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Classified By: P/E CHIEF SHUBLER, REASONS 1.4 (b) & (d). ¶1. (C/REL NATO) SUMMARY: Macedonia is in its 7th MAP cycle and has made significant progress in meeting its defense reform goals, but still falls short in terms of meeting political and economic MAP criteria. To be considered a strong candidate for NATO membership by mid-2007, with a view to receiving an invitation in 2008, we believe Macedonia should meet the following key criteria: Strengthen democracy and the rule of law, and combat corruption by : --conducting free and fair parliamentary elections in 2006 that meet internationally-accepted standards; --fully implementing the judicial reforms package to strengthen the independence and efficiency of the judiciary; and, --showing significant progress in aggressively prosecuting high-profile corruption cases. Create a better business environment by: --meeting the milestones established for World Bank-financed projects on real estate and cadastre registration, and implementing judicial reforms regarding contract enforcement; and, --completing in a transparent manner the privatization of the state energy distribution and generation companies, with full accountability for the use of funds derived from that action. Continue defense reforms by: --pursuing defense personnel downsizing while ensuring equitable representation of ethnic minorities in the Armed Forces, but in a manner that ensures qualified personnel are selected and that training and promotion standards are not lowered.

This message develops these key criteria further and addresses additional political, economic, and defense issues and goals. End Summary. KEY POLITICAL CRITERIA: ¶2. (SBU/REL NATO) Electoral Reform: The 2005 local elections, as noted by OSCE and other international and domestic observers, were marred by serious electoral irregularities in some areas, including ballot-stuffing, group voting, and some election-day violence. Since then, the GOM has worked with OSCE experts to draft an electoral code that addresses electoral system concerns raised by the International Community (IC) in relation to the 2005 and other past elections. The electoral code is in the parliamentary review process, and Parliament is expected to pass it by mid -March. --Electoral Bodies: In addition to revising the electoral code to strengthen administration of upcoming parliamentary elections in summer 2006, the government recently addressed long-held IC concerns regarding inadequate funding, housing, equipment, and staffing for the State Electoral Administration (SEC), which is responsible for administering the elections. The SEC now has an adequate budget; initial staffing; new offices; and sufficient equipment to allow it to perform its core functions. The SEC Secretariat already is undertaking planning and initial steps to prepare for the 2006 parliamentary elections. --Parliamentary Elections: The key test of the strength of Macedonia,s democratic system will be the 2006 parliamentary elections. The IC is working with the government, political party leaders and party cadres, and the state electoral SKOPJE 00000105 002 OF 007

bodies to help ensure free and fair elections, as judged by OSCE/ODIHR and other international and domestic monitors.

Key Message: Should Macedonia fail this task, it would call into question the country,s readiness to present itself as a strong candidate for a NATO membership invitation in 2008. ¶3. (C/REL NATO) Judicial Reform: The Parliament in December 2005 passed a package of 11 constitutional amendments strengthening the independence and efficiency of the judiciary. The amendments sharply curtail the role of Parliament in selecting judges, who will now be selected and dismissed by an independent State Judici al Council. The Parliament is expected to pass bylaws to implement the amendments in the first half of 2006. Key Message: By mid-2007, the government should have passed and implemented the draft Law on Courts to allow trials of serious crimes and organized crime cases, and should implement a court case management system assigning cases to judges on a random basis; implement and use the Law on Witness Protection as appropriate in prosecuting organized crime cases; and enforce asset forfeitures in money-laundering or other serious crime cases. ¶4. (C/REL NATO) Corruption: Macedonia was ranked 104 of 159 countries in the 2005 Transparency International annual corruption perception index (CPI) report. It dropped several places compared to 2004, although its overall score remained the same, at 2.7 out of a possible 10 (10 being least corrupt.). Combating corruption is one of the government,s most daunting challenges; very few high -profile corruption cases have been successfully prosecuted, with even fewer cases involving a significant sentence as a sanction. Key Message: To enhance Macedonia,s competitiveness as a NATO candidate, the Macedonian Public Prosecutor,s office should successfully prosecute 3-5 high-profile corruption cases by mid-2007. In addition, the Macedonian courts should demonstrate that they can try those high-profile corruption cases in a fair and transparent fashion, as judged by independent observers (local NGOs, OSCE Rule of Law experts), and any guilty verdicts should be accompanied by sanctions that will have a deterrent effect. OTHER POLITICAL ISSUES AND GOALS

