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
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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