US embassy cable - 04ZAGREB766

C O N F I D E N T I A L  ZAGREB 000766 
 
SIPDIS 
 
 
NOTE: PROCESSED AS IS PER EAO Ms. Higgins 
 
E.O. 12958: DECL: 04/26/2014 
TAGS: PREL, PGOV, HR, Political Parties/Elections 
SUBJECT: THE SANADER GOVERNMENT'S FIRST SEMESTER -- OFF TO 
A RUNNING START 
 
REF: A. ZAGREB 597 
     B. ZAGREB 627 
 
Classified By: Ambassador Ralph Frank for reasons 1.4 (b,d) 
 
Summary and Introduction 
------------------------ 
 
1.  (C) PM Ivo Sanader's furious, almost frantic, pace for 
his first 100 days in office has produced positive results. 
Most of his government's energy has been focused on foreign 
policy, where Sanader and his closest associates had to work 
quickly to convince the skeptics of the "new HDZ" who are 
making key decisions about Croatia's progress toward 
integration in the EU and NATO.  While ICTY fugitive Ante 
Gotovina remains a key obstacle, the clear highlight of 
Sanader's first "semester" is Croatia's dramatic turnaround 
in cooperation with The Hague war crimes tribunal.  This 
achievement, together with his ability to engage with 
Croatia's Serb minority, was enough to win a positive "avis" 
on April 21 from the EC on Croatia's pending application to 
be accepted as a candidate for membership. 
 
2.  (C) We share the opinion of most of Sanader's domestic 
critics that he has spent too little time on the economy.  We 
welcomed his decision to continue Croatia's relationship with 
the IMF, but in order to get an agreement with the Fund, 
Sanader may have to renege on some of the promises he made to 
key constituencies, especially to retirees and veterans. 
There have been bumps in the road for Sanader, but none have 
caused his government to lose momentum, a frequent, 
frustrating occurrence during the Racan government's tenure. 
 
3.  (C) Sanader's government has done well on issues relating 
to the USG's broad goals in the region, like addressing "war 
legacy" issues, progress toward NATO membership and 
developing better relations with neighbors.  But on strictly 
bilateral issues, Sanader's record has been mixed.  While we 
welcomed the government's move to ratify a long-overdue 
economic agreement, its weak position in parliament and 
pressure from the EU has forced it to back away from pledges 
to send Croatian troops to Iraq and to sign an Article 98 
agreement.  Nevertheless, we find the new GoC's can-do 
attitude and its readiness to engage with us on almost every 
issue a refreshing -- and surprising -- change. End Summary 
and Introduction. 
 
No Time to Lose ... 
------------------- 
 
4.  (C) Ivo Sanader's HDZ government took office in late 
December 2003 with a lot to prove and little time to prove 
it.  With Croatia's application for EU candidate status up 
for review just four months after coming to office, Sanader 
had to prove to skeptics -- both in EU Capitals and in 
Washington -- that his HDZ is not the corrupt, opaque party 
which gave former President Tudjman the domestic political 
tools to wage ethnic war and run Croatia's economy into the 
ground. 
 
5.  (C) Showing a great deal of political savvy and a measure 
of political courage as well, Sanader rejected an offer of 
coalition with Croatia's far-right party and worked out a 
deal with the ethnic Serb party in parliament.  The Serbs 
drove a hard bargain, insisting on concrete steps on minority 
issues and setting ambitious benchmarks for the government to 
meet on refugee property restitution.  So far, they are 
pleased with Sanader's public call for refugees to return to 
Croatia and his government's allocation of budget funds to 
repair Serb houses damaged during the war.  For Sanader, the 
grumbling from a few nationalist members of his party was 
more than offset by the instant credibility he got from 
skeptics on both sides of the Atlantic of his party's 
sincerity to resolve refugee issues. 
 
