VZCZCXRO7534
RR RUEHAST
DE RUEHVB #0655/01 1451148
ZNR UUUUU ZZH
R 251148Z MAY 06
FM AMEMBASSY ZAGREB
TO RUEHC/SECSTATE WASHDC 6200
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE
RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC

UNCLAS SECTION 01 OF 02 ZAGREB 000655 
 
SIPDIS 
 
SENSITIVE 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON EINV HR
SUBJECT: ECONOMIC DEVELOPMENT STRATEGY SHORT ON 
SPECIFICS 
 
ZAGREB 00000655  001.2 OF 002 
 
 
SENSITIVE BUT UNCLASSIFIED 
 
¶1.  (SBU) Summary and Comment:  Croatian PM Ivo 
Sanader unveiled his government's economic and 
social development plan on May 15.  The strategy, 
called the "Strategic Framework for Development 2006- 
2013," breaks little new ground and appears directed 
mostly at reassuring the European Union that the GOC 
has a plan for spending its money over the next 
several years.  Long on generalities, such as 
encouraging entrepreneurship, reducing unemployment 
and increasing GDP growth, the strategy offers few 
specifics.  The notable exception is privatization, 
where the authors optimistically call for the 
privatization of the state-owned insurance company, 
metal works and a shipyard by the end of 2006.  End 
Summary. 
 
The Man with a Plan 
------------------- 
¶2.  (SBU) The "Strategic Framework for Development 
2006-2013" is PM Sanader's second major "strategy" 
in as many months, following on the heels of the 
GOC's anti-corruption plan.  Presented on May 15, 
the plan's stated aim is to provide a vision for 
Croatia's development through a competitive market 
economy, growing from the current level of 54 
percent of the EU-25 per capita GDP to 75 percent by 
¶2013.  The seventy-five page strategy lays out 10 
key pre-cursors of development: human capital and 
education, science and information technology, 
social cohesion, energy and transport, environmental 
and regional development, macroeconomic stability, 
capital markets, the business climate, privatization 
and restructuring, and the role of the state. 
 
Lofty, but Vague Goals 
---------------------- 
¶3.  (SBU) The strategy is a portrait of a desired 
end-state rather than a roadmap for economic reform 
and, as such, offers few details as to how, in 15-20 
years, "Croatia might become one of the 10 richest 
countries in Europe."  It highlights many laudable 
goals, such as reducing long-term unemployment, 
improving education, investing in information 
technology and renewable energy. At the same time, 
the plan calls for maintaining macroeconomic 
stability, a stable exchange rate, low inflation, 
low deficits and reducing the country's foreign debt 
from the current 83 percent of GDP to 60 percent. 
The plan is rife with goals that seem difficult to 
reconcile with one another and statements that even 
border on wistful, such as the authors' warning that 
Croatia must "retain that which some developed 
countries lost on their road to riches - its quality 
of life and the quality of its cultural and natural 
heritage." 
 
Privatization Highlighted 
------------------------- 
¶4.  (SBU) In surprising contrast to the lengthy 
generalities in the plan is a very specific time- 
line for the privatization and restructuring of some 
of the remaining state-owned enterprises.  The 
strategy singles out state-owned (and profitable) 
insurance company Croatia Osiguranje for 
privatization by the end of 2006 - specifically 
noting that it could combine with the state-owned 
Postanska Banka. (Note: This merger would fulfill 
the wish of some in Zagreb to create a national 
champion financial institution to balance 93 percent 
foreign control of the banking sector.)  Also slated 
for privatization by year's end are the state's two 
heavily-indebted steel mills and the Uljanik 
shipyard in Pula.  The plan calls for all shipyards 
to be restructured by 2010, as well as the complete 
restructuring of Croatian Railroads to reduce its 
expense/income ratio from the current 220 percent to 
at least 150 percent. 
 
¶5.  (SBU) Several embassy contacts dismissed the 
strategy as nothing more than a sop to the EU, which 
has increased pressure on the GOC to present a plan 
to close the privatization portfolio before it will 
open negotiations on the Competition and Industrial 
Policy chapters of the EU Acquis.  The GOC does not 
have a lot of credibility on the privatization 
question, as it has promised action on most of these 
 
ZAGREB 00000655  002.2 OF 002 
 
 
concerns for each of the past several years. 
Nevertheless, many of our contacts tell us that, 
because of the imperative of EU negotiations, the 
GOC can no longer duck this issue, even if the 
development strategy overall offers little else. 
 
¶6.  (SBU) In the final analysis, Sanader's new 
strategy simply reiterates what nearly everyone in 
Croatia's business community has known for a long 
time.  Similar to the so-called "fifty-five 
recommendations" on making Croatia more competitive 
that the Croatian Competitiveness Council gave the 
government in 2004, we can only hope that the 
strategy has a longer shelf life and will be invoked 
when the time comes to make the painful decisions 
necessary to bring its vision to fruition.  However, 
with 2007 an election year in Croatia, we're not 
holding our breath. 
 
FRANK