US embassy cable - 05BUCHAREST742

C O N F I D E N T I A L SECTION 01 OF 05 BUCHAREST 000742 
 
SIPDIS 
 
STATE DEPT FOR D 
STATE ALSO FOR EUR/NCE - WILLIAM SILKWORTH AND FOR INR/B 
 
E.O. 12958: DECL: 03/24/2015 
TAGS: PGOV, PREL, KDEM, SOCI, ECON, PHUM, EINV, EFIN, RO, ETRO, biographic information, political assessment 
SUBJECT: SCENESETTER FOR DEPUTY SECRETARY OF STATE 
ZOELLICK'S MARCH 30 VISIT TO BUCHAREST 
 
REF: A. A) BUCHAREST 476 
     B. B) BUCHAREST 429 
 
Classified By: CHARGE D'AFFAIRES THOMAS DELARE FOR REASONS 1.4 A, B AND 
 D 
 
1.  (C) Introduction and Summary: Embassy Bucharest warmly 
welcomes your March 30 visit as a tangible demonstration of 
the deepening U.S./Romanian partnership.  Your visit will 
provide an opportunity to underscore the points raised during 
the successful March 8-10 visit by newly elected President 
Traian Basescu to Washington.  During the first few months of 
their mandates, President Basescu and Prime Minister Calin 
Popescu Tariceanu pledged to vigorously battle corruption, 
supported implementation of free market economic reforms and 
promised to steer Romania to EU accession in 2007.  We note, 
however, that the charismatic and staunchly pro-U.S. Basescu 
has more energetically  asserted the primacy of the 
U.S.-Romanian strategic alliance than Tariceanu and FM Mihai 
Razvan Ungureanu, whose pro-American views are tempered by a 
generally Euro-centric philosophy.  Nonetheless, both the PM 
and FM share Basescu's view that Romania should remain a 
stalwart supporter in the GWOT and seek to deepen its 
integration into transatlantic values and institutions.  Your 
visit will permit you to discuss Romanian progress on key 
issues raised during President Basescu's visit earlier this 
month, including plans to lift Romania's ban on international 
adoptions.  End Introduction and Summary. 
 
Romania's "Orange Revolution" 
----------------------------- 
2.  (C) Basescu's upset presidential victory against former 
Prime Minister Adrian Nastase on December 12 surprised even 
his closest political advisors and ushered in a new era of 
center-right government following four years of political 
dominance by the center-left Social Democratic Party (PSD), 
whose senior leaders were viewed by many Romanians as 
arrogant and corrupt.  Upon the initial release of results on 
election night, youthful Basescu supporters clad in orange 
flooded the streets of central Bucharest in a scene 
reminiscent of events in neighboring Ukraine the week before. 
 In subsequent weeks, Basescu appointed center-right 
co-leader Calin Popescu-Tariceanu as prime minister, and 
rebuffed attempts by the PSD to maintain a hold on the 
government and parliament.  Basescu and Tariceanu asserted 
that they were committed to leadership untainted by 
corruption or communist pasts. 
 
3. (C) The new cabinet they formed is the youngest in 
Romania's post-communist history, with an average age in the 
late 30's, including FM Ungureanu, who was a Foreign Ministry 
State Secretary from 1998 to 2000.  The cabinet also includes 
many members with solid experience in the private sector and 
NGO community.  However, the new government is faced with a 
significant minority opposition in parliament and, with such 
a new team, is still working to get its "sea legs" in 
handling tough domestic and international issues.  We have 
seen occasional signs of tension between the robustly 
pro-American Basescu and the more Euro-centric Tariceanu (a 
francophone who made his fortune as owner of a Citroen 
distributorship) and Ungureanu in the first several months of 
the new government.  On one occasion, for example, the FM 
publicly qualified the President's endorsement of 
"preemptive" anti-terrorist actions by the GOR as "mere 
intellectual exercises."  A senior Basescu adviser recently 
lamented to Embassy that the PM's office and key ministries 
appear (at least to the Presidency) as sometimes disorganized 
and lacking focus. 
 
