1. (U) SUMMARY AND COMMENT. On 25 August the GOC
approved a housing program for ethnic Serbs that
provides for the construction of apartments for former
tenancy rights holders (socialized housing) in non-war
affected areas (outside the Areas of Special State
Concern, or ASSC). The $500 million plan foresees the
construction of 3600 apartments in major cities around
Croatia by the end of 2011 and purchase of another 400.
Residents will not be able to sell, sub-let, or inherit
the rental apartments, which will be returned to the
State upon the tenant's death.



2. (SBU) The issue of tenancy rights has been a thorny
one for the GOC for years and is now the largest
unresolved housing category for ethnic Serb returnees,
most of whom had fled their state-owned apartments
during the war and not returned in time to participate
in state-sponsored purchasing programs. Government
adoption of the program has raised even more dust in
the past few days and created confusion about its
elements, which are left vague. The announcement drew
the ire both of conservative war veterans groups, who
protested that the GOC was giving apartments to those
who "fought against Croatia," and of ethnic Serb
groups, who complained about the no-purchase, no-
inheritance model. Working damage control, PM Sanader
stated that the program is humanitarian. Post and
international organizations do not yet have formal
confirmation that the purchase option, to which the GOC
committed in earlier discussions, is off the table.
Despite the poor program rollout and subsequent public
reactions, the program is a slow step forward. Targets
are modest, as most housing would not be available for
three to five more years. And as always,
implementation will be the challenge. Nevertheless,
with this decision, the GOC has re-committed itself to
providing a humanitarian solution for returnees. END
SUMMARY AND COMMENT.

PROGRAM SKETCHED OUT FOR LEASED APARTMENTS



3. (SBU) The GOC Conclusion addresses the 4,425
applications for apartments outside the ASSC. GOC
Spokesman Ratko Macek told the press that the plan
refers to applicants who applied only for leasing (as
opposed to purchase) of state-owned apartments.
(Note: As there are only around 2,200 of those "lease-
only" applicants, it is not clear who would occupy the
other 2,225 apartments.) Apartments are planned in
Karlovac, Osijek, Petrinja, Pula, Rijeka, Sisak, Split,
Zadar and Zagreb. (Another 4,600 refugees have applied
for a similar program in the ASSC.) Under this
program, former tenants of socialized housing will pay
lower-than market rent but will not be entitled to
sell, rent or inherit those apartments. They will be
returned to the GOC upon the death of the tenant.
Costs of construction will be paid off over 25 years
and are estimated at $20 million annually. This year,
the GOC has set aside about $6 million, which was
unused in past years for the program and rolled over to


2006. The apartments will be built through a public-
private partnership model that has yet to be detailed.
Targets for apartment allocation are modest; most
program implementation would take place four or five
years from now. For example, by 2007 the GOC plans to
build 180 apartments, and 930 in 2008. In total, the
GOC plans to purchase 400 apartments by late 2007 and
construct 3,600.

LEASE AND PURCHASE?



4. (SBU) Following a 2003 Government decision, the
housing program outside the ASSC has two components:
purchase and lease. In their public comments, PM
Sanader and Minister for Construction and Environment
Martina Matulovic-Dropulic referred only to the lease
option, emphasizing that former tenancy-rights-holding
refugees who will lease the apartments will not be able
to later purchase them. (Note: In 1996, Croatian
citizens were granted this opportunity as the country
privatized state-owned apartments, but the option was
not available to any one not physically present in
Croatia.) Left unmentioned was the purchase option,

ZAGREB 00001055 002.2 OF 002


presumably as it was more likely to raise the ire of
conservative domestic political groups. When rolling
out the program, Minister Dropulic, a conservative HDZ
member, assured the public that the apartments would be
returned "to Croatians" for social welfare housing upon
the death of the tenants. (Comment: The subtext is
that elderly returnees will not live long.)



5. (SBU) The European Community announced that it was
"surprised" that residents would not be allowed to
eventually purchase the apartments, but refrained from
further comments. The OSCE Mission told us they were
pleased that the GOC made some specific commitments for
apartment purchase and construction, as the
international community has been pressing for years for
program implementation. In addition, the OSCE's Office
for Refugees and Reintegration expressed hope for
assurances that renters would eventually be able to
purchase the apartments, and that they could be
inherited by members of the original household (in
1991) who do not own other property currently. OSCE
will look for clarification that the separate, purchase
option remains for the 2,200 other applicants as was
previously agreed to. In regular meetings with
Minister Bozidar Kalmeta, responsible for refugee
issues, Post and the international community have
pressed for specifics about programs and clear targets
for their implementation. Post will continue to
request detailed information about the GOC housing
program and to advocate for prompt implementation.

REACTIONS ALL AROUND



6. (SBU) Several groups reacted strongly to the brief
presentation by Minister Dropulic. Veterans groups
harshly criticized the GOC program. Housing should be
provided to veterans, "not for those who fled," stated
one coordinating body of war veterans associations.
The Croatian Generals' Assembly has asked the GOC for a
list of ethnic Serb housing applicants to ensure that
no war-time aggressors are given State housing. The
Serb Democratic Forum, Croatia's largest NGO,
vehemently opposes the decision, as it does not allow
residents to purchase the apartments. In addition, its
president, Veljko Djakula said that the deadline is too
flimsy. It is unacceptable if the housing is not
transferable to family members, he told the press,
referring to the general belief that many elderly
applicants will die in the coming years. Ethnic Serb
MP Milorad Pupovac and GOC coalition partner criticized
the project both for policy and process reasons,
complaining that his party was not consulted, and
objecting to the no-purchase aspect; he did publicly
indicate however that he has no plans to withdraw from
the governing coalition. In addition, local municipal
authorities, who learned of the program through the
press, expressed public frustration with the GOC's lack
of consultation. The mayor of Rijeka, for example,
announced that there is no State-owned land available
for such construction.
Bradtke