US embassy cable - 03ZAGREB1680

C O N F I D E N T I A L ZAGREB 001680 
 
SIPDIS 
 
 
STATE PLEASE PASS OPIC 
 
E.O. 12958: DECL: 07/25/2013 
TAGS: PREL, BEXP, EFIN, ELTN, PGOV, PBTS, HR, Refugee 
SUBJECT: REFUGEE RETURN ISSUES AND OPIC ROAD FINANCE; THE 
AMBASSADOR CALLS ON RECONSTRUCTION MINISTER CACIC 
 
 
CLASSIFIED BY: AMBASSADOR RALPH FRANK FOR REASONS 1.5 (B), AND (D). 
 
    SUMMARY 
------- 
 
1. (C) ON JULY 21, THE AMBASSADOR PAID AN INTRODUCTORY CALL 
ON RADOMIR CACIC, CROATIA'S MINISTER FOR PUBLIC WORKS, 
RECONSTRUCTION AND BUILDING.  THE AMBASSADOR TOLD CACIC HE 
WAS PLEASED WITH RECENT GOC INITIATIVES AIMED AT SPEEDING UP 
THE PACE OF REFUGEE RETURNS.  HE ENCOURAGED CACIC AND HIS 
MINISTRY TO MOVE FORWARD ON OTHER KEY ELEMENTS INCLUDING 
REPOSSESSION AND RECONSTRUCTION.  REGARDING THE STATUS OF AN 
OPIC GUARANTEE FOR FINANCING OF A HIGHWAY CONSTRUCTION 
PROJECT, THE AMBASSADOR POINTED OUT THAT THE GUARANTEE WAS 
STILL UNDER REVIEW IN WASHINGTON.  CACIC REACTED STRONGLY TO 
THE POSSIBILITY THAT THE GUARANTEE MIGHT NOT BE APPROVED. 
END SUMMARY. 
 
PROGRESS ON RETURNS 
------------------- 
 
2. (C) IN HIS INTRODUCTORY CALL ON JULY 21, THE AMBASSADOR, 
ACCOMPANIED BY USAID DIRECTOR, TOLD MINISTER CACIC THAT 
REFUGEE RETURNS REMAIN AN IMPORTANT CONCERN IN THE REGION FOR 
THE USG.  THE AMBASSADOR EXPRESSED SATISFACTION THAT THE GOC 
HAD MADE GREAT STRIDES IN RECENT MONTHS IN APPROVING POLICIES 
RELATED TO REFUGEE RETURNS.  THE GOC'S MOST RECENT 
INITIATIVE, ANNOUNCED ON JUNE 12, AIMED AT PROVIDING A 
HOUSING SOLUTION TO THOSE WHO LOST TENANCY RIGHTS DURING THE 
WAR WAS ALSO WELCOME.  THE AMBASSADOR URGED THE GOC TO FOCUS 
ITS ATTENTION NOW ON IMPLEMENTATION OF THE NEW POLICY IN 
ORDER TO PRODUCE QUICK RESULTS.  AS THE EU AND NATO GAUGE 
CROATIA'S PROGRESS TOWARD MEMBERSHIP, THEY WILL BASE THEIR 
    JUDGMENTS ONLY ON RESULTS ON THE GROUND, NOT GOVERNMENT 
ANNOUNCEMENTS.  THE AMBASSADOR ALSO URGED THE GOC TO EXPEDITE 
THE PACE OF OTHER KEY MEASURES ALREADY UNDERWAY, ESPECIALLY 
THE REPOSSESSION AND RECONSTRUCTION OF PROPERTY. 
 
