UNBLOCKING SFRY ASSETS: CROATIA MAINTAINS HARD

1. (C) SUMMARY: FOR CROATIA, UNRAVELING THE LIABILITIES AND
ASSETS OF THE SUCCESSOR STATES OF THE FORMER YUGOSLAVIA
CONTINUES TO HINGE ON SECURING A RATIFIED AGREEMENT ON
SUCCESSION ISSUES (ASI). ON APRIL 4, ZDRAVKO ROGIC, SENIOR
CROATIAN REPRESENTATIVE ON THE SUCCESSOR STATES' FINANCE
COMMITTEE, REPEATED WHAT HE AND OTHERS IN THE GOC HAVE SAID
TO US ON SEVERAL OCCASIONS ALREADY: EVEN IF THE GOVERNMENT
WANTED TO, IT COULD NOT PROVIDE A HOLD HARMLESS TO ENABLE
DISPERSAL OF NBY ASSETS TO SUCCESSOR STATES BY THE APRIL 15
U.S.-IMPOSED DEADLINE BEFORE OFAC PROCEEDS WITH A GENERAL
UNBLOCKING. CROATIA WOULD LIKE TO SEE THE BLOCKED NBY ASSETS
DISPERSED AS SOON AS POSSIBLE AFTER AN ASI IS RATIFIED, ROGIC
CONTINUED, BUT A HOLD HARMLESS WOULD BE A LEGAL
"IMPOSSIBILITY." MOREOVER, HE SAID, DEALS WORKED OUT WITH
THIRD COUNTRIES, INCLUDING ONE SIGNED WITH RUSSIA LAST WEEK,
ARE PREDICATED ON HAVING A RATIFIED SUCCESSION AGREEMENT. NO
DISPURSEMENTS COULD BE MADE BY MOSCOW UNTIL CROATIA RATIFIES
THE ASI. END SUMMARY

HOLD HARMLESS IMPOSSIBLE


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2. (C) ZDRAVKO ROGIC, DEPUTY GOVERNOR OF THE CROATIAN
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PAGE 03 ZAGREB 00755 01 OF 02 042043Z
CENTRAL BANK AND THE GOC'S REPRESENTATIVE ON THE SUCCESSOR
STATES' FINANCIAL COMMITTEE, WAS IN FAMILIAR FORM DURING A
MEETING APRIL 4. HE HAD JUST RETURNED FROM SKOPJE, WHERE THE
FINANCIAL COMMITTEE HAD JUST CONCLUDED A TOUGH SESSION.
ROGIC SAID CROATIA'S STAND WITH RESPECT TO THE U.S. REQUEST
FOR A HOLD HARMLESS TO ENABLE RELEASE OF FROZEN NBY ASSETS
REMAINED ABSOLUTELY UNCHANGED. HE REPEATED ALL THE ARGUMENTS
HE HAS MADE BEFORE, AND CLAIMED OTHER SUCCESSOR STATES
REMAINED UPSET ABOUT THE U.S. DECISION TO GO FORWARD WITH A
GENERAL UNBLOCKING ON APRIL 15 ABSENT A HOLD HARMLESS. THE
U.S., PERHAPS THE WORLD'S "MOST LEGALISTIC STATE," HE SAID,
WANTS TO PUSH FORWARD HERE IN A NON-LEGAL FASHION TO UNBLOCK
EVEN THOUGH CROATIA HAS NOT RATIFIED THE ASI. THE U.S. WANTS
THE GOC TO PROVIDE A HOLD HARMLESS EVEN THOUGH, BY PROVIDING
IT, THE CROATIAN GOVERNMENT WOULD BE USURPING THE AUTHORITY
OF THE CROATIAN PARLIAMENT.