¶5. (C/REL NATO) Rule of Law: General rule of law weaknesses hamper Macedonia,s ability to demonstrate progress in meeting the political criteria of the NATO MAP process. The Ministry of Interior,s Professional Standards Unit (PSU) has investigated a number of allegations of police abuse, and has sanctioned such abuse when it occurred. However, the PSU,s record is inconsistent, and systems to ensure transparency in the MOI are inadequate. Similarly, Macedonia,s fall from Tier 1 to Tier 2 in the State Department,s annual Trafficking in Persons (TIP) report for 2005 reflected lack of political commitment to combat aggressively lucrative organized crime activities, which was also reflected in the GOM,s continuing lack of a National Action Plan for combating TIP. The ability of defendants in civil lawsuits to file interminable, frivolous appeals prevents the Macedonian courts from enforcing valid judgments -- for example, ordering the owner of Macedonian TV station &A-18 to repay debts owed to the U.S.-based non-profit Media Loan Development Fund. By mid-2007, the MOI,s PSU should have fully investigated and pressed charges, as applicable, in the majority of alleged police abuse cases alleged to have occurred in 2006; Macedonian authorities should ensure the anti-TIP National Action Plan has been approved and implemented, and Macedonia should demonstrate progress in moving toward a Tier 1 rating in the annual TIP report for ¶2006. ¶6. (SBU/REL NATO) Minority Rights: The final legislative requirement of the 2001 Ohrid Framework Agreement (FWA) was met in 2005, but implementation of FWA-mandated measures to improve minority rights has been uneven. The government needs to continue steady efforts to implement equitable representation of minorities in public administration. At the same time, the government (across ethnic lines) should guard against fulfilling quotas at the expense of individual SKOPJE 00000105 003 OF 007

capacity to perform a job. The GOM also should continue to implement decentralization that empowers minorities at the local level, and in a manner that presents Macedonia as a

regional model for consolidating stability through strengthening inter-ethnic cooperation. ¶7. (C/REL NATO) Neighborly Relations: Macedonia collaborates actively with its neighbors and other countries in the region, and should strive to export its experience as a positive example of best practices in that regard. It is working on resolving several outstanding bilateral issues, including the name dispute with Greece (through talks under UN auspices), and the question of demarcating its border with Kosovo. The dispute between the Serbian Orthodox Church (SOC) and the Macedonian Orthodox Church (MOC) over which should enjoy primacy among orthodox Christian believers in Macedonia remains a challenge for the government, which is working on a draft law on religious communities that would make it possible for the SOC to officially register as a religious group in Macedonia. The imprisonment last year of a SOC Bishop (&Bishop Jovan8) on grounds of inciting religious hatred for publishing a calendar was roundly criticized by the international community and many human rights NGOs. The government should work to ensure passage of the draft Law on Religious Communities that would help ease tensions between the MOC and the SOC by allowing an SOC-affiliated group to receive legal protection as a recognized religious group in Macedonia. The government also should continue to work on resolving the name dispute with Greece through the talks being held under UN auspices. ¶8. (SBU/REL NATO) Border Issues: The only remaining contentious border issue is, as mentioned above, the unresolved demarcation of Macedonia,s boundary with Kosovo, which was delineated in a 2001 agreement between Belgrad e and Skopje. Pristina does not recognize the 2001 agreement, and is unwilling to consider demarcating the border with Macedonia until after final status is resolved. ¶9. (C/REL NATO) POW and Holocaust Issues: There are no unresolved POW issues. The government receives high marks from the Israeli government and in the State Department,s International Religious Freedom report for handling Jewish community restitution issues. Ground-breaking for a Holocaust memorial site in downtown Skopje took plac e in

