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#09BELGRADE841, SERBIA GRAPPLES WITH RUSSIARELATIONS IN ADVANCE OF MEDVEDEV

Reference ID Created ReleasedClassification Origin

09BELGRADE841

2009-09-03 13:01

2010-12-10 21:09 SECRET

EmbassyBelgrade

VZCZCXRO7882 RR RUEHAG RUEHDBU RUEHFL RUEHKW RUEHLARUEHNP RUEHROV RUEHSL DE RUEHBW #0841 2461342 ZNYSSSSS ZZH R 031341Z SEP 09 FM AMEMBASSY BELGRADE TORUEHC/SECSTATE WASHDC INFO EUROPEAN POLITICAL COLLECTIVERUCPDOC/DEPT OF COMMERCE WASHINGTON DC

RUEHBW/AMEMBASSY BELGRADE

Thursday, 03 September 2009, 13:41 S E C R E T BELGRADE 000841SIPDIS AMEMBASSY ANKARA PASS TO AMCONSUL ADANAAMEMBASSY ASTANA PASS TO USOFFICE ALMATY AMEMBASSYBERLIN PASS TO AMCONSUL DUSSELDORF AMEMBASSY BERLINPASS TO AMCONSUL LEIPZIG AMEMBASSY BELGRADE PASS TOAMEMBASSY PODGORICA AMEMBASSY HELSINKI PASS TOAMCONSUL ST PETERSBURG AMEMBASSY ATHENS PASS TOAMCONSUL THESSALONIKI AMEMBASSY MOSCOW PASS TOAMCONSUL VLADIVOSTOK AMEMBASSY MOSCOW PASS TOAMCONSUL YEKATERINBURG EO 12958 DECL: 2019/09/03 TAGSPGOV, PREL, EINT, MASS, RS, SR SUBJECT: SERBIA GRAPPLES WITHRUSSIA RELATIONS IN ADVANCE OF MEDVEDEV VISIT REF: (A) 08BELGRADE 98, (B) 08 BELGRADE 1333 CLASSIFIED BY: JenniferBrush, Charge DAffaires; REASON: 1.4(B), (D)

Summary -------

1. (C) As Serbia seeks to overcome mounting economic difficultiesand move forward toward its primary goal of European Union

membership, the government is struggling to strike the right tone inthe bilateral relationship with Russia: President Tadic and his closeadvisors appear intent on giving the Russians their due withoutirritating the Europeans, while others - including Foreign Minister

Jeremic - seem to want to use close ties to Russia as a bargainingchip with Europe and the United States (ref A). A planned visit byRussian President Dmitriy Medvedev in October is already drawingadditional attention to a bilateral relationship where warm, friendlyrhetoric is often not matched by concrete, mutually-beneficialcooperation in the political, economic, or security realms. EndSummary. October Medvedev Visit ----------------------

2. (C) The recent announcement that Russian President Dmitriy

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Medvedev will visit Serbia in October to mark the 65th anniversaryof the liberation of Belgrade during World War II by Soviet forces hasfocused public attention on the Serbia-Russia relationship andtriggered press headlines heralding the return to a brotherlyembrace with Russia. Presidential advisor Aleksandar Knezevic toldus on August 20 that the Russians had proposed grandiose plansfor the visit (rumored to include a military parade); Knezevic saidthe presidency would tailor the events to show that Russia was oneof several key partners. With regard to the World War II celebrationsin particular, he acknowledged the challenge of balancing thecommemoration of the Soviet role in liberating Belgrade with therole of other Allies in the broader war effort. Presidential chief of staff Miki Rakic confirmed on August 25 that plans were still in fluxand that the date had not been set, despite widespread pressreports that it would be October 20.

3. (SBU) The primary deliverables for the Medvedev visit willreportedly be a $1.4 billion Russian loan for budget support andinfrastructure projects and the creation of a joint venture betweenGazpromneft and Srbijagas for the expansion of the Banatski Dvorunderground natural gas storage facility. Russian AmbassadorAleksandr Konuzin has told the press that the two countries wouldsign a number of bilateral agreements but declined to reveal thetopics. We expect that the two sides will highlight the visa-freetravel arrangement that went into force on June 1, as well as theexisting bilateral Free Trade Agreement.

Political Relations: Balancing the Rhetoric-------------------------------------------

4. (C) The dilemma that Tadic and his associates in the Presidencyface in calibrating the tone and lavishness of the Medvedev visit issymptomatic of Serbias overall bilateral relationship with Russia.

They perceive a continued need for Russias UNSC veto andrhetorical support on Kosovo, particularly while the InternationalCourt of Justice case is ongoing. At the same time, this morepragmatic group of policymakers sees that Russia is not always areliable partner - such as when the Russian government usedKosovos declaration of independence to justify its actions inAbkhazia and Ossetia. This group also realizes that Russianassistance pales in comparison to the tangible benefits of eventualEuropean Union membership. They argue - correctly - that the twoobjectives of EU membership and good relations with Russia neednot be mutually exclusive, pointing to numerous statements by theRussian government that it supports Serbias EU aspirations. Tadicand his closest foreign policy advisors therefore devote most of theirenergy to European integration, focusing on Russia only when

necessary to maintain balance in outward appearances.

