Tudjman's Economic Demagogy

AIM Zagerb, 27 September, 1998

Political analysts in Croatia are wondering in the past few days how come the government has not immediately announced measures which would be in line with Tudjman's recent sharp speech. In his speech given at the opening of Zagreb Fair, causing general astonishment, he repeated the whole spectre of oppositionist criticism against the administration - from the demand that "constitutional principle of a social state" had to be respected, to the warning against those who consider privatization only as a means for "quick and ruthless acquisition of wealth", and all the way to concern for "preservation of moral integrity of workers".

All that can be interpreted as a political stratagem, of course, customary for pre-election years; referring to justice and righteousness. In this sense, Tudjman's statement that "people do not feel so injured because they have little as because of injustice" caused much attention. "In their own state which they eagerly longed for, our people have rightfully become much more sensitive to injustice, especially when it is committed by those who are the least expected to commit it", said Mr Tudjman, criticizing "arrogant behavior of individuals from political, but especially administrative and economic, entrepreneuring ranks".

This is, indeed, no news. He has already sometimes surprised his own comrades and political opponents by mentioning "savage capitalism" (which after his words never became tamer), or by swooping down on self-willed and money-loving bureaucracy, not forgetting to add that it was inherited from the previous regime. Neverthless, Tudjman's speech was this time much more than that. There were elements of a new economic program in it, different from the one persistently implemented by the government of the Croat Democratic Community (HDZ) from the time when five years ago high inflation was checked. "We must resist restoration of state ownership and the omnipotent role of the state and calculations", is his key sentence. This is literally exactly the opposite of what the HDZ has been doing for years and on what it bases its absolute domination in the society.

The state and the budget are main instruments by means of which the ruling party has made everyone and everything in the country dependent on it. The price of that, however, has been exceptionally high and it is becoming even higher every day. On the eve of the elections, the party in power has no power to resist any of the numerous financial demands. Nowadays, its sovereign power is not threatened only by the opposition. It is also exposed to the pressure of the international community which demands that it finally accept the fundamental rules of democracy. At the same time it is also shaken by a severe faction struggle among its leaders, which is quickly moving out from closed offices to pages of newspaper, radio and television programs. Nobody can say for sure any more what public protests of dicontented peasants, workers, professors and teachers can lead to, which the authorities just until recently could have ignored or stifled by combined political and social actions. It may even lead to an open split among the authorities.

That is why concessions are being made to everyone. For years not a single strike in this country was successful - now they all succeed. It is enough just to announce a strike for the authorities to raise a white flag and loosen the purse-strings. In the past few days, the authorities met demands of postmen, Istrian miners, workers of "Zagrepcanka", Petrokemija from Kutina, and others... When they had not received their salaries, workers of Belje came to ask for them to Tudjman's residence. And, what a miracle - that is where they got them...

Fearing disturbances in the banking system which, like all the other disturbances in the economy they themselves have caused, the authorities decided to offer guarantees for almost all the savings deposits (except those which exceed 100 thousand kunas or 28 thousand German marks). History is overflowing of terrifying examples what a rebellion of cheated depositors can lead to. Theoretically, banks themselves should pay for insurance of savings with the state agency for financial rehabilitation of banks. Practically, almost everything will have to be paid for from the budget. As officially claimed, the agency will collect a hundred million kunas by the end of the year. And just for depositors of Glumina bank the bankruptcy of which has been announced, twelve times more money will be needed or more than 300 milion kunas marks...

When one knows all that, it is clear why the governemnt did not react to the demand of the president of the state and the HDZ to change its policy and begin reducing the over-sized budget. On the contrary, it has already announced its increase: next year by 4.5 billion kunas, that is 1.25 billion marks. That is how much government ministries have asked for. It is logical to assume that these demands will further increase until the end of the year when the budget is usually voted.

By proving that reduction of state expenditures was impossible, vice prime minister and minister of finance, Borislav Skegro, recently threw down the gauntlet in the face of the opposition (as they put it) demanding that it resolves this problem by telling him explicitly how to reduce the budget and at the same time cover all the state expenses. He probably could not have dreamt that the gauntlet would be caught by the president of his own party...

But, did Tudjman really mean it? Judging by the reaction of the government, he did not. He is well aware that without the money from the budget, both he and his party would soon be gone with the wind. Skegro openly said so, explaining why the present Russian crisis could not be repeated in Croatia. The key difference, he said, was that Russia had no fiscal capabilities for financing its expenditures...

But why did Tudjman come out with his demand for reduction of the budget and state influence on the economy? Obviously because the oversized taxation burden has already smothered the economy and because inflation masked as illiquidity threatens to come up in the open again. That is what the head of Croatian association of employers Zeljko Ivancevic has revealed in his polemic with government policy and vice prime minister Skegro. He claims that due to exaggerated taxation burden, enterprises have been left without money needed for normal operation. The sum of unpaid bills (the so-called illiquidity), according to the estimate of the association, is much higher than 11 billion kunas registered by the office for payment operations. It amounts to 30 or maybe even 40 billion, so that many enterprises have stopped making out bills and started operating without money. Goods are exchanged, involving sometimes up to five or six partners in a single deal.

Of course, the economy cannot function in this way. While the authorities brag with stable currency and growth which has lasted for 34 months in a row already (while Tudjman calls all critics catastrophists, demagogues and petty-politicians guided by destructive motives, lacking patriotism), unpaid bills are piling up and the deficit in the exchange with the world is growing. While prime minister Zlatko Matesa is announcing inflation of only 2.5 to 3 per cent next year, it has already reached 6 per cent in this one.

Tudjman's criticism shows that a part of the ruling party is aware of the danger and that there are deep splits concerning the questions of economic policy. The government must play its role; it must provide enough money to preserve social peace and finance the forthcoming elections. If it fails, the failure will be only its own, not either that of HDZ or Tudjman. By his speech at the Fair, Tudjman is claiming his right to step appear as the arbiter and savior and not as an accomplice. Ruin of the policy of the HDZ government, in that case, will not be an opportunity for the opposition, but only for another HDZ government. Exactly as it has always happened in all the single-party systems.

MILAN GAVROVIC