2005, and Jewish community representatives generally express satisfaction with the government,s actions to resolve outstanding property claims. KEY ECONOMIC CRITERIA: ¶10. (SBU/REL NATO) Business Climate: The government has made significant economic reform progress in a number of areas, including recent implementation of a &one-stop shop window8 that has significantly reduced the time required for registering a new business. However, more needs to be done to create an economic climate that will attract increased investment (FDI was slightly lower in 2005 than in the previous year) and bring official unemployment figures down from their current high of 37 percent (taking the grey economy into account, the actual rate is closer to 25 percent). ¶11. (SBU/REL NATO) Macro-Economic Achievements: The government,s most significant economic achievement has been the maintenance of fiscal discipline, combined with consistent macroeconomic stability. The economy has grown at a consistent rate of 2 to 4 percent from 2002 to 2005. The government budget deficit is low (-0.6% in 2005), inflation minimal (0.5% in 2005), the currency is stable, and the level of debt-to-GDP (40%) is manageable. In 2005, the Government signed agreements for three-year programs with both the International Monetary Fund (IMF) and World Bank. Both Standard & Poor,s and Fitch Rating Service rated Macedonia at or near investment grade for sovereign debt. In December 2005, Macedonia successfully sold 150 million euros worth of euro bonds and used the proceeds to purchase its London Club debt in order to lower its debt servicing costs.

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¶12. (SBU/REL NATO) Foreign Investment & Economic Freedom: Despite significant progress, business investment, both domestic and foreign, is low; the current account deficit is relatively high; and GDP growth rate is not strong enough to

significantly lower unemployment or the poverty rate. Macedonia ranks 57th in the Heritage Foundation,s 2005 Index of Economic Freedom, behind A-3 partners Albania (52nd) and Croatia (55th). If the government fails to take the following steps, among others, to enhance the business climate, FDI levels and economic growth will remain anemic: --Key Message: Business environment ) the government should meet the milestones for World Bank-financed project on real estate and cadastre registration, and implement judicial reforms regarding contract enforcement. --Key Message: Privatization ) the GOM should privatize the energy distribution (ESM) and generation (ELEM) companies in a transparent manner and should fully account for the use of funds derived from that action. It also should sell its remaining shares in the privatized Macedonian Telecommunication company. KEY DEFENSE CRITERIA: ¶13. (C/REL NATO) Overall Progress. Macedonia continues to progress well on defense reforms. In 2005, Macedonia met its goal of restructuring 60% of the Army of the Republic of Macedonia's (ARM's) units in accordance with their Strategic Defense Review (SDR). By the end of 2006, the GOM expects 90% of the ARM,s units will have been restructured. ¶14. (C/REL NATO) Additional defense reform milestones completed under a dynamic and proactive CHOD include: reorganization of the General Staff and 1st Mechanized Infantry Brigade; transfer of the Air Force to the ARM's Air Wing; and establishment of the Joint Operations Command as the ARM's Maneuver Force Headquarters. The ARM also took the first steps in 2005 toward assuming full host nation support responsibilities by assigning officers and Non-Commissioned Officers (NCOs) to NATO Headquarters-Skopje. The MOD will establish a Host Nation Coordination Center by mid-2006. ¶15. (C/REL NATO) Personnel Reductions: The Ministry of Defense (MOD) and ARM have been less successful in carrying out the personnel reductions called for in the SDR. To date,

