Croatia: A Crossroads Between East and West (Postcommunist States and Nations)

1111 2 3 4 5 6 7 8 9 1011 1 2 3111 4 5 6 7 8 9 20111 1 2 3 4 5111 6 7 8 9 30111 1 2 3 4 5 6 7 8 9 40111 1 2 3 44111 45111

Croatia

Much has been written about the violent events of the Yugoslav wars of succession that began following Croatia’s declaration of independence in 1991. Yet, despite being only two hours’ flying time from London and now a major European tourist destination, relatively little has been published about the subsequent development of Croatia as a new state. This book tells the story of Croatia’s development since independence, involving rebellion, war and dramatic political, social and economic change. Croatia: Between Europe and the Balkans addresses the key developments in economics, politics, international relations and social policy in the state over the last decade. It places these developments in their historical context, and shows how current policy dilemmas are structured within the conflicting pressures that historically have pulled Croatia between a European, a Mediterranean and a Balkan orientation. However, in the new context of European integration, Croatia may now find a new pivotal role as a bridge between the unruly Balkans and an impatient Europe. This book will be of particular use for courses on Eastern Europe. Its thorough, up-to-date analysis will also be of interest to students and researchers in politics and international relations, as well as appealing to diplomats, policy makers, trade officials and the business community seeking to expand trade links with the region. William Bartlett is Reader in Social Economics at the School for Policy Studies, University of Bristol, and Deputy Director of the Centre for Mediterranean Studies. He has recently co-edited Small Enterprise Development in South-East Europe: Policies for Sustainable Growth and A Revolution in Social Policy: Quasi-Markets in the 1990s.

Postcommunist States and Nations Books in the series

Volume 1 Belarus: A denationalised nation David R. Marples

Volume 9 Lithuania: Stepping westward Thomas Lane

Volume 2 Armenia: At the crossroads Joseph R. Masih and Robert O’Krikorian

Volume 10 Latvia: The challenges of change Artis Pabriks and Aldis Purs

Volume 3 Poland: The conquest of history George Sanford Volume 4 Kyrgyzstan: Central Asia’s island of democracy? John Anderson Volume 5 Ukraine: Movement without change, change without movement Marta Dyczok Volume 6 The Czech Republic: A nation of velvet Rick Fawn Volume 7 Uzbekistan: Transition to authoritarianism on the silk road Neil J. Melvin Volume 8 Romania: The unfinished revolution Steven D. Roper

Volume 11 Estonia: Independence and European integration David J. Smith Volume 12 Bulgaria: The uneven transition Vesselin Dimitrov Volume 13 Russia: A state of uncertainty Neil Robinson Volume 14 Slovakia: The escape from invisibility Karen Henderson Volume 15 The Russian Far East: The last frontier? Sue Davis Volume 16 Croatia: Between Europe and the Balkans William Bartlett

1111 2 3 4 5 6 7 8 9 1011 1 2 3111 4 5 6 7 8 9 20111 1 2 3 4 5111 6 7 8 9 30111 1 2 3 4 5 6 7 8 9 40111 1 2 3 44111 45111

Croatia Between Europe and the Balkans

William Bartlett

First published 2003 by Routledge 11 New Fetter Lane, London EC4P 4EE Simultaneously published in the USA and Canada by Routledge 29 West 35th Street, New York, NY 10001 Routledge is an imprint of the Taylor & Francis Group This edition published in the Taylor & Francis e-Library, 2004. © 2003 William Bartlett All rights reserved. No part of this book may be reprinted or reproduced or utilized in any form or by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers. British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library Library of Congress Cataloging in Publication Data A catalog record for this book has been requested ISBN 0-203-64257-0 Master e-book ISBN

ISBN 0-203-67630-0 (Adobe eReader Format) ISBN 0–415–27432–X (Print Edition)

1111 2 3 4 5 6 7 8 9 1011 1 2 3111 4 5 6 7 8 9 20111 1 2 3 4 5111 6 7 8 9 30111 1 2 3 4 5 6 7 8 9 40111 1 2 3 44111 45111

To the memory of Jure and Dragica

1111 2 3 4 5 6 7 8 9 1011 1 2 3111 4 5 6 7 8 9 20111 1 2 3 4 5111 6 7 8 9 30111 1 2 3 4 5 6 7 8 9 40111 1 2 3 44111 45111

Contents

Preface List of abbreviations Chronology Map of Croatia

ix xi xiii xv

Introduction

1

1

7

History Croatia within the kingdom of Serbs, Croats and Slovenes 14 The kingdom of Yugoslavia and the autonomous Banovina of Croatia 18 Partisans, Ustashes and Chetniks: the Second World War in Croatia 20 The Socialist Republic of Croatia 24 Rebellion: the Croatian Spring of 1971 29

2

Transition to democracy The HDZ government of 1990 36 The declaration of independence and Croatia’s ‘Homeland War’ 38 The 1992 elections 41 Operation Storm and the 1995 elections 46 The development of authoritarian government 49 The media 51 The intelligence services 54 The return of the Left in the 2000 elections 55

33

viii Contents

3

International relations

63

The Balkan orientation of Croatian foreign policy 66 Croatia and the European Union 72 Relations with the US 76 Croatia and the ICTY 78 The coalition government and the rapprochement with the West 82 4

Economic policies

87

Key problems 87 War damage 88 Recession 89 Economic policies of the HDZ-coalition government 1991–2 91 Post-war policies 1993–5 95 The post-Dayton boom 100 The economic crisis of 1998–9 and the fall of the HDZ 109 Economic policies of the coalition government 2000–2 118 5

Social welfare

121

The rising burden of public expenditure 122 Poverty, income inequality and income support 125 Pensions and pension reform 128 Health 132 Education 136 Housing 139 Refugee return and the problem of social exclusion 141 Conclusion: Croatian society in the twenty-first century

Notes Bibliography Index

147

153 167 173

1111 2 3 4 5 6 7 8 9 1011 1 2 3111 4 5 6 7 8 9 20111 1 2 3 4 5111 6 7 8 9 30111 1 2 3 4 5 6 7 8 9 40111 1 2 3 44111 45111

Preface

When I first visited Croatia as a student in 1970 it would have been possible but unlikely that any Westerner would have thought seriously about writing a book about Croatia. The country I was visiting was Yugoslavia and few people made much of the distinction between the various republics which constituted the Yugoslav (or ‘South Slav’) federation. Travelling down the Dalmatian coast to Dubrovnik, taking in the glorious island of Vis, hitch-hiking across Bosnia-Herzegovina to Sarajevo and on to the Slavonian towns of Vinkovci and Osijek and eventually up to the Croatian capital Zagreb, I was unaware that I was confining my travels mainly to a few specific areas of the country with historical links to Central Europe and Mediterranean Europe, one which had its own specific history which distinguished it from the southern Balkan regions of Yugoslavia. In later years, travelling to Belgrade, and through Serbia to Kosovo and Macedonia, the contrasts became more apparent. This book has been an intellectual exploration of that earlier physical journey and a revisiting of some of the issues that puzzled me then. I hope I understand them better now and have been able to impart some of that understanding in the text. Much has changed over the past thirty years, not least Croatia has become an independent country. Yet, having left one federation, she seems keen to join another: the European Union. Many of the contrasting traits of rural peasant society and Titoist socialism, which were apparent thirty years ago, have now disappeared. One no longer sees the rich mixture of Balkan and Western influences which so fascinated Western visitors at the time. In the years following independence in the early 1990s, these sights were replaced by those

x

Preface

of soldiers in military uniform, United Nations jeeps with prominent UNPROFOR labels, and the sight of damaged houses and destroyed churches in many towns and villages. One could also notice, in the aftermath of war, the new poor – refugees, invalids, and pensioners; and, less numerous, the new rich – the new entrepreneurs alongside tycoons and war profiteers. The Croatian flag is now omnipresent, and new magazines and newspapers report on Croatian affairs with more attention to events in Europe than in the Balkan states to the south. Much has changed in a short space of time. But what is unlikely to change is the beauty of the natural environment and the friendliness of the people. Many friends and colleagues have provided me with help and assistance in gathering information for this book, including Gojko BeÏovan, Ivo Biçaniç, Nevenka âuãkoviç, Ognjen âaldaroviç, Damir Fir‰t, Vojmir Franiãeviç, Sanja Malekoviç, Davor Mili‰iç, Katarina Ott, Mario Poliç, Geoffrey Pridham, Vlado Puljiz, Zlatan Reiç, Vi‰nja SamardÏija, Maja Vehovec, Nenad Zako‰ek, and Sini‰a Zrin‰ãak. I am especially grateful to Djurdja Bartlett for her encouragement and for her constructively critical readings of the whole text. The British Council supported a series of academic visits to the Economics Faculty in Zagreb under the Academic Links and Interchange Scheme (ALIS) between 1998 and 2000. My thanks go to Rosana Besednik for supporting my work during those years, and to my ALIS research partner Vojmir Franiãeviç for many hours of useful discussions helping me understand the basic features of Croatia’s economic and social problems. I am also grateful to the British Academy and the Croatian Academy of Arts and Sciences for sponsoring an academic visit to Zagreb and Rijeka in September 2000 with the specific purpose of gathering research material for this book.

1111 2 3 4 5 6 7 8 9 1011 1 2 3111 4 5 6 7 8 9 20111 1 2 3 4 5111 6 7 8 9 30111 1 2 3 4 5 6 7 8 9 40111 1 2 3 44111 45111

Abbreviations

AVNOJ CEFTA CHCI CPF DM EBRD EC EU FRY GDP HBOR HDZ HINA HIS HND HNS HPSS HRK HRSS HRT HSLS HSP HSS HTV HVO IBRD ICTY IDS IFC

Antifascist National Liberation Council of Yugoslavia Central European Free Trade Area Croatian Health Care Institute Croatian Privatization Fund Deutsche Mark European Bank for Reconstruction and Development European Commission European Union Federal Republic of Yugoslavia Gross Domestic Product Croatian Bank for Reconstruction and Development Croatian Democratic Union Croatian News Agency Croatian Information Service Croatian Independent Democrats Croatian People’s Party Croatian People’s Peasant Party Croatian kuna (unit of currency) Croatian Republican Peasants’ Party Croatian Radio-Television Croatian Social-Liberal Party Croatian Party of Right Croatian Peasants’ Party Croatian Television Croatian Defence Council International Bank for Reconstruction and Development International Criminal Tribunal on Former Yugoslavia Istrian Democratic Assembly International Finance Corporation

xii

Abbreviations

IMET IMF JNA LS NATO NBC NDH OBS OSCE OSHV PHARE PIF RS RSK SAA SDB SDP SDS SHS SIS SNS SZUP TEMPUS UDBA UHRO UN UNHCR UNPA UNPROFOR UNS UNTAES US VOS ZAVNOH

International Military Education and Training Programme International Monetary Fund Yugoslav People’s Army Liberal Party North Atlantic Treaty Organization National Bank of Croatia Independent State of Croatia Security Information Service Organization for Security and Cooperation in Europe Military Intelligence Service EU Economic Assistance Programme for Eastern Europe Privatization Investment Fund Bosnian Serb Republic – Republika Srpska Krajina Serb Republic Stabilization and Association Agreement Yugoslav State Security Service Social Democratic Party Serbian Democratic Party Kingdom of Serbs Croats and Slovenes Security and Information Service (Military Counterintelligence) Serbian People’s Party Service for the Protection of the Constitutional Order EU assistance programme for higher education in Eastern Europe Yugoslav secret police service Ustashe Croatian Revolutionary Organization United Nations United Nations High Commission for Refugees United Nations Protected Area United Nations Protection Force Office for National Security United Nations Transitional Administration in Eastern Slavonia United States (of America) Intelligence Service of the Ministry of Defence Regional Antifascist National Liberation Council

1111 2 3 4 5 6 7 8 9 1011 1 2 3111 4 5 6 7 8 9 20111 1 2 3 4 5111 6 7 8 9 30111 1 2 3 4 5 6 7 8 9 40111 1 2 3 44111 45111

Chronology

7th century 910–928 1102 1848 1868 1905 1918 1928 1938 1943 1945 1946 1946 1971 1989 1990 1990 1991 1991 1991 1991 1992 1993 1993 1994 1995 1995 1996 1997 1998

Croats arrive in Balkans King Tomislav’s reign Union with Hungary Ban Jelaãiç victory over Hungarian rebels ‘Nagodba’ (Compromise) with Hungary Croatian Peasant Party established Croatia becomes part of SHS Stjepan Radiç fatally wounded in Belgrade Parliament Sporazum (agreement) to establish Croatian Banovina ZAVNOH liberates large parts of Croatia People’s Republic of Croatia established Andrija Hebrang expelled from Politbureau Trial of Archbishop Stepinac Croatian Spring Formation of new political parties permitted First multiparty elections won by HDZ New constitution proclaimed Declaration of independence Krajina Serbs declare separate state ‘Homeland’ war begins Siege of Vukovar by Yugoslav army UN recognition Economic stabilization programme Introduction of new currency – kuna Stipe Mesiç leaves HDZ to form HND Operation Storm recovers Krajina; Serbian population flees Dayton agreement Croatia joins Council of Europe Franjo Tudjman wins presidential elections Peaceful reintegration of east Slavonia

xiv 1998 1999 2000 2000 2001

Chronology Banking crisis HDZ defeated at elections by six-party coalition President Tudjman dies Stipe Mesiç wins presidential elections Croatia signs Association Agreement with EU

AUSTRIA

HUNGARY

ITALY

Cakovec SLOVENIA

Zagreb

IS

T

A RI

Rijeka

S

Karlovac

L

A

Sisak

Osijek

V

O

CROATIA

N I A Vukovar

Djakovo

Vinkovci

Pula

Bihac

D

BOSNIA-HERZEGOVINA

SERBIA

L

Zadar

A

M Sibenik

A Knin T I A

Split

Sarajevo

R HE Z Mostar

E

ADRIATIC SEA

G

1111 2 3 4 5 6 7 8 9 1011 1 2 3111 4 5 6 7 8 9 20111 1 2 3 4 5111 6 7 8 9 30111 1 2 3 4 5 6 7 8 9 40111 1 2 3 44111 45111

Vis

O

V

IN

A

MONTENEGRO Dubrovnik

ITALY

Map of Croatia

1111 2 3 4 5 6 7 8 9 1011 1 2 3111 4 51111 6 7 8 9 20111 1 2 3 4 5 6 7 8 9 30111 1 2 3 4 5 6 7 8 9 40111 1 2 3 44111 45111

