Loyalty Costs

AIM Zagreb, July 16, 2000

Six months after the Croatian Democratic Union (HDZ) was replaced in its ruling position and became the opposition, various documents which have started appearing in public have uncovered all the details of the complexity of its rule and - what is more - problems that it has left to the new authorities.

Until now, shorthand notes of Tudjman's talks have revealed the way in which the late President ruled, but also all the manipulations his associates used in order to keep the entire state under their control, ensuring material prosperity only for themselves and their closest. The latest discovery of the Financial Police about 17 million kunas, i.e. almost DM 4 million, granted for housing credits to public servants, is just another in a series of indications about the ways and means by which HDZ bought loyalty and allegiance.

At the end of April 1998, Zlatko Matesa, the then Prime Minister of the Republic of Croatia, and Bozo Prka, former Minister in that Government and then Director of the Privredna Banka Zagreb (The Economic Bank of Zagreb), signed a contract on granting housing credits to officials, clerks and employees of the state authorities. According to this contract the Economic Bank gave the Government almost four and a half million German Marks, which the Government Office for General Affairs distributed to 83 employees of various Government services. The amount of credit ranged between miserable DM 4 thousand (for ordinary secretaries) and DM 100 thousand which was the sum granted to individual ministers. When in spring this year, the State Auditing Bureau published its report on the performed auditing of business operations of state authorities in the course of 1998, numerous irregularities regarding these credits were pointed to. However, only after the Financial Police submitted its findings a month ago, it became clear what the state auditing had in mind when it mentioned “observed irregularities”.

For years, the Economic Bank was used as a kind of "self-service", a place which one could go to and take as much money as one needed, be it the state and its institutions or tycoons who enjoyed the support of the ruling class. Such functioning of the bank brought about its crash, but until today no one was called to answer for that. Instead of being arrested, the entire management was only relieved of duty and a trustworthy man was brought to the position of the Bank's Director, personified in Bozo Prka. The bank was rehabilitated with state budget funds, same as several other banks. The amount used for the rehabilitation of all these banks reached 50 million kunas, i.e. over DM 13 billion, which is equal to this year's budget of the Republic of Croatia. The old authorities never asked whether there was money for that. This money was spent in such a way and by people whom those same authorities gave the right to do so, i.e. to put it in their own pockets, so that it was no surprise when a deficit was discovered which had to be covered by taxpayers money.

After this was done with the Economic Bank, Prka was brought to its front position with the task of showing the best possible business results after which the bank was to be sold to foreigners. Prka succeeded, so that today the Italians are running the Economic Bank. A credit of 17 millions kunas which the Economic Bank had granted to the state, is just one indicator of methods which the former Minister, with the assistance of the Cabinet members with whom he shared the same table for years, used for quickly turning the bank into a profitable one. The disputable credit had three tranches which should be returned after 10, 15 and 20 years, respectively. The annual interest rate was set at 7 percent, while credit end-users (state officials and employees) would be paying only 2 percent and the state would cover the remaining 5 percent interest, in a single payment. In other words, several days after the Economic Bank earmarked the money to the Government's account, that same Government used one third of that credit to pay the interest to the Bank. In that way, by signing of a single contract, the Economic Bank collected 5,8 million kunas in just a few days and ensured monthly inflow of a considerable sum of money over the period of 20 years, which would in the end be higher than the one it had granted to the Government as a credit.

On the other hand, the Government granted credits to its employees according to an undefined rank. Several ministers mostly got credits of over DM 90 thousand, while former Minister of the Navy, Transport and Communication got a round sum of DM 100 thousand. State attorneys, Presidents of District Courts, late Tudjman's counsellors, his secretaries and Parliament secretaries and even secretaries' secretaries.. they all got credits. Members of the state protocol also used this possibility in the amounts that were equal to ministers' credits. Further, several employees of the State Auditing Bureau also took credits, which were distributed even to workers of the Government and Parliament Office for General Affairs - the same one which was in charge of credit distribution. However, no one knows to this very day which was the criteria used in the distribution of these credits. It can only be assumed that there is an internal decree according to which employees of state authorities should have the possibility of resolving their housing problems for which purposes the Economic Bank granted the mentioned credit which was distributed to 83 of them. Naturally, that is just one of many similar credits granted in this way in the last ten years.

Article 6 of the Contract signed by the Government and the Economic Bank sounds almost surrealistic. It prescribes that "in case credit beneficiaries do not meet their credit obligations regularly, and after the Bank doesn't succeed to fully collect its due claim within six months, despite all regular measures undertaken for collecting it (dunning, confiscation of the property of the debtor, co-debtor and solidary guarantor), The Government of the Republic of Croatia undertakes to fully meet liabilities of credit beneficiaries within next sixty days after being called to do so by the Bank..." In other words, if former ministers and counsellors fail to regularly pay back their credits, that job is now left up to Racan's Government.

In addition, the Financial Police demanded the calculation of all taxes, surtaxes and contributions on the credit, which the previous Government failed to do. Namely, according to the valid laws, subsidised interests which were applied in the distribution of these credits should be calculated as an income of credit beneficiaries on which all taxes have to be paid. Although these laws were passed by the former Government, it did not apply them, so that in all likelihood, that obligation will fall on the shoulders of the new one. It has been calculated that they amount to additional 8.5 million kunas, which is equivalent to DM 2 million. This is just one in a series of similar liabilities that the old Cabinet has left behind and which have to be honoured by the new one from the already overburdened budget.

These findings of the Financial Police have also confirmed some other stories which the Croatian media wrote about in the last two years, and which concern credits granted to ministers and Parliament delegates. Namely, when the distribution of these credits started, names of some individual beneficiaries were practically monetarily disclosed. Under the pressure of numerous articles in independent press, the accused started retreating and even claiming that they had given up their credits and wouldn't take them. However, according to the list of credit beneficiaries, it is obvious that none of those who had announced such a possibility have actually cancelled their credits. Moreover, some assistant ministers took their credits in the last minute, at the beginning of this year, when they realised that there was nothing more they could hope from HDZ. And if they had been granted an exceptionally cheap credit, well...

Everyone has handsomely charged for their loyalty to the Croatian Democratic Union. But, HDZ also paid them back in the same coin: in the ten years this party of suspects of all kinds ruled the state, everyone who helped its survival in any way was handsomely rewarded. Hundreds of thousands of kunas were given for credits, instead of salaries they were awarded managerial contracts which brought them each month more than an ordinary worker could earn in a year, they had numerous other possibilities, and all that was paid by those who barely made ends meet. However, HDZ knew full well that loyalty had to be rewarded and was unstinting with it. Granting 17 million kunas worth credits and another 14 million kunas for various dues on account of those same credits - that was nothing for HDZ, especially when compared to hundreds millions which were given to chosen HDZ members, who are now rotting in prisons.

Milivoj Djilas

(AIM)