they have made the easy cuts, mostly personnel transfers. For example, the MOD gave up the border security mission to the new Border Police. It also divested itself of the people and offices that are now independent governmental agencies, such as the Rescue and Protection Directorate and the Crisis Management Center. The MOD must cut approximately 1,200 military and civilian personnel to complete its personnel reductions plan. The new draft Law on Defense will open up the possibility of retiring excess officers with 25 years of service, but that measure does not apply to the civilians at the Ministry. ¶16. (C/REL NATO) Equitable Representation: Equitable representation of minorities in the armed forces continues to increase. Ethnic Albanians, for example, now constitute nearly 12 percent of the total force; the percentage is higher among the NCOs (15 percent) and soldiers (16 percent). However, there is clear evidence that the coalition ethnic Albanian governing party (DUI) is pressuring the military to accelerate the pace of integration, especially within the officer and NCO ranks, even if that means lowering standards for promotions and professional development courses. Key Message: The government, including its ethnic Albanian coalition partners, should be reminded that equitable representation, which we support, nevertheless must not be implemented by placing unqualified personnel in positions of responsibility. ¶17. (C/REL NATO) Defense Spending. Macedonia continues to devote between 2.2-2.4 percent of its GDP to defense spending. This year the defense budget is 6.201 billion Macedonian denars (approximately 124 million USD), about 2.25 percent of GDP. Although that figure is two million dollars SKOPJE 00000105 005 OF 007

less than in 2005, it represents a net increase, since spending on functions such as border security and crisis management are no longer part of the MOD 's budget. Defense spending is expected to remain consistent in the near to mid-term; this predictability is assisting the MOD in

managing its defense modernization programs for at least the next five years. ¶18. (C/REL NATO) Modernization. Macedonia has offered NATO eleven (11) units under the NATO Operational Capabilities Concept, ranging from an infantry company to a special forces company, helicopter detachment, engineer platoon, and demining squad. Some of these units are ready now; others will not be fully operational until the end of 2007. The ARM is rightly focusing its resources, both domestic and international, on getting these units fully operational, both in terms of equipment and training. The U.S. will provide $5 million in Foreign Military Funding in FY06, most of which is also being targeted for these "declared" units. One million U.S. dollars in Global Peace Operations Initiative funds have also become available, which the ARM would like to spend on readying their military police battalion for deployment. Macedonia also is an active participant in the Partnership for Peace (PfP), participating in over 15 different exercises in 2005, including hosting NATO's "Cooperative Associate" Exercise in Skopje last November. ¶19. (C/REL NATO) Global War on Terrorism (GWOT). Macedonia continues to be a net contributor to security, its armed forces earning high marks for their performance in GWOT operations. Macedonia,s troop contributions to the GWOT demonstrate that it can be a meaningful contributor as a future NATO member country as well. In December 2005, Macedonia increased its participation in Iraq by deploying five more staff officers above its normal 35-man rotation. In Afghanistan, it is deploying eleven officers/NCOs with the Headquarters of the Southeastern Europe Brigade (SEEBRIG), rotating its four medical personnel with the Adriatic Charter's Joint Medical Team, and increasing from 19 to 21 the personnel it has attached to the German Battle Group in Kabul. By the end of February, Macedonia will have increased its contribution to NATO Operations in Afghanistan from 23 personnel to 36. Including the personnel assigned to Iraq and U.S. Central Command Headquarters, it will soon have a total of 78 personnel deployed overseas. That figure represents a considerable commitment for Macedonia. While we expect the GOM to remain committed to participating in

