The New Budget Deepening the Crisis

Aim Zagreb, November 14, 2000

Angry and in the heat of the argument, Damir Kajin, a delegate to the Croatian Parliament, offered his assessment shared by an increasing number of people in the country: "These authorities have no guts to make a single move that entails any risk".

Such a risk would be the downsizing of budget spending, which Racan's Government does not dare touch. Before the election, that was one of the main promises of all six parties which are now participating in the Government, and one of them is the Istrian Democratic Assembly, whose Vice-President is Damir Kajin.

However, the budget prepared for 2001 has reached the amount of nearly 51 billion kunas (cca DM 13.3 billion). That much even the squandering HDZ did not spend in any twelve-month period of its ten-year rule.

That is why many people in the country are now asking whose interests is the coalition Government of Prime Minister Ivica Racan representing? Rough and simplified response would be that its favourites are all possible spenders of other people's money, among which the state bureaucracy ranks last. That is also clear from the way in which the Government resolves the accumulated economic difficulties. At the same time, with a record amount of the budget, it decided to initiate bankruptcy proceedings in 321 enterprises, which are partially or wholly state-owned. However, it did not proclaim as redundant labour a single public servant; not even those several hundred people which HDZ ministers employed in a rush after loosing power at elections of January 3.

It has only announced the freezing of their salaries. About 30 thousand people will loose jobs just in those enterprises which have been declared bankrupt.

The Croatian unemployment offices have already some 360 thousand registered unemployed. This figure should be increased by those who have work, but have not received wages for two and more months, a practice which the new authorities, despite promises, have not yet managed to put an end to. Altogether that makes nearly 550 thousand unemployed in Croatia. They mostly come from the economic sector or are young people who do not know what to do and where to go after finishing school. As a rule, the unemployed between 20 and 30 years of age are better educated than those sitting in the state administration are.

In the first year of their rule, more precisely in the first eight months, many things coming from the new authorities were tolerated. But, the proposed budget for 2000 was their first move in the economic sphere with long-term consequences; the more so as the volume of state expenditures projected for 2002 is practically the same. As is for 2003. When the budget is in the first place the matter of politics and then of the economy - the question is whether it reflects the political orientation of the new coalition authorities.

In response to this question some analysts warn that they belong to the same political class as HDZ. That is why now, same as in HDZ's time, Assembly delegates, as well as many state officials have inappropriately high salaries and pensions; that is why parties in power have never missed a chance of positioning their men to all possible jobs and sinecures; that is why the authorities are to all spenders of state funds and officials mother, and to tax payers and workers stepmother.

Others offer an explanation with less ideological charge. According to them, the only policy coalition authorities can pursue is to keep latent conflicts in its ranks in check. They say that Racan's Government, which includes representatives of six parties, lacks both unity, strength and courage (as the mentioned delegate Kajin said) to confront the strong and organised structure of budget users, created by HDZ. That is why, in an attempt to still do something, but under constant pressure of deep economic crisis, it attacks where it knows it will meet with the least opposition. It attacks the economy and workers as well as citizens, for whom it has prepared new taxes after the shock of gasoline and electricity price rise. At the same time, the authorities are afraid of the bureaucracy and other, very strong consumer lobbies which is why it is seeking to reach a compromise with them.

Many will say that in politics, a compromise is always better than a conflict. But, that certainly doesn't apply to situations in which such a compromise can deepen the crisis and introduce pronounced and unjust inequality in the society.

Deciding to adopt an enormous budget, which will be unbearable for both the citizens as well as for the economy, the authorities have assumed the responsibility for further deepening of the crisis and country's economic lagging behind. In the modern world, in which the state is increasingly withdrawing from the economy, a rule that the lower budget expenses the faster economic growth applies. That is why in last four years rich Sweden reduced the share of state in gross national product by 9 percent, Denmark and Finland by 6 percent, Italy, Spain and Great Britain by 4 to 6 percent, Austria and Germany by 1 - 2 percent, while the United States of America, Japan and other Pacific countries are on the same way.

That the Croatian authorities are well aware of this, even unconsciously, is shown by their great wish to attract, at all costs, foreign investments as the only lever of economic growth. They should replace the domestic resources which, instead for development, would be used for state spending. But, foreigners are only interested in buying the existing, profitable and, as a rule, monopolistic enterprises, and not in the so-called "greenfield" investments, meaning the building of new factories and creating job openings.

By their nature, foreign investments can never replace domestic ones. One of the best known economists in former Yugoslavia, and after its disintegration, the author of the Slovenian economic miracle, Dr Joze Mezinger, recently explained this in the following way: "I belong to those economists who are sceptical of foreign investments. Naturally, I am not against them, but for me they are some sort of emergency exit, i.e. a last resort. If you have not saved enough of your own money, if you do not know how to reach foreign markets on your own and how to manage your own property, then you look for foreign investments. But, I see no reason for selling a successful firm to foreigners. I personally do not believe that foreign investments can save any economy. (...)I do not like stories about someone coming from abroad to save us. Maybe they will, but that is not the reason the foreigners are coming. Quite naturally, their intention is to make as big a profit as possible. An exceptionally good example of foreign investments is "Revoz", Renault's firm in Novo Mesto. But, even in this case Slovenia gets only wages, and never profit. The French determine the incoming and outgoing prices according to their own discretion and interests".

Because of the enormous budget, the Croatian authorities are telling stories about foreign investment and, at the same time, selling national firms. Out of nearly 51 billion, which is the amount of the budget for 2001, 12 billion should be the so called "capital revenues" which is an item hiding what the economists call the sale of family silver. However, there can be no life without silver; by selling enterprises the state is selling the means of livelihood. In future, foreigners will be taking the profit and "determining the incoming and outgoing prices according to their discretion and interests". But, the worst thing is that the money obtained in this way will not be spent on new investments, as was promised before the elections, but will be swallowed by the state bureaucracy and numerous consumer lobbies which the current authorities do not dare oppose.

Defending the enormous budget, i.e. that which cannot be defended, the Croatian Finance Minister, Dr Mate Crkvenac said that it "is particularly socially sensitive". Crkvenac explained this by outlays for pensions and child allowances. As if the state spending can be so high just because of them and as if other expenses are off-limits. And precisely these costs would have to be radically cut if the way out of the crisis is to be found. That is why there are voices in Croatia which demand public debate on this issue. The stakes are too high for anyone, even the Government, to assume the responsibility for the consequences.

Milan Gavrovic

(AIM)