Introduction

Croatia’s history, like its geography, is full of diversity and contrast. Its Dalmatian coast with its numerous islands stretches down the Adriatic for almost 1,000 kilometres, while in the east the fertile region of Slavonia borders on Hungary, Serbia and Bosnia. Before the First World War Croatia formed part of the Austro-Hungarian Empire, and hence had a firmly Central European identity. After the First World War it joined a new state of southern Slavs which eventually became known as Yugoslavia, and gained a Balkan identity. After the Second World War Yugoslavia became a socialist country but with a unique position outside the Soviet bloc – it balanced itself between East and West and became a leading power within the Non-Aligned Movement. Croatia gained its independence during the dissolution of Yugoslavia and became a sovereign state in 1992. Since then it has attempted to distance itself from its Balkan roots to the south, and sought to integrate with its European neighbours to the north and west. Yet Croatia was not initially accepted by the European Union. It was only when a new coalition government was elected at the turn of the new millennium, that Croatia was welcomed into the process of European integration. In the meantime, Croatia’s society, economy and politics had undergone some radical transformations. As with the other countries of Eastern Europe, this process can be summarized under the term ‘transition’. And it is the story of this transition which I will be concerned to describe and analyse in this book. The Croatian transition has been different from others in Eastern Europe in many respects. Just as in other successor states of former Yugoslavia, a reform process was already well under way in 1989 when the anti-communist revolutions took place in

2

Introduction

Eastern Europe and the Soviet Union began to fall apart. As early as 1948, Yugoslavia had broken away from the Soviet bloc and beginning in the 1950s had begun to experiment with its own unique form of market socialism known as workers’ selfmanagement. This had two main elements. In the first place it involved a devolution of administrative responsibility away from the central federal government in Belgrade towards the constituent republics of Yugoslavia including Croatia. This was a gradual process, which did not really take off until the 1960s, and was not fully confirmed until a new constitution was promulgated in 1974. The constitution set some limits on the process of devolution but in essence it gave the republics some features of independent states, within the context of the Yugoslav federation. The constitution was made in response to a Croatian national movement which had, in 1971, taken on the form of an incipient rebellion. Much less noticed than the rebellions within the Soviet bloc, in Hungary in 1956 and Prague in 1968, the Croatian Spring events of 1971 were nevertheless put down with ruthless efficiency by the Yugoslav government before they got out of hand. Many Croatian politicians and student activists were imprisoned, some for excessively long periods of time. The other main element of the reforms, which began in 1948, was a radical decentralization of power away from the central planners to enterprise managers. Formal control of enterprises, but not ownership, was ceded to insiders, including both managers and employees who in principle became the main stakeholders to whom managers were accountable through the institution of the workers’ council. In 1965 a series of pro-market reforms were pushed through which eliminated the last remnants of central planning in the economic field, a reform vigorously supported by the Croatian nomenklatura. Opinions differ as to how much influence the workers’ councils had over managerial decision making. Some regard it is having been of minor importance, while others blame it for many of the inefficiencies of the Yugoslav variant of market socialism. By 1989 therefore, the Croatian economy and society was already well on the way to transition to a market economy and towards an independent existence outside the federal system of socialist Yugoslavia. When the Soviet Union began to show signs

Introduction 1111 2 3 4 5 6 7 8 9 1011 1 2 3111 4 5 6 7 8 9 20111 1 2 3 4 5111 6 7 8 9 30111 1 2 3 4 5 6 7 8 9 40111 1 2 3 44111 45111

3

of terminal decay and incipient collapse, many minds in Yugoslavia turned to address the question of the sustainability of the federal arrangements within the Yugoslav space. Both Slovenes and Serbs took this thinking furthest. The Slovenes developed a strategy for exit from the federation, while the Serbs developed a strategy for the creation of a mini-Yugoslavia, more easily controllable from the centre in Belgrade, which was in effect to be a Greater Serbia, encompassing the southern republics, BosniaHerzegovina and parts of Croatia. The Croats were in most respects behind in this game, but in the first multi-party elections in 1990, as in Slovenia, a nationalist anti-communist government was elected into power. Economic transition in Croatia began within this context. Laws were passed in the former federal Yugoslav state in 1988 and 1989 which liberalized the economies in all the republics including Croatia, and permitted the creation of new private businesses. A privatization law was passed in 1989 which permitted the full transfer of ownership to insiders, complementing the existing reality of insider control. A conventional macroeconomic stabilization policy on monetarist principles was attempted in 1990. Following the election of the new government, Croatia began to adopt new laws which replaced the federal laws on privatization and other aspects of economic reform. At this stage the new government was still committed to a confederal solution to Yugoslavia’s problems. But neither the federal nor confederal solutions could survive in the face of intense pressures towards the dissolution of Yugoslavia. The wars of Yugoslav succession broke out immediately following the declaration of independence in both Slovenia and Croatia in 1991. Surprisingly to many observers, Croatia withstood the worst assaults of the war in Slavonia and Dalmatia, but with severe losses. Part of the territory was lost to the breakaway republic of Serbs in the Krajina region around the Bosnian borders, a region which was not reincorporated into Croatian administrative control until 1995. Thus, transition in Croatia took place in the context of war and the need to devote substantial resources to the creation of a new state. Apart from Bosnia, Croatia was the only country in the transition group of countries in Eastern Europe which had to face such a severely hostile environment in which to push through the reforms necessary to a successful transition.

4

Introduction

Nevertheless, Croatia also benefited from a number of significant advantages in relation to other Eastern European countries. The most obvious and important of these was the relatively liberal communist system which had been established by Josip Broz Tito, despite the antipathy of many of its citizens to the old regime. Croatian companies were relatively autonomous from the state and had experience of operating in a market-style economy. The country was open to the West as well as the East meaning that Croatians were well acquainted with Western markets and customs and enjoyed a far higher standard of living than those living in the harsher regimes behind the iron curtain. Agriculture had not been collectivized, and industry was well developed. The school system continued to offer a high quality of education introduced during the time of the Austro-Hungarian Empire. In this book I first outline the dramatic history of Croatia’s struggle for autonomy and independent statehood in the twentieth century. Chapter 1 provides a short summary of Croatia’s early history which has been extensively covered in other works.1 The main part of the chapter covers the history of Croatia within the state of Yugoslavia, first established as a democratic monarchy, turning later to dictatorship, passing through a quisling fascist regime in the Second World War to become a socialist republic within Tito’s Yugoslavia in the second half of the century. One of the most significant events in the socialist period was the open drive for autonomy which took place in 1971 which became known as the Croatian Spring. Although this was suppressed it provided an antecedent for the subsequent successful struggle for independence at the start of the 1990s. The rest of the book considers the transition process of the last ten years with this historical context as a background to aid understanding of Croatia’s unique circumstances. Chapter 2 deals with Croatia’s long process of transition to democracy. Dissatisfaction with the course of that transition among the important players in the international community led to a long period of semi-isolation for Croatia from many of the international community’s political fora. For example, Croatia was only accepted into the Council of Europe in 1996. Despite that, Croatia made much more rapid progress in integrating herself into the international economic bodies such as the World Bank and the IMF. But Croatia was politically suspect under the government of the Croatian Democratic Union (the HDZ – Hrvatska

Introduction 1111 2 3 4 5 6 7 8 9 1011 1 2 3111 4 5 6 7 8 9 20111 1 2 3 4 5111 6 7 8 9 30111 1 2 3 4 5 6 7 8 9 40111 1 2 3 44111 45111

5

Demokratska Zajednica) led by the irascible Franjo Tudjman, which became increasingly authoritarian and manipulative of the electoral process as time wore on. However, it was probably as much the failure of the ‘democratic’ opposition to agree on a common platform that allowed Tudjman to develop his power base, itself a coalition of various centre–right groups in Croatian politics. Once the opposition managed to coalesce into a coalition force it was able to win elections in early 2000 and launch Croatia into the process of European integration. The desire for European integration has been a key component of Croatia’s international relations at least in the latter part of the 1990s. The early years were dominated by the struggle for independence and the real battles of the ‘homeland war’. Chapter 3 covers the various strands of Croatia’s international relations, which has had both a Balkan and a European component, each of which has been dominant during different phases of Croatia’s recent political history. European integration has become the dominant theme in recent years, yet significant obstacles remain and there are pressures from outside the country to promote regional cooperation with Balkan neighbours as well as economic realities which are pushing Croatia into a deeper economic rapprochement with her southern neighbours. These and other issues of economic development are covered in Chapter 4, which deals with the economic transition to a market economy. Unlike other East European countries in the Soviet bloc, Croatia already had a fairly well-developed market economy at the beginning of the transition process in the early 1990s, owing to the reformed and liberal version of socialism which operated within Tito’s Yugoslavia. Obvious problems have arisen from the legacy of war, from the breakdown of economic linkages with the southern states of former Yugoslavia. But economic problems have also arisen from the particular nature of the transition path chosen by Croatia’s policy makers. This has included a reform process which has favoured politically well-connected tycoon capitalists with for the most part little interest in long-run restructuring or investment for long-run growth, but have instead been more interested in short-term profit taking. As a result, Croatia’s industries have become uncompetitive, unemployment has soared and economic difficulties threaten to frustrate the substantial progress made in the areas of politics and international relations.

6

Introduction

The final chapter deals with the issue of social welfare. This has assumed important dimensions in the face of the damage inflicted on infrastructure and on the people by the war and its legacies, and in the face of growing unemployment and poverty. The chapter deals with the issues of social security, pensions, housing health and education. The latter is especially important in the case of a small open economy subject to international competition with few natural resources apart from a beautiful coastline which can be exploited for tourist purposes. The future of Croatia will likely lie in its human resources and as such there is a need for a much greater investment in preserving the legacy of a high quality education system bequeathed by previous regimes. The continuing tension between Croatia’s relationship with Western Europe on the one hand and the Balkans on the other runs as a constant theme throughout the long history of the country and has still not been resolved today. Croatia signed an Association Agreement with the European Union in 2001, just as in the nineteenth century it had signed the ‘Nagodba’ or ‘Compromise’ with Hungary to regulate its relationship with the Austro-Hungarian Empire. Yet there are also powerful forces of mutual economic interest pulling Croatia to resume economic, if not political, ties with the Balkan countries to the south. The extent to which these differing orientations are mutually compatible or inconsistent are likely to drive Croatia’s future evolution just as they have influenced its history in the past.

1111 2 3 4 5 6 7 8 9 1011 1 2 3111 4 5 6 7 8 9 20111 1 2 3 4 5111 6 7 8 9 30111 1 2 3 4 5 6 7 8 9 40111 1 2 3 44111 45111

1

History

The Croats arrived in the Balkans in the seventh century along with other nomadic Slavic tribes and settled in parts of presentday Croatia. They established an independent kingdom located between the Drava river and the Adriatic coast, with its centre at the city of Knin. Mediaeval Croatia, like other European countries at the time, developed a feudal system dominated by a class of landlords who formed a privileged nobility giving allegiance to the Croatian king. Chroniclers of the Crusades, passing through the coastal city of Zadar, reported that the Croats celebrated mass in the Croatian language, a practice indicating a well-developed sense of national identity. At the end of the eleventh century Croatia came under the sway of its powerful neighbour, Hungary, and in 1102 agreed to be ruled by its Hungarian king, who also became king of Croatia. Although remaining an independent state, with her own feudal parliament or Sabor, from that time on the Croatian feudal nobility gave their allegiance to the Hungarian crown.1 From the fourteenth to the sixteenth centuries the Ottomans conquered large parts of Croatia. The high tide of the Ottoman conquest was reached in 1593 when an Austro-Croatian army defeated the Ottomans at Sisak. By the end of the seventeenth century the Ottomans has been driven out of Croatia with the aid of the Austrian Habsburg monarchs, who assumed the crown of both Hungary and Croatia. The inland part of Croatia remained under Hungarian dominion, while the coastal region of Dalmatia was ruled by the Venetians. Some of the nobility had adopted Protestantism, which was especially strong in northern Croatia in the late sixteenth century. But the Catholic Habsburgs suppressed

8

History

this version of Christianity during the Counter-Reformation and imposed the Catholic Church, the recognized religion of the Austro-Hungarian Empire, on the Croats. It was during this time that the Austrians established a buffer zone between their territory in Croatia and the Ottoman Empire. It stretched all around the border between Croatia and Bosnia. This buffer zone, known as the Military Frontier or ‘Krajina’, was mainly settled by Serbian immigrants who had fled from Ottoman rule in Bosnia-Herzegovina and further to the south. The buffer zone was set up as a military region, and the Serbian inhabitants enjoyed special privileges in return for provision of military service to the Austro-Hungarian Empire. The most important of these privileges were that they were able to retain their own social organization in independent extended-family farms or zadruga, thus remaining independent from the Croatian feudal system, as well as being able to retain their own orthodox religious institutions. The Krajina Serbs developed a separate identity as a community of soldiers and fighters for the Habsburg kings. The Habsburgs promoted this sense of separate identity and encouraged their allegiance to the orthodox church. For the Habsburgs, this community with its Kaiser-true orientation, was a bulwark against any move towards Croatia’s independence from the empire. Its status within Croatian society became a flashpoint of conflict when the possibility of Croatian independence became a realistic prospect centuries later. Since the fifteenth century the province of Dalmatia, consisting of the coastal region and the Adriatic islands of Croatia, formed a separate province under the control of the Venetian Empire. Venice ruled the region until its defeat by Napoleon at the end of the eighteenth century. Many of the Dalmatian ports still bear the imprint of the Venetian rule in the form of the ubiquitous lion emblem to be found engraved on the classical buildings which litter their elegant waterfronts. The port of Hvar, on Hvar island, provided the winter quarters for the Venetian Adriatic fleet. As part of a great maritime empire, the province was exploited for its natural resources of timber for shipbuilding. Dalmatia came briefly under French rule, in the early years of the nineteenth century when Napoleon established the Illyrian Provinces. Following the collapse of Napoleonic power, Dalmatia passed to direct Austrian rule for the rest of the century, and, apart from the main ports, settled into a period of gentle economic decline.