... But Little Time to Get Organized 
------------------------------------ 
 
6.  (C) Once in office, Sanader took little time to get his 
government organized before launching his full-court press 
for status as an EU candidate.  Four months after coming to 
power, some lines of responsibility are still not clear.  In 
the first two months of his tenure, Sanader was forced to 
withdraw a number of sub-ministerial appointments which were 
clearly not properly vetted, much to his embarrassment.  In a 
clear effort to avoid the "revanchist" label, the Sanader 
government left most mid-level bureaucrats in place.  But on 
almost every important issue, regardless of complexity, 
Sanader and a very small group of close advisers still 
exclude many of the government's professional civil servants 
from the policy-making process.  This has led to some 
stagnation on less-urgent matters and some uninformed 
decisions on others.  Particularly on economic issues, 
Croatia suffers from a lack of talented people willing to 
 
 
leave the private sector for government. 
 
Progress on ICTY Cooperation 
---------------------------- 
 
7.  (C) The area where the Sanader government has clearly 
made the most dramatic turnaround is in cooperation with the 
ICTY.  Despite its purported best intentions, the Racan 
government's track record on this issue was poor.  With his 
wobbly coalition indecisive at the best of times, Racan was 
fearful of reprisal from the right-wing, both in and out of 
his government.  Sanader has no such limitations and in a 
short time has established a clear track record.  His 
government has engineered the transfer of eight indictees to 
ICTY custody and has fulfilled all court document requests. 
 
8.  (C) The best measure of Croatia's cooperation with ICTY 
will be the transfer of fugitive indictee Ante Gotovina.  But 
the Sanader government has taken some real steps on this 
issue as well (ref a), and convinced the ICTY Chief 
Prosecutor to deliver a favorable report on GoC cooperation 
to the European Commission in advance of its decision on the 
"avis." 
 
"NATO or Bust" -- Real Movement on Defense Reform 
--------------------------------------------- ---- 
 
9.  (C) Sanader's drive for EU candidate status has not 
distracted his government from adding more horsepower to 
Croatia's NATO bid. Defense Minister Roncevic has announced 
steps to eliminate a large and costly "standing reserve" of 
sub-standard soldiers (all of whom are veterans of Croatia's 
war of independence).  He has also launched a new Strategic 
Defense Review (in consultation with NATO's International 
Staff) and has given instructions to the drafters of the 
Review that Croatia's force must be structured not to provide 
for territorial defense, but for making contributions to 
joint peace support operations.  Responding to proposals from 
the USG and others in the region, the MOD has gone further, 
and has proposed to transform its Navy and Air Force, 
retaining only a minimum fighter force for air policing and 
pooling assets with the Interior and Transport Ministries to 
form a coast guard capable of interdicting illicit 
trafficking of all sorts along Croatia's long and vulnerable 
coastline. 
 
10.  (C) While the Racan government made a good start on 
defense reforms, it could not afford to appear "soft on 
defense" to domestic critics on the right, and therefore 
lacked the political will to make these fundamental changes 
to Croatia's force structure.  Sanader's HDZ government does 
not have this political Achilles' heel, and reform is surging 
ahead. 
 
Moving Forward on Everything ... 
-------------------------------- 
 
11.  (C) Justice Minister Vesna Skare Ozbolt has injected 
energy and commitment to the tough task of judicial reform. 
She introduced changes to the penal code to criminalize 
trafficking in persons, institutionalized and depoliticized 
Croatia's cooperation with the ICTY and has begun to tackle 
the Herculean task of reforming Croatia's broken-down 
judiciary.  Skare Ozbolt has also engaged with us to develop 
Croatia's domestic capability to prosecute war crimes.  When 
Sanader consolidated three ministries into Bozidar Kalmeta's 
Ministry of the Sea, Tourism, Transport and Development, we 
feared that the energetic former mayor was being set up for a 
fall, but he appears up to the task.  Highway construction 
and other infrastructure projects are moving forward at a 
remarkable rate and the government is finally following 
through on commitments to build homes for returning 
dispossessed Serb refugees. 
 
... Except for the Economy 
-------------------------- 
 
12.  (C) By most measures, Croatia's economy had "turned the 
corner" during the Racan government's tenure.  Growth was 
strong, unemployment was beginning to drop, but there were 
lurking weaknesses which had been masked by 
stronger-than-expected performance of the tourism industry. 
Although the markets remain unfazed, Croatia's current 
account deficit and ballooning debt (both public and private) 
set off warning bells for many economic observers.  Although 
the previous government never needed to draw on Stand-by 
facilities agreed with the IMF, the GoC benefited from the 
IMF's role as an outside auditor and an external discipline 
on the economy.  Sanader's decision to renew Croatia's 
relationship with the Fund was useful, but the 
belt-tightening the IMF will likely request may mean that he 
will need to renege on some of his more populist campaign 
promises.  (See ref b for more detail.) 
 
