THE SANADER GOVERNMENT'S FIRST SEMESTER -- OFF TO

C O N F I D E N T I A L ZAGREB 000766

SIPDIS


NOTE: PROCESSED AS IS PER EAO Ms. Higgins

E.O. 12958: DECL: 04/26/2014
TAGS: PREL PGOV HR
SUBJECT: THE SANADER GOVERNMENT'S FIRST SEMESTER -- OFF TO
A RUNNING START

REF: A. ZAGREB 597

B. ZAGREB 627

Classified By: Ambassador Ralph Frank for reasons 1.4 (b,d)

Summary and Introduction
--------------


1. (C) PM Ivo Sanader's furious, almost frantic, pace for
his first 100 days in office has produced positive results.
Most of his government's energy has been focused on foreign
policy, where Sanader and his closest associates had to work
quickly to convince the skeptics of the "new HDZ" who are
making key decisions about Croatia's progress toward
integration in the EU and NATO. While ICTY fugitive Ante
Gotovina remains a key obstacle, the clear highlight of
Sanader's first "semester" is Croatia's dramatic turnaround
in cooperation with The Hague war crimes tribunal. This
achievement, together with his ability to engage with
Croatia's Serb minority, was enough to win a positive "avis"
on April 21 from the EC on Croatia's pending application to
be accepted as a candidate for membership.


2. (C) We share the opinion of most of Sanader's domestic
critics that he has spent too little time on the economy. We
welcomed his decision to continue Croatia's relationship with
the IMF, but in order to get an agreement with the Fund,
Sanader may have to renege on some of the promises he made to
key constituencies, especially to retirees and veterans.
There have been bumps in the road for Sanader, but none have
caused his government to lose momentum, a frequent,
frustrating occurrence during the Racan government's tenure.


3. (C) Sanader's government has done well on issues relating
to the USG's broad goals in the region, like addressing "war
legacy" issues, progress toward NATO membership and
developing better relations with neighbors. But on strictly
bilateral issues, Sanader's record has been mixed. While we
welcomed the government's move to ratify a long-overdue
economic agreement, its weak position in parliament and
pressure from the EU has forced it to back away from pledges
to send Croatian troops to Iraq and to sign an Article 98
agreement. Nevertheless, we find the new GoC's can-do
attitude and its readiness to engage with us on almost every
issue a refreshing -- and surprising -- change. End Summary
and Introduction.

No Time to Lose ...
--------------


4. (C) Ivo Sanader's HDZ government took office in late
December 2003 with a lot to prove and little time to prove
it. With Croatia's application for EU candidate status up
for review just four months after coming to office, Sanader
had to prove to skeptics -- both in EU Capitals and in
Washington -- that his HDZ is not the corrupt, opaque party
which gave former President Tudjman the domestic political
tools to wage ethnic war and run Croatia's economy into the
ground.


5. (C) Showing a great deal of political savvy and a measure
of political courage as well, Sanader rejected an offer of
coalition with Croatia's far-right party and worked out a
deal with the ethnic Serb party in parliament. The Serbs
drove a hard bargain, insisting on concrete steps on minority
issues and setting ambitious benchmarks for the government to
meet on refugee property restitution. So far, they are
pleased with Sanader's public call for refugees to return to
Croatia and his government's allocation of budget funds to
repair Serb houses damaged during the war. For Sanader, the
grumbling from a few nationalist members of his party was
more than offset by the instant credibility he got from
skeptics on both sides of the Atlantic of his party's
sincerity to resolve refugee issues.

... But Little Time to Get Organized
--------------


6. (C) Once in office, Sanader took little time to get his
government organized before launching his full-court press
for status as an EU candidate. Four months after coming to
power, some lines of responsibility are still not clear. In
the first two months of his tenure, Sanader was forced to
withdraw a number of sub-ministerial appointments which were
clearly not properly vetted, much to his embarrassment. In a
clear effort to avoid the "revanchist" label, the Sanader
government left most mid-level bureaucrats in place. But on
almost every important issue, regardless of complexity,
Sanader and a very small group of close advisers still
exclude many of the government's professional civil servants
from the policy-making process. This has led to some
stagnation on less-urgent matters and some uninformed
decisions on others. Particularly on economic issues,
Croatia suffers from a lack of talented people willing to


leave the private sector for government.

Progress on ICTY Cooperation
--------------


7. (C) The area where the Sanader government has clearly
made the most dramatic turnaround is in cooperation with the
ICTY. Despite its purported best intentions, the Racan
government's track record on this issue was poor. With his
wobbly coalition indecisive at the best of times, Racan was
fearful of reprisal from the right-wing, both in and out of
his government. Sanader has no such limitations and in a
short time has established a clear track record. His
government has engineered the transfer of eight indictees to
ICTY custody and has fulfilled all court document requests.


8. (C) The best measure of Croatia's cooperation with ICTY
will be the transfer of fugitive indictee Ante Gotovina. But
the Sanader government has taken some real steps on this
issue as well (ref a),and convinced the ICTY Chief
Prosecutor to deliver a favorable report on GoC cooperation
to the European Commission in advance of its decision on the
"avis."

"NATO or Bust" -- Real Movement on Defense Reform
-------------- --------------


9. (C) Sanader's drive for EU candidate status has not
distracted his government from adding more horsepower to
Croatia's NATO bid. Defense Minister Roncevic has announced
steps to eliminate a large and costly "standing reserve" of
sub-standard soldiers (all of whom are veterans of Croatia's
war of independence). He has also launched a new Strategic
Defense Review (in consultation with NATO's International
Staff) and has given instructions to the drafters of the
Review that Croatia's force must be structured not to provide
for territorial defense, but for making contributions to
joint peace support operations. Responding to proposals from
the USG and others in the region, the MOD has gone further,
and has proposed to transform its Navy and Air Force,
retaining only a minimum fighter force for air policing and
pooling assets with the Interior and Transport Ministries to
form a coast guard capable of interdicting illicit
trafficking of all sorts along Croatia's long and vulnerable
coastline.


