#09BELGRADE841, SERBIA GRAPPLES WITH RUSSIA

RELATIONS IN ADVANCE OF MEDVEDEV

Classificatio
Reference ID Created Released Origin
n

09BELGRADE8 2009-09- 2010-12- Embassy

SECRET
41 03 13:01 10 21:09 Belgrade

VZCZCXRO7882 RR RUEHAG RUEHDBU RUEHFL RUEHKW RUEHLA

RUEHNP RUEHROV RUEHSL DE RUEHBW #0841 2461342 ZNY
SSSSS ZZH R 031341Z SEP 09 FM AMEMBASSY BELGRADE TO
RUEHC/SECSTATE WASHDC INFO EUROPEAN POLITICAL COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEHBW/AMEMBASSY BELGRADE

Thursday, 03 September 2009, 13:41 S E C R E T BELGRADE 000841

SIPDIS AMEMBASSY ANKARA PASS TO AMCONSUL ADANA
AMEMBASSY ASTANA PASS TO USOFFICE ALMATY AMEMBASSY
BERLIN PASS TO AMCONSUL DUSSELDORF AMEMBASSY BERLIN
PASS TO AMCONSUL LEIPZIG AMEMBASSY BELGRADE PASS TO
AMEMBASSY PODGORICA AMEMBASSY HELSINKI PASS TO
AMCONSUL ST PETERSBURG AMEMBASSY ATHENS PASS TO
AMCONSUL THESSALONIKI AMEMBASSY MOSCOW PASS TO
AMCONSUL VLADIVOSTOK AMEMBASSY MOSCOW PASS TO
AMCONSUL YEKATERINBURG EO 12958 DECL: 2019/09/03 TAGS
PGOV, PREL, EINT, MASS, RS, SR SUBJECT: SERBIA GRAPPLES WITH
RUSSIA RELATIONS IN ADVANCE OF MEDVEDEV VISIT REF: (A) 08
BELGRADE 98, (B) 08 BELGRADE 1333 CLASSIFIED BY: Jennifer
Brush, Charge D’Affaires; REASON: 1.4(B), (D)

Summary -------

¶1. (C) As Serbia seeks to overcome mounting economic difficulties

and move forward toward its primary goal of European Union
membership, the government is struggling to strike the right tone in
the bilateral relationship with Russia: President Tadic and his close
advisors appear intent on giving the Russians their due without
irritating the Europeans, while others - including Foreign Minister
Jeremic - seem to want to use close ties to Russia as a “bargaining
chip” with Europe and the United States (ref A). A planned visit by
Russian President Dmitriy Medvedev in October is already drawing
additional attention to a bilateral relationship where warm, friendly
rhetoric is often not matched by concrete, mutually-beneficial
cooperation in the political, economic, or security realms. End
Summary. October Medvedev Visit ----------------------

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

Medvedev will visit Serbia in October to mark the 65th anniversary
of the liberation of Belgrade during World War II by Soviet forces has
focused public attention on the Serbia-Russia relationship and
triggered press headlines heralding the “return to a brotherly
embrace” with Russia. Presidential advisor Aleksandar Knezevic told
us on August 20 that the Russians had proposed “grandiose” plans
for the visit (rumored to include a military parade); Knezevic said
the presidency would tailor the events to show that Russia was one
of several key partners. With regard to the World War II celebrations
in particular, he acknowledged the challenge of balancing the
commemoration of the Soviet role in liberating Belgrade with the
role of other Allies in the broader war effort. Presidential chief of
staff Miki Rakic confirmed on August 25 that plans were still in flux
and that the date had not been set, despite widespread press
reports that it would be October 20.

¶3. (SBU) The primary deliverables for the Medvedev visit will
reportedly be a $1.4 billion Russian loan for budget support and
infrastructure projects and the creation of a joint venture between
Gazpromneft and Srbijagas for the expansion of the Banatski Dvor
underground natural gas storage facility. Russian Ambassador
Aleksandr Konuzin has told the press that the two countries would
sign a number of bilateral agreements but declined to reveal the
topics. We expect that the two sides will highlight the visa-free
travel arrangement that went into force on June 1, as well as the
existing bilateral Free Trade Agreement.

Political Relations: Balancing the Rhetoric

-------------------------------------------

¶4. (C) The dilemma that Tadic and his associates in the Presidency
face in calibrating the tone and lavishness of the Medvedev visit is
symptomatic of Serbia’s overall bilateral relationship with Russia.
They perceive a continued need for Russia’s UNSC veto and
rhetorical support on Kosovo, particularly while the International
Court of Justice case is ongoing. At the same time, this more
pragmatic group of policymakers sees that Russia is not always a
reliable partner - such as when the Russian government used
Kosovo’s declaration of independence to justify its actions in
Abkhazia and Ossetia. This group also realizes that Russian
assistance pales in comparison to the tangible benefits of eventual
European Union membership. They argue - correctly - that the two
objectives of EU membership and good relations with Russia need
not be mutually exclusive, pointing to numerous statements by the
Russian government that it supports Serbia’s EU aspirations. Tadic
and his closest foreign policy advisors therefore devote most of their
energy to European integration, focusing on Russia only when
necessary to maintain balance in outward appearances.
¶5. (C) Vuk Jeremic and his team at the Foreign Ministry take a
different approach, however. They appear unwilling to fully commit
themselves rhetorically or on a policy level to the EU course, and
cling to Russia, China, and the Non-Alignment Movement as
counterweights or alternatives to the EU. Following from that logic,
they see every positive interaction with Moscow as a blow to
Washington, and even attempted to leverage the Medvedev visit to
lobby for a meeting for FM Jeremic with the Secretary. Political
Director Borko Stefanovic’s August 25 description to us of plans for
an elaborate Medvedev visit was emblematic: he and possibly
Jeremic would travel to Moscow in advance of the visit to coordinate
messaging; Medvedev would address Parliament, becoming the first
head of state to do so; and the anniversary of the liberation of
Belgrade would be used to highlight Serbia’s proud anti-fascist
history.