History 9 1111 2 3 4 5 6 7 8 9 1011 1 2 3111 4 5 6 7 8 9 20111 1 2 3 4 5111 6 7 8 9 30111 1 2 3 4 5 6 7 8 9 40111 1 2 3 44111 45111

In 1790 the Habsburg King Joseph II tried to establish an absolutist monarchy centralizing power in Vienna. In response, the Croatian nobility sought a closer union with Hungary, and were prepared to surrender some of their independence and autonomy to Hungary in return for protection from what they saw as unwarranted centralization of power in Vienna, which would have resulted in the abolition of the Croatian Sabor, and a consequent loss of power by the Croatian nobility. In the mid-nineteenth century, in 1848, Hungarian nationalists led by Lajos Kossuth rebelled against Habsburg rule. The Croatian nobility was opposed to the rebellion, since they believed that they would suffer from Hungarian domination even more if Hungary became independent from Austria. The Croatian parliament (Sabor) declared war on the Hungarian rebels, and sent an army to Budapest led by the Governor (Ban) of Croatia, General Josip Jelaãiç, which together with the Austrian army suppressed the revolt. Jelaãiç was considered a great hero of the Croatian nation and his statue was erected in the main square in Zagreb. But in 1867, Austrian power was weakened by a war with Prussia, and the Hungarians achieved their aims through a pact known as the Ausgleich, which recognized the independent sovereignty of Hungary. A ‘dual monarchy’ was established with equality between the crowns of Austria and Hungary. Hungary was given autonomy to settle her relations with Croatia. An Austrian statesman is said to have remarked to his Hungarian counterpart: ‘from now on you watch your hordes and we shall watch ours’.2 The settlement with Croatia, known as the Nagodba (Compromise), was signed shortly thereafter in 1868 and gave a certain degree of autonomy to Croatia. The agreement permitted the Croats to hold sessions of the Sabor in Zagreb, it allowed for Croatian to be the official language, and for the sole use of the Croatian flag on Croatian territory. The Croatian state consisted of ‘civil’ Croatia together with the province of Slavonia, the fertile agricultural region in the east bordered by the river Sava. The two regions together were sometimes referred to as Croatia-Slavonia. Dalmatia, the coastal part of Croatia, continued to be a separate province from ‘mainland’ Croatia, administered by Austria,3 but the agreement specified that Croatia had the right to expect the return of Dalmatia (along with the military border) to its own jurisdiction at some time in the future.4 The struggle to unify the

10

History

three parts of the Croatian lands, known as the Triune Kingdom, was an early aim of the Croatian national movement. However, despite the Nagodba, Croatian autonomy was actually quite limited. The limitations were underlined by the fact that Hungary appointed the country’s ruler, the Ban. At the turn of the century, the Hungarian-appointed Ban was Khuen-Héderváry. In power for twenty years until 1903, he was widely disliked because of his attempts to ‘magyarise’ Croatian life.5 Although unpopular with the majority of the population, the idea of association with Hungary in the context of extensive autonomy suited a section of the Croatian nobility, which established the Union Party as the political expression of its interests. Because of their lack of opposition to Hungarian influence, they were labelled the ‘Magyarons’. Khuen-Héderváry promoted Hungarian interests in Croatia through a policy of ‘divide and rule’. Since the Nagodba was supposed to be renegotiated every ten years, and voted on by the Sabor it was important for the Hungarians that sufficient votes were collected in the Sabor in favour of the continuation of the association with Hungary. In addition to the support of the Unionists, the Ban gained the support of the Krajina Serbs by promoting their interests and their privileged position within Croatian society. He also stimulated their nationalist sentiment by raising fears about what would happen to them should the union with Hungary be broken. Because of this some observers regard the national conflicts in present-day Croatia as a legacy of the long period of Hungarian domination. But opposition voices were beginning to make themselves heard, based upon the ideas of Croatian national independence which had surfaced in the nineteenth century through a number of diverse currents. A National Party was established, inspired by the ideas of the Bishop of Djakovo, Josip Strossmayer. The aim of the party was to reform the Habsburg monarchy through the creation of a federal state. He argued in favour of the cooperation and unity of the Slav nations within the Habsburg Empire. His party hoped to be able to push through its proposed reforms by combining the forces of the Slav nations within the political processes of the Empire. Bishop Strossmayer was one of the leading figures behind the development of the so-called ‘Yugoslav Idea’. He argued that all the south Slavs were brothers who should unite with one another on the basis of

History 11 1111 2 3 4 5 6 7 8 9 1011 1 2 3111 4 5 6 7 8 9 20111 1 2 3 4 5111 6 7 8 9 30111 1 2 3 4 5 6 7 8 9 40111 1 2 3 44111 45111

equality. He envisaged an eventual federation of southern Slav states, independent of, but mirroring, the Austro-Hungarian Empire.6 The National Party defeated the Unionists in the election of 1871, but the new parliament was dissolved in the following year. The reformist ideas of the National Party were later echoed in the early part of the nineteenth century through the ‘CroatianSerbian Coalition’ which argued for greater autonomy for Croatia within the empire, on the basis of co-operation between Croat and Serb citizens. More radical views also emerged on the political scene at this time. One strand of thought argued in favour of independence for Croatia as a separate third state within a federal Austro-Hungarian Empire, in an arrangement known as ‘trialism’. An even more radical view was espoused by the Croatian Party of Right, founded in 1861, which argued for outright independence for a Croatian state. Its leader, Ante Starãeviç, saw no role for the separate positions of Serb and Croat citizens in the envisaged independent state of Croatia which had been emphasized and manipulated by the Hungarian rulers. Starãeviç drew on the political ideas of the French Revolution and promoted the concept of equal Croatian citizenship irrespective of ethnic identity. He was therefore ideologically opposed to the separate privileges of the Croatian Serbs of the Krajina region. It was in this sense that he denied the existence of Croatian Serbs as a separate political community within Croatian society. Some observers have claimed than Starãeviç’s ideas were motivated by ethnic intolerance,7 but this is a very partial and one-sided view of his political position. Starãeviç’s ideas gradually began to gain widespread popular support and in the elections of 1884, the Party of Right won twenty-four seats in parliament making it the strongest opposition party.8 Some Serbs responded to this challenge by re-emphasizing their links with Hungary, believing that in this way they could resist assimilation into a more modern political culture and retain their traditional privileges, cultural myths and symbolism. When Starãeviç died in 1897, the party split in two, with one offshoot, the Pure Party of Right led by Josip Frank, adopting a more nationalistic and ethnically exclusivist stance.9 A further strand of the Croatian national movement emerged in the early years of the nineteenth century. It was championed by Stjepan Radiç, who established the Croatian Peasant Party in

12

History

1904. The Croatian economy at the time was largely agricultural and the peasant farmers formed a majority of the population.10 Most of these peasant farmers worked on small plots of land which were insufficient to feed a large family. Poverty was endemic leading to large-scale emigration to the US and elsewhere. Radiç saw peasant culture of independent market-based producers organized into traditional families as a basis on which to unite the various national, ethnic and religious groups within the region. Although religious, he held strong anti-clerical views and was opposed to the Catholic Church hierarchy which was seen as an instrument of Habsburg domination. He proposed independence for a new state of Croatia, which would include all ethnic groups within its territory, whether Croat or Serb, on an equal basis. But Radiç had no sympathy for the more radical pan-Slav ideas of the adherents of the National Party or those of the Yugoslav movement, and rejected all ideas of unification with Serbia. In responding to these various approaches to national liberation and the question of the unification of the south Slavs, the government of Serbia worked with its own agenda for the expansion of Serbia into a greater Serbian state. They saw the Yugoslav idea as one in which the state of Serbia would absorb the other small groups of Slavs in the region under their own king. Unification would take place not on the basis of an federation of equal republics, but through absorbing the other southern Slav groups into a unitary centralized state with its capital in Belgrade under the Serbian crown. This tension between the organization of the new Yugoslav state on federal lines as proposed by the followers of Strossmayer and the Croats, and its organization as a unitary state as proposed by the Serbs, and especially the Serbian Radical Party, would form a constant theme of the political history of Croatia throughout the century. Ante Trumbiç, the leader of the Croatian Party of Right in Dalmatia, and Franjo Supilo a journalist from Rijeka, had issued the Rijeka Declaration in 1905 in which they called for the unification of Dalmatia with mainland Croatia. The Serbian representatives led by Svetozar Pribiãeviç issued a similar declaration in Zadar. A coalition party was formed from the Croatian Opposition and the Independent Serbian Party, known as the Croatian-Serbian Coalition,11 which went on to win a majority of seats in the parliamentary elections to the Dalmatian Sabor in 1905

History 13 1111 2 3 4 5 6 7 8 9 1011 1 2 3111 4 5 6 7 8 9 20111 1 2 3 4 5111 6 7 8 9 30111 1 2 3 4 5 6 7 8 9 40111 1 2 3 44111 45111

and the Croatian Sabor in 1906. The party’s plea for the unification of Dalmatia with mainland Croatia was partly designed to appeal to the Hungarians who sought access to the Adriatic Sea. Further elections in 1908 and 1910 reinforced the leading position of the Coalition. The second largest party was the nationalist ‘Frankist’ Party of Pure Right. Radiç’s newly established Croatian Peasant Party came a poor third. War broke out between Austria-Hungary and Serbia in 1914, following the assassination of Archduke Ferdinand in Sarajevo by a Bosnian Serb terrorist. The system of alliances between the various European powers was activated, leading inexorably to the escalation that resulted in the general European conflagration of the First World War. During the war the Krajina Serbs fought on the side of the Austrians even in battles which took place within the kingdom of Serbia. Despite that, the regime, supported by the Frankist Party of Pure Right, began to persecute the Serbian communities within Croatia, a policy assisted by the fact that martial law had been declared. As the war progressed the population experienced increasing hardship, and support for a new Yugoslav state separate from the Austro-Hungarian Empire became widespread. Almost as soon as the war between Austria-Hungary and Serbia commenced, a number of leading Croatian politicians decided to emigrate to Italy and to work for the independence of the Slav populations within the Empire. The leading figures among the emigrants were Ante Trumbiç, Franjo Supilo, and Ivan Me‰troviç (a famous Croatian sculptor). Together they established the Yugoslav Committee in Paris in 1915. The Committee was set up to lobby the Entente Powers12 for support for the proposed new state of Yugoslavia which would encompass all the south Slav provinces of the Austro-Hungarian Empire and the kingdom of Serbia. However, unbeknown to the Committee, the Entente Powers had made a secret agreement with Italy in 1915, known as the Treaty of London. Its purpose was to induce Italy to enter the war on the side of the Entente. In return Italy was offered possession of large parts of Dalmatia, directly contradicting the Committee’s claim to Istria and Dalmatia for the new Yugoslav state. After spending an unsuccessful period in Paris and London, the Yugoslav Committee met with the Serbian government on the

14

History

island of Corfu in 1917. The Committee met with the Serbian Prime Minister Nikola Pasiç and negotiated an agreement for the creation of a joint state of Serbs, Croats and Slovenes after the end of the war. Significantly, the question of whether the new state was to be a federation or a unitary state was left undecided. The final decision was to be made by a three-fifths majority decision of the future Yugoslav Assembly.

Croatia within the kingdom of Serbs, Croats and Slovenes The First World War ended with the break-up of the AustroHungarian Empire. In October 1918, during the last days of the war, a National Council of Slovenes, Croats and Serbs led by Anton Koro‰ec, its President, and Svetozar Pribiãeviç as Vice-President, was founded in Zagreb, which claimed to represent the Slav peoples within the dying Empire. On 29 October the Croatian Sabor declared the independence of the state of Croatia (comprising ‘civil’ Croatia, Slavonia and Dalmatia, together with Medjimurje and Rijeka) from the Empire.13 The Sabor resolution also expressed the intention to join in a unified state of southern Slavs. In the chaotic situation of the time the National Council gradually asserted its authority as the government of the newly proclaimed federal ‘State of Slovenes, Croats and Serbs’, which comprised the south Slav lands of the former Empire including Slovenia, Croatia, and Bosnia-Herzegovina. On 8 November, Nikola Pa‰iç wrote to Koro‰ec recognizing the formation of the National Council in Zagreb as the ‘legal government of the Serbs, Croats and Slovenes that live on the territory of the Austro-Hungarian Monarchy’,14 although he viewed the new government as an interim body prior to ultimate unification along the lines of the Corfu Declaration. The Yugoslav Committee at that time based in Geneva became the foreign representative body of the new government. The situation of the new government was precarious. It had limited armed forces at its disposal and was unable to resist the encroachment of the Italian army which had begun to occupy Slovenian and Croatian territory in Istria and Dalmatia in accordance with the provisions of the Treaty of London. The allies refused to recognize the new state. In these circumstances, the

History 15 1111 2 3 4 5 6 7 8 9 1011 1 2 3111 4 5 6 7 8 9 20111 1 2 3 4 5111 6 7 8 9 30111 1 2 3 4 5 6 7 8 9 40111 1 2 3 44111 45111

majority of the National Council took the view that the only way to preserve the territorial integrity of the new state was to proceed rapidly towards the goal of unification of the south Slav lands. In this way they hoped to gain the protection of the powerful Serbian army which had returned to Belgrade at the beginning of November. The Serbian army entered Zagreb in the middle of November 1918. Unfortunately for the new state this was not enough to dissuade the Italians from annexing some of the coastal region. Under the Treaty of Rapallo of 1920 Italy was given control of the Istrian peninsula, the islands of Losinj, Cres, Lastovo and the city of Zadar. Rijeka became an independent state, under the trusteeship of the League of Nations, but it was later occupied by Italian irregular forces under the leadership of the Italian nationalist adventurer and poet Gabriele D’Annunzio. Territorial disputes between the Croats and Italians were to simmer for the rest of the century. The unification with Serbia was vigorously supported by Pribiãeviç, leader of the Croatian-Serbian Coalition, and Deputy President of the new government. Although opposed by Radiç and the renamed Croatian People’s Peasant Party (HPSS), the National Council voted for unification with Serbia at the end of November and appointed a committee of twenty-eight delegates to negotiate with the Serbian government on the terms of the unification. The delegation proceeded to Belgrade and accepted the unification with Serbia and the creation of the kingdom of Serbs, Croats and Slovenes (known as SHS), which subsumed the National Council’s ‘State of Slovenes, Croats and Serbs’ into a larger state under the rule of the Serbian King Aleksandar. The constitution was based initially on the Serbian constitution of 1903, and an interim national parliament was created in 1919. In 1920 the first elections took place. The largest party to the new 419-seat parliament was the Serbian Radical Party, which won ninety-six seats, including nine from Croatia. The two largest opposition parties were the Communist Party with fifty-five seats and Radiç’s (again renamed) Croatian Republican Peasants Party (HRSS) with fifty seats. The new Constitution was proclaimed in 1921 on Vidovdan (St Vitus Day), the anniversary of the battle of Kosovo, underlining the Serbian domination of the new state. The Constitution provided for a unitary state, and dashed the hopes of the Croatian proponents of Yugoslavism for a federal