Seeking Strong Transatlantic Ties 
--------------------------------- 
4. (C) During his presidential campaign, Basescu repeatedly 
made reference to what he called a 
"Bucharest-London-Washington" axis. He clearly intended to 
emphasize that his government would seek to strengthen 
Romania's "strategic partnership" with the U.S. and Britain. 
We understand such assertions have raised eyebrows in 
Brussels, Paris, and Berlin. Nonetheless, Basescu has refused 
to back off his robustly pro-American stance.  When pressed 
by the media as to what such a special relationship would 
entail, Basescu has pointed to the importance of a U.S. role 
in the Black Sea region and Romania's solid commitment to the 
NATO alliance. Post has sensed a somewhat less enthusiastic 
response on this policy from PM Tariceanu and FM Ungureanu, 
who are keenly focused on securing Romania's proposed 2007 EU 
accession. 
 
5. (C) Nonetheless, the PM and FM share Basescu's desire for 
a strong strategic relationship with the U.S., including 
enhanced cooperation in the Black Sea area.  Since Basescu's 
visit to Washington, senior MFA interlocutors have 
underscored to Charge and other Embassy officers the GOR view 
that the Black Sea region is central to Romania's security, 
urging the USG to weigh in with other littoral states, 
especially Turkey, in support of Romania's proposed 
establishment of a Romanian-Bulgarian-Turkish "Black Sea Task 
Force" linked to NATO structures. This proposal, however, 
exists only on paper and the GOR tells us that Turkey opposes 
it, preferring an expanded role for BLACKSEAFOR and 
Turkish-led Operation Harmony. 
 
6. (C) Basescu and his team are clearly enthused about the 
"Orange Revolution" that swept into power in Ukraine and here 
and would like to use the momentum to help jar loose the long 
frozen conflict between Moldova and Transnistria.  With the 
strong support of FM Ungureanu and lower-level advisors in 
the MFA, Basescu has vocally advocated increasing Romania's 
role in the settlement process and improving previously tepid 
relations with neighboring Moldova.  At a minimum, this 
stance reflects a desire to be included in the current 
multilateral framework under OSCE aegis (See also Ref A). 
However, Basescu is clearly not inclined to a passive role. 
He surprised his own Foreign Ministry with a trip to Chisinau 
within days of assuming the Presidency.  Just back from 
consultations in Berlin, Basescu told the Charge that 
Schroeder backed away from offering suggestions regarding 
Moldova-Transnistria.  To that, Basescu said that he replied 
that he "and the Americans would solve it and the Germans 
wouldn't like it." 
 
7. (C) Basescu and Tariceanu have also reaffirmed strong 
support for a potential U.S. basing presence in Romania. 
They view such proposed basing as confirmation of the trust 
the U.S. has in Romania as an ally.  Romania's support for 
basing, as well as its emphasis on Black Sea regional 
security, reflect an underlying and longstanding concern 
about Russian military and economic domination of the region. 
 
 
A Steadfast GWOT Ally: Romania in Iraq and Afghanistan; 
Emerging Strategy of Terrorist Preemption 
--------------------------------------------- ---------- 
8. (C) Romania has been a continuous supporter of U.S.-led 
operations in Afghanistan and Iraq, and Basescu repeatedly 
has vowed to ensure a Romanian troop presence in those 
countries "as long as necessary."  Romania maintains more 
than 750 troops in Iraq, as well as recently deploying an 
additional infantry company of about 100 personnel for UN 
force protection.  In Afghanistan, more than 400 Romanian 
soldiers serve alongside U.S. forces.  Romania has made its 
military facilities and airspace fully available to U.S. 
forces.  PM Tariceanu and FM Ungureanu will likely echo 
Basescu's open ended pledge to maintain Romanian troops in 
both Iraq and Afghanistan as long as they are needed.  It is 
noteworthy that the latest iteration of that commitment was 
made after the recent decisions of Poland and Ukraine to draw 
down their troop levels in Iraq. 
 
