and 
ammunition.  Bosnia's 100,000 excess weapons and thousands of 
tons of dangerous excess ammunition and explosives remain 
scattered around Bosnia in the same caches where they were 
stored by the entity armies during the 1992-1995 war, and the 
Armed Forces remain unable to consolidate them.  Besides 
being burdensome for the Armed Forces, this presents the 
obvious threat of theft or self-ignition. Bosnia's Presidency 
approved only 3,700 tons of Bosnia's unstable excess 
ammunition for destruction, and no weapons, and have slated 
the rest for sale.  The Ministry has made no progress in its 
 
SARAJEVO 00000141  004.4 OF 005 
 
 
putative attempt to sell the remainder of the surplus, a 
process for which the Ministry has no capacity and that will 
take years to complete according to Bosnian tender law. 
UNDP, EUFOR, NATO HQ and OSCE, all of whom have weapons 
experts on the ground in Sarajevo, have repeatedly written 
joint letters to Bosnia's Presidency that there is no 
responsible option other than destroying the thousands of 
tons of excess. 
 
--In your meetings, you should urge the Minister of Defense 
to send the Presidency a decision to destroy the majority of 
Bosnia's excess weapons and ammunition; 
 
--You should urge the Presidency to accept and act quickly on 
such a recommendation; 
 
--You may wish to add that the U.S. has programs to assist 
them in destroying excess ammunition and weapons once they 
make the decision to do so. 
 
Challenge of Demobilizing Soldiers 
---------------------------------- 
 
¶12.  (SBU) The Ministry of Defense (MoD) is in the process of 
terminating the contracts of 2,700 soldiers--nearly half the 
infantry--who will have reached a legal age limit of 35 for 
enlisted soldiers.  Disgruntled soldiers who faced 
termination met in January to discuss possible public 
demonstrations even though it is illegal for active 
servicemen to protest in Bosnia.  Bosnia's MoD viewed the 
protests as a serious threat to the discipline and command of 
the Armed Forces, and took resolute action to halt it. 
However, we remain very concerned about the possible threat 
to this vital state institution posed by soldiers threatening 
to take to the streets while still in uniform.  This problem 
will require continual management and a strong response from 
state organs. 
 
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 
Mslim-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. 
 
Current Status of the Economy 
----------------------------- 
 
¶14.  (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 is expected to shrink by 
four percent in 2009, and rebound slightly by about 0.5 
percent next 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? 
--------------------------------------- 
 
SARAJEVO 00000141  005.4 OF 005 
 
 
 
¶15.  (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 $111 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. 
ENGLISH