international military operations, the ARM will continue in the future to have to rely on other countries for strategic transport and logistical support in-theater. ¶20. (C/REL NATO) Interoperability with NATO. The combined effect of six ARM rotations in Iraq, eight ARM rotations in Afghanistan, PfP exercises, and U.S. FMF/IMET support has directly improved the ARM's capabilities and interoperability with NATO. Not every unit of the ARM has benefited from this exposure, however. Many conscript units focus mainly on fulfilling garrison duties. Nevertheless, the performance of Macedonian units in Iraq and Afghanistan has been exemplary, and should be taken as a demonstration of the ARM's potential as a future NATO member. ¶21. (C/REL NATO) Crisis Management Center: To get the MOD out of direct involvement in managing crisis management operations, the government created the civilian-run Crisis Management Center (CMC) in 2005. The CMC received an independent budget in January 2006, but squabbles between the ethnic Albanian CMC Director and the government over equitable representation in staffing the center have prevented it from becoming fully operational. In a region plagued by frequent floods and occasional earthquakes, the country,s lack of effective crisis management capacity is unacceptable. Key Message: The CMC should be adequately staffed, fully operational, and capable of responding to disasters by mid-2007. Although equitable representation should be considered in deciding on personnel, the Center should be staffed by qualified personnel. LEGAL ISSUES: SKOPJE 00000105 006 OF 007

¶22. (SBU/REL NATO) There are no significant constitutional or legal barriers that would prevent Macedonia,s accession to NATO or its participation in NATO operations. The Macedonian constitution provides that the Parliament can approve proposals to join international organizations by a majority

vote. Participation in peacekeeping operations outside the country requires the approval of a majority in Parliament, and the government can decide to participate in exercises or humanitarian operations without Parliament,s approval. Upon ratification of an accession agreement, the Law on Defense would have to be amended to harmonize Macedonian law with NATO,s collective defense provisions, according to Macedonia,s ANP. SECURITY/INTELLIGENCE ISSUES: ¶23. (C/REL NATO) The Law on Classified Information was passed in March 2005, expanding the responsibilities of the Directorate for Security of Classified Information to include all classified information exchanged between the Republic of Macedonia and foreign countries or international organizations. According to the government, the provisions of the Law on Classified Information are consistent with NATO Security Policy requirements. In addition, the government is drafting guidelines for Security Officers charged by various state institutions to ensure the bylaws of the Law on Classified Information are implemented within those institutions. In practice, however, political control over Macedonian intelligence and security agencies results in occasional leaks of sensitive information to political parties. ¶24. (C/REL NATO) Macedonia,s three intelligence services (Macedonian Intelligence Agency, subordinate to the President; military intelligence; and the MOI,s counter-intelligence agency) do not cooperate closely and are hampered by outmoded missions. PUBLIC SUPPORT: ¶25. (SBU/REL NATO) Public support for NATO membership is strong ) 90 percent in a poll conducted in January (among ethnic Albanians, that figure reaches 96 percent.) No government or opposition Member of Parliament has voted against a deployment of Macedonian troops overseas to support alliance operations in Iraq or Afghanistan. Prudent expectations management -- on the part of the government,

USG, and NATO -- will help ensure strong public support through the Riga Summit and well into 2007. WATCH OUT FORS: ¶26. (C) The case of Khalid el-Masri, a German citizen of Lebanese descent who claims he was flow by the CIA from Macedonia to Afghanistan for interrogation, has generated intense press commentary here, most of it negative, over the past several months. Opposition parties and opinion-shapers accuse the government of jeopardizing Macedonia,s EU accession chances by refusing to comprehensively answer Council of Europe and European Parliament requests for a full accounting in the case. Relevant government authorities have responded carefully to COE and EU requests for information, consistently explaining that they have little information to provide on el-Masri and his allegations. There has been some mention in the press of alleged secret CIA prisons on Macedonian soil, but those stories have not had the same staying power as the el-Masri case. ¶27. (C/NOFORN) Macedonia signed an Article 98 agreement with us in 2003, and the government has expressed concern that it eventually will come under strong EU pressure to abrogate that agreement as it works on bring its legislation into compliance with the EU acquis communautaire. The matter is treated as a mid-to-long term issue in Macedonia,s EU membership action plan, but could come up in the course of future discussions. ¶28. (C/REL NATO) The government will press for a positive SKOPJE 00000105 007 OF 007

statement at the Riga Summit, possibly singling out Macedonia as a leading NATO membership candidate due to its defense and political reform achievements, and assuring aspirants that enlargement will be on the agenda in 2008. MILOVANOVIC

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