CROATIA'S PROGRESS ON REFORMS THREATENED BY

1. (C) New polls show that the reform-oriented parties which
formed the Racan government are trailing Croatia's right-wing
nationalist opposition in the race for November 23
parliamentary elections. Unless the current coalition turns
it around -- and pollsters tell us they could still manage
this -- Croatia could have a government led by the HDZ and
including even more extreme nationalist parties before the
end of the year. While the HDZ is no longer the party of
Franjo Tudjman and has been supportive of the U.S. position
on Iraq, the return of a nationalist government now would
mean less cooperation with ICTY, a slowdown in improving
relations with Serbia and Montenegro, more hesitance in
implementing refugee returns and would likely not deliver a
deployment to Iraq.



2. (C) While Croatia has matured as a state beyond the point
where it would be appropriate -- or helpful -- for the USG to
back one political option or the other openly, there are some
steps we could take to avoid adding to the largely
self-inflicted misfortunes facing Racan's coalition. We are
already sponsoring a vigorous get-out-the vote campaign
targeted at voters likely to support a reform agenda. In
addition, we should defer tough messages calling for stepping
up the pace of reform until after elections. We should also
seek opportunities to show Croatia's voters that we recognize
the achievements -- such as they are -- of the Racan
government. End Summary.

Racan Coalition Trailing in Polls


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3. (C) A USAID-sponsored IRI poll released in early October
shows that the coalition led by PM Racan's SDP is in real
trouble as it begins the sprint for November 23 parliamentary
elections. The Racan coalition brought the trouble on
itself; polls in late Summer showed progressive parties with
a slim (but comfortable) lead and momentum behind them.
Rather than building on their lead, coalition political
leaders coasted, and have only recently begun campaigning in
earnest. To add insult to injury, the GoC continues to
fumble politically-sensitive policy issues, like its recent
mishandling of a unilateral declaration of an exclusive
economic zone in the Adriatic.



4. (C) The IRI poll shows HDZ with a ten-point lead over
Racan's SDP. More alarming is that this gain is not being
made at the expense of other, more extreme right-wing
parties, but from the large pool of undecided voters. IRI
pollsters tell us that, if the election were held now, the
HDZ and its ilk would win enough support to form a
government. If coalition parties take decisive action, they
may be able to turn this trend around, particularly if they
can show voters that a vote for the HDZ is a vote against
Croatia's aspirations to join the EU.

Reforms in Jeopardy


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5. (C) Croatia's voters and the international community had
high expectations of the Racan government. While the
government has not met many of these expectations, it has
made progress on some important reforms. This progress,
which has transformed Croatia from a net consumer of security
in the region to a net producer, is at risk if a right-wing
government with revanchist elements comes to power.

At Risk: ICTY Cooperation and Refugee Return


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6. (C) We have been frustrated with the Racan government's
progress on ICTY cooperation and refugee return, but the
alternative is worse. The HDZ has made it clear that they
view PIFWC Ante Gotovina as a "hero, not a criminal." The
HSLS, which would be the HDZ's coalition partner, has
declared that it would seek to change Croatia's law which
makes cooperation with the Tribunal obligatory. Current GoC
officials have privately expressed serious concerns to us
about their ability to protect police operatives who have
been involved in the search for indicted war criminals should
a right-wing government come to power. On returns, despite
our urging, the HDZ has not encouraged local leaders to
facilitate refugee returns; an HDZ government would not
improve even the Racan government's mixed record.




7. (C) The Racan government has made important progress
toward building good-neighborly relations with Serbia and
Montenegro. While some of its achievements -- like the
Prevlaka agreement -- cannot be reversed, others would be at
risk and the pace of rapprochement would certainly slow.
Croatia under Racan has severed inappropriate links to Croats
in BiH. HDZ President Sanader has told us privately that his
party has dropped the Tudjman-era policies harmful to Dayton,
but he nonetheless is campaigning in the hard-line Croat
areas of BiH using nationalist themes.



8. (C) Sanader's public statements on Iraq have been music
to our ears, but it is unlikely that an HDZ government would
be able to deliver the two-thirds parliamentary majority
required to deploy a Croatian contingent to Iraq. A Sanader
cabinet would not consider itself bound by the Racan
Cabinet's June 12 political decision (not ratified by
parliament before it dissolved) to deploy troops to Iraq.
Several of Sanader's likely coalition partners have already
taken public positions against deployment.

What to Do?


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9. (C) There is little that we can -- or should -- do to
influence the outcome of the November 23 elections. But with
the parliament dissolved and the Racan government in
caretaker status until elections, there is no value in
pushing Croatia to take new action on reforms until a new
government is seated. We would instead advocate looking for
ways to highlight the accomplishments of the Racan government
and the progress Croatia has made toward Euro-Atlantic
institutions under its stewardship. The upcoming meeting of
the Adriatic Charter Partnership in Washington may provide us
with an opportunity to make this point. More welcome for the
Racan government and far more useful from an election
standpoint would be messages of support from EU countries or
international organizations.
FRANK


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