VZCZCXRO2226
OO RUEHDBU RUEHFL RUEHKW RUEHLA RUEHNP RUEHROV RUEHSL RUEHSR
DE RUEHVB #0551/01 2530758
ZNY CCCCC ZZH
O 100758Z SEP 09
FM AMEMBASSY ZAGREB
TO RUEHC/SECSTATE WASHDC IMMEDIATE 9509
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE IMMEDIATE

C O N F I D E N T I A L SECTION 01 OF 02 ZAGREB 000551 
 
SIPDIS 
 
E.O. 12958: DECL: 01/01/2019 
TAGS: PREL PGOV ECON HR BK SR ICJ
SUBJECT: EUR DAS JONES' DISCUSSIONS IN ZAGREB ON BOSNIA, 
KOSOVO, SERBIA AND THE ECONOMY 
 
REF: A. ZAGREB 543 
     ¶B. ZAGREB 545 
 
Classified By: Rick Holtzapple, PolEcon Counselor, for reasons 1.4 (b) 
& (d). 
 
SUMMARY 
------- 
¶1. (SBU) Croatian officials told EUR DAS Stu Jones on 
September 1 of their concern about political developments in 
Bosnia-Herzegovina, but pledged that Croatia would continue 
to play a constructive, and relatively hands-off, role there. 
 The Croats also noted continued strains in their 
relationship with Serbia, and expressed specific skepticism 
over Serb proposals to host a Non-Aligned Movement 
anniversary event in 2011.  FM Jandrokovic said he was 
inclined to have Croatia offer an oral argument in the ICJ 
case over Kosovo's independence, but needed to research it 
further with his staff.  On economic issues, both 
non-governmental experts and the central bank governor noted 
a series of Croatia's vulnerabilities, including large debt 
burdens and no strategic approach to investment.  DAS Jones' 
discussions of the Slovenia border dispute are reported 
septel.  END SUMMARY. 
 
BOSNIA 
------ 
 
¶2. (C) Foreign Minister Gordan Jandrokovic said the GoC was 
very concerned about political developments in B-H.  On a 
somewhat parochial level, Zagreb was concerned about recent 
events such as the highway decision, where the Bosnian Croat 
representatives were being disregarded and outvoted by the 
Bosniaks.  Jandrokovic said that in his meeting with High Rep 
Inzko at the Bled Forum in Slovenia on August 31, Inzko had 
also expressed his annoyance at how the Bosnian Croats were 
treated.  Jandrokovic noted, however, that the general 
situation in B-H also seemed to be a mess.  He asked how 
Croatia might be helpful in sorting things out.  DAS Jones 
replied by outlining the strategy of fulfilling 5 2 in an 
accompanying context of discussions on constitutional reform, 
progress on visa eligibility and the prospect of eventual 
NATO membership.  But the mutually exclusive positions of the 
various sides made things very difficult. 
 
¶3. (C) Jandrokovic raised the recent joint meeting of RS 
President Dodik and B-H Croat leader Covic with Serbian 
President Tadic.  Jandrokovic said that he was "appalled" by 
Covic's trip, and assured DAS Jones that Zagreb had not 
encouraged such a step.  DAS Jones commented that it could be 
useful if Prime Minister Kosor could deliver that message 
directly to both Covic and Ljubic.  DAS Jones expressed 
appreciation for Zagreb's efforts to also discourage 
discussion of a third entity in B-H, and said we considered 
that off the table.  In that context, he asked, what were 
Zagreb's ideas for how to satisfy the Bosnian Croat 
community's needs?  Jandrokovic replied with three items: 
protection of language rights, a TV station, and political 
arrangements that required Croatian views to be taken into 
account without being simply ignored or outvoted.  DAS Jones 
said he would discuss these issues with Bosniak leaders on 
his upcoming visit there. 
 
¶4. (SBU) Jandrokovic also noted his standing request for a 
meeting with the Secretary, and said such a meeting would 
help to highlight our partnership on issues such as Bosnia. 
DAS Jones noted that we were aware of the meeting request, 
and were working on what would be the best timing for such 
talks, taking into account the dynamic of developments in 
Bosnia, as well as other issues. 
 
¶5. (C) In a separate meeting, President Mesic's foreign 
policy advisor Tomislav Jakic underlined Croatian concerns 
about Bosnia' stability.  He said Croatia fully supported the 
U.S. approach on OHR transition.  "We should not cling to 
it," he said, "but it would be dangerous to abandon it now 
and leave a vacuum of power."  He worried, however, that the 
third entity idea was still not dead, and could re-appear 
once Mesic, who is a vocal opponent, leaves office.  B-H, he 
concluded, still needs "a massive international presence." 
 
