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Balkan Report: April 14, 2000

14 April 2000, Volume 4, Number 27

Croatia: Setting The Agenda For Change. Following the election of a new government and president at the beginning of the year, most of Croatia's citizens expect rapid progress towards economic recovery and European integration. But it will be difficult for the government to show quick results. Years of war and subsequent economic and political stagnation and decline have left their mark. The government will have to push long overdue reforms in the administration and implement unpopular economic reforms. These may result in a dramatic devaluation of the kuna, which could affect everyone personally. Diplomats, business people, regional experts, and politicians met at a conference in Munich on 10 and 11 April at the invitation by the Siemens Foundation, the Suedosteuropa-Gesellschaft, and the Bavarian-Croatian Society. They discussed the prospects for political reform in Croatia, for its European integration, and for economic recovery. Most discussants stressed that they expect the government to pursue a policy that will boost European integration. The Croatian consul-general in Munich stressed that there has been a noticeable improvement in

But while the overall political willingness to push for change certainly is evident, it will be the nuts and bolts of the reforms that may delay the process. Croatia faces its biggest problems in the economy. Zvonimir Baletic from the Economics Institute in Zagreb pointed out that Croatia has suffered from a misguided economic policy since at least 1992.

When the war began in 1991, Croatia faced a drop in production to about 55 percent of the pre-war level as well as the loss of traditional markets in Eastern Europe and the former Yugoslavia. At the same time, the country had to cope with huge expenses for the war itself and for refugee relief.

Baletic argues that by 1993, Croatia was in need of a stabilization program, a rise in production, and measures to promote economic recovery. At that time, he argues, Croatia needed a weak currency to increase its exports. Instead, the government pursued a policy of keeping the kuna stable, which led to its overvaluation and in the end to inflation.

But rather than accept devaluation, the government used its reserves to support the kuna against foreign currencies. In 1997 and 1998, Croatia faced economic stagnation and in 1999 negative growth. At the same time interest rates grew to between 13 and 16 percent, since the economy faced a money shortage. Thus investors, with the exception of speculators, avoided Croatia. Unemployment rose to 19.4 percent in 1999 and is expected to reach about 21 percent in the year 2000.

When privatization began in 1992 and 1993, socially-owned property was first nationalized and then sold off to private persons. But partly because few Croats have sufficient financial resources and foreign investors were not interested, the government sold most of the companies to the political elite. It supported those often economically incompetent but politically well-connected new owners with large credits. Most could not pay back those credits, and thus the overall capital supply diminished, considerably weakening the banking system.

As a consequence, the government introduced a rule that every bank has to maintain a 30 percent reserve at a low interest rate between 2 and 3 percent for all credits it gives out. While these measure were meant to stabilize the fragile banking system, it made investments even less attractive. In 1999 Croatia exported less than in 1992, i.e. during the war. The government had not used foreign credits primarily to boost production but to stabilize the exchange rate. The foreign debt accordingly rose to $10 billion.

Thomas Gindele, a representative of German industries in Croatia, stressed that other reasons are just as important for Croatia's desperate economic situation as the failed monetary policies have been. He stressed that western businesses have shied away from investing in Croatia because of insufficient legal security, as well as because of often difficult negotiations with business partners who expect bribes. He argued that the overhead costs of labor--including taxes, social insurance, and pension payments--are higher than in other Central and Eastern European countries and amount to 120 percent of the actual wages. Furthermore, restrictive import and export regulations and the absence of free trade agreements add to the unfavorable investment conditions. And he pointed out that real estate prices in Zagreb compare to those of Frankfurt/Main, partly because of the overvaluation of the kuna.

Gindele stressed that the government should not lose time in improving conditions for investors, especially by reducing taxes and customs tariffs for investors, and by reforming and streamlining the administration. To receive a license or a building permit takes far too long, he added. While legislation in general is by and large in line with EU standards, the implementation of justice remains highly problematic, and court rulings often appear arbitrary.

The development of the rule of law has generally remained problematic even though Croatia was admitted to the Council of Europe in 1996. Markus Jaeger, who is deputy head of the Council's monitoring department, said that immediately after the admission of Croatia, relations between Croatia and the Council became strained. This was because the late President Franjo Tudjman refused to confirm in office the elected mayor of Zagreb, an opposition representative. Because of that case as well as other concerns, the Council of Europe launched a review of Croatia's democratic credentials. This included the possibility of the Parliamentary Assembly imposing sanctions or other penalties.

Until recently, the Council had quite an agenda regarding Croatia's shortcomings. These included: the functioning and efficiency of the justice system; the Tudjman government's ambiguous attitudes toward its obligations under the Dayton agreement; the slow pace of the return of refugees; the failure to cooperate fully with the International Criminal Tribunal for the former Yugoslavia; inefficient local government; and a restrictive media law.