16

History

state allowing for equal status of its Serbian and Croatian components. Within Croatia the HRSS was the dominant political force, and had gained an absolute majority of votes within Croatia. Radiç became the effective leader of the opposition, and spokesman for Croatian autonomy within the SHS. One visitor to the country in the inter-war years described him as having a large kindly face and pudgy hands. Extremely short-sighted and generally untidy, he looked like a cattle-buyer. Often he went about collarless, shirt open, disclosing his broad, hairy chest. At political mass meetings he appeared in peasant boots and a well-worn, soiled sheepskin coat . . . His language was that of the people, full of rich imagery, which came from his love of nature, his appreciation of the essential dignity of peasant life, and from his profound knowledge of the human heart . . . A shrewd peasant, educated to political tricks and the ways of the world, he was sincerely interested in the welfare of the masses – a combination of Gandhi and William Jennings Bryan. Campaigning, he slept in peasant’s houses, ate their food. His following increased by leaps and bounds. He became a saint, a cult, a religion, a great political party. His influence spread outside of Croatia, to Slovenia, Voyvodina, Shumadia, Bosnia, Dalmatia.15 In the early years of the new state, Radiç withdrew the Peasant Party from the parliamentary process in protest at the provisions of the Vidovdan constitution and conducted an extraparliamentary opposition promoting Croatian autonomy. The newly created centralized state was unpopular in Croatia, where a majority of the population supported the Peasant Party’s ideas of extensive autonomy for Croatia within a federal state.16 Despite the party’s boycott of the parliament, the HRSS won even more seats in the 1923 elections, gaining seventy seats in the national parliament in Belgrade. Radiç veered more towards a left-wing political position, promoting radical ideas of an independent peasant republic. After visiting Moscow in 1924 he persuaded the Party to join the communist inspired Peasant International organization. On his return to SHS in 1925 he was arrested along with the entire party leadership. During his spell in prison he

History 17 1111 2 3 4 5 6 7 8 9 1011 1 2 3111 4 5 6 7 8 9 20111 1 2 3 4 5111 6 7 8 9 30111 1 2 3 4 5 6 7 8 9 40111 1 2 3 44111 45111

decided to reverse his parliamentary boycott. Released, he was briefly appointed to the post of Minister of Education, in a parliamentary coalition with the Radicals. However, his time in government soon ended as he resigned in 1926 and made a common cause with the Croatian Serb leader Svetozar Pribiãeviç. Together they formed the Peasant-Democratic coalition, which campaigned for Croatian autonomy within a more federal Yugoslavia. Radiç’s continued support for Croatian autonomy angered the more extreme elements of the Serbian Radical Party and in 1928 he was shot and fatally wounded in the Belgrade parliament by a Serbian deputy from Montenegro.17 At his funeral in Zagreb, large crowds turned out to mourn a new national hero and martyr. The display of Croatian national sentiment was a very public display of the growing strength and depth of feeling in support of Croatian nationhood. The growing atmosphere of civil unrest and breakdown of the constitutional arrangements led King Aleksandar to declare a Royal Dictatorship in January 1929, abolishing parliament and the political parties, and changing the name of the country to the kingdom of Yugoslavia. The fatal wounding of Radiç in the Belgrade Parliament was not the only serious example of oppressive practices against the Croats. In February 1931, Milan ·ufflay, a university professor and member of the extreme nationalist Croatian Party of Right, was assassinated in broad daylight in Zagreb by agents of the city police. His murder inspired protests throughout Europe, including, among others, protests by Albert Einstein and Heinrich Mann. In an atmosphere of rising oppression and danger, Vladko Maãek convened a meeting of the leaders of the Peasant Party and the Independent Democrats in Zagreb in November 1932. A resolution was passed calling for radical reforms to the constitution and the establishment of a federal state with extensive autonomy for Croatia. The declaration stated: We must point out that Serbian hegemony, imposed from the start on Croatia and all the other lands on this side of the Sava, the Drina and the Danube, has acted destructively through its obvious incapacity to govern, its tyranny and its use of immoral means . . . This state of misrule reached its peak when the absolutist regime was introduced on January 6, 1929, reinforcing this hegemony with fatal consequences and, worst of

18

History

all, abolishing civil and political freedom . . . The commonwealth, as we conceive it, must be an association of interests, founded with the free consent of each member, ruling out domination of one or more over the others . . . The individual interests of minorities speaking a foreign language shall be specifically guaranteed’.18 This enlightened call for a federal solution to the constitutional crisis of the state was ignored by the monarchy. It was to be a further seven years before its basic ideas were to be seriously addressed and accepted.

The kingdom of Yugoslavia and the autonomous Banovina of Croatia In 1934 King Aleksandar was assassinated in Marseilles by a terrorist from the Macedonian nationalist party VMRO (Internal Macedonian Revolutionary Organization) acting on behalf of Croatian nationalist extremists led by Ante Paveliç. Paveliç, leader of the Frankist Croatian Party of Right, had established a terrorist organization known as the Ustashe Croatian Revolutionary Organization (UHRO)19 in response to the establishment of the Royal Dictatorship, with the aim of creating an independent state of Croatia outside Yugoslavia, free from rule by the Serbian king. The country was now ruled by a regent, Prince Paul, an anglophile educated at Oxford. He had a more sympathetic approach to the Croatian cause than had his predecessor, and made overtures to the new leader of the Peasant Party, Vladko Maãek. In the 1938 elections the HSS did spectacularly well, polling 44 per cent of the vote. Prince Paul recognized that the integrity of the country was threatened by the rise of Hitler’s Germany and the collapse of the European status quo which had been created at Versailles. Fearing that the Croats might side with the Germans to achieve independence through the dismemberment of Yugoslavia, the government could no longer resist demands for autonomy for Croatia. Maãek and Dragi‰a Cvetkoviç, the Serbian Prime Minister of Yugoslavia, negotiated a new constitution which would provide for a federal state within which a new province of Croatia, known as the Banovina Hrvatska, would have relative autonomy.

History 19 1111 2 3 4 5 6 7 8 9 1011 1 2 3111 4 5 6 7 8 9 20111 1 2 3 4 5111 6 7 8 9 30111 1 2 3 4 5 6 7 8 9 40111 1 2 3 44111 45111

The new constitution was implemented on 20 August 1939. The Banovina had its own parliament, the Croatian Sabor. It had its own government headed by a Ban appointed by the Sabor rather than the Yugoslav parliament. The Sabor had authority over internal affairs, justice, public education, social policy, agriculture, forestry and mining, commerce and industry, finance, construction and health. Foreign affairs, national defence, communications and transport were to remain under the control of the central government, as were the hated gendarmerie. The new government had much to do to overcome the legacy of economic backwardness into which many parts of Croatia had descended. This backwardness was extensively documented in a major work of economic and poverty research carried out by the leading Croatian economist, Rudolf Biçaniç and published in his classic work How the People Live.20 But time was not on the side of the newly autonomous Banovina as external events were soon to overshadow the needs of domestic economic development. The new Banovina took in the district of Srijem and significant parts of Bosnia-Herzegovina especially the region of Herzegovina which had traditionally been populated mainly by Bosnian Croats. Autonomous Croatia had a population of 4.4 million, of which 77 per cent were Croat. It contained about 30 per cent of the population and territory of the entire country. Ivan Sˇuba‰iç was appointed as the first Ban of the new autonomous province, and Vladko Maãek became Vice-Premier of Yugoslavia. But the new arrangement was destined to be short lived as Yugoslavia was drawn into the calamity of the Second World War, despite desperate attempts by the regent and the Cvetkoviç government to remain neutral. In March 1941 Cvetkoviç’s foreign minister signed the Tripartite Pact with Nazi Germany under threat of invasion. Almost immediately leading members of the Yugoslav armed forces, led by Du‰an Simoviç, staged a coup, with British support, and exiled Prince Paul to Greece, replacing him with the young King Petar. The aim of the coup was not only or even principally anti-German since the coup leaders immediately confirmed their adherence to the Pact with Hitler. It seems likely that it was inspired as much by Serbian antagonism to the compromise that Prince Paul had reached with the Croats, and to the creation of the Croatian Banovina, as to any desire to resist the arrangement with the Germans. The coup leaders were interested in destroying Prince

20

History

Paul’s politics of compromise with Croatia’s ambitions for autonomy within Yugoslavia, and in remaking Yugoslavia along the lines of the Greater Serbia project. The coup infuriated Hitler, however, who launched an all-out air attack on Belgrade in April killing large numbers of civilians, and causing a wave of refugees to flee into the countryside. The air assault was followed by a massive invasion by Axis forces, and the rapid defeat of the Yugoslav army.

Partisans, Ustashes and Chetniks: the Second World War in Croatia In Zagreb, people blamed the Serbs for bringing about a war with Germany through their rash and impulsive actions. There was little resistance to the invasion and Maãek, the leader of the Peasant Party, decided not to oppose the Germans since many of his supporters were enthusiastic to see the end of the Royal Dictatorship. Tragically, what followed was even worse. The Germans invited Maãek to become the leader of a puppet government which they sought to establish in Croatia, but he refused to do so. He correctly predicted that the Germans would lose the war, but mistakenly thought that the HSS would be restored to power by the victorious Allies. The main and tragic consequence of his decision was that the Italians, who had been hosting the Ustashe rebels, brought the fascist leader Ante Paveliç to Zagreb where his collaborator, Slavko Kvaternik, had proclaimed the creation of the Independent State of Croatia (Nezavisna DrÏava Hrvatska – NDH). But the new state, which incorporated Bosnia-Herzegovina, was only formally independent. It was divided among an Italian zone of influence along the coastal areas and further inland, and a German zone covering Zagreb region, Slavonia and north-eastern Bosnia. The Ustashe had developed as a terrorist national independence movement in the 1930s following the proclamation of the Royal Dictatorship. They based their policies on the ethnic exclusivism of Josip Frank, and on the fascist and Nazi movements in Italy and Germany. They were antagonistic towards the Serbian population of Croatia, who they viewed as allies of the domineering government in Belgrade. Following the assassination of King Aleksandar their leaders had gone to live in exile in Italy where they were variously imprisoned or promoted by Mussolini according to

History 21 1111 2 3 4 5 6 7 8 9 1011 1 2 3111 4 5 6 7 8 9 20111 1 2 3 4 5111 6 7 8 9 30111 1 2 3 4 5 6 7 8 9 40111 1 2 3 44111 45111

the changing interests of Italian foreign policy. When the new state of Croatia was declared in 1941, and after Maãek had refused to collaborate with the Germans, the Italians sent the Ustashe émigrés back to Zagreb to form a puppet fascist government in Croatia. Although there was some initial enthusiasm for the new government and for the idea of an independent state, the enthusiasm soon subsided. The new government was unable to mobilize support from the peasants, as the Croatian Peasant Party kept a neutral stance. The influence of the Ustashe was especially weak in Slavonia, the stronghold of the Peasant Party in Croatia. They were also vigorously opposed by the developing resistance movement in the Serbian areas of the Dalmatian hinterland around Lika and Knin, and more widely by the communist led Partisans who were especially active in coastal Dalmatia. The strong following of the Partisans in Dalmatia had been inspired when Paveliç granted most of the Dalmatian coast to the Italians in return for their support of the new government. The Partisans gradually built up their support in Croatia under the leadership of Andrija Hebrang. A further part of their support in Croatia came from the Serbian population who felt most threatened by the Ustashe government. The Croatian communists also tried to mobilize Croatian nationalists by developing policies in favour of preserving an autonomous republic of Croatia within a post-war federal Yugoslavia. Resistance to the Ustashe regime grew dramatically, not only on the basis of political ideologies but also in response to the brutality which the regime showed towards its opponents. Following their fascist ideology the Ustashe government pursued a policy of persecution of Jews, Gypsies and communists. To this was added the persecution of Croatian Serbs, as the government sought to create an ethnically pure Croatian state. Atrocities were widespread throughout Croatia, and in the Serbian populated areas of Bosnia-Herzegovina which was incorporated directly into the NDH. The persecution of Jews was especially severe in Bosnia where only one fifth of the Jewish population survived the war. Some Jews were allowed to buy ‘honorary’ Aryan status and many fled the country in that way. Orthodox Serbs were also allowed to save their lives by conversion to Catholicism, but many were also murdered or sent to the concentration camps, the most infamous of which was at Jasenovac on the Croatian-Bosnian border. Historians have disputed the numbers who died at the hands of

22

History

the Ustashe murder squads and in the concentration camps. The official version offered by the post-war communist government was that 600,000 Serbs, Jews, Gypsies and communists were killed. Revisionist historians scaled down the extent of the horror, and Franjo Tudjman, who later became President of Croatia, claimed that ‘only’ 60,000 had died in the NDH concentration camps. It seems likely that about 120,000 died there although many thousands more were killed in unaccounted massacres in towns and villages throughout the country.21 Whatever the truth about numbers, the war in Croatia was a brutal affair. Inter-ethnic conflicts between Croatian Partisans, Croatian Ustashe, Bosnian Muslims and Serbian Chetniks caused enormous numbers of deaths, in addition to the fighting between the German and Italian armed forces and the resistance movement. Major offensives of the German Army were directed against the Partisan resistance movement in Croatia and especially in Bosnia in 1943 and 1944.22 The capitulation of the Italian government in 1943 greatly assisted the Partisans who took over a large amount of territory vacated by the departing Italians, as well as capturing supplies of weapons and provisions. In 1943 the British switched their support to the Partisans away from the royalist Chetniks under DraÏa Mihailoviç who they accused of collaborating with the Germans.23 Since the late 1930s, the Yugoslav Communist Party had been led by Josip Broz (known by his code name Tito), a Croat born near Zagreb. The communists proposed a Stalinist-style centralized socialist state of Yugoslavia after the war, but were sensitive to the issue of nationalities within Yugoslavia. They opposed the idea of Greater Serbia and were opposed to the monarchy. In recognition of the importance of the nationality question they established separate Communist Parties in Croatia and Slovenia, under the umbrella of the Yugoslav Communist Party. The membership of the Partisan movement developed rapidly in Croatia. By late 1943 out of a total force of 800,000, as many as 122,000 Partisans were from Croatia. The largest part of this force in Croatia (61 per cent) was Croat, but the Serbs were heavily represented and accounted for 28 per cent.24 Many of the Serb Partisans came from the Krajina regions where the persecution by the Ustashe regime had pushed most Serbs into the arms of either the Partisans or the Chetniks.

