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Balkan Report: February 18, 2000

18 February 2000, Volume 4, Number 14

Croatia's New Brooms. Less that a month has passed since Prime Minister Ivica Racan's government took office. The ministers are already living up to their promises to fight corruption and put an end to the system of cronyism that characterized the rule of the late President Franjo Tudjman and his Croatian Democratic Community (HDZ).

Just hours after the new ministers took their oaths, police arrested outgoing Minister of Tourism Ivan Herak on embezzlement charges. A week later, police arrested Croatian businessman Miroslav Kutle as he was attempting to cross the border into Slovenia. He is Croatia's most famous "tycoon"--a term Croats have adopted to describe the class of newly rich entrepreneurs who are politically connected to the former regime. In the eyes of many Croats, he is a symbol of the robber-baron style of privatization that has left the economy in ruins.

Kutle is accused of enticing officials at the print distribution company Tisak to embezzle over $6 million from the company. Tisak holds a virtual monopoly on newspaper distribution in Croatia. With over $500,000 in gross sales daily, it is one of the country's few cash cows. Before Kutle bought into the firm five years ago, Tisak boasted revenues of $2.5 million. Today, the company faces bankruptcy and $30 million in debts. Most of this money was either sucked out through embezzlement scams or is debt that Tisak has had to take over for defaulted loans it backed for Kutle's companies.

This is only the tip of the iceberg. In its heyday, Kutle's holding company, Globus Group, owned a controlling interest in over 176 companies, and his entire business empire was estimated to be worth over $500 million. Since then, millions of dollars have simply disappeared from firms owned by the Globus Group, and most of them face bankruptcy today. Globus Group itself is nearly $500 million in debt.

Kutle's exploits would have been impossible without the help and protection of highly-placed government officials. The party and state leadership directly promoted the rise of Kutle and others like him from the very beginning. In fact, they made this a part of the official HDZ policy. Tudjman believed that the country's wealth should be concentrated in the hands of one hundred families politically loyal to his party.

Kutle and other "tycoons" used their political connections and membership in the HDZ to acquire shares in state owned companies. In many cases, these purchases of shares were covered by loans from banks, privatization funds, and other financial institutions that were also in HDZ hands.

In return, the tycoons helped to fill ruling party coffers. They also did much of the HDZ's dirty work. During the early 90s, the newspaper "Slobodna Dalmacija" was one of the most important voices of opposition and hence an irritation to Tudjman's regime. At the HDZ's bidding, Kutle acquired a controlling interest in the paper. Independent journalists and editors were quickly forced to leave--and "Slobodna" became a regime mouthpiece almost overnight. The party also helped Kutle get controlling interest in Tisak in order to keep the distribution of print media in party hands.

These policies wreaked havoc on the economy and helped prompt the opposition parties--which are now in the government--to argue for a revision of the entire privatization process. The tycoons' irresponsible lending policies also led to a banking crisis last year that caused the collapse of a dozen banks. Professor Vladimir Veselica of Zagreb University estimates that nearly $7 billion have been illegally transferred out of the country since 1990. Most experts agree that there is very little chance that the police will recover even a fraction of these funds.

During the election campaign, the opposition promised to clean up the Augean stables left behind by the HDZ. It will be interesting to see whether the new authorities will be willing to prosecute Kutle's political sponsors in addition to the tycoon himself. For his part, Kutle has claimed that he was carrying out the orders of higher authorities. His eventual testimony may implicate several highly-placed officials from the former government, including former Prime Minister Zlatko Matesa, former Interior Minister Ivan Penic, and Ivic Pasalic, who was the late president's domestic policy advisor and current vice president of the parliament.

But it will be difficult for the new authorities to prosecute these people. Many of them enjoy immunity because they are members of parliament. They will seek to make trouble for the government by arguing that they are being prosecuted for political reasons.

In fact, the new government may not want the challenge. The Racan government faces a whole host of pressing economic and social problems. Some cynical observers believe the new authorities will be satisfied with Kutle's head and that they will delay or even forgo prosecuting these cases in the interest of social peace and political cohesion.

But in last analysis, the government may have no other choice but to investigate and prosecute. If the authorities are truly committed to establishing the rule of law and ending the system of cronyism that has impoverished the country, they will have to put political considerations aside and pursue the Kutle affair and similar cases--no matter where the trail of guilt may lead. (Andrej Krickovic)

Combatting Albania's Poverty. The main problem for Albania's long-term development remains breaking the vicious circle of underdevelopment, poverty, crime, and brain-drain. The UN, World Bank, and IMF are trying to help the government cope by supporting infrastructure and development projects in the more remote regions. One such program is linked to arms collection, while another aims at promoting agricultural production and mining.