3. (C) ROGIC REPEATED POINTS HE AND COLLEAGUES HAVE MADE ON
MANY OCCASIONS TO US, IN PARTICULAR THAT AUTHORITIES IN
BELGRADE CONTINUE TO REFUSE THE CROATIANS AND OTHER SUCCESSOR
STATES THE OPPORTUNITY TO LOOK AT THE BOOKS OF THE NBY TO
FIND OUT WHAT HAPPENED TO $589 MILLION THAT HAD GONE MISSING
FROM JOINT VENTURE BANKS. "WE NEED YOUR HELP IN TRACKING
DOWN THIS MONEY," HE REPEATED. WHY DO AUTHORITIES IN
BELGRADE REFUSE TO COOPERATE WITH US? "IT'S IN THEIR
INTEREST TO GET TO THE BOTTOM OF THIS" BECAUSE THE MONEY MOST
LIKELY WAS STOLEN BY MILOSEVIC'S PEOPLE. ROGIC SAID AGAIN
THAT CROATIA DOES NOT WANT COMPENSATION FOR THE MISSING MONEY
-- IN THE FORM OF AN ALTERED KEY OR ANY OTHER WAY -- BUT
MERELY WANTED A FULL ACCOUNTING THAT WOULD ENABLE THE
GOVERNMENT TO SUBMIT THE ASI TO THE PARLIAMENT.
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RUSSIAN DEBT: NOT SO FAST


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4. (C) WE ASKED ROGIC ABOUT THE DEAL WORKED OUT IN MOSCOW
OVER THE RUSSIAN DEBT (REF A), AND IN PARTICULAR WHETHER IN
USING THE ASI KEY THE CROATIANS HAD ADOPTED A DOUBLE
STANDARD. THE KEY, UNDER WHICH CROATIA GETS 23 PERCENT OF
ANY PAYOFF TO SFRY SUCCESSOR STATES, WAS GOOD ENOUGH TO BE
USED FOR DISBURSING RUSSIAN DEBTS BUT NOT FOR DISBURSING
BLOCKED NBY MONEY. ROGIC POINTED OUT RATHER EMPHATICALLY
THAT THE DEAL BROKERED IN MOSCOW IS PREDICATED ON THE VIENNA
ASI COMING INTO FULL FORCE. BEFORE ANY MONEY COULD BE
DISBURSED, HE STRESSED, ALL SUCCESSOR STATES WOULD HAVE TO
RATIFY THE VIENNA AGREEMENT. ASKED IF HE EXPECTED MOSCOW, A
HISTORICAL FRIEND OF BELGRADE'S, TO HOLD UP DISBURSING MONEY
TO SERBIA UNTIL CROATIA RATIFIED THE ASI, ROGIC SAID
"ABSOLUTELY." AND IF RUSSIA DISBURSES THE MONEY BEFORE THE
ASI COMES INTO EFFECT, ROGIC SAID HE EXPECTED THE U.S., AS A
STATE RESPECTING THE RULE OF LAW, TO SUPPORT THE CROATIAN
POSITION -- ALTHOUGH HE DID NOT SAY HOW.

COMMENT

CONFIDENTIAL

CONFIDENTIAL PTQ8080

PAGE 01 ZAGREB 00755 02 OF 02 042044Z
ACTION EUR-00

INFO LOG-00 AID-00 CIAE-00 CTME-00 DODE-00 SRPP-00 EB-00
EXIM-01 E-00 VC-00 FRB-00 TEDE-00 INR-00 IO-00
ITC-01 L-00 VCE-00 AC-01 NSAE-00 NSCE-00 OIC-02
OMB-01 OPIC-01 PA-00 PM-00 PRS-00 ACE-00 P-00
SP-00 SSO-00 SS-00 STR-00 T-00 USIE-00 PMB-00
DRL-01 G-00 SAS-00 /008W


--------------------------

50BE84 042044Z /45
O 041555Z APR 03
FM AMEMBASSY ZAGREB
TO SECSTATE WASHDC IMMEDIATE 9886
INFO AMEMBASSY BELGRADE PRIORITY
AMEMBASSY BRUSSELS PRIORITY
AMEMBASSY LJUBLJANA PRIORITY
AMEMBASSY LONDON PRIORITY
AMEMBASSY NICOSIA PRIORITY
AMEMBASSY ROME PRIORITY
AMEMBASSY SARAJEVO PRIORITY
AMEMBASSY SKOPJE PRIORITY
AMEMBASSY VIENNA PRIORITY
DEPT OF TREASURY WASHDC PRIORITY