History 23 1111 2 3 4 5 6 7 8 9 1011 1 2 3111 4 5 6 7 8 9 20111 1 2 3 4 5111 6 7 8 9 30111 1 2 3 4 5 6 7 8 9 40111 1 2 3 44111 45111

In the early years of the war in particular, communications between the various branches of the party were limited and the Croatian Party began to develop its own programme under the leadership of Andrija Hebrang, a Croat and a member of the Zagreb Party organization since the 1920s. Hebrang realized that the key to mobilizing support in Croatia was to appeal to the Croatian sense of independent statehood. He therefore argued in favour of a high degree of autonomy for the emerging socialist republic that the Partisans were creating even as the war progressed. The virtual government established within the liberated areas in Croatia was known as the Regional Anti-fascist National Liberation Council of Croatia (Zemaljsko antifa‰istiãko vijeçe narodnog oslopod–jenje Hrvatske – ZAVNOH). It was already well organized with its own ministries and officials by the time the all-Yugoslavia equivalent AVNOJ held its first meeting in Bihaç in 1942. By May 1944 the ZAVNOH was administering 1,350 primary schools, thirty high schools and twenty publishing houses in Croatia.25 The leaders of the Croatian Communist Party made explicit references to the ideas of Strossmayer who had promoted a federal vision of the Yugoslav state. They also saw themselves as working in the tradition of Stjepan Radiç for Croatian independence based on social equality and justice. Although most of the Peasant Party leaders and members remained passive throughout the war, a section of the Peasant Party led by BoÏidar Magovac, while remaining as an independent party in its own right, joined forces with the Partisans and so contributed to a widely based national liberation movement under the leadership of the Communist Party.26 Both the Communist Party and the Peasant Party were committed to developing an inclusive society, in which both Serbs and Croats would participate in rebuilding a post-war Croatia based at least on a high degree of administrative autonomy. ZAVNOH, placing its emphasis on Croatian sovereignty, appealed to the soldiers in the Croatian militia force known as the Domobrani (Home Guard) by encouraging them to: Join us immediately without hesitation and you will be fighters for the complete freedom and independence of Croatia, in which Croats will be their own masters and themselves arrange their homeland.27

24

History

Such expressions of independence were frowned on by Tito and the leaders of the Yugoslav Communist Party. In 1944 when the main Partisan forces had become stronger, Hebrang was dismissed from the leadership of the Croatian Party, and ‘kicked upstairs’ to become the President of the Economic Council in Belgrade. He was replaced by Vladimir Bakariç a loyal Tito supporter, who was prepared to subordinate Croatian national sentiment and interests to the greater good of the new Yugoslav socialist state. Towards the end of the war the Partisan Army captured Belgrade with the assistance of the Soviet Red Army who entered Yugoslavia from Romania. It made a final offensive in the Srijem region fighting its way up through Vukovar and Vinkovci towards Zagreb. The remnants of the Ustashe army and Domobrani militia, accompanied by many thousands of civilians, fled northwards towards Austria. Paveliç escaped through north-west Slovenia into Austria and exile in South America. But the main force of Croatian (and Slovenian) Home Guard, Ustashe soldiers, and civilian refugees headed north towards Klagenfurt where they crossed the border at the village of Bleiburg in May 1945 and surrendered to the 5th Corps of the British 8th Army under Lieutenant-General Keightley. At first they were accepted as enemy belligerents, and taken in as prisoners of war. But within a few days, the British policy changed. Harold Macmillan, Minister for the Mediterranean, made a visit to the local commander and ordered him to return the prisoners to the Yugoslav side of the border.28 They were put on trains and told they were being sent to Italy, but actually they were repatriated to Slovenia. There they were met by the Partisans, and the majority of them were massacred either immediately in Slovenia or in the course of ‘death marches’ to various places in Croatia. It is estimated that between 40,000 and 100,000 Croats were indiscriminately killed in this last barbaric act of the Second World War in Croatia.29

The Socialist Republic of Croatia Towards the end of the war the Partisans reached an agreement with Ivan ·uba‰iç, the former Ban of Croatia and leader of the royal government in exile, and who was also a leading member of the Croatian Peasant Party. An agreement was signed on 16 June

History 25 1111 2 3 4 5 6 7 8 9 1011 1 2 3111 4 5 6 7 8 9 20111 1 2 3 4 5111 6 7 8 9 30111 1 2 3 4 5 6 7 8 9 40111 1 2 3 44111 45111

1944 on the Croatian island of Vis, which was occupied by the British, and where the Partisans had set up their headquarters. A further detailed agreement on 1 November established that the Partisans would take the lead in forming a new government at the end of the war with the participation of three members of the government-in-exile.30 Tito became Premier in the new post-war provisional government established in March 1945, and ·uba‰iç became the foreign minister. In August a National Provisional Assembly was established with a significant number of non-communist members from the pre-war parliament. ·uba‰iç soon resigned from the government as the Communists took over effective power.31 He had intended to establish a peasant opposition but was placed under house arrest. Elections for a single government list dominated by the communists were held in November 1945. The election was boycotted by the Croatian Peasant Party, as well as by other non-communist parties, but even so 88 per cent of the electorate voted and 90 per cent of the votes were cast in support of the government. In November 1945 a constitutional assembly abolished the monarchy and proclaimed the Federal People’s Republic of Yugoslavia. The new state was established as a federation of six republics: Slovenia, Croatia, Bosnia-Herzegovina, Serbia, Montenegro and Macedonia. As a federation, each republic had the right to secede from the federation, a right which at the time appeared purely formal, but which was to have important consequences forty-five years later. In contrast to the pre-war Banovina, Croatia lost a substantial amount of territory including Srijem to Vojvodina, Herzegovina to Bosnia, and the Bay of Kotor to Montenegro. Parts of Istria around Trieste were also disputed with the Italians.32 Within the Republic of Croatia, 80 per cent of the inhabitants were Croats and 15 per cent were Serbs. However, partly due to the relatively great participation of the Serbs in the wartime Partisan movement, they were over-represented in the administration, police and judiciary within the republic. The Communist Party had suppressed all opposition in Croatia (and elsewhere in Yugoslavia) apart from the Catholic Church. Archbishop Stepinac, who had welcomed the creation of the independent Croatian state in 1941, met Tito and Bakariç in June 1945. About 200 clergy, many of whom were alleged to have

26

History

fought with the Ustashe, were executed following the Partisan victory. Stepinac protested to the government. He also objected to the secularization of education, the institution of civil marriage and the confiscation of church lands.33 He was arrested and tried in September 1946 and given sixteen years’ hard labour. His arrest was a symptom of the general process of sovietization which was imposed upon Croatia in the immediate post-war years. However, he was imprisoned in conditions of reasonable comfort and released in December 1951. Made a cardinal by the Vatican in 1952, he lived in internal exile in his home village of Kra‰iç until his death in 1960 when he was buried in Zagreb Cathedral. Andrija Hebrang, a member of the Politburo until 1946, had been working in Belgrade as head of the Planning Commission, a position from which he had tried to moderate the drive towards a centralist strategy for industrial development. He had also defended Croatian interests, protesting against the loss of the Srijem district to Vojvodina, an area that had been part of the Banovina of Croatia before the war.34 He was dismissed from the Planning Commission in 1948, expelled from the Communist Party and subsequently arrested. He was absurdly accused by the secret police chief Aleksandar Rankoviç of being a double agent for the Ustashe during the war, as well as being a Soviet sympathizer siding with the Cominform against the Yugoslav government. Hebrang died in police custody, allegedly due to suicide, but it was widely believed that he had been murdered. It is likely that he fell from grace due to his support for extensive autonomy for Croatia within Yugoslavia.35 The extent of Hebrang’s attachment to Croatian autonomy within socialist Yugoslavia is controversial. While he was certainly an important figure within the Party and the most senior representative of Croatian interests, it seems likely that his role in promoting those interests has been overplayed by some observers36 keen to legitimize the Croatian independence movement from a left-wing perspective. In the first ten years after the end of the war, a large number of Italians and Germans emigrated from Croatia.37 In the years before the war, over two-fifths of the population of Istria had been Italian. By 1953, the Italian share of the population had fallen to just over one-tenth. Consequently there was extensive depopulation and many villages in Istria even today have an air of abandonment. The main pre-war areas with German population had been in

History 27 1111 2 3 4 5 6 7 8 9 1011 1 2 3111 4 5 6 7 8 9 20111 1 2 3 4 5111 6 7 8 9 30111 1 2 3 4 5 6 7 8 9 40111 1 2 3 44111 45111

eastern Slavonia, in the municipalities of Beli Manastir, Osijek, Vukovar and Vinkovci, where they accounted for around onequarter of the population. After the war there was a forced exodus and the German population in those areas was almost entirely expelled and replaced by immigrants mainly from other parts of Croatia, but also included Croats from Bosnia. Many were landless peasants resettled as colonizers through the agrarian reform process. At the end of the Second World War, Croatia still had a largely agricultural economy based on peasant farming. The communist government implemented a land reform law in August 1945 which limited the size of individual holdings to a maximum of 35 hectares, and soon to only 10 hectares. A land fund was established to take over the holdings of those who had fled after the war, including the Italians from Istria and the Slavonian Volksdeutsche.38 The church lands were also confiscated and in each parish church institutions were allowed to retain only up to 25 hectares, although priests were allowed to retain their own plots. Of the one and a half million hectares held by the land fund, half was distributed to 42,000 peasant families, and a fifth to newly established state farms. Landless peasants from the Croatian Krajina region, including many Croatian Serbs from Lika and Kordun, and Bosnian Croats from Herzegovina, were resettled in Slavonia. The state requisitioned food from the peasants at fixed prices. Each family was allowed to keep 300 kilograms of grain and had to sell half the rest of the output to the state. The other half could be sold at open markets, but also at fixed prices. A further stage in the land reform was an attempt to introduce collectivized agriculture copying the Soviet model. Started in 1948, the collectivization drive had created 6,600 collective farms covering 1.8 million hectares by 1950. But the collectivization was immensely unpopular and led to a number of rebellions by peasants, most notably in Bosnia, but also in Croatia and elsewhere.39 The collectivization was quickly abandoned and by 1953 most collective farms had been disbanded. A number of state farms were also created in areas where large estates had been confiscated through the land reform, especially in the fertile areas of Slavonia. These were relatively efficient. But in the private sector the agricultural holdings were extremely small: the average size of the holdings was just 5 hectares. Agricultural production was inefficient, and over time as

28

History

young people left the land for new industrial jobs in the cities the agricultural labour force grew older. At the end of the war just over three-fifths of the population lived and worked in rural areas, but by 1981 the proportion of rural dwellers had fallen to one in seven. The influence of the peasants as the main class in Croatian political society had been decisively marginalized. The limitations on landholding created an unproductive agricultural system and over the post-war years agricultural output stagnated. In comparison to the average level of output achieved in 1961, agricultural output over the next twenty years up to 1981 had risen by only 62 per cent. Eight years later, in 1989, it had increased by only another 10 per cent. The Croatian economy, along with the rest of Yugoslavia, was rapidly nationalized by the communist government.40 The main industries were shipbuilding, chemical industries, petrol refining and light manufacturing. In the first years following the end of the war the government introduced a system of central planning directed from the Federal Planning Office in Belgrade. But in 1948 Yugoslavia was expelled from the communist international organization (the Cominform) following a dispute between Tito and Stalin. Central planning was gradually abandoned and replaced by a more liberal market-oriented system in a series of economic reforms. One of the key features of the reforms was that enterprises were given a greater degree of autonomy, and employees were given rights to participate in the management of enterprises, and in the election of enterprise directors through the system of ‘workers self-management’. Linked to the economic reforms were a gradual process of devolution and decentralization of political and administrative power from the central government to the republics and local administrations within communes. Changes to the Yugoslav constitution in 1963 formalized this devolution of powers to the republics. The reform was promoted by the first wave of Croatian nationalism within socialist Yugoslavia led by ambitious members of the Croatian nomenklatura such as Franjo Tudjman and Veçeslav Holjevac who were interested in carving out a separate space for the new Croatian nomenklatura elite. The economic reform was deepened in 1965 as even greater autonomy was given to the self-managed enterprises. Croatian borders were also opened to permit an outflow of workers and foreign trade was liberalized to permit greater trade with the West. The tourism industry also began to be developed.

