New Government, Old Policy

AIM Zagreb, August 31, 2000

Simultaneously with publication of the economic platform of the government of Ivica Racan at a solemn gathering held in the past few days at Plitvice, Croatian media carried results of a public opinion poll conducted by the Centre for Market Investigation from Zagreb. It showed that as many as 75 per cent of Croatian citizens believe that ten years ago they lived better that they do nowadays. To the question whether their expectations of the replacement of the communist system by multi-party democracy had been fulfilled, only 14 per cent, that is not even every fourteenth participant in the poll, answered – yes!

It has thus become crystal clear what the situation is like in Croatia nowadays, but also what the new regime that replaced that of Croat Democratic Community (HDZ) in the beginning of the year is expected to do. Only big optimists believe that the replacement has occurred because of disappointment with the nationalistic policy of Tudjman's movement. This is partly true, of course, but the main disappointment came from the stomach. The old policy has created too much poverty, it deprived too many people of their jobs and sustenance, it robbed them of their property they had been making for decades and took away their life savings. Moreover, it left them with no hope whatsoever in economic revival. The customary answer “It will get better” to the equally customary question “How are you?”, caused nothing but ridicule in Croatia. That is why the elections of January 3 literally wiped HDZ regime out.

In the latest analysis of known economist Stjepan Zdunic, who is the economic advisor of Croatian president Stjepan Mesic, it can be read that of all former communist countries, the most successful ones are those that often changed cabinets. An exception that confirms this rule, is the most successful of all countries in transition, Slovenia, in which liberal democracy in coalition with certain other parties was in power for seven years. But why should the regime be changed in a country which according to economic results leads the way and is already at the threshold of European Union. Croatia is, however, a country which fits perfectly in the rule Zdunic refers to. The government formed by HDZ lasted longer than any other government in former communist counties, and its economic results are by far the worst. Data of a famous Viennese institute which follows development of countries in transition show that Croatia increasingly lags behind its betters while the weaker ones are gradually catching up with it.

After the elections had enabled the opposition to form the government (the question is whether this would have been possible if Franjo Tudjman had not died before that), all the expectations were transferred to the coalition of six parties headed by SDP (Social Democratic Party). Six months after taking over power, the present minister of finance Mate Crkvenac said that the government intended to meet them.

It plans gradual acceleration of economic growth during the next three years from 2.5 to 5 per cent, and only after that the period of quick development should follow. The gross domestic product should at the end of this year reach 4,255 dollars per capita, and three years later 5,854 dollars. This year Slovenia will already have more than 10,000 dollars per capita. Before the war (which is a popular phrase which in fact marks the time before HDZ) Slovenia was wealthier than Croatia by 50 to 60 per cent. Nowadays, it is almost 2.5 times wealthier per capita, although the number of Croatian citizens has been reduced since.

In each of the next three years, the total number of the employed in Croatia would be increased by 30 thousand. This means that by the end of 2003, there would be about 1,420,000 employed persons, which is still by 200 thousand less than before the war. The composition of the employed should also be improved, because during HDZ's rule people working in industries were losing their jobs, while the number of those employed in administration, army and police grew immensely. At this moment, however, employment is still going down according to the same pattern: in companies and not in state administration. The situation has somewhat (unfortunately just temporarily) improved by increased employment workers in tourism for the summer season.

One of the main issues in the government platform, is limitation of budgetary consumption which should remain at the level of about 50 billion kunas a year in the course of next three years. This is nearly 13 billion marks. Such a budget is considered by the government as a great sacrifice which must be made in order to leave more money for operation and investments in industries. It is a fact, however, that the extravagant HDZ has never managed to collect that much for the state cashbox. In its last year in office, in 1999, about 50 billion were planned, but due to decline of production and consumption, tax collection failed. Even without the official restructuring of the budget, it ended with hardly 40 odd billion kunas. The new administration warns that previously much more money was spent than there was in the budget in a very simple way: the state was buying and spending, and it was not paying. After that, companies stopped paying each other, so illiquidity exceeded 44 billion kunas, which is 3.5 times more than the total quantity of money in circulation. The government of Ivica Racan interrupted this practice. From its budget it is now paying debts of HDZ, and it will have to continue paying them.

Presidents of all six large trade unions and a representative of Croatian Association of Employers were also invited to Plitvice where this platform was discussed for four days. More than 350 thousand unemployed were not represented by anyone. The government hoped that they would all support the proposed platform and that a social pact would be made which would enable avoiding strikes and other forms of pressure in the next three years. It got the support it desired only from the trade union of public servants who estimated that their interests would be protected although their salaries will not grow in the next three years. Workers' trade unions were more cautious, so they stress in their first comments that it seems to them that the proposed objectives are too humble. Employers are silent. Their conflict with workers' trade unions continues to smoulder because the workers demand regular payment of salaries and their increase at least in proportion with the increase of living expenses. This could also prolong signing of the pact on social peace.

Independent economists were so far the sharpest critics of the government platform. They claim that economic growth should be twice as fast of the one planned by the government. Some of them reminded minister of finance Mate Crkvenac that he too had claimed while he was in the opposition that without 7 to 8 per cent of growth Croatia would not be able to overcome the crisis. It leaked in public that in Plitvice, where work took place behind closed doors, some of the ministers also stated similar opinions. The critics were supported by president of the Republic Stjepan Mesic who stated that the proposed rate of growth would be sufficient for an orderly country, but that Croatia was in a deep crisis which it would never overcome in this way.

Critics warn that the new government has not truly changed the old policy of HDZ. Former government was concerned only by the stability of prices and foreign currency rate, and it was not at all interested in development. (In the past years, Slovenia had exactly the opposite order of priorities). The new administration is working more correctly and above all more honestly than the former. It introduced order into public finances, which HDZ either could not or would not do, it balanced the budget, and by introducing changes in the taxation system it is trying to stimulate entrepreneurs. But despite everything, it is impossible to carry out the necessary changes with the same policy. The most that can be drawn from it, even in the best and most honest efforts, is a platform which was presented in Plitvice.

In the beginning of the year, the voters in Croatia changed the regime because they were looking for a new, different policy. The new administration is very well aware of it, but it anyway continues in the old direction. Why? Because of a lack of vision, uncertainty, fear of inflation or pressure exerted by International Monetary Fund? Critics – and they are without exception the same ones who used to criticise HDZ – say that in a country in which money is founded on foreign currency reserves, which is equal to foundation in gold, there is no risk of return of inflation. The strategy of overcoming the crisis must be made by the government, and IMF will not be in the way. But the only true critics of the government are its voters. Many people in Croatia wonder whether they will continue to endure living worse than ten years ago with promises of better life some time in the future which will begin in a few years? Or social and political tensions will lead to a change of policy before the next elections.

Milan Gavrovic

(AIM)