Economic Relations: Skewed to Russia’s Benefit

--------------------------------------------- --

¶6. (SBU) Russia is Serbia’s second largest trading partner and

eighth largest source of investment. Bilateral trade has grown
significantly in recent years, reaching a high of just over $4 billion in
2008; Russian imports account for about 13% of Serbia’s total
imports. Numbers have fallen off in 2009 due to the global economic
crisis, but the balance has remained in Russia’s favor due to
Serbia’s heavy reliance on energy imports; in the first six months of
the year, total trade was $1.1 billion, with an $830 million trade
deficit for Serbia. Nearly 75% of Russian exports to Serbia are
energy-related, with crude oil accounting for 49% and natural gas
25%.

¶7. (SBU) Since 2000, Russian firms have invested approximately $1

billion in Serbia -- $742 million in cash, and the rest in obligations
for future investments. The 2009 purchase of Serbia’s state
petroleum industry, NIS, by Gazpromneft for $555 million (ref B)
accounts for more than half of total Russian investment. Other
significant deals include Lukoil’s 2003 purchase of 80% of petrol
distribution company Beopetrol for $187 million and auto parts
producer Autodetal’s troubled 2008 purchase of a 39% stake in bus
manufacturer Ikarbus for $10.7 million. Russia’s only greenfield
investment in Serbia to date has been the Bank of Moscow, which
began serving corporate and retail clients in June 2009 with $24
million in founding capital. The Bank of Moscow appears to be
focusing 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, Serbia’s security relations with

Russia are more symbolic than concrete. Minister of Defense
Sutanovac meets periodically with Russian counterparts and
organizes photo opportunities with the handful of Serbian students
who attend Russian military institutes each year. The Serbian
military still relies heavily on Soviet-era equipment, including a
dwindling fleet of MiGs, and therefore remains dependent on Russia
for spare parts, service, and technical training; the amount Russia
charges for this support is a frequent sore point. Serbia’s military
relationship with Russia is largely void of content; there are no joint
operational or planning exercises. A recent Russian-funded
demining project at the Nis Airport attracted significant media
coverage, despite being modest in scope. (Comment: In contrast to
these relatively limited engagements with Russia, the Serbian
military’s ties with the U.S. and NATO are growing dynamically. In
the past year alone, over 60 members of the Serbian military
attended U.S. NCO training, military academies, and war colleges;
Serbia is restructuring its military on the Western/NATO model; it
enjoys a dynamic relationship with the Ohio National Guard; and it is
upping its involvement in Partnership for Peace, including hosting
the ongoing MEDCEUR disaster response exercise with EUCOM. End
Comment.)

¶9. (S) Russia has not been forthcoming on Serbia’s requests for
assistance in locating Hague indictee Ratko Mladic, presidential
advisor Miki Rakic told us on August 25. Rakic said he believed
based on Mladic’s profile that the former Bosnian Serb military
commander was likely hiding in Serbia, possibly with assistance
from foreign sources. Asking that the information “remain at this
table,” Rakic told us that he had posed a series of questions about
specific contacts between Mladic associates and Russian diplomats,
as well as phone calls and trips to Russia by Mladic associates, to
FSB Director Aleksandr Bortnikov in June, to Russian National
Security Advisor Nikolay Patrushev in July, and most recently to
Presidential Administration Chief of Staff Vladislav Surkov. If the
Russians did not respond before Medvedev’s visit, Rakic said, Tadic
would raise the issue himself. Comment: This Is Not a Competition
-----------------------------------

¶10. (C) While the European Union is and should remain Serbia’s
ultimate goal, the country is also inextricably linked by energy
dependency, military relationships, and cultural affinity with Russia.
The Serbian government’s struggle to find the proper balance
between these two imperatives stems from conflict between
policymakers - such as Jeremic -- who see foreign policy as a zero-
sum game, and those who believe in mutually beneficial
relationships. We can strengthen the hand of pragmatic forces in
the Serbian government by recognizing in our public statements
that Serbia needs to devote effort to having a healthy, balanced
relationship with Russia. We can afford to be magnanimous on this
point because we have the better story to tell: the foreign direct
investment statistics and the results of our programs supporting
economic, political, and security reform demonstrate that Serbia
benefits far more from cooperation with the United States and the
West than it does from Russian rhetoric. While the Serbian public
has not yet fully accepted these facts, our constant public
diplomacy efforts to highlight the results of U.S. engagement are
having an impact. We should continue to let our actions speak
louder than our words by engaging with Serbia on issues of mutual
interest, avoiding any direct comparisons with Russia, and flatly
rejecting the notion that in the 21st century any country must
choose between East and West. End Comment.

BRUSH