REFUGEE RETURN ISSUES AND OPIC ROAD FINANCE; THE

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 NNNN