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Cablegate: Bulgaria: Reform-Minded Prime Minister Determined

VZCZCXRO8865
PP RUEHDBU RUEHFL RUEHKW RUEHLA RUEHROV RUEHSR
DE RUEHSF #1521/01 3071330
ZNY CCCCC ZZH
P 031330Z NOV 06
FM AMEMBASSY SOFIA
TO RUEHC/SECSTATE WASHDC PRIORITY 2777
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE PRIORITY
RHEHNSC/NSC WASHINGTON DC PRIORITY
RUEKJCS/SECDEF WASHINGTON DC PRIORITY
RUEKJCS/JOINT STAFF WASHINGTON DC PRIORITY
RHMFISS/CDR USEUCOM VAIHINGEN GE PRIORITY

C O N F I D E N T I A L SECTION 01 OF 02 SOFIA 001521

SIPDIS

SIPDIS

E.O. 12958: DECL: 11/01/2016
TAGS: PREL PGOV BU
SUBJECT: BULGARIA: REFORM-MINDED PRIME MINISTER DETERMINED
TO KEEP UP THE PACE

Classified By: Ambassador John Beyrle. For reasons 1.4 (b) and (d)

1. (C) SUMMARY: A feisty and confident Prime Minister
Stanishev told the Ambassador Nov. 2 that his government
would not let up on reforms. He looks to speed up structural
changes, improve government ministries' efficiency and
effectiveness, and keep up public support for reform. The
Prime Minster stressed the importance of budget and fiscal
discipline. He reaffirmed his commitment to strong
transatlantic relations, to Bulgaria's participation in NATO
and other overseas missions, and a capable military; but he
also held firm to a tight defense budget, lower than the
Defense Ministry wants and below the current 2.6 percent of
GDP. He agreed that more energy and results are needed on
rule of law issues, and said that when U.S. investors
encounter specific obstacles related to crime or corruption
he wants to hear about them personally. END SUMMARY

2. (C) Confident, forward-looking and well prepared as
always, PM Stanishev paused only a moment to accept the
Ambassador's congratulations on forthcoming EU membership
before detailing at impressive length the plans of his
government to stay energized in carrying out EU-mandated and
Bulgaria-essential reforms and structural overhauls.
Stanishev said it is important for Bulgaria not to relax but
instead to pick up the pace of reform. This is not merely a
question of stricter EU monitoring of Bulgaria (and Romania)
in advance of the March EU report, but Bulgaria's political,
economic and social evolution and competitiveness. Of
course, some time would be spared to celebrate: the
government plans a January 1 light-show at Nevsky Cathedral
Square, including the nearby mosque, synagogue and Catholic
cathedral to spotlight the unity and diversity of Bulgaria as
it enters the EU.

3. (C) With new challenges ahead, the Prime Minister is
intently focused on a new institutional framework and agenda.
He described the difficult budget environment, where the
government would lose revenues from VAT and customs, and
(initially) from the reduced corporate tax rate (10 percent,
the lowest in Europe) while also having to make a substantial
contribution to the EU. He centered on the importance of
Bulgaria's absorptive capacity for EU funds -- to demonstrate
both to the public and the Commission/EU member states that
Bulgaria would be a good steward. The Prime Minister spoke
with great passion about improving efficiency and oversight,
overcoming structural problems (e.g., in education and
healthcare) and improving local governance and the judiciary.
His dual focus is on administrative capacity and
constitutional amendments that would promote faster reform of
the judicial system. He aims for political stability and
predictability; and plans to move methodically on the
economy, budget, and reform to avoid the kind of economic and
political spasms that, e.g., Hungary experienced.

4. (C) Stanishev and Beyrle agreed on the strength and
vitality of bilateral relations and the security partnership.
Stanishev reaffirmed the government's commitments to its
international obligations, especially in Afghanistan and
Iraq. The Ambassador acknowledged that fiscal and budget
discipline were essential, but vigorously pushed for robust
defense spending to keep up the momentum of transformation
already underway. Stanishev said that Defense would get more
money than had been allocated in the initial budget round,
but gave no ground on keeping Defense at 2.6 percent of GDP,
citing fiscal discipline and competing budget and coalition
challenges. Defense would receive more funds, but would end
up somewhere around 2.4 percent, probably a bit less. He
favored equipping and training troops, but had a cutting
comment about procurement priorities, specifically
Eurocopter. Stanishev welcomed the new poll numbers showing
an upward trend in public approval for a U.S. military
presence, and vowed to keep speaking out on behalf of the
joint bases.

5. (C) The Ambassador detailed the surge in U.S. investment
in 2006, saying he hoped to attract even more in 2007, in
part through an "investment roadshow" to selected U.S. cities
together with the Bulgarian Ambassador to the U.S. He
cautioned, though, that corruption and organized crime
undercut his ability to be an effective advocate, and
detailed several specific cases of concern to U.S. investors.
Complaints over "the price of doing business" with the
Agriculture and Environment Ministries (run by the
corruption-heavy MRF coalition partner) were increasing,
Beyrle said, prompting a knowing grimace from Stanishev. And
the influence of Russian-connected mafia syndicates like TIM
was dissuading would-be investors. Stanishev said fixing

SOFIA 00001521 002 OF 002


these problems would not be accomplished overnight, but he
was determined to make progress. He asked the Embassy to
bring to his personal attention any cases in which U.S.
investors encountered obstacles related to crime or
corruption.

6. (C) The Ambassador urged the Prime Minster to follow
through on Jewish restitution now that the Commission has
issued its report. The Health and Defense Ministries are
footdragging; we look to the government to do the right
thing.

7. (C) COMMENT: The 40-year old Stanishev represents
everything that is going right in official Bulgaria. He
knows his policy brief exceptionally well, is
forward-thinking and did a remarkably good job in navigating
EU entry. To date, the need to preserve the coalition
undercuts his ability to do much about corruption in
government, but as he gains confidence and stature, he will
have additional strength to take on unruly coalition
partners. It is our intent to support him in what will be a
long fight against corruption.
BEYRLE

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