Jaeger pointed out that even in May 1999, there were 900 ongoing court cases against journalists, and that in one particular case the weekly "Globus" was fined the equivalent of about $6 million for allegedly defaming politicians. He added that these cases indicate misuse of the law for political purposes. Furthermore, the justice system is home to many elderly communist-era judges, and at this point there is still a backlog of about 1 million unresolved court cases.

He also argued that the constitutional rights of the administrative districts (zupanije) are not sufficient to meet Council of Europe standards, but added that the council is currently advising the government in drafting new legislation. Furthermore, Jaeger expressed concern that the police and other security agencies have become a "state within the state" and are not sufficiently supervised by the civilian authorities.

A new delegation of the council is scheduled to visit Croatia between 16 and 19 April to review the actions of the current government. The rapporteurs will then send a preliminary report to the Parliamentary Assembly, which has three months to react. By the beginning of next year, there will be a final council report, which may mark an end of the review of Croatia.

The new government thus finds itself spurred on to quickly correct the mistakes of the past. But this will be a difficult and long process, and not only in the field of law. The government remains under domestic political pressure to subsidize inefficient enterprises. For example, the shipyards in Rijeka are a crucial employer for the entire region, and the government recently agreed to continue paying subsidies. But it is already clear that Croatia is unlikely to remain globally competitive in shipbuilding. The tourist industry is also suffering from the overvaluation of the kuna. But if the government allows devaluation, it will face broad criticism from most voters, who will see the cost of imports jump.

While the internal administrative and economic reforms are likely to be complicated and take time, the government can demonstrate the quickest results in foreign policy. Whereas Tudjman sought to stress ties to the EU and U.S. to the point of ignoring Croatia's Balkan neighbors, President Stipe Mesic made a political point by paying his first official foreign visit to Bosnia-Herzegovina. The second country he visited was Macedonia--and both these trips followed a "private" visit to Slovenia. Thus Mesic made clear that Croatia will play its role in supporting regional cooperation and integration among the neighbors.

Croatia has also signed a $55 million deal with the Republika Srpska and the Stability Pact for Southeastern Europe, which will provide for the return of mostly Serbian refugees to Croatia and of Croatian refugees to the Republika Srpska.

Furthermore, Carla Del Ponte, the chief prosecutor at The Hague tribunal, has confirmed that the new government is highly cooperative in investigations concerning suspected Croatian war criminals. Exhumations of alleged mass graves of Serbian civilians in the Gospic area are already under way (see "RFE/RL Newsline," 13 April 2000).

Zdravko Tomac, who is the deputy speaker of the parliament and head of its foreign relations committee, told the Munich conference about the actions that the new government has taken over the last two and a half months. Tomac stressed that the government is committed to Croatia as a "multiethnic, multicultural, and multinational" country, in which all citizens enjoy equal rights. In this context he stressed that refugee return is not any more a political problem, but an economic one because of the tight housing and labor markets.

Tomac also made it clear that Croatia's new government has clearly distanced itself from any Tudjman-era plans to partition Bosnia-Herzegovina. He added that the relationship with Slovenia is improving since Croatia has expressed its willingness to recognize its Slovenian minority and settle all other open questions stemming from the dissolution of Yugoslavia. He also stressed that Croatia is willing to cooperate with Montenegro, but added that Zagreb is firmly opposed to lifting sanctions against the Belgrade regime.

It remains to be seen whether the government will be able to cope with all these challenges. The lack of money, time, and patience is likely to make the reforms a very painful experience. But there is no turning back, and most voters recognize that. In a recent opinion poll published in "Jutarnji list," the governing parties commanded a strong majority. Mesic's own People's Party (HNS) has ridden his coat-tails to rise from near obscurity to third place behind the Social Democrats (SDP) and Social Liberals (HSLS). By contrast, Tudjman's Croatian Democratic Community (HDZ) got just 8 percent nationwide, trailing even the Democratic Center (DC), which is a new party led by members of the former HDZ moderate faction. (Fabian Schmidt)

More Fallout In Austro-Slovenian Relations. Carinthia's governor and leader of Austria's far-right Freedom Party (FPO), Joerg Haider, thinks that Foreign Minister Benita Ferrero-Waldner (Austrian People's Party -- OVP) was too conciliatory toward her Slovenian hosts during her recent visit to Ljubljana (see "RFE/RL Balkan Report," 7 April 2000). During that trip, she said that Austria's position on nuclear power stations is the same as that of the EU, which is to insist on the highest possible safety standards. She stressed that to demand more than that would not be "realistic," "Die Presse" reported on 7 April. Her remarks were seen by many Austrians as a retreat from Vienna's previous demand that Slovenia close the Krsko nuclear plant, the only such facility in the former Yugoslavia.

