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Viewing cable 08ZAGREB624, ZAGREB WEEKLY ACTIVITY REPORT - AUGUST 28, 2008

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Reference ID Created Released Classification Origin
08ZAGREB624 2008-08-29 09:23 2011-08-25 00:00 UNCLASSIFIED Embassy Zagreb
VZCZCXRO1513
PP RUEHAG RUEHAST RUEHDA RUEHDF RUEHFL RUEHIK RUEHKW RUEHLA RUEHLN
RUEHLZ RUEHPOD RUEHROV RUEHSR RUEHVK RUEHYG
DE RUEHVB #0624/01 2420923
ZNR UUUUU ZZH
P 290923Z AUG 08
FM AMEMBASSY ZAGREB
TO RUEHC/SECSTATE WASHDC PRIORITY 8591
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE PRIORITY
RUEKJCS/SECDEF WASHDC PRIORITY
RHEHNSC/NSC WASHDC PRIORITY
UNCLAS SECTION 01 OF 02 ZAGREB 000624 
 
SIPDIS 
 
FOR EUR/SCE, EUR/PPD, EUR/RPM AND EUR/ERA 
OSD FOR POPOVICH 
 
E.O. 12958: N/A 
TAGS: PREL PGOV ENRG ECON KCRM HR
SUBJECT: ZAGREB WEEKLY ACTIVITY REPORT - AUGUST 28, 2008 
 
1.  (U) IT'S THE ECONOMY....BACK FROM THE BEACH, THE GOC SETS 
PRIORITIES FOR REST OF 2008: 
On August 26, in his first press conference after the 
government's summer recess, PM Sanader spoke on the GOC's 
plans to curb inflation, privatize shipyards, and gain 
momentum in EU accession negotiations. 
      INFLATION:  To curb inflation, Sanader said the 
government would try to hold the price of natural gas for 
home use constant through the end of 2008, and try to do the 
same for commercial use as well.  He said he was sure 
inflation would fall to 6-6.5% by the end of the year, having 
reached a 14-year high of 8.4% year-on-year in July.  (Note: 
The Croatian National Bank (HNB) forecasts an average annual 
inflation rate of 7% for 2008, compared to 2.9% for 2007.) 
Finance Minister Ivan Suker said the GOC designated HRK 600 
million ($124 million) in budgetary funds to curb inflation. 
Sanader said the government's other anti-inflation measures 
would include keeping public expenditures in check and 
monitoring other prices for "unjustified hikes."  Measures 
being taken by the HNB include limiting credit expansion and 
allowing the Croatian kuna to appreciate against the euro. 
      SHIPYARDS: At the same press conference, Deputy PM and 
Minister of the Economy Damir Polancec said the GOC would 
invite bids for all six of Croatia's state-owned shipyards by 
the end of 2008, with the "ambitious but feasible" goal of 
starting the privatization process the first quarter of 2009. 
 The shipyards now operate at a loss, requiring large state 
subsidies to survive.  Restructuring the industry is one of 
the requirements for Croatia's EU accession. 
      EU ACCESSION:  Sanader said the government hopes to 
open all twelve remaining chapters by the end of 2008 and 
close some chapters as well.  He added that he remains 
confident Croatia can complete negotiations by the end of 
2009.  The government has its negotiating positions prepared 
for two additional chapters--fisheries and agriculture--and 
intends to submit them in September.  COMMENT: Progress on 
the fisheries chapter is especially notable. The screening 
report for that chapter was held by the EU Council for two 
years.  On July 29, Slovenia unblocked the report and Croatia 
was invited to submit its negotiating position for the 
chapter. (SLitke) 
 
2.  (U) SANADER SAYS SHARE SWAP WITH MOL STILL MOST LIKELY 
FATE FOR INA: 
On August 26, PM Sanader also told the press that talks about 
Croatia's gas and oil company INA continue with Hungary's 
MOL.  He said a share swap is the mostly likely deal to 
emerge, though a sale of the GOC's 44% stake in INA shares is 
still being considered.  MOL has held a 25% share of INA 
since 2003 and is looking to obtain a majority stake. 
Sanader said he believed a share swap would allow the GOC to 
exert more influence on MOL's future policies (including, 
presumably, extending the prohibition against MOL selling its 
current INA shares which is due to expire in October 2008). 
He added that the GOC's budget does not need revenues from a 
sale of shares.  The government expects to make its decision 
very soon and added that much would depend on the outcome of 
MOL's public bid on all non-state INA shares, which is 
currently being reviewed by the Croatian Agency for 
Supervision of Financial Services (HANFA).  (SLitke) 
 
3.  (U) SURGEON FLEES COUNTRY AFTER CORRUPTION CONVICTION: 
A Croatian surgeon, Dr. Ognjen Simic, was sentenced to nine 
years in prison on August 25 in a landmark graft trial. 
Simic was not in court for the sentencing, having fled to his 
father's home in Bosnia.  As a dual citizen, he will likely 
remain in Sarajevo as the Bosnian Constitution does not allow 
for extradition of its citizens.  Dr. Simic was found guilty 
of taking thousands of dollars in bribes from patients 
needing heart surgery.  His sentence is the most severe for 
corruption since Croatia became independent in 1991. 
Prosecutors were disappointed by the verdict, however, and 
plan to appeal.  They are seeking 12 years in prison as well 
as a guilty verdict on money laundering charges.  The case is 
one of several investigations that USKOK (Office for 
Suppression of Organized Crime and Corruption) is conducting 
concerning graft in the medical field.  USKOK's ongoing 
Operation Dijagnoza has already resulted in ten indictments 
for bribery and abuse of authority in 2008 with several 
trials to start soon. (CZimmer) 
 
4.  (U)  CROATIA UNITED IN SUPPORTING TERRITORIAL INTEGRITY 
OF GEORGIA: 
On August 26 the Foreign Ministry issued a press release 
reaffirming its support of the sovereignty, independence and 
full territorial integrity of Georgia following GoR's 
recognition of the independence of the breakaway Georgian 
regions of Abkhazia and South Ossetia.  The MFA noted that it 
 
ZAGREB 00000624  002 OF 002 
 
 
would continue to coordinate and harmonize its positions with 
the EU and NATO.  Responding to criticism in the media, PM 
Sanader stated that the GoC was not adopting a passive 
position on Georgia as a non-permanent member of the UN 
Security Council.  He said that there was no reason for 
Croatia not to follow the policy of the EU and NATO as an 
aspiring member to these bodies.  President Mesic also 
released a statement on August 26 expressing concern about 
Russia's recognition of South Ossetia and Abkhazia.  He noted 
that the GoR's policy could create the impression of trying 
to avoid negotiations on the status of South Ossetia and 
Abkhazia, even though such talks were stipulated in the 
agreement that President Sarkozy brokered with President 
Medvedev. Mesic added that the status of autonomous oblasts 
in the former Soviet Union did not provide legal basis for 
their case for independence to have precedence over the right 
of internationally recognized countries to maintain their 
territorial integrity.  (PD'Amico) 
Bradtke