9. (C) In general, the commitment to the GWOT, Afghanistan, 
and Iraq receives broad bipartisan support in Romania, with 
few calls from the media or opinion leaders for a departure 
from this policy.  The  government has actively expressed 
support for the GWOT in international fora such as the UN and 
endorses President Bush's Proliferation Security Initiative 
(PSI), and is currently discussing with us possible ways to 
support the PSI in the Black Sea region.  In the UN 
Commission for Human Rights, Romania supported resolutions on 
Cuba and Belarus.  Romania currently holds a rotating UN 
Security Council Seat and views its membership on the UNSC as 
one way of bolstering its regional and international stature. 
 Finally, we expect to see issuance of an MOD White Paper 
within days that will highlight terrorist preemption as one 
of a half a dozen key strategies.  While this is consonant 
with U.S. thinking, it has also been attacked by foreign 
policy pundits on the left including ex-Foreign Minister 
Geoana, for its ostensible hubris and overreach. 
 
Rosy Macroeconomic Picture... 
------------------------------ 
10. (C) In its slightly more than two months in office, the 
new government has implemented bold measures championed by PM 
Tariceanu, such as introducing a 16 percent flat tax on 
incomes and corporate profits and declaring the fight against 
high-level corruption as a national security priority.  On 
the latter issue, there has been movement on several 
large-scale corruption cases, including a scandal involving 
the erasure of massive tax arrears owed by a politically 
connected oil refining company.  In the battle against 
corruption, independent observers have noted an energy and 
intensity lacking under the previous government. 
 
11.  (SBU) Romania has significantly improved its 
macroeconomic situation in the past few years, cutting 
inflation to below 10 percent in 2004 for the first time 
since the 1989 Revolution.  For the past several years, 
Romania posted GDP growth close to 5 percent, peaking at 8.3 
percent last year owing to an extremely favorable harvest, 
surging exports and robust construction. 
 
12. (SBU) Overall, foreign direct investment (FDI) is 
growing, but is still relatively low for Eastern and Central 
Europe. The total net stock of FDI between 1990 and 2004 
amounted to almost $13.6 billion.  Leading country investors 
are the Netherlands, Austria, France, Germany, U.S. (6.5 
percent), and Italy.  In 2004, U.S. investment rose 26.1 
percent to $888.4 million.  Despite good macro-economic news, 
many potential American investors still perceive Romania as a 
high-risk country for doing business due to corruption and a 
weak judicial system.  However, investors are tending more 
bullish and the recent rise in Moody's rating for foreign 
currency denominated bonds (Ba1) has been cited by many as a 
positive sign. 
 
13. (SBU) Additionally, Romanian 2004 exports posted record 
levels * up 33.8 percent in USD from 2003.  However, 
Romanian exporters fear that 2005 may slow export growth, 
reflecting appreciation of the ROL toward the Euro and the 
USD.  Although agricultural exports mark a major bright spot 
in U.S. trade with Romania, reaching $197 million in 2004, 
this growing U.S. agricultural trade balance is threatened by 
Romania,s expected EU accession in 2007.  In particular, the 
EU is expected to pressure Romania to end its interest in 
biotechnology production (corn and soybeans) and unrestricted 
beef imports. 
 
...But Sticking Points Remain with IMF 
-------------------------------------- 
14.  (SBU) The Government of Romania is attempting to secure 
IMF agreement to a combined second and third review of its 
current standby arrangement. Romanian officials want to 
conclude this review in part to satisfy EU demands that IMF 
attention continue to encourage sound Romanian macro economic 
policies. However, the IMF and the Romanian government differ 
over macro-economic targets--the IMF wants a deficit target 
of 0.4 percent of GDP for the 2005 budget, while Romania 
insists on a 0.7 percent, arguing that the higher ceiling 
will allow Romania to invest in urgent infrastructure 
improvements.  The GOR also rejects the IMF,s current 
recommendations to increase the flat tax and the VAT, 
pointing to rising tax revenues in the first two months of 
2004 as evidence that any revenue fall off will not be 
substantiated.  Discussions with the IMF are ongoing and 
Basescu told us he secured a 3-month breathing space from the 
IMF to make Romania's case.  Your interlocutors may stress 
that they view the IMF's treatment of the GOR as "rigid," 
especially given the current government's reform-oriented, 
pro-market focus. 
 
