THE COLLAPSE OF KARLOVAC
AIM ZAGREB, January 13, 1999
When in early January the Karlovac Milk Industry (KIM) - hitherto economic pride of Karlovac and Kordun and the largest food producing enterprise in the region was brought to its knees, many denizens of Karlovac finally realised that the time has come to sound the alarm. Namely almost a decade long HDZ rule, which is practically sacrosanct in this town and district, managed to destroy almost all economic entities it could lay its hands on. With over 13 thousand unemployed in the town and region, Karlovac, a former industrial center of Yugoslavia, is today the city of the unemployed, exiles and refugees, small-scale businessmen and petty traders in which bare survival has become the most important issue. Among many similarly ruined industrial centers - economies of Split and Sibenik are most probably equally destroyed - Karlovac is the last, and perhaps, the most drastic example. Namely, after the collapse of their industries Sibenik and Split still have the touristic potentials and the related development of agriculture, food and similar industries. The center of Kordun has no such hopes as it is traditionally oriented to industry.
The Karlovac Milk Industry was one of the last large and sound firms in the town. Until last year KIM was the property of small shareholders and the Croatian Privatization Fund. It collected milk from 3,700 individual producers from the entire region and marketed its produce in the areas of Karlovac, Rijeka and Kvarner, part of Dalmatia and Zagreb. The firm developed for years and even the greatest pessimists could not anticipate its collapse. However, last year it caught the eye of Miroslav Kutle, a tycoon, an all-embracing deadly virus for the Croatian economy. He is Tudjman's favourite player in his action of transferring the former socialist economy into 200 private hands.
According to the latest statistical data, Miroslav Kutle got from the state over 170 enterprises, practically free of charge. And, as Brian Berry, the new American General Manager of his empire - the Globus Group - said, Kutle is worth over 20 billion DEM. Since the total value of property privatized in Croatia until now amounts to 22 billion DEM, it turns out that Kutle got 99.9 percent of all privatized private property in Croatia!
His system, which he himself compared to driving a bicycle, worked like this: Kutle would first "buy" one company; after that he would pay for it in installments with the firm's money and using it as a collateral he would borrow to buy new firms. This is, in fact, a kind of financial engineering as fresh money was always in short supply and that systemic error will, sooner or later, result in the collapse of Kutla's entire empire. Somewhere at the end of that road, this week, a criminal proceeding has been announced against Kutla, and the Croatian TV has launched a campaign against him. This is the best sign that the party leadership will sacrifice him in order to acquit itself. That is how Karlovac Milk Factory fell victim. But, even before that, its workers were nevertheless sacrificed.
Namely, using the firm as collateral (with only 25 percent share) Kutle raised credits which he was unable to repay so that KIM had to pay them back from its income and therefore stopped paying its cooperative producers. After waiting for several months, all three thousand and seven hundred of them went over to the rival firm "Vindija" from Varazdin. Consequently, early this week, KIM was temporarily closed down until some solution is found. Regrettably for the denizens of Karlovac, KIM is not an isolated problem. Moreover, the destruction of this firm has become a pattern for the destruction of Karlovac and, it seems, Croatia at large.
Karlovac has been "plundered by tycoons" and turned into a "ghetto of hungry workers" said, none other than the Karlovac Mayor, Marko Maric, recognizing on the Karlovac example of "Kutla's doings" a danger for his own party interests and in the tycoon invasion competition for small-scale enterprises of Karlovac, which he also belongs to. The danger was well observed, but perhaps too late. Apart from KIM there are many similar examples: the tycoon Josip Gucic bought the Karlovac Timber Industry and found warehouses full of finished and semi-finished products. When he abandoned the whole project he left the empty warehouses and returned the ruined enterprise to the state.
An unknown entrepreneur, who can also be called a tycoon because of the formula he applied, took over the enterprise "Vunateks". He sold the brand new machinery for a price several times higher than the amount he paid for the enterprise, fired workers and is now selling Italian furniture in the empty factory halls. The people of Karlovac say that Kutle mysteriously managed to get hold of the city market. It is common knowledge that all over the world markets are the same: stands are rented for huge cash amounts. And that is what Kutle loves best. It is still unclear how will this story end. One of the most valuable plants of "Jugoturbina" - the Gas Turbine Engines Factory - was bought by Slavko Canjuga, brother of the legendary Zlatko. This is a firm which at the time of its takeover allegedly had claims on foreign markets worth several millions.