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5. (C) Vuk Jeremic and his team at the Foreign Ministry take adifferent approach, however. They appear unwilling to fully committhemselves rhetorically or on a policy level to the EU course, andcling to Russia, China, and the Non-Alignment Movement ascounterweights or alternatives to the EU. Following from that logic,they see every positive interaction with Moscow as a blow toWashington, and even attempted to leverage the Medvedev visit tolobby for a meeting for FM Jeremic with the Secretary. PoliticalDirector Borko Stefanovics August 25 description to us of plans foran elaborate Medvedev visit was emblematic: he and possibly

Jeremic would travel to Moscow in advance of the visit to coordinatemessaging; Medvedev would address Parliament, becoming the firsthead of state to do so; and the anniversary of the liberation of Belgrade would be used to highlight Serbias proud anti-fascisthistory.

Economic Relations: Skewed to Russias Benefit--------------------------------------------- --

6. (SBU) Russia is Serbias second largest trading partner andeighth largest source of investment. Bilateral trade has grownsignificantly in recent years, reaching a high of just over $4 billion in2008; Russian imports account for about 13% of Serbias totalimports. Numbers have fallen off in 2009 due to the global economiccrisis, but the balance has remained in Russias favor due toSerbias heavy reliance on energy imports; in the first six months of

the year, total trade was $1.1 billion, with an $830 million tradedeficit for Serbia. Nearly 75% of Russian exports to Serbia areenergy-related, with crude oil accounting for 49% and natural gas25%.

7. (SBU) Since 2000, Russian firms have invested approximately $1billion in Serbia -- $742 million in cash, and the rest in obligationsfor future investments. The 2009 purchase of Serbias statepetroleum industry, NIS, by Gazpromneft for $555 million (ref B)accounts for more than half of total Russian investment. Othersignificant deals include Lukoils 2003 purchase of 80% of petroldistribution company Beopetrol for $187 million and auto partsproducer Autodetals troubled 2008 purchase of a 39% stake in busmanufacturer Ikarbus for $10.7 million. Russias only greenfieldinvestment in Serbia to date has been the Bank of Moscow, whichbegan serving corporate and retail clients in June 2009 with $24million in founding capital. The Bank of Moscow appears to befocusing on potential energy deals and acquisition of Serbian state-owned banks. Security Cooperation: All Talk, (Almost) No Action--------------------------------------------- ------

8. (SBU) As in the political realm, Serbias security relations withRussia are more symbolic than concrete. Minister of Defense

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Sutanovac meets periodically with Russian counterparts andorganizes photo opportunities with the handful of Serbian studentswho attend Russian military institutes each year. The Serbianmilitary still relies heavily on Soviet-era equipment, including adwindling fleet of MiGs, and therefore remains dependent on Russiafor spare parts, service, and technical training; the amount Russiacharges for this support is a frequent sore point. Serbias militaryrelationship with Russia is largely void of content; there are no jointoperational or planning exercises. A recent Russian-fundeddemining project at the Nis Airport attracted significant mediacoverage, despite being modest in scope. (Comment: In contrast tothese relatively limited engagements with Russia, the Serbianmilitarys ties with the U.S. and NATO are growing dynamically. Inthe past year alone, over 60 members of the Serbian militaryattended U.S. NCO training, military academies, and war colleges;Serbia is restructuring its military on the Western/NATO model; itenjoys a dynamic relationship with the Ohio National Guard; and it isupping its involvement in Partnership for Peace, including hostingthe ongoing MEDCEUR disaster response exercise with EUCOM. EndComment.)

9. (S) Russia has not been forthcoming on Serbias requests forassistance in locating Hague indictee Ratko Mladic, presidentialadvisor Miki Rakic told us on August 25. Rakic said he believedbased on Mladics profile that the former Bosnian Serb militarycommander was likely hiding in Serbia, possibly with assistance

from foreign sources. Asking that the information remain at thistable, Rakic told us that he had posed a series of questions aboutspecific contacts between Mladic associates and Russian diplomats,as well as phone calls and trips to Russia by Mladic associates, toFSB Director Aleksandr Bortnikov in June, to Russian NationalSecurity Advisor Nikolay Patrushev in July, and most recently toPresidential Administration Chief of Staff Vladislav Surkov. If theRussians did not respond before Medvedevs visit, Rakic said, Tadicwould raise the issue himself. Comment: This Is Not a Competition-----------------------------------

10. (C) While the European Union is and should remain Serbiasultimate goal, the country is also inextricably linked by energydependency, military relationships, and cultural affinity with Russia.

The Serbian governments struggle to find the proper balancebetween these two imperatives stems from conflict betweenpolicymakers - such as Jeremic -- who see foreign policy as a zero-sum game, and those who believe in mutually beneficialrelationships. We can strengthen the hand of pragmatic forces inthe Serbian government by recognizing in our public statementsthat Serbia needs to devote effort to having a healthy, balanced

relationship with Russia. We can afford to be magnanimous on thispoint because we have the better story to tell: the foreign direct

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investment statistics and the results of our programs supportingeconomic, political, and security reform demonstrate that Serbiabenefits far more from cooperation with the United States and theWest than it does from Russian rhetoric. While the Serbian publichas not yet fully accepted these facts, our constant publicdiplomacy efforts to highlight the results of U.S. engagement arehaving an impact. We should continue to let our actions speaklouder than our words by engaging with Serbia on issues of mutualinterest, avoiding any direct comparisons with Russia, and flatlyrejecting the notion that in the 21st century any country mustchoose between East and West. End Comment.

BRUSH