10. (C) While the Racan government made a good start on
defense reforms, it could not afford to appear "soft on
defense" to domestic critics on the right, and therefore
lacked the political will to make these fundamental changes
to Croatia's force structure. Sanader's HDZ government does
not have this political Achilles' heel, and reform is surging
ahead.

Moving Forward on Everything ...
--------------


11. (C) Justice Minister Vesna Skare Ozbolt has injected
energy and commitment to the tough task of judicial reform.
She introduced changes to the penal code to criminalize
trafficking in persons, institutionalized and depoliticized
Croatia's cooperation with the ICTY and has begun to tackle
the Herculean task of reforming Croatia's broken-down
judiciary. Skare Ozbolt has also engaged with us to develop
Croatia's domestic capability to prosecute war crimes. When
Sanader consolidated three ministries into Bozidar Kalmeta's
Ministry of the Sea, Tourism, Transport and Development, we
feared that the energetic former mayor was being set up for a
fall, but he appears up to the task. Highway construction
and other infrastructure projects are moving forward at a
remarkable rate and the government is finally following
through on commitments to build homes for returning
dispossessed Serb refugees.

... Except for the Economy
--------------


12. (C) By most measures, Croatia's economy had "turned the
corner" during the Racan government's tenure. Growth was
strong, unemployment was beginning to drop, but there were
lurking weaknesses which had been masked by
stronger-than-expected performance of the tourism industry.
Although the markets remain unfazed, Croatia's current
account deficit and ballooning debt (both public and private)
set off warning bells for many economic observers. Although
the previous government never needed to draw on Stand-by
facilities agreed with the IMF, the GoC benefited from the
IMF's role as an outside auditor and an external discipline
on the economy. Sanader's decision to renew Croatia's
relationship with the Fund was useful, but the
belt-tightening the IMF will likely request may mean that he
will need to renege on some of his more populist campaign
promises. (See ref b for more detail.)


Relations in the Region
--------------


13. (C) There were a few observers who thought that the
return of the HDZ to power in Croatia would slow the steady
progress toward building good-neighborly relations in the
region. Sanader's activist foreign policy has put most of
those fears to rest. He has kept his distance from the HDZ
in BiH, as requested by High Representative Ashdown, and
expressed support for the BiH central government. He has
sought to address irritants in Croatia's bilateral
relationship with Slovenia. Croatia ratified the succession
agreement on assets belonging to the former Yugoslavia and
extended a visa-free regime for residents of Serbia and
Montenegro.

Good Bilateral Vibrations ...
--------------


14. (C) During his election campaign, Sanader pledged to
improve relations with the U.S. to "balance" Croatia's
foreign policy and make it less Euro-centric. Atmospherics
have certainly changed -- we have immediate access to the top
levels of the GoC whenever we need it. Beyond atmospherics,
Sanader pushed a long-languishing bilateral agreement on
Intellectual Property Rights through the parliament, despite
pressure from Croatian pharmaceutical producers. In addition
to its military police contribution to ISAF, Croatia is
preparing to make a civilian contribution to a Germany-led
Provincial Reconstruction Team in Afghanistan. At the UN
Commission on Human Rights, Croatia co-sponsored a resolution
on the Human Rights Situation in Cuba, the first time Croatia
has ever co-sponsored a country resolution. Croatia is an
eager supporter of the Proliferation Security Initiative
(PSI) and looks to engage more closely on cooperative
security. The GoC is also lobbying hard (maybe too hard) to
improve its standing in Washington, particularly in Congress.

... But "No" on Article 98 and Troops to Iraq
--------------


15. (C) During the election campaign, Sanader made clear his
party's policy to support an Article 98 agreement and to send
a Croatian contingent of troops to support operations in
Iraq. But the post-election political reality is that he is
unable to make this policy a reality. Since his HDZ party
does not even have a simple majority in parliament (let alone
the two-thirds majority required to deploy troops abroad),
Sanader chose not to propose an Iraq deployment to the
parliament. However, his government is trying to formulate a
contribution which shows commitment to U.S. goals but does
not require legislature approval. The GoC decision not to
sign an Article 98 Agreement was a clear response to EU
pressure. With Croatia's application for candidate status
still pending and the EU pushing hard for Croatia not to
sign, FM Zuzul announced that the GoC would not engage in
negotiations on an Article 98 agreement.

Outlook Good for Long-Term Regional Goals
--------------


16. (C) While we are disappointed that the new GoC was
unable to meet commitments on some of our near-term goals,
our long-term agenda has taken steps forward since the
Sanader government took office. First, we think it is
realistic to hope that Croatia's marked improvement in
cooperation with The Hague might bring other states in the
region around. (We understand Ambassador Bond cited
Croatia's transfer of indictees to ICTY when urging BiH
government officials to improve their record of cooperation
with the Tribunal. According to press reports, Serbia and
Montenegro cabinet member said that the new "Croatian Model"
of cooperation has put "even more pressure" on the GoSaM.)
Second, and perhaps most importantly, with the EU's positive
"avis," Croatia's neighbors to the south and east can take
heart that reforms can pay off. Third, since progress in
integration requires good-neighborly relations, we can expect
that the long process of EU and NATO scrutiny will keep
Croatia's bilateral relations in the region on a positive,
constructive track.
FRANK


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