History 29 1111 2 3 4 5 6 7 8 9 1011 1 2 3111 4 5 6 7 8 9 20111 1 2 3 4 5111 6 7 8 9 30111 1 2 3 4 5 6 7 8 9 40111 1 2 3 44111 45111

Rebellion: the Croatian Spring of 1971 The opening-up of the Yugoslav economy had two enormous effects in Croatia. The first was the development of the tourist industry. This enabled the Croatian hotel industry to earn a large amount of foreign exchange. But the foreign exchange the tourist industry earned had to be surrendered to the federal authorities in Belgrade. This caused a build-up of resentment and demands from Croatian interest groups for a change in policy. Criticisms began to emerge that the federal government in Belgrade was exploiting Croatia, and that Croatia should be allowed to retain more of her foreign exchange earnings. An acrimonious debate arose between economist ·ime Djodan, a Croatian nationalist, and sociologist Stipe ·uvar, later to become a leading politician. They disputed Croatia’s contribution to the development fund for the less developed areas of Yugoslavia, which Djodan argued was being wasted on prestige projects instead of being used to relieve poverty and promote economic development. The second consequence of opening was an increase in emigration from Yugoslavia as a whole, predominantly from Croatia, but also from Herzegovina, the predominantly Croatian populated part of Bosnia. After 1965 and well into the 1970s until the aftermath of the 1974 oil crisis, Croatian ‘guest workers’ piled into the labour markets of Germany, Austria and Switzerland in response to the economic boom taking place in those countries. Almost half a million Gastarbeiter left Croatia during those years. The outflow was so great that the Croat population of Croatia actually fell between the censuses of 1961 and 1971. This led to accusations that the Belgrade government was engineering a depopulation of the republic.41 The feelings of being exploited by Belgrade were exacerbated by a perception that Belgrade was encroaching on Croatian culture as well especially in the field of language. The Croatian Writers Union protested at a new Serbo-Croat dictionary which appeared to them to systematically downplay the differences between the Serbian and Croatian languages, stressing the primacy of the former. A Declaration (Deklaracija) was issued in 1967 which insisted on the distinctiveness of the Croatian language as a language separate from Serbian, rather than just a dialect. Croatian language newspapers began to publish articles critical of the

30

History

federal government and calling for yet greater autonomy for Croatia. The cultural organization Matica Hrvatska became more and more outspoken in support of Croatian autonomy, and eventually began to voice demands for Croatia’s independence. It seems likely that the organization was influenced by Croatian émigrés keen to see autonomy or even independence for Croatia. The autonomy movement began to become more serious when it gained the backing of three leading politicians from within the Croatian League of Communists: Miko Tripalo, Savka DabãeviçKuãar and Pero Pirker. These reform-minded communists saw an opportunity to achieve a full partnership within the federation.42 Their campaign developed into a mass movement (the Masovni Pokret – or Maspok) calling for greater autonomy for Croatia within Yugoslavia. The high point of the Maspok took place in autumn 1971 when students at Zagreb and other universities staged a mass strike in support of the liberals. They demanded greater autonomy for Croatia and that Croatia should be allowed to retain a greater share of its foreign currency export earnings. The strike was eventually broken by police action and by the threat of army intervention. The three party leaders at the head of the movement were dismissed. A fierce repression ensued which brought to an end the liberal, but also nationalist, dreams of the Croatian Spring. Several hundred activists were arrested and put in prison for varying lengths of time. Among those imprisoned was the student leader and future presidential contender DraÏen Budi‰a. The potential seriousness of the situation was underlined by reports that Serbs in the Kordun region had begun to arm themselves out of fear of a resurgent Croatian ‘ethno-fascism’.43 It was a warning of the possible consequences of future moves towards independence for Croatia. Nevertheless, despite the suppression of the Croatian autonomy movement, Tito acted quickly to implement measures that in effect met most of their demands. Croatia was allowed to keep a greater share of its foreign currency earnings. More importantly, constitutional amendments were introduced in 1971, followed by a new and revised Constitution which was introduced in 1974 which gave extensive autonomy to the republics and the autonomous provinces. Rather like the Sporazum (Agreement) of 1939, the new constitution provided for a great degree of self-government for the

History 31 1111 2 3 4 5 6 7 8 9 1011 1 2 3111 4 5 6 7 8 9 20111 1 2 3 4 5111 6 7 8 9 30111 1 2 3 4 5 6 7 8 9 40111 1 2 3 44111 45111

Croatian Republic, while Serbia was deprived of its control over the provinces of Kosovo and Vojvodina. Through the subsequent decade the Croatian economy prospered under the policy of relative economic liberalism which was pursued in Yugoslavia under the Titoist version of communism. Workers’ self-management gave relative autonomy to enterprise managers to choose whether to reinvest profits in the firm or to pay higher wages to workers in order to stimulate productivity growth. By 1979 Social Product 44 in the Republic of Croatia had increased five-fold compared with its level twenty-five years earlier: it increased from nearly 20 billion dinars in 1954 to almost 100 billion dinars in 1979 at constant prices.45 Industrial production increased even more rapidly,46 and contributed around 34 per cent of Social Product by the end of the 1970s, while the share of agriculture had fallen to around 13 per cent. By the early 1980s, over half a million workers were employed in industrial activities,47 out of a total workforce of one and a half million. The largest industries were textiles (employing 85,000), metal processing (57,000), food processing (48,000), wood processing (37,000), machine building (37,000), electrical machinery and apparatus (36,000), chemical products (23,000) and shipbuilding (20,000).48 In addition a further 136,000 were employed in the construction industry; 121,000 in transport and communications; 156,000 in trade; 76,000 in the hotel and tourism industry; 91,000 in education and culture; and a further 91,000 in health and social services.49 Despite these achievements, economic difficulties were emerging not just in Croatia but throughout Yugoslavia. The most serious of these was the more or less abrupt cessation of economic growth at the beginning of the 1980s. Social product stagnated from 1980 onwards.50 It became clear that economic growth in the previous decade had been fuelled by an enormous build-up of foreign debt. By the end of the 1970s, the repayments on the debt became unsustainable, and the government was forced to introduce measures to restrict borrowing and hence restrict growth and cut back on imports. The currency was repeatedly devalued in an unsuccessful attempt to boost exports, but which only fuelled more and more rapid inflation as the decade progressed. Real incomes at first stagnated and then began to fall, fuelling dissatisfaction first with the government and then with the socialist economic system as a whole.

32

History

The economic crisis led inexorably to a wider political crisis and to increasingly acrimonious disputes between the republics. Nationalism reared its head again at the end of the 1980s, this time in Serbia where Slobodan Milo‰eviç gained control of the Serbian League of Communists on a nationalist platform in September 1987. His populist programme was based upon the intention to regain control over the autonomous provinces (Kosovo and Vojvodina) ‘lost’ through the 1974 constitution.51 The policy was designed to lead to a recentralization of power in Belgrade, and ultimately if that were not possible within the framework of a federal Yugoslavia, to the creation of a ‘Greater Serbia’ encompassing those regions outside Serbia with a majority Serb population. The policy was strongly resisted by Slovenia and in the end Milo‰eviç decided to cut his losses and in effect let Slovenia break away from the federation.52 Croatia’s position was very different on account of the large Serb population in the Republic. There was no place in the Greater Serbia policy for an independent, or even an autonomous, Croatia as subsequent developments were to show in a dramatic fashion.

1111 2 3 4 5 6 7 8 9 1011 1 2 3111 4 5 6 7 8 9 20111 1 2 3 4 5111 6 7 8 9 30111 1 2 3 4 5 6 7 8 9 40111 1 2 3 44111 45111

2

Transition to democracy

The suppression of the Croatian national movement after 1971 had ushered in a long period of political quiescence during which Croatia became known as the ‘silent republic’. But in 1989, partly inspired by the development of multiparty democracy in neighbouring Slovenia, new political parties began to be established. As in other post-communist countries, a plethora of parties emerged to contest the first democratic elections in living memory. Many of these parties were based around personalities, rather than identifiable interest groups. But there was only one key issue which dominated political debate – the issue of nationalism and whether Croatia should seek independence, and only four serious parties which contested the elections. Some of these parties were founded by politicians who were veterans of the Croatian Spring events of 1971, and some of the leading political figures had been imprisoned at that time. But the radically different orientations of the parties which were established indicated the different paths which each had taken in the intervening twenty years. The first new party to be established in early 1989 was the Croatian Social Liberal Party (Hrvatska Socijalno-Liberalna Stranka – HSLS) set up by DraÏen Budi‰a and other noncommunist liberal intellectuals from the Zagreb scene. Budi‰a had been one of the student leaders of the Croatian Spring who had been imprisoned for his beliefs and actions after the suppression of the movement. The HSLS was a centrist party which attracted the votes of educated people who were interested in developing civil society in Croatia. In early 1989 they organized a petition to restore the monument of the Croatian national hero Ban Jelaãiç which had been removed from the main square in

34

Transition to democracy

Zagreb in 1945. It was signed by 70,000 people. The signing of the petition by so many people was an unprecedented phenomenon, and was one of the first signs that Croatian society was opening to political pluralism. The party combined both liberal and intellectual ideas in its political programme, which was oriented towards economic reform and mass privatization. It never managed to win an election on its own although it remained for a long time the second biggest party. In June 1989 the Croatian Democratic Union (Hrvatska Demokratska Zajednica – HDZ) was established by Franjo Tudjman, a former general in the Partisan army in the Second World War, but later a nationalist dissident active in the Croatian Spring. His appeal was for ‘national reconciliation’ between the various elements of Croatian society, in particular between the left and right wing, between the ideological descendants of the communist Partisans on the one hand, and of the fascist Ustashe on the other. The other plank of the party platform was a rebalancing of power and influence between Croatia’s Serbs and Croats. In the programme of ‘national reconciliation’ the privileged position of Serbs in the upper echelons of power was to be swept away. Not surprisingly, this position threatened to bring about a polarization of Croatian society on ethnic lines. The HDZ gained support from the anti-communist Croatian diaspora in Canada and the US. One of Tudjman’s key supporters was Gojko ·u‰ak, an emigré Croat from Toronto, who later became Defense Minister. Other personalities from the Croatian Spring events joined the Party. They included Stipe Mesiç, a former mayor of Orahovica in Slavonia and future Prime Minister and President, who had been dismissed for his nationalist beliefs in the early 1970s. Ivica Raãan was elected leader of the League of Communists of Croatia (SKH) in December 1989. Raãan quickly announced plans for holding multiparty elections in the spring of 1990. He added the optimistic suffix ‘Party of Democratic Change’ (Stranka demokratskih promjena) to the name of the party to become SHKSDP. The party soon dropped the first part of the name and called itself simply the SDP, a name which it kept from that time onwards. But the change of name was not enough to prevent a dramatic collapse of support for the former communists, despite their attempts to initiate radical changes in their policies in favour of multiparty democracy, and to show a certain sensibility towards

Transition to democracy 1111 2 3 4 5 6 7 8 9 1011 1 2 3111 4 5 6 7 8 9 20111 1 2 3 4 5111 6 7 8 9 30111 1 2 3 4 5 6 7 8 9 40111 1 2 3 44111 45111

35

the cause of Croatian nationalism in opposition to the threatening nationalism of their peers among the League of Communists in Serbia. Whipped up by alarmist reporting in the Serbian press which equated the HDZ with the wartime Ustashe, a section of the Krajina Serb elite began to organize its own political party, called the Serbian Democratic Party (SDS). The SDS was formed in the spring of 1990, by a psychiatrist from ·ibenik, Jovan Ra‰koviç, who argued in favour of establishing autonomy of the Serbian districts of Croatia from Zagreb. In this he was supported by Slobodan Milo‰eviç and the Serb-nationalist politicians in Belgrade who sought to ultimately include the Croatian Krajina in a new Greater Serbian state. These, and many other political parties contested the first multiparty elections which were held in April 1990.1 The ruling communists had been unprepared for the renewed wave of nationalist sentiment which the HDZ was able to mobilize, and expected to win the elections with a clear majority. They had designed an electoral law based upon a majoritarian system, intended to translate a narrow majority of the votes into a larger majority of seats. In the event, this arrangement worked in favour of the opposition HDZ which, against most expectations, won a decisive victory. Only one year after the party had been formed, it won the first free multiparty election in Croatia since before the Second World War with 42 per cent of the vote, and gained fifty-four of the eighty available seats in the first chamber of the parliament. In all three chambers they gained 205 out of 351 seats (58 per cent of the seats in all). It thus gained an outright majority in the Sabor. Unexpectedly, communism was overturned in Croatia by a peaceful democratic election. The SDP gracefully accepted the election results and the victory of the HDZ. The party led by Ivica Raãan turned itself into a serious party of opposition, and prepared to wait for a new political opportunity in the future. This was a tremendous achievement considering the violent upheavals that had occurred up to that time in other communist states which had made the transition to democracy in 1989. Difficult times lay ahead, but the new government could lay a reasonable claim to democratic legitimacy. The new leaders in Croatia2 argued in favour of a new constitution for Yugoslavia which would create a confederation of independent states. This was resisted by the

36

Transition to democracy

Serbian President, Slobodan Milo‰eviç, who was pursuing a policy designed to recentralize power in Belgrade. The violence which was to come was linked to the attempts of the communist apparatus in Belgrade, as represented by the Yugoslav People’s Army (JNA) and the Socialist Party of Serbia led by Milo‰eviç, to suppress Croatia’s attempt to form an independent state.

The HDZ government of 1990 The first meeting of the new Sabor was held at the end of May 1990. Franjo Tudjman was elected President of the republic, and Stipe Mesiç was made Prime Minister.3 One of the first acts of the new Sabor was to introduce amendments to the republic’s own constitution which removed the word ‘Socialist’ from its name. In December 1990 an entirely new constitution was introduced which declared Croatia to be the homeland of the Croatian nation, appearing to exclude the Serbs from their previous position of civic equality.4 It proclaimed the republic’s sovereignty and its right to secede from the Yugoslav federation.5 It also established the new bicameral parliament with a lower house known as the House of Representatives and an upper house known as the House of Counties. A new Citizenship Law was also passed. Controversially, the law allowed ethnic Croats who lived abroad the right to apply for Croatian citizenship. These new citizens were allowed to vote in Croatian elections even though they might be entirely non-resident. The law permitted a large number of ethnic Croats living in the Herzegovina region of Bosnia to become Croatian citizens and thus to vote in Croatian elections. On the other hand, non-ethnic Croats who wished to apply for citizenship, or prove their citizenship, were required to have been resident in Croatia for five years immediately prior to their application, and to prove that they had a proficiency in the Croatian language. This provision later also caused difficulties for some of the Serbian refugees wishing to return to their homes in Croatia. The increased emphasis on the symbology of Croatian nationalism by the HDZ government alienated the Serbian population of the Krajina.6 As Vesna Pusiç has argued, this ‘revolution of symbols’ was highly insensitive in the circumstances and revealed

Transition to democracy 1111 2 3 4 5 6 7 8 9 1011 1 2 3111 4 5 6 7 8 9 20111 1 2 3 4 5111 6 7 8 9 30111 1 2 3 4 5 6 7 8 9 40111 1 2 3 44111 45111

37

the political immaturity of the new ruling party. Instead of focusing on the important issues of economic and social transformation, their focus was initially on seemingly superficial changes to the national flag, the coat of arms, and to the names of streets and squares.7 The new government quickly established a new Croatian news agency, HINA, which began to broadcast a stridently Croatian nationalist message. It restored the historic statue of Ban Jelaãiç to the main square in Zagreb, a statue which symbolized the independence of the Croatian state. Disaffection among the Serbian population grew further when the new government began to dismiss many Serb officials from the ranks of the police, judiciary, media and educational system.8 The new constitution caused dismay among the Serbian population, as it appeared to downgrade their status as citizens within the republic, from ‘constituent nation’ to ‘national minority’. The policies of the new government, alongside the inflammatory anti-Croatian propaganda of the Belgrade-based press which was avidly read by the Croatian Serbs, fanned an alarming increase in tension between Croats and Serbs. The effect was disastrous in mixed communities such as those in the town of Petrinja, forty-five miles south of Zagreb. One report quoted a local Croatian teacher saying: There is a lot of tension in the staff room. When the Serbian teachers come in, we all shut up. There are more and more jokes among the kids. The Croat children mock the Serbs writing in Cyrillic. They think it’s a joke, but it’s not very funny.9 Critically for the future development of Croatia, the political parties had been unable to secure an accord between Serbs and Croats in the process of gaining independence. There was no Serb-Croat coalition in the pre-First World War tradition of Pribiãeviç and Supilo, or in the wartime tradition of Hebrang. Rather, the forces of Croatian separatism gained ascendancy. Later on, Stipe Mesiç was to say that one of the greatest mistakes of the new government was its failure to immediately make an alliance with the Serbian Democratic Party (SDS), which instead boycotted the meetings of the Sabor.10 On 1 July 1990, Milan Babiç, Ra‰koviç’s deputy in the SDS, declared a union of local councils in Lika and Northern Dalmatia, taking the first steps towards creating a breakaway republic in the