3. (C) CACIC THANKED THE AMBASSADOR FOR HIS ASSESSMENT, 
SAYING IT WAS "RIGHT ON THE MARK."  HE SAID THAT HIS MINISTRY 
IS FOCUSING ITS ATTENTION ON IMPLEMENTATION, WHICH HAS BEEN 
SLOWED SOMEWHAT BY THE LACK OF PERSONNEL AND OTHER RESOURCES. 
 FINANCES WERE NOT A PROBLEM.  CACIC TOLD THE AMBASSADOR THAT 
5,000 TO 7,000 HOUSES WILL BE BUILT OVER THE NEXT TWO YEARS. 
HE CAUTIONED, HOWEVER, THAT ONLY A SMALL PORTION (ABOUT 
5,000) OF THE ALMOST 20,000 APPLICANTS WILL QUALIFY FOR 
HOUSING ASSISTANCE.  MANY OF THE APPLICANTS DO NOT MEET THE 
CRITERIA AND WILL NOT RECEIVE A POSITIVE DECISION. 
REPOSSESSION OF PROPERTY IS PROCEEDING SMOOTHLY.  HE 
PREDICTED THAT ONLY ABOUT 1,500 CASES, OUT OF A TOTAL OF 
20,000, WILL NOT BE RESOLVED BY THE END OF THE YEAR.  THE 
OWNERS OF THOSE PROPERTIES WILL BE PAID RENT UNTIL THEY 
ASSUME CONTROL OF THEIR PROPERTY.  THE HOME IMPROVEMENT LOAN 
PROGRAM BACKED BY USAID CREDIT GUARANTEE WILL HAVE A BIG 
IMPACT ON HELPING RESOLVE THE HOUSING ISSUE, SAID CACIC. 
 
NO DECISION ON OPIC FINANCING 
----------------------------- 
 
4. (C) RESPONDING TO A JULY 17 QUERY TO THE EMBASSY ABOUT THE 
ISSUE OF AN OPIC GUARANTEE OF CROATIAN SOVEREIGN DEBT FOR A 
HIGHWAY CONSTRUCTION PROJECT, THE AMBASSADOR TOLD CACIC SAID 
THAT THE GUARANTEE PROPOSAL WAS STILL UNDER DISCUSSION IN 
WASHINGTON.  THIS WAS PART OF THE INTERAGENCY PROCESS, AND A 
    FINAL DECISION WAS AT LEAST SEVERAL WEEKS AWAY.  THE DELAY 
WAS NOT CROATIA-SPECIFIC.  SINCE APPROVAL WAS NOT GUARANTEED, 
ALL OPTIONS SHOULD STILL BE LEFT OPEN.  THE AMBASSADOR 
REITERATED THAT HE UNDERSTANDS THE IMPORTANCE OF THIS HIGHWAY 
PROJECT IN OUR BILATERAL RELATIONSHIP. 
 
5. (C) CACIC REACTED STRONGLY TO THE AMBASSADOR'S SUGGESTION. 
 HE SAID THAT BECHTEL HAD PLEDGED TO HELP RAISE FUNDING IN 
THE AMOUNT OF 250 MILLION USD FOR A PORTION OF THE PROJECT. 
THE GOC HAD ALREADY ASSUMED SIGNIFICANT COST OVERRUNS FOR THE 
PROJECT.  HE LATER WENT ON TO EXPLAIN HOW HE HAD TURNED DOWN 
FINANCING FROM THE JAPANESE GOVERNMENT, WHICH WANTED TO 
INVEST IN CROATIA.  A NEGATIVE DECISION ON THE OPIC GUARANTEE 
WOULD NOT GO OVER WELL WITH THE GOC AND COULD BE A "PUBLIC 
DISASTER" FOR THE U.S. IF SUCH A DECISION WERE TO REACH THE 
CROATIAN PRESS.  THERE IS A LOT AT STAKE FOR THE GOC ON THIS 
ISSUE, PARTICULARLY SINCE ELECTIONS ARE A FEW MONTHS AWAY. 
CACIC SAID HE WOULD TRY TO WORK WITH OTHER KEY MINISTRIES IN 
THE GOVERNMENT SHOULD PROBLEMS ARISE.  (COMMENT:  WE DO NOT 
SHARE CACIC'S VIEW.  WHILE THE GOC MAY BE UPSET IF IT HAS TO 
SETTLE FOR MORE EXPENSIVE FINANCING, WE DO NOT BELIEVE THAT 
ANY CRITICISM OF A POSSIBLE NEGATIVE DECISION ON AN OPIC 
GUARANTEE WOULD GAIN MUCH TRACTION IN THE PRESS.  END COMMENT. 
) 
FRANK 
 
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