Today, its destiny is uncertain: wages are three months late. One of the rare solid firms in the town "The Agricultural Combine PPK" has caught both Kutla's and Lijanovics' eye, but neither has managed to get hold of it yet. The well known Brewery, which Andronik Luksic, a Chilean millionaire of Croatian descent, bought at Tudjman's order, is the only exception. However, even the Brewery did not raise wages in the last three years despite the constantly rising productivity. But, who would dare complain in a situation of general fiasco in Karlovac?
Most of the firms taken over by tycoons pay their general managers as much as 20 thousand kunas. Even before the tycoon invasion the economy of Karlovac was on its knees. It first faced a possible collapse with the dissolution of the firm "Jugoturbina" and the disappearance of the Eastern, Soviet market. "Until 1990 the "Jugoturbina" complex had 12 thousand employees", said Dragutin Vuljanic, Coordinator of the District Trade Union of Metal Workers within the SSSH (Alliance of Independent Trade Unions of Croatia). "Today, there are barely 2,500 people left in this branch of industry in Karlovac. That is part of the general collapse of the metal industry in Croatia which employed 187 thousand people in 1990 and today has only some 60 to 70 thousand. The situation in Karlovac is more drastic as this town was mostly linked to this sector".
According to him, in the entire Karlovac-Sisak region there are 7,098 metal workers employed in some 25 trade companies. Out of that number, 17 percent do not get their wages and in seven wages are several months late. "Jugoturbina is totally ruined and there is very little left of it". The enterprise was divided into OURs (basic organisations of associated labour) which are now reduced to artisan workshops. In 1955 "Jugoturbina" exported turbine engines to India and today its engineers and experts sell pantyhoses at the market place", claimed a Karlovac journalist. Karlovac is no longer an industrial city, as it used to be, nor a commercial center, but a transit city. Soon it will be no more as everyone tries to bypass it because of the well-known traffic jams.
Here is another rather superficial, but illustrative example of the state of the city economy: last year firm "Adriadiesel" lost its licence for the production of Sulzer engines. That brought it to the brink of the ruin, but it was saved by an order from the MAN factory and government's donation in the amount of 7.9 million kunas without which it would have never survived. Stjepan Prahovic, General Manager of the Roller Bearings Factory claimed that increased production only increased the illiquidity of his firm. Firm "Termix" is in dire straits because the state is not paying its bills. "Adria Detroit", also a producer of engine radiators which were once exported to the States, has lost 90 percent of the American orders; Bozidar Blauhorn, General Manager of "Zitoprerada" told us that last year's business results are below all expectations - his firm was stifled by "devastating illiquidity" with all prospects of "facing unpredictable difficulties very soon". The Karlovac Shoe Factory (KIO) fired 172 workers. Damir Furdek, General Manager of KIO, claims that even the figure of 600 remaining workers - is too high. The sale of this factory has also been announced so that another 600 citizens of Karlovac have every reason for fear.
There is something even worse than the present situation, that is hopelessness. "In Karlovac, only one thing is worse than the HDZ rule. The opposition", told us a man well-versed in the local political situation. "Without any competition, the Karlovac HDZ branch is absolutely the worst in the state. Not one HDZ member has been co-opted from its ranks to the state bodies, nor is it even trying to follow the example of the party at the state level - to attract educated people in order to reinforce its legitimacy. The Karlovac HDZ has been reduced to several factions which practically deal with only one thing: how to drive each other out of the party. Some HDZ members fell victim to mines used in that fight and even their homes and weekend houses were blown up. The only persistent member of the opposition is Stjepan Klobucar from Paraga's HSP (Croatian Peasants Party). Ivan Stajduhar, former chief of police, is today a member of the SDP, although the largest number of the Serbian houses were blown up at the time he was in power... That is why changes in Karlovac are impossible as there are no serious politicians here".
BORIS RASETA