38

Transition to democracy

Krajina. A Serbian National Council was proclaimed at a mass meeting of Serbs in the village of Srb. An unofficial referendum was carried out in the Krajina, and Babiç declared the ‘Autonomous Province of Serb Krajina’ in August 1990. Roadblocks were set up at around Knin, and rail traffic was disrupted making travel between Zagreb and the Dalmatian coast extremely difficult. The growing rebellion was spurred on by the activities of agents of the Serbia’s secret police, the SDB, acting under the instructions of Slobodan Milo‰eviç who sought to recreate Yugoslavia in the image of a Greater Serbia. The Serbian strategy was to slice off the Serb populated parts of Croatia in the event that Croatia were to press ahead with its drive for independence. Two top SDB agents, Franko Simatoviç (‘Frenki’) and Radovan Stojiãiç (‘BadÏa’) were sent to the Krajina to organize the SDS. As Tim Judah has explained: During 1990 Frenki and BadÏa were frequent visitors to Knin and other areas with predominantly Serbian populations. Their job was to help organize the SDS, to enhance its emerging police-cum-military capability and to distribute arms. While the driving force behind the organization was the SDB, there were many other individuals . . . who could be called upon to help . . . [including] many Serbs . . . within Croatia’s own SDB’.11 Both sides began to arm themselves, and the rebellion spread to the Serb districts of Slavonia. The Yugoslav Army (JNA) openly took sides with the Krajina Serbs and began to distribute weapons to them. Sporadic fighting between Croatian special police units and rebel Serbian police backed up by the JNA, at first in Plitvice National Park, and later and more seriously in eastern Slavonia. Paramilitary units from Serbia became active in the region including Arkan’s ‘Tigers’ and ·e‰elj’s ‘White Eagles’.

The declaration of independence and Croatia’s ‘Homeland War’ A referendum on independence for Croatia was held in May 1991, a year after the first meeting of the new Sabor. The referendum

Transition to democracy 1111 2 3 4 5 6 7 8 9 1011 1 2 3111 4 5 6 7 8 9 20111 1 2 3 4 5111 6 7 8 9 30111 1 2 3 4 5 6 7 8 9 40111 1 2 3 44111 45111

39

achieved an 84 per cent turnout of voters, of whom 93 per cent voted in favour of independence. Croatia declared its independence on 25 June, simultaneously with a similar declaration in Slovenia, with the ‘Proclamation of the Sovereign and Independent Republic of Croatia’. However, following intervention by the EU and by US ambassador James Baker, the Slovenes and the Croats were persuaded to postpone their independence moves for three months to allow negotiations to take place. However, almost immediately in a dramatic escalation of the situation, the Yugoslav Air Force, backed up by the JNA, attacked the breakaway republic of Slovenia. Unexpectedly, the JNA was quickly seen off by the Slovenes and after a short ten day conflict a cease-fire was signed and the JNA agreed to withdraw. This effectively marked the end of the Yugoslav state which had been established in 1918. In fact it later turned out that Milo‰eviç, backed up by Borisav Joviç and Veljko Kadijeviç the commander of the JNA, had no intention of engaging in serious fighting to retain Slovenia within Yugoslavia, since the republic formed no part of their plans to create a Greater Serbia.12 Croatia was different. There were significant numbers of Serbs in the breakaway Krajina and eastern Slavonia, and Milo‰eviç’s policy was designed to incorporate these regions into a new Greater Serbian state. To achieve this, Croatia would have to be broken up, and its embryonic armed forces defeated. As the crisis grew alarmingly, Tudjman created a government of national unity which included his communist adversaries. The two sides were becoming rapidly polarized, and both Serbian and Croatian extremists fed on each other’s paranoia. Voices of peace and reason began to be sidelined. One such was the chief of police in Osijek, Josip Reichl-Kir, who had spent the first months of 1991 visiting towns and villages in eastern Slavonia to assure the Serb population of police protection. He was murdered on 1 July by a Croat assassin working for a local nationalist leader who was opposed to the pacifism of moderate figures such as Reichl-Kir.13 Events stumbled chaotically onwards towards war. On 11 August the Sabor announced the creation of the Croatian National Guard, effectively a new Croatian army. On 24 and 25 August the JNA overran the region of Baranja in the east near Osijek and expelled the Croatian population. In September a major offensive was launched by the JNA in eastern Slavonia. Zagreb airport was

40

Transition to democracy

bombed by the Yugoslav airforce and offensive operations were opened across Croatia against the towns of Dubrovnik, ·ibenik and elsewhere. The ‘Homeland War’ for Croatian independence had begun. Rather unfairly, the UN Security Council imposed an arms embargo on all the republics of Yugoslavia.14 Since the Yugoslav Army was much better equipped than the Croatian National Guard this had the effect of discriminating against Croatia.15 The fiercest battle of the war was fought for the city of Vukovar in eastern Slavonia. The JNA besieged the town for two months. The defenders led by Mile Dedakoviç and Branko Borkoviç (known as Mali Jastreb – the ‘Little Hawk’) fought a desperate battle. They were reinforced by the HOS, the paramilitary wing of the recently reformed Party of Right, led by Dobroslav Paraga. By the time the JNA, which had been transformed into an essentially Serbian army, conquered the town on 17 November 1991, it had been utterly destroyed by two months of bombardment. Most of the civilians had already fled. But there were over 500 patients still in the ruined city hospital. Many of these were young men who had been defending the city. Over 300 were captured by the Serb forces and killed in a brutal massacre. Other cities such as Dubrovnik were also attacked, but none with such devastating ferocity as Vukovar. Following the fall of Vukovar, the JNA moved on towards Osijek. It seemed as if the whole of Croatia would fall to the far greater strength of the JNA.16 However, before that could happen, Milo‰eviç and Tudjman, under pressure from the EU17 which had convened a peace conference in The Hague, came to an agreement to end the war. Croatia would be recognized, the Yugoslav army would withdraw, and the breakaway Serbian regions of the Krajina and Slavonia would be demilitarized and patrolled by UN peacekeepers. The new Croatian state had survived its moment of crisis and emerged from the war reduced, but not defeated. In response to the looming international recognition of Croatia, the Serbs in the Krajina declared the independence of their breakaway Krajina Serb Republic (Republika Srpska Krajina – RSK) in December 1991. The so-called Vance Plan, brokered by UN envoy Cyrus Vance, called for a cease-fire and the creation of three demilitarized zones in the Krajinas (north and south), west Slavonia and eastern Slavonia, collectively known as UN Protected

Transition to democracy 1111 2 3 4 5 6 7 8 9 1011 1 2 3111 4 5 6 7 8 9 20111 1 2 3 4 5111 6 7 8 9 30111 1 2 3 4 5 6 7 8 9 40111 1 2 3 44111 45111

41

Areas (UNPAs). The cease-fire came into effect on 1 January 1992. The Vance plan effectively secured the Serbian war aims, and legitimized the existence of the breakaway Serbian republic. UN Security Council Resolution 743 of 21 February 1992 authorized the deployment of an international security force in the Krajina borders known as UNPROFOR. The 15,000 strong force was deployed in the four UNPAs, which were to be demilitarized. The Yugoslav Army withdrew from the Krajina. But instead of demilitarizing the UNPAs, UNPROFOR permitted the Serbian militias to continue to operate with impunity, preventing the return of displaced Croatian refugees. Thus, while the ostensible purpose of the deployment of UNPROFOR was to supervise the return of Croatian refugees to their homes, in practice it sealed the division of the country for the next three years. In 1993 the Croatian Serb rebels felt sufficiently confident in their position to hold elections for an eighty-four-seat assembly which were, not surprisingly, won by the SDS, led by Milan Babiç, and presidential elections which voted in Milan Martiç as ‘President’ of the breakaway republic. The democratization process in Croatia was obviously complicated by the war situation.18 At the start of the war the opposition parties entered into a coalition government of national unity with the ruling HDZ, and normal political competition was suspended. By the time the war ended in January 1992, almost one-third of Croatia’s territory was lost to the breakaway Krajina Serb Republic. Despite the loss of territory, Tudjman emerged as a powerful and popular leader, determined to make his mark on the future shape of the Croatian state and society. He quickly introduced measures to marginalize the political opposition, and to severely reduce the power of the independent media.

The 1992 elections The HDZ announced a suspension of the coalition government and called new elections for August 1992 in order to capitalize on its post-war popularity. The election was the first to be held in accordance with the new Constitution which had been introduced in 1990. New election rules replaced the earlier simple majoritarian system of voting by a mixed system, which was partly based

42

Transition to democracy

on a majoritarian principle and partly on the principle of proportional representation. The majoritarian system which had been used for the 1990 elections had been designed to prevent the fragmentation of the parliamentary system into a large number of small parties, and had succeeded in creating a two-party system of politics. By introducing a mixed system the chances of a new fragmentation were increased.19 This turned out to be a shrewd political tactic by the ruling party since the final outcome of the election gave rise to a distribution of seats in parliament in which the HDZ emerged as the largest party, while the opposition was indeed fragmented with a large number of parties each gaining a small number of seats. The new electoral law also increased the number of seats in the parliament from eighty to 138. Of those, sixty seats were chosen on the basis of majority vote on a constituency basis, and sixty by proportional representation on a national basis, while eighteen seats were reserved for ethnic Serb voters and for other national minorities. The elections took place while a fierce war was being waged in neighbouring Bosnia-Herzegovina. The newly independent state of Croatia was still highly vulnerable, and the atmosphere surrounding the election was tense. Not surprisingly the voters rallied around the government. The HDZ was again returned to power with its share of the vote increased to 44 per cent. This was sufficient under the mixed electoral system to ensure that the party had an absolute majority of the seats (altogether eighty-five seats, or 61.5 per cent of the total), and far more than the second largest party, the HSLS. A new government was formed, led by Hrvoje ·ariniç as Prime Minister. The opposition was fragmented with the largest opposition party, the Croatian Social-Liberal Party (HSLS), gaining only 17 per cent of the vote and just over 10 per cent of the seats. With 460,000 votes and fourteen seats in parliament it became the second largest party in the country. The reformed communists, the SDP, gained only eleven seats. The SDP performed far worse than it had done in the 1990 elections before independence since it had lost most of its support among the Croatian Serbs who had since set up their own breakaway administration in the Krajina. It also lost much of its support among ordinary Croats who turned away from the discredited reformed communists in large numbers.

Transition to democracy 1111 2 3 4 5 6 7 8 9 1011 1 2 3111 4 5 6 7 8 9 20111 1 2 3 4 5111 6 7 8 9 30111 1 2 3 4 5 6 7 8 9 40111 1 2 3 44111 45111

43

A number of other small parties also gained seats in the new parliament. The Croatian People’s Party (Hrvatska Narodna Stranka – HNS) gained six seats.20 The revived and extremely right wing Croatian Party of Right (HSP) gained three seats. The Serbian People’s Party (SNS), representing Croatia’s urban Serbs outside the Krajina, was awarded three seats. The Croatian Peasant Party (HSS) was the only significant party that had been established since independence that had not contested the 1990 election. It was also the only party that could trace its roots back to the period before the Second World War. During the communist period its leaders had been living abroad. Not surprisingly several factions had emerged which claimed the mantle of the pre-war party.21 The various factions united into a single party in May 1992, on the basis of a programme that in many ways reflected the ideas of the pre-Second World War party. It combined an anti-clerical but nevertheless religious stance with a clear sense of national identity without being exclusivist in its nationalism. It combined a sensitivity towards rural social issues and problems with a wider appeal to the independent urban middle classes.22 This approach was successful in attracting a significant number of votes for a party newly emergent on the political scene. Altogether it won 4.2 per cent of the votes and gained three seats in parliament. Significantly, it captured a large number of votes in the Zagreb region, previously one of the main strongholds of the HDZ. Presidential elections were also held, for the first time by popular vote of the electorate. Franjo Tudjman claimed a clear victory at these elections, gaining 57 per cent of the vote. The nearest rival, DraÏen Budi‰a of the HSLS, gained 22 per cent, while Savka Dabãeviç-Kuãar of the HNS gained only 6 per cent. In subsequent elections for the upper house (House of Counties) and for local governments, which were held in 1993, the HDZ continued to maintain its pre-eminent position. However, since these elections were held purely on the basis of proportional representation it failed to achieve as strong a majority as it had achieved in the elections for the lower house, winning only thirty-seven of the sixty-eight available seats. Moreover it lost its majority in a large number of local administrations. It failed to win absolute majorities in seven out of twenty-one counties including Zagreb, in two-thirds of the sixty-eight towns and in about half of the

44

Transition to democracy

324 municipalities.23 The main gainers on the local elections were DraÏen Budi‰a’s Social-Liberals (HSLS) and the Croatian Peasant Party (HSS). In Istria, the Istrian Democratic Assembly (IDS) emerged as the most powerful force and began to voice demands for a greater degree of autonomy for Istria. The government had become highly centralized during the war, and the Istrians called for a greater degree of administrative decentralization. Similar calls were heard from the Serbian People’s Party as a solution to the problem of the Krajina.24 However, Tudjman and the HDZ would have none of it, as they envisaged that decentralization or federalization of the country would lead to its ultimate break-up. Not only would the Krajina Serbs then have consolidated their independence from Zagreb, but, lurking in the wings, was the prospect that Istria might seek a closer relationship with Italy, whose possession it had been in the years between the two world wars. After the 1992 elections the HDZ was firmly entrenched in power. As a party it represented a coalition of various elements within the nationalist movement.25 While always excluding farright extremists who found their natural home within the Croatian Party of Right, there was nevertheless a powerful right wing element in the party. This faction, led by Defence Minister Gojko ·u‰ak (whose family origins had been in Herzegovina) and Vladimir ·eks, drew its strength partly from the Croatian diaspora. It consisted of three main groups. First, there was the influential and wealthy Croatian émigré communities in Canada, the US, and Australia whose origin lay largely in the exodus of noncommunist forces at the end of the Second World War, as well as more distantly in economic emigrants from the years between the two world wars and even earlier. Second, there were those based in Germany whose origins lay in the Gastarbeiter emigrations of the 1960s and 1970s.26 Third, there were the Croatians with origins in the Herzegovina region of Bosnia. That area had been long populated by Croats and had briefly been a part of the Croatian Banovina created in 1938 as a consequence of the Sporazum between Maãek and Cvetkoviç. The Croats of Herzegovina had suffered from discrimination under the communist system, and their region was relatively underdeveloped. They were keen to ally themselves with the Croatian national movement, and were welcomed with open arms by Tudjman and the right wing