 
Relations in the Region 
----------------------- 
 
13.  (C) There were a few observers who thought that the 
return of the HDZ to power in Croatia would slow the steady 
progress toward building good-neighborly relations in the 
region.  Sanader's activist foreign policy has put most of 
those fears to rest.  He has kept his distance from the HDZ 
in BiH, as requested by High Representative Ashdown, and 
expressed support for the BiH central government.  He has 
sought to address irritants in Croatia's bilateral 
relationship with Slovenia.  Croatia ratified the succession 
agreement on assets belonging to the former Yugoslavia and 
extended a visa-free regime for residents of Serbia and 
Montenegro. 
 
Good Bilateral Vibrations ... 
------------------------------ 
 
14.  (C) During his election campaign, Sanader pledged to 
improve relations with the U.S. to "balance" Croatia's 
foreign policy and make it less Euro-centric.  Atmospherics 
have certainly changed -- we have immediate access to the top 
levels of the GoC whenever we need it.  Beyond atmospherics, 
Sanader pushed a long-languishing bilateral agreement on 
Intellectual Property Rights through the parliament, despite 
pressure from Croatian pharmaceutical producers.  In addition 
to its military police contribution to ISAF, Croatia is 
preparing to make a civilian contribution to a Germany-led 
Provincial Reconstruction Team in Afghanistan.  At the UN 
Commission on Human Rights, Croatia co-sponsored a resolution 
on the Human Rights Situation in Cuba, the first time Croatia 
has ever co-sponsored a country resolution.  Croatia is an 
eager supporter of the Proliferation Security Initiative 
(PSI) and looks to engage more closely on cooperative 
security.  The GoC is also lobbying hard (maybe too hard) to 
improve its standing in Washington, particularly in Congress. 
 
... But "No" on Article 98 and Troops to Iraq 
--------------------------------------------- 
 
15.  (C) During the election campaign, Sanader made clear his 
party's policy to support an Article 98 agreement and to send 
a Croatian contingent of troops to support operations in 
Iraq.  But the post-election political reality is that he is 
unable to make this policy a reality.  Since his HDZ party 
does not even have a simple majority in parliament (let alone 
the two-thirds majority required to deploy troops abroad), 
Sanader chose not to propose an Iraq deployment to the 
parliament.  However, his government is trying to formulate a 
contribution which shows commitment to U.S. goals but does 
not require legislature approval.  The GoC decision not to 
sign an Article 98 Agreement was a clear response to EU 
pressure.  With Croatia's application for candidate status 
still pending and the EU pushing hard for Croatia not to 
sign, FM Zuzul announced that the GoC would not engage in 
negotiations on an Article 98 agreement. 
 
Outlook Good for Long-Term Regional Goals 
----------------------------------------- 
 
16.  (C) While we are disappointed that the new GoC was 
unable to meet commitments on some of our near-term goals, 
our long-term agenda has taken steps forward since the 
Sanader government took office.  First, we think it is 
realistic to hope that Croatia's marked improvement in 
cooperation with The Hague might bring other states in the 
region around.  (We understand Ambassador Bond cited 
Croatia's transfer of indictees to ICTY when urging BiH 
government officials to improve their record of cooperation 
with the Tribunal.  According to press reports, Serbia and 
Montenegro cabinet member said that the new "Croatian Model" 
of cooperation has put "even more pressure" on the GoSaM.) 
Second, and perhaps most importantly, with the EU's positive 
"avis," Croatia's neighbors to the south and east can take 
heart that reforms can pay off.  Third, since progress in 
integration requires good-neighborly relations, we can expect 
that the long process of EU and NATO scrutiny will keep 
Croatia's bilateral relations in the region on a positive, 
constructive track. 
FRANK 
 
 
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