Cablegate: Pm Kosor Draws in Outside Experts and Elevates Old

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PP RUEHIK
DE RUEHVB #0678/01 3221004
ZNR UUUUU ZZH
P 181004Z NOV 09
FM AMEMBASSY ZAGREB
TO RUEHC/SECSTATE WASHDC PRIORITY 9660
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE PRIORITY
RUEAIIA/CIA WASHDC PRIORITY

UNCLAS SECTION 01 OF 02 ZAGREB 000678

SENSITIVE
SIPDIS

EUR/SCE FOR CATHERINE WESTLEY

E.O. 12958: N/A
TAGS: ECON EFIN PGOV PREL HR
SUBJECT: PM KOSOR DRAWS IN OUTSIDE EXPERTS AND ELEVATES OLD
GUARD FOR NEW ECONOMIC TEAM

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1. (U) SUMMARY: Croatian PM Kosor announced on November 13
the appointment of Croatian Employers' Association (HUP)
Executive Director Djuro Popijac as Minister of Economy, and
Health Minister Darko Milinovic and Finance Minister Ivan
Suker as Deputy Prime Ministers in addition to their current
positions. Additionally, Kosor named three prominent local
economists to an advisory council. With a total of five
deputy prime ministers, the new government structure could be
unwieldy. But Kosor's decision helps to simultaneously
silence critics in the business community and reassure the
upper leadership of the HDZ of her support. The new, smaller
economic council could serve her even better, as they are all
respected economists who are mostly apolitical and likely to
give very frank advice. END SUMMARY

EMPLOYERS ASSOCIATION PRESIDENT NAMED AS MINISTER OF ECONOMY

2. (SBU) Djuro Popijac, head of the Croatian Employers'
Association (HUP), is the new Minister of Economy, replacing
Damir Polancec, who resigned two weeks ago over alleged links
to an ongoing corruption investigation. As HUP president,
Popijac was one of the GoC's loudest critics on the
introduction of VAT increases and a "crisis" income tax. He
has also made frequent public calls for lowering public
expenditures and the overall tax burden on businesses. As
Minister, Popijac will be responsible for GoC policy and
oversight on trade, energy, insurance, labor, investment, and
export promotion. He will notably not carry the simultaneous
title of Deputy Prime Minister that his predecessor carried.
Given Popijac's previous position on the employers' side in
negotiations with labor unions, it is no surprise that unions
are generally unhappy with the appointment.

3. (SBU) Prior to his tenure as HUP Executive Director,
Popijac was President of the Croatian Financial Agency
(FINA), Croatia's payments clearinghouse, where he spent the
majority of his career. He is credited for the work that
established the financial payment systems in Croatia
following independence from the former Yugoslavia.

MINISTERS OF HEALTH AND FINANCE PROMOTED TO DEPUTY PRIME
MINISTERS

4. (SBU) In addition to the new Economy Minister, Minister of
Health Darko Milinovic and Minister of Finance Ivan Suker
were named as Deputy Prime Ministers. These appointments will
bring to five the number of Deputy PMs in the 20 member
government. Milinovic will now be number two in the
government under Kosor, which reflects his position as deputy
president of the HDZ. Suker's position as Deputy PM for
Economy will entail only limited expansion of his authority,
but he will bear political responsibility for the actions of
the new team. Since the other three Deputy PMs are all from
coalition allies, the elevation of Milinovic and Suker, both
old guard loyalists of the ruling HDZ party, appears to be a
gesture by Kosor to the HDZ inner circle to reassure them
that the party still forms the backbone of the government.

NEW ECONOMIC COUNCIL: EXPERTS READY TO TACKLE THE BUDGET
DEFICIT

5. (SBU) Kosor's November 13 announcement also established a
new council of experts to advise her on economic questions.
The economic council is comprised of private equity investor
and former finance minister Borislav Skegro, Head of the
Zagreb Institute of Economics (EIZ) Sandra Svaljek, and EIZ
analyst Zeljko Lovrincevic. According to Kosor, the
council's immediate task will be to advise her on how to
manage or reduce Croatia's budget deficit as well as the
potential removal of some politically appointed executives
from supervisory boards of public companies. Croatian media
and financial analysts praised the appointments. All of the
members are seen as 'outside' the political sphere and are
locally respected experts well familiar with Croatia's
economic problems.

COMMENT

6. (SBU) Kosor's announcement serves the dual purpose of
satisfying some of her loudest critics from Croatia's
business community and maintaining HDZ harmony. She was under
heavy pressure to name a new team to jump start economic
reforms even before former Economy Minister Polancec was tied
up in the Podravka scandal. She needed to name an economic
policy maker to the Deputy PM post to reflect her seriousness
in tackling economic problems. However, the party hierarchy
dictated that Milinovic be named as well, resulting in the
unprecedented number of deputy prime ministers. She will

ZAGREB 00000678 002.2 OF 002

need to skillfully manage this somewhat unwieldy structure to
move forward on key reforms in the economy and health care.
She may have better luck with the new, smaller, council of
economic experts. Previous efforts to cull outside economic
advice suffered from soliciting too diverse a cross-section
of experts, resulting in muddled recommendations, or even no
recommendations at all. In the new body, two of the three
people named (Svaljek and Lovrincevic) are part of the same
economic research organization, and the third (Skegro) has
benefited from many years in the private sector where he has
been outspoken in his criticism of Croatia's business and
investment climate. The advice she will get from these three
will likely be apolitical and very frank. It will then be up
to Kosor, Suker and Popijac to figure out whether they can
implement it. END COMMENT.
FOLEY

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