15.  (SBU) Tariffs remain one of the few contentious issues 
in our bilateral economic relationship.  Romanian tariffs on 
U.S. imports are a problem the U.S. Embassy has been 
discussing with the GOR for more than 2 years.  Romania 
lowered its tariffs to the EU Common External Tariff (CXT) 
for EU countries, but maintains higher levels for non-EU 
trading partners, including the U.S., with Romanian 
government officials claiming they are under intense pressure 
from the EU to maintain tariffs at current levels for non-EU 
partners until EU Accession. 
 
16.  (SBU) Romania recognizes its legal obligation to protect 
intellectual property rights (IPR) as a signatory to several 
international conventions and its domestic legislation 
provides only adequate theoretical protection.  Romanian 
anti-piracy efforts are uncoordinated and a low priority for 
police, border police, customs, financial guard, prosecutors 
and courts.  The U.S. Embassy has recommended that Romania 
remain on the Watch List for 2005. 
 
Forging Ahead on EU Accession 
----------------------------- 
17. (C) Basescu and his government are committed to securing 
Romania's 2007 EU accession, with PM Tariceanu and FM 
Ungureanu out in front on Romania's lobbying efforts in 
Brussels and EU capitals.  EU membership enjoys widespread 
political and popular support, though the average Romanian 
remains unclear about the specific implications of EU 
membership.  The Basescu government and press have begun to 
warn the public that accession strains will be significant, 
particularly as non-competitive firms close and many 
agricultural units unable to meet higher standards are forced 
to exit the market.  Most simply view EU accession, together 
with 2004 NATO membership, as solidifying Romania's Western 
orientation after decades of communist rule.  Basescu is 
slated to go to Luxembourg in late April to sign Romania's 
accession treaty, an historic step that will set in motion 
the final process for implementing EU-mandated reforms.  EU 
member officials tell us Romania's membership in 2007 is 
almost certain, and would only be impeded by a major 
interruption in democratic governance or backsliding in 
anti-corruption efforts or other reforms. 
 
Confronting the Communist Past 
------------------------------- 
18.  (C) In an attempt to redress some of the wrongs 
committed under communist rule, Basescu has vowed to open up 
additional files of the notorious former secret police for 
public inspection. He and the PM also promised to reform 
Romania's inefficient and often corrupt judiciary, putting 
several agency heads on notice that their work is being 
closely monitored for its effectiveness.  On another sore 
point, Basescu and his team have already taken steps to make 
good on his pledge to eliminate political pressure on the 
Romanian media, a significant problem under the previous 
government.  These actions have boosted the governing 
alliance's post-election popularity to new heights.   One 
area of potential conflict between Basescu and the PM stems 
from the president's public support for "snap elections," a 
move generally opposed within Tariceanu's center-right 
National Liberal Party (PNL) and other members of the 
center-right governing alliance. 
 
Continuing Points of Contention: Adoptions, Awards, Accidents 
and(Business)Acrimony 
--------------------------------------------- ------ 
19. (C) While overall relations with Romania are excellent, 
there are a number of contentious issues which have either 
eluded resolution or could benefit from further discussion. 
Each of these issues was raised during Basescu's March 8-10 
visit to Washington. 
 
20. (C) The first issue is Romania's failure thus far to 
resolve over 200 pending inter-country adoption cases for 
U.S. parents.  During his visit to Washington on March 8-10, 
Basescu met separately with President Bush and a group of 
American prospective adoptive parents.  In both meetings, he 
said that Romania's new law prohibiting inter-country 
adoptions is too restrictive, but explained that his 
government could not move forward on this issue before the EU 
and Romania sign the accession treaty on April 25.  Basescu 
told the parents' group that he felt an international review 
commission, an idea earlier mooted by the last government, 
the U.S. and several EU states, may not be necessary and 
might only delay the process.  It is thus unclear exactly how 
the Romanian government will decide to address the pending 
cases.  Your meetings will provide an opportunity to welcome 
President Basescu's commitments in Washington - and to urge 
Romania to move ahead with resolving pending adoption cases. 
 