Officials from the UN Development Program (UNDP) in Albania presented a proposal on 14 February to Public Order Minister Spartak Poci. Its purpose is to expand to several regions an arms collection and development support program, "Albanian Daily News" reported on 16 February. The UNDP successfully concluded a pilot project in the city of Gramsh last year, which it had launched in the summer of 1998 (see "RFE/RL Newsline," 14 July 1998).

The program offered the inhabitants of the poverty-stricken southern Albanian town investments in exchange for arms. The UNDP chose Gramsh because villagers had plundered a large arms depot there during the unrest in 1997 and looted an estimated 10,000 guns. At the time, Gramsh became one of the most heavily armed towns in the country, while the unemployment there was around 30 percent.

Under the Weapons for Development program, local people voluntarily returned 6,700 guns and 100 tons of ammunition. The UNDP in the same time inaugurated several job-creating and development projects with an overall investment volume of $1 million. UNDP officials now plan to launch similar projects for towns in the districts of Elbasan in central Albania and Dibra in the north. At the same time, the government is planning to create a 500-strong special police force charged primarily with arms collection.

Meanwhile, the World Bank and IMF country directors in Albania presented the outlines of an unrelated poverty reduction program at a meeting with Labor Minister Makbule Ceco on 14 February. The program will be launched this year and provide credits to farmers, help develop the infrastructure necessary for agriculture and tourism, and seek to revive the mining industry.

It is financed through the Enhanced Structural Adjustment Facility (ESAF) program, which the IMF introduced in 1998 to support the reconstruction of the economy after the anarchy of 1997.

But poverty remains a formidable problem. According to data from the Ministry of Labor, a fifth of Albania's total population--or 700,000 people--receive some form of social assistance. The government pays basic social assistance to families rather than individuals. There are 150,000 low-income families and another 35,000 handicapped people who receive state support.

Poverty is most severe in rugged northern Albania, where in some regions up to 80 percent of the families receive social assistance. In the larger northern third of Albania, over 30 percent of the families claim welfare payments. The north also has the highest unemployment rates in the country. Shkodra--a city of about 81,000 inhabitants--has 22,000 registered unemployed people, which is believed to be twice the national average in terms of the ratio of jobless to the total population. No comprehensive figures are available, however.

In the south, the number of people dependent on social assistance is considerably lower. For example, only 10 percent of the families draw state support in Vlora. In the central Albanian regions of Tirana, Durres, Berat, and Elbasan, the figure is around 28 percent. (Fabian Schmidt)

Web Page On The Way To The EU. is the homepage of a new network of economic and political research institutes and think-tanks in the ten Central and Eastern European countries that have applied for membership in the EU. The network has been jointly developed by the International Bank for Reconstruction and Development (World Bank), and the Bertelsmann Foundation. The objective is to foster informal cross-border dialogue between regional governments, institutes, NGOs, parliaments, the media, and other civil society organizations on issues of political, social, and economic reform linked to eventual EU membership. (From a statement by the page's sponsors.)

Quotations Of The Week. "Corruption is the worst case of infection. If you don't disinfect it every morning, it will keep coming back, because you cannot destroy that bacteria." -- Bosnian Federal Prime Minister and anti-corruption chief Ejup Ganic, in Sarajevo on 14 February. Quoted by AP.

"Let me start by saying that we strongly condemn the violent and murderous incidents that have taken place in Mitrovica and call upon all parties to cease violent acts. It should be very clear that the confrontation is coming from both sides....We need to impress upon the parties their responsibility to deal with the hatreds and animosities that have been built up" and encouraged by Milosevic. -- U.S. State Department spokesman James Rubin, quoted by AP on 14 February.

"What is the difference between Milosevic and Tudjman? One cannot leave his own patch of dirt while the other is down beneath his." -- Joke told by Croatian President-elect Stipe Mesic to "Le Monde." The quip prompted angry remarks from Miroslav Tudjman, the late president's son and top secret service official. The younger Tudjman cited Mesic's joke as the reason for his subsequent resignation as head of the Croatian Intelligence Service, which, however, had been widely expected.