Haider maintains that Austria should remain firm in its opposition to Krsko, the "Frankfurter Allgemeine Zeitung" reported on 7 April. He also argues that Ferrero-Waldner had no business making such a change of policy without consulting the FPO and the affected state governments. The governor of Styria, for example, maintains her opposition to Krsko even though studies have shown that it does not lie in an earthquake zone (as some critics had charged) and that it does not pose the same safety hazards as the Soviet-type reactors in the Czech and Slovak Republics.

Another apparent change of policy--or at least of emphasis--came with Ferrero-Waldner's remarks that the World War II Yugoslav Avnoj Decrees are part of history and cannot be discarded. The decrees formed the basis for the postwar socialist, federal state. Some of their provisions, moreover, called for the wholesale condemnation and expulsion of Yugoslavia's "disloyal" German-speaking minority.

The new Austrian position seems to be that German-speaking former Yugoslav citizens should be entitled to restitution of their property unless it can be proven that the individual or individuals in question were indeed disloyal, "Die Presse" noted. Current Slovenian legislation allows for restitution for nationalized property of Yugoslav citizens--but the German speakers had been stripped of their citizenship before property was nationalized. Some 120 such cases are now pending before Slovenian courts. In any event, both Ljubljana and Vienna seem to agree that this legacy from the end of World War II should be dealt with through bilateral diplomacy and should not affect Austria's stance toward Slovenia's admission to the EU. Whether that will suit Haider remains to be seen.

It is probably a fair assumption that the government of Prime Minister Wolfgang Schuessel (OVP) is trying to offset its isolation from many EU countries by cultivating friends where it can find them. These include countries like Slovenia, Croatia, and Hungary--which seek EU membership and have made it clear that they do not want to joint any international crusade against the current Austrian government. It would be embarrassing for Schuessel and his foreign minister if their conciliatory efforts toward at least one neighbor were undermined by the uncomfortable coalition partner that is the source of Schuessel's problems to begin with. (Patrick Moore)

Djindjic Blames Serbian Society For Its Problems. Serbian Democratic Party leader Zoran Djindjic told Vienna's "Die Presse" of 13 April that Serbia's main problem is that its society has not grown or developed during the 10 years that President Slobodan Milosevic has been in power. The authorities have had no trouble in politically manipulating such a society, he added.

Djindjic stressed that observers place too much blame for Serbia's problems on divisions within the opposition. No opposition can do much if "millions of people do not know whether they want to fight for their rights or not." He called for less talk about divisions within the opposition and more attention by the opposition to the social and economic problems of ordinary people. The main single obstacle to opposition success is not Serbian Renewal Movement leader Vuk Draskovic or any other opposition figure but rather Milosevic, Djindjic added. (Patrick Moore)

U.S. Denies Report Of Renewed Ties To Belgrade. State Department spokesman James Rubin on 11 April denied recent media reports that Washington is seeking to renew diplomatic ties to Belgrade (see "RFE/RL Balkan Report," 11 April 2000). Rubin stressed that Washington-Belgrade relations will improve only after Milosevic leaves office. (Patrick Moore)

Quotations Of The Week. "The [government] crisis has broken out at a most sensitive juncture [in negotiations for Slovenia's membership in the EU and NATO]. It is imperative that this process not be interrupted or delayed. Otherwise, Slovenia may lose its credibility." -- Slovenian President Milan Kucan on 11 April. Quoted by AP.

"Whoever thinks that an operation involving the expulsion of 1.4 million people can take place without a [preconceived] plan is either naive or stupid." -- German Defense Minister Rudolf Scharping, of revisionist German critics who claim that Serbian forces never had a plan (Operation Horseshoe) to expel Kosova's ethnic Albanians in 1999. Quoted in "Die Presse" on 7 April.

"I wanted to make those journalists aware of the legal framework they are working in here." -- Serbian Culture Minister Zeljko Simic, after a Belgrade court fined the alternative weekly "Vreme" $8,000 for libel on Simic's behalf. "Vreme" had written that Simic fired the director of the National Theater, while he argued that it was the government that did it. "Vreme" learned of the court case less than 24 hours before the verdict was handed down, Reuters reported.

Draskovic "cannot be half fish and half girl." -- Serbian Deputy Prime Minister Vojislav Seselj, quoted in "The New York Times" of 13 April. Many in the opposition suspect Draskovic of wanting to do a deal with the regime, although he denies it.