21. (U) At his meeting with Basescu on March 9, President 
Bush responded positively to an on-the-spot request from 
Basescu to include Romania and Bulgaria in the Visa Waiver 
Program (VWP) road map.  The Romanian government understands 
that Romania does not yet meet the criteria for inclusion in 
the VWP, but that we are interested in helping them 
understand what is needed to get to that point. 
 
22. (C) Also contentious was the awarding in December by the 
previous Romanian president of Romania's highest honor, the 
Star of Romania, to the xenophobic and extremist politician 
Corneliu Vadim Tudor.  Nobel Prize laureate Elie Wiesel 
immediately resigned his membership in the Order of the Star 
and -- along with prominent U.S. and international Jewish 
leaders -- continues to call for Romania to revoke Tudor's 
award.  The U.S. Embassy similarly has pressed Basescu and 
advisors to take appropriate action.  Basescu's team tells us 
the government is on the verge of setting up a process to 
revoke the award, but a senior Basescu advisor recently told 
us that the revocation process involves sailing in uncharted 
waters and could take "some time."  Separately, we are 
encouraged by signs that both the presidency and Tariceanu 
government appear committed to transparent and fair 
resolution of property restitution claims stemming from the 
WWII era and communist period. 
 
23. (C) The new Romanian Government's apparent willingness to 
tackle business issues requiring considerable political 
capital and courage - notably including high-level 
corruption, radical tax reform and labor code reform - have 
drawn plaudits from U.S. businesses.  Nevertheless, 
compliments about the anti-corruption stance of the 
government should be linked with strong encouragement for 
appropriate prosecutions and effective implementation of 
numerous pieces of dormant anti-corruption legislation. 
 
24.  (C) On the negative side, the new government has been 
dilatory in meeting some contractual obligations with U.S. 
firms and in addressing flawed privatization contracts put in 
place by the last government that clearly disadvantage a 
number of U.S. purchasers.  In regard to the former, the 
largest project ever won by an American firm in this country 
has suffered from extensive contract reviews and payment 
delays. In this instance, Bechtel's 2.5 billion USD road 
project linking South-Central Romania to the Hungarian border 
has teetered on the brink of cancellation for months. 
Although about 90 million USD have been paid, Bechtel is 
still owed substantial sums for work completed.  Also 
problematic are complaints about flawed privatization 
conditions imposed by the last government that have prevented 
some U.S. purchasers from restructuring their new assets to 
become competitive.  Noteworthy here are difficulties 
experienced by the U.S. purchases of 4x4 automaker ARO.  On a 
more positive note, a border surveillance contract issued 
without tender to EADs and worth about 800 million USD is 
also being closely scrutinized.  President Basescu recently 
told the Charge that the contract was corrupt (as we 
suspected) and almost wholly redundant. 
 
25.  (C) Finally, the December 2004 accident involving the 
U.S. Embassy Marine Security Guard detachment commander that 
led to the death of Romanian rock star Teo Peter received 
wide press coverage and created public outcry.  Basescu and 
his government are under considerable political pressure to 
make sure justice is done in a Romanian Court.  Naturally, 
given that Marine Corps legal proceedings against the former 
detachment commander have not even begun, the question of 
extradition and lifting of the Marine's immunity cannot even 
be addressed at the present time.  Nevertheless, PM Tariceanu 
and FM Ungureanu may ask for the Marine's return, possibly 
repeating a promise made earlier to our Ambassador by Basescu 
that the former detachment commander would receive a fair 
trial and, regardless of outcome, would not serve a single 
day in prison in Romania. 
 
Comment and Conclusion 
----------------------- 
26.  (C) Your visit to Romania provides an opportunity to 
underscore that, despite some unresolved bilateral issues, 
Romania and the U.S. seek to maintain a close strategic 
relationship, as reflected by the GOR's unwavering, 
open-ended commitment of troops to Afghanistan and Iraq.  It 
also provides an opportunity to stress key points with the 
Romanians - including the importance of continuing pro-market 
economic reforms and taking concrete steps to win the battle 
against corruption.  End Comment and Conclusion. 
 
27.  (U) Amembassy Bucharest's Reporting telegrams, as well 
as daily press summaries, are available on the Bucharest 
SIPRNet website:  www.state.sgov.gov/p/eur/bucharest 
DELARE