KOSOVO AND SERBIA 
----------------- 
¶6. (SBU) DAS Jones noted our interest in having as many 
countries as possible offer oral arguments in Serbia's case 
before the ICJ regarding Kosovo.  FM Jandrokovic said he was 
inclined to have Croatia participate.  He noted, however, 
that every time Croatia speaks up on Kosovo, Belgrade 
responds with public accusations about ethnic cleansing of 
Serbs from Croatia and a lack of cooperation on refugee 
returns.  He said he hoped the U.S. and other partners would 
dismiss such provocative statements appropriately.  DAS Jones 
 
ZAGREB 00000551  002 OF 002 
 
 
replied that we understood the tensions in the relationship 
with Belgrade, and appreciated the context of such exchanges. 
(NOTE: As reported reftels, the MFA staff initially confirmed 
to us on September 2 that Croatia would offer an oral 
argument at the ICJ, and then added on September 4 that it 
wanted to coordinate this with Bulgaria and Hungary, the two 
countries that recognized Kosovo together with Croatia last 
year.  END NOTE.) 
 
¶7. (C) Jandrokovic said that engaging with Belgrade did still 
present challenges.  The Croatian analysis was that despite 
Tadic's rhetorical commitment to the EU path, the actions of 
Serbia did not always support that policy.  One example is 
the recent Serbian initiative to host in 2011, a 50th 
anniversary event for the Non-Aligned Movement.  Croatia 
would hear out Serbia on the proposal, including likely 
attending a meeting on the idea on the margins of the UNGA. 
But it made Croatia uncomfortable.  Belgrade had an ulterior 
motive in trying to organize the event, in order to seek 
allies in its battle over Kosovo.  Noting that Slovenia and 
Macedonia shared similar misgivings, Jandrokovic suggested 
that the U.S. could help resolve the issue by simply sending 
a quiet message that we saw thought it was a bad idea. 
 
¶8. (C) Even Jakic, whose boss is traditionally sympathetic 
toward anything to do with the NAM, was negative on 
Belgrade's proposal, agreeing that it was primarily aimed at 
mischief-making on Kosovo.  He noted that Egyptian President 
Mubarak would be coming to Zagreb in October, and that it was 
up to Mubarak, as chair of the NAM, whether any event in 2011 
should be hosted in Belgrade.  Jakic did feel that, if a NAM 
event was held in Belgrade, then all of the former Yugoslav 
republics should be involved, since Serbia alone was not the 
successor to Yugoslavia. 
 
CROATIA'S ECONOMIC OUTLOOK 
--------------------- 
 
¶9. (SBU)  DAS Jones engaged in a lively lunch discussion with 
a small group of Croatian economists, businesspeople, and 
politicians on the state of the Croatian economy and the 
challenges faced by the Kosor government moving into the 
fall.   Among all the participants, optimism was in short 
supply.  All agreed that a succession of governments had 
squandered opportunities to make difficult reforms in 
relatively good times and now the country faced a true 
crisis.  Chamber of Economy President Nadan Vidosevic (who 
announced his candidacy for President the following day) 
lamented that the vast majority of the income earned from the 
large scale privatizations over the years was spent on 
consumption rather than investment.  Economics Institute 
Director Sandra Svaljek commented that PM Kosor had certain 
advantages over her predecessor in dealing with interest 
groups such as unions and pensioners.  However, all the 
guests feared that the challenges would prove too great for 
the HDZ government.  None expressed great hope that the 
opposition SDP would perform much better.  DAS Jones asked 
about the prospects for shipyard privatization.  Academic and 
former Deputy Prime Minister Mladen Vedris dismissed the 
prospects of the companies that have expressed interest in 
shipyards so far, saying that none of them are in the "core 
business" of shipbuilding, but are only interested in a short 
term investment followed by resale.  Regarding Croatia,s 
other major foriegn exchange earner, tourism, the luncheon 
guests again decried the lack of any strategic vision for the 
sector. 
 
¶10. (SBU)  After lunch, DAS Jones met privately with Central 
Bank Governor Zeljko Rohatinski.  The governor was more 
optimistic on Croatia,s fundamental stability, but pointed 
to three areas of economic vulnerability: the large trade 
deficit, the large stock of foreign debt, and the high 
euroization of the economy.  He continues to agree that an 
IMF standby arrangement can be avoided in Croatia, but only 
if the government is able to continue financing its foreign 
debt obligations.  A successful bond issue at favorable 
interest rates earlier this year significantly improved the 
government,s situation, but he believes an additional 400 ) 
500 million euro issue will be necessary.  He believes the 
Finance Ministry will try to place this bond on the American 
market later this year.  Although large scale government 
borrowing has "crowded out" much private sector lending, 
Rohatinski said the banking system remains sound and liquid, 
with no "credit crunch" to speak of.  He told DAS Jones that 
the worst of the crisis was behind Croatia, but that the 
country now faced a period of economic stagnation.  (NOTE:  A 
Dow Jones reporter cited Rohatinski in an article the next 
day as stating that Croatia had passed the worst of the slump 
and is now beginning a gradual recovery, prompting optimistic 
headlines in several local papers.  Rohatinski spent the next 
news cycle tamping down expectations.  END NOTE.) 
WALKER