C O N F I D E N T I A L SECTION 02 OF 02 ZAGREB 000755

SIPDIS

E.O. 12958: DECL: 03/12/2008
TAGS: PREL PGOV ECON EFIN MK SR BK SI MW HR PGOV ECON EFIN MK SR BK SI MW HR RUPREL RU
SUBJECT: UNBLOCKING SFRY ASSETS: CROATIA MAINTAINS HARD
LINE, INCLUDING ON RUSSIAN DEBT
CONFIDENTIAL

PAGE 02 ZAGREB 00755 02 OF 02 042044Z



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5. (C) ROGIC CAME ACROSS AS CLEARLY FRUSTRATED. HE
CONTINUES TO SAY (OVER AND OVER AGAIN) THAT HE CANNOT
UNDERSTAND WHY THE U.S. IS PUSHING SO HARD TO DISBURSE THE
MONEY FROZEN UNDER THE SERBIA SANCTIONS PROGRAM -- ALTHOUGH
HE RETURNED TO AN ACCUSATION MADE MONTHS AGO THAT THIS
INITIATIVE IS ALL ABOUT A PROMISE THE SECRETARY MADE TO
BELGRADE AUTHORITIES LAST YEAR TO RETURN FROZEN ASSETS TO
THEIR RIGHTFUL OWNERS. EVEN IF ROGIC'S RESPONSE ABOUT THE
HOLD HARMLESS REMAINS UNCHANGED, HE SOUNDED MORE CONCILIATORY
CONCERNING COMPENSATION. HE KNOWS THAT THE $589 MILLION THAT
WENT MISSING AFTER THE ASI WAS SIGNED WAS PROBABLY STOLEN BY
MILOSEVIC AND HIS CRONIES YEARS AGO. AS SUCH, CROATIA IS NOT
ASKING FOR COMPENSATION IN THE FORM OF A HIGHER PERCENTAGE IN
THE KEY OR ANYTHING ELSE. BUT THE GOVERNMENT NEEDS TO SEND
AN ASI TO THE PARLIAMENT THAT REFLECTS REALITY -- OR SO HE
ASSERTED TO US.



6. (C) WHEN ROGIC INSISTS THAT NONE OF THE RUSSIAN DEBT
COULD BE DISBURSED UNTIL THE ASI ENTERED INTO EFFECT, WE
PRESUME HE IS REFERRING TO LANGUAGE IN ARTICLE 8 OF THE
MEMORANDUM BETWEEN THE RUSSIAN FEDERATION AND THE SFRY
SUCCESSOR STATES. THAT SAYS THAT THE DEAL SHALL COME INTO
FORCE AFTER "ALL THE REQUIRED INTRA-STATE AND INTER-STATE
PROCEDURES" HAVE BEEN UNDERTAKEN. IT IS UNCLEAR IF ROGIC
REALLY BELIEVES THAT RUSSIA -- WHICH HE COMPLAINED SHOWED
BIAS IN MOSCOW TOWARD THE BELGRADE REPRESENTATIVE IN THE
NEGOTIATIONS -- WILL DUTIFULLY WAIT FOR THE CROATIAN
PARLIAMENT TO RATIFY THE ASI BEFORE DISBURSING ANY OF ITS
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PAGE 03 ZAGREB 00755 02 OF 02 042044Z
DEBTS. ON THE OTHER HAND, ROGIC'S COMMENTS INDICATED THAT AN
ENORMOUS AMOUNT OF BILATERAL NEGOTIATIONS BETWEEN MOSCOW AND
THE SUCCESSOR STATES REMAINS OVER SETTLING ACCOUNTS, AND
MOSCOW MAY NOT BE IN SUCH A RUSH TO HONOR DEBTS IF IT HAS A
GOOD EXCUSE TO SIT ON ITS HANDS.

ROSSIN

CONFIDENTIAL

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