Transition to democracy 1111 2 3 4 5 6 7 8 9 1011 1 2 3111 4 5 6 7 8 9 20111 1 2 3 4 5111 6 7 8 9 30111 1 2 3 4 5 6 7 8 9 40111 1 2 3 44111 45111

45

of the HDZ who harboured half-concealed ambitions to unite Herzegovina into a new Greater Croatian state. At the other end of the HDZ spectrum was a left-wing faction formed from those who had abandoned the Communist Party and moved over into the nationalist movement. They chose the HDZ rather than the Croatian People’s Party (HNS) which had been formed by the former communist leaders from the Maspok movement of the 1971 Croatian Spring. Key personalities in this faction were Josip Manoliç, formerly head of the Yugoslav secret services in Croatia, and Stipe Mesiç, who had also been Prime Minister of Croatia in the first HDZ government in 1990.27 But, disenchanted with the authoritarianism of the new government, and especially with its anti-Muslim actions in Bosnia, both Mesiç and Manoliç resigned from the HDZ in the spring of 1994. They took sixteen other HDZ deputies with them and established a new party known as the Croatian Independent Democrats (Hrvatski Nezavisni Demokrati – HND). They argued in favour of a negotiated settlement with the Serbian population in the breakaway Krajina region.28 After that, the left wing was never able to impose its views on the HDZ which thereafter remained a centre-right party throughout the period of democratic transition and consolidation in Croatia. The third faction within the HDZ was composed of the bulk of the party who included enterprise managers and technocrats, but also a large segment of ordinary people from among the unskilled workers, the growing army of the unemployed, and pensioners dependent on the meagre state pensions. This segment was held together by appeals to nationalism and the promise of a better life in an independent Croatia. When in the late 1990s their hopes and expectations were disappointed, they abandoned the party which collapsed at that moment as suddenly as it had arisen ten years earlier. The elections of 1992 and 1993 showed that multiparty democracy had been firmly established in Croatia, although it was argued by critical observers that the ruling party had manipulated the electoral laws to its own advantage in order to fragment the opposition.29 The reformed communists in the SDP had been relegated to a minor fringe party, while the Social-Liberals (HSLS) emerged as the clear leader among the opposition parties. The elections reinforced the pre-eminent position of the HDZ among

46

Transition to democracy

Croatian voters, and confirmed the personal popularity of President Tudjman, who received a popular electoral mandate for the first time in the presidential elections. Among the smaller parties, the right-wing Croatian Party of Right emerged as a serious contender, as did the revived Croatian Peasant Party. The popularity of the ruling party was perhaps not surprising under the abnormal conditions of the time, and there was a natural tendency to rally round the government in the immediate post-war period and when one-third of the country was effectively under rebel control. An economic stabilization programme, initiated in 1993, had also begun to yield some successes. Inflation was under control, the important tourist industry began to revive and the economy began to grow. The international financial institutions including the World Bank, the IMF and the European Bank for Reconstruction and Development (EBRD) had begun to support the country with loans. The first World Bank Emergency Reconstruction Loan for $128 million had been approved in June 1994. Marko ·kreb, the governor of the Croatian National Bank, was declared the best central banker in Eastern Europe. The future looked bright for the ruling party while the Opposition was in disarray, unable to unite around a common political platform. However, the glaring absence of representatives from the Serbian Krajina also pointed to the fundamental weaknesses of the political system which had been established.

Operation Storm and the 1995 elections Up until 1995 one of the defining political facts in the newly established Croatian state was the partition of the country due to the existence of the Serb-dominated breakaway republic of the Krajina. Not only did this represent a direct threat and affront to Croatian sovereignty, but it removed a segment of the actual and potential opposition electorate from the equation and hence strengthened Tudjman and the HDZ in power. It also caused economic problems because of the disruption of communications between Zagreb and the other large provincial cities such as Osijek in eastern Slavonia, and Split on the Dalmatian coast. The Serbiandominated regions were patrolled and monitored by UN forces

Transition to democracy 1111 2 3 4 5 6 7 8 9 1011 1 2 3111 4 5 6 7 8 9 20111 1 2 3 4 5111 6 7 8 9 30111 1 2 3 4 5 6 7 8 9 40111 1 2 3 44111 45111

47

but, to the Croatian government, it seemed as though the international community was engaged in a strategy to preserve the status quo, rather than to resolve the issue of Croatian statehood. The government was especially unhappy with the fact that the UNPROFOR deployment had divided the country, effectively legitimizing the breakaway mini-state of the Serbian Krajina, and preventing the Serb-held areas from being reintegrated into Croatia. Gradually the Croatian Army grew in strength and soon embarked on a series of military actions to regain the lost territories in Slavonia and the Krajina. These culminated in a major offensive, ‘Operation Storm’ (Oluja) was launched in August 1995 against the main area of Serb rebellion in the Krajina. Within a few days the whole of Krajina was recaptured. The Serbian population, fearing reprisals, and on the instructions of their leadership, fled en masse to Serb held areas within Bosnia, and to Serbia itself.30 The offensive was successful, partly because the Yugoslav Army had decided not to defend the outlying Krajina region. But US support in the form of training and military intelligence was also a key factor in the success of the military operation. Croatia was swept by a tide of euphoria and celebration. Tudjman travelled to Knin and in a masterly stroke of propaganda kissed the Croatian flag flying from the battlements of the mediaeval Knin castle, which had been the seat of the mediaeval Croatian King Tomislav, and had an enormous symbolic importance for the new Croatian state. Tudjman was at the pinnacle of his power and popularity. Had he left office at that point he may well have been remembered as a national hero. However, he remained in office, determined to carry through an increasingly authoritarian approach to Croatian state-building, and, captivated by the increasingly influential Herzegovinian lobby, pursued his (and their) desire to incorporate the Herzegovinian region of Bosnia into Croatia. In the aftermath of victory following the Oluja offensive in 1995 the HDZ was in an apparently unassailable position of political popularity. The end of the war in neighbouring Bosnia, the recapture of the Krajina, and the conclusion of the Dayton peace agreement provided a new perspective for hope in Croatia, and in the region as a whole. The international security dimension was

48

Transition to democracy

much improved due to the peace agreement, which was backed up by the US and the international community. New elections were called a year early at the end of 1995, with the aim of capitalizing on the military success and the popularity it had brought to the ruling party. The electoral rules had been changed to increase the reliance on proportional representation. Out of a total of 127 seats, eighty were allocated according to proportional representation; twenty-eight according to constituency results in the enlarged counties (Ïupanije); and seven seats were reserved for national minorities. Among the latter the number of seats available for Serbs was reduced from thirteen to three, thus in effect disenfranchising the departed Serb community of the Krajina. In addition, twelve seats were reserved for non-resident out-of-country Croats who had been granted citizenship under the 1991 Law on Croatian Citizenship. This last provision was the most controversial. It allowed for Croats in the diaspora to cast their votes for the Croatian elections, but it also enfranchised Croats living in the Herzegovina region of Bosnia. Not surprisingly, the HDZ won all twelve of the ‘overseas’ seats. The American political scientist Lenard J. Cohen identified five main groupings of political parties which fought the 1995 election.31 The first grouping consisted of the ruling HDZ which had evolved into a centre-right party, with the second grouping consisting of the Social-Liberals, the main opposition party, standing as a nationalist party somewhat to the left of the HDZ. The third grouping consisted of a number of left-wing parties included the erstwhile communists of the Social Democratic Party. The fourth grouping consisted of parties of the radical right wing, including the Croatian Party of Right. The fifth grouping comprised the regional parties such as the Istrian Democratic Assembly (Istarska Demokratska Sabor – IDS). Parties representing the national minorities had virtually disappeared, and had to be given a certain number of seats to ensure their interests were at least represented in the parliament. Once again the HDZ were returned to power with an overall 45 per cent of the vote, much as in the previous two elections. The party held a majority of seventy-five seats in the new 127-seat parliament, giving it an absolute majority with 59 per cent of the parliamentary seats. They had won twenty-one of the twenty-eight single-member constituencies, and all of the twelve seats allocated

Transition to democracy 1111 2 3 4 5 6 7 8 9 1011 1 2 3111 4 5 6 7 8 9 20111 1 2 3 4 5111 6 7 8 9 30111 1 2 3 4 5 6 7 8 9 40111 1 2 3 44111 45111

49

to the Croats living abroad (mainly in Herzegovina). The party had won proportionally more votes than in 1990 and 1992, but had not increased its share as much as might have been expected following a military victory. The HDZ did particularly well in the less developed rural areas, and in the areas that had been badly affected by the war. It also picked up a large number of votes from older and less well-educated people.32 However, its reliance on the votes from Croats ‘abroad’ in Herzegovina led to charges that it was depending on a ‘manufactured majority’.33 The opposition parties won forty-five seats, and seven seats went to the national minorities. The largest opposition group was a coalition led by the revived Croatian Peasant’s Party (HSS) which secured eighteen seats. The Croatian Social-Liberal Party (HSLS), which had criticized the illegal accumulation of wealth by the new political elite,34 gained twelve seats. The former communist Social Democratic Party (SDP) continued to trail behind with only ten seats. The opposition fared best in the larger cities such as Zagreb, Rijeka and Split. In the local elections which were held at the same time the opposition made significant gains. In many cities and local councils, the HDZ did badly and lost control in a number of them. Most critically, the HDZ lost control of the Zagreb City Council. The Istrian Democratic Assembly gained the majority of votes in Istria which consolidated its position as regional centre of opposition to the government in Zagreb.

The development of authoritarian government Despite the fact that the practice of multiparty elections had become well established in Croatia, many observers of the Croatian political scene pointed to the authoritarian tendencies of the government, and of Franjo Tudjman, a former army general, personally.35 Some equated the authoritarianism of Tudjman’s regime with that of Slobodan Milo‰eviç in Serbia.36 Although this is almost certainly an exaggerated view, the authoritarian tendencies of the HDZ, necessary and accepted in wartime, began to look increasingly anachronistic and out of place now the war was over. Tudjman reacted heavy-handedly to the loss of control of the City Council in Zagreb. It was the first major disappointment

50

Transition to democracy

at the election polls, and the HDZ revealed its authoritarian and anti-democratic nature by its response. Tudjman refused to recognize the results of the elections, and vetoed the opposition choice of mayor for Zagreb four times in succession. Despite protests, as President he had the right to veto the electoral result, but the courts refused to accept his nominee for mayor of Zagreb. The first inklings of a growing unpopularity of the government had come out into the open. The crisis lingered on for over a year until the government, on Tudjman’s orders, dissolved the Zagreb Assembly and appointed his own nominee to the post.37 A further example of the arrogant abuse of power by the HDZ occurred in November 1996 when the government attempted to close down the popular independent radio station, Radio 101. This outraged a large part of the citizens of Zagreb who appreciated the independent voice of the radio station as a refreshing source of news and critical reporting which made a striking contrast to the mainly pliant media. A large crowd staged a mass protest demonstration in the main square in Zagreb which was attended by over 100,000 people. Together with the mass demonstrations which occurred in Belgrade in the winter of 1996/7 it began to look as if there was an opening for a genuine democratic nonnationalist politics to emerge in the Balkans. But it was not to be. In Zagreb, Tudjman rode out the protest, much as Milo‰eviç did in Belgrade. But his popularity was seriously damaged, and over the next few years it gradually diminished as a variety of scandals hit the headlines and were reported by an increasingly independent and outspoken press. Tudjman became more irascible as his health began to fail. His innate racial prejudices were revealed as the ridiculous posturing of an old man living in a fantasy world of distorted nationalist sentiment. In an amazingly crass move in 1997 he arranged the overturning of the results of the competition for Miss Croatia which had been won by a young Croatian Muslim woman from Dubrovnik. Tudjman’s anti-Muslim prejudice was so strong that he courted ridicule through his behind-the-scenes intervention in the result.38 Yet the event did not produce significant outrage among the Croatian public. The roots of nationalism clearly were deeply ingrained after six years of nationalist rhetoric and the experience of the independence war. Tudjman’s personal popularity remained undiminished despite his obvious authoritarian

Transition to democracy 1111 2 3 4 5 6 7 8 9 1011 1 2 3111 4 5 6 7 8 9 20111 1 2 3 4 5111 6 7 8 9 30111 1 2 3 4 5 6 7 8 9 40111 1 2 3 44111 45111

51

tendencies and he succeeded in winning presidential elections in June 1997 with a 61 per cent share of the vote. As time went on, and especially with the onset of a serious economic crisis in 1998 and the collapse of a number of regional banks which ushered in a financial crisis as well, relations between the two dominant factions within the HDZ became more strained, and the right-wing Herzegovina lobby gained influence. Hardliners, led by Tudjman’s adviser on internal affairs, the shadowy Iviç Pa‰aliç, gained increasing dominance within the party, marginalizing the centrist group led by foreign minister Mate Graniç. The recently appointed moderate Defence Minister, Andrija Hebrang,39 also resigned following his failure to reform the ministry, and to break the links between the ministry and the military and political leaders in Herzegovina. As the HDZ government began to lose touch with the popular mood, it was hardly surprising that it began to make a number of foolish errors of judgement. But the opposition failed to capitalize on the diminishing popularity of the government since it remained divided and proved incapable of seizing its opportunities. Two areas in particular came to symbolize the authoritarian nature of the HDZ government. The first was the attempt to impose restrictions on freedoms of the press and to impose government controls on the media. The second was the proliferation of security services and the increasingly onerous supervision of opposition activities.

The media While the elections were regarded by independent observers as generally fair and democratic, criticisms of the Croatian political system began to be aired. It was claimed that the ruling party was influencing the electorate through its domination of the media. The state television company, Croatian Radio-Television (HRT), comprising the main television station, Croatian Television (HTV) and Croatian Radio (HR), had been turned into the mouthpiece of the government. Independent journalists were frequently dismissed from their posts. The privatization of the press was also used as a hidden means of control. Through the privatization process, new owners,

52

Transition to democracy

favourably disposed towards the government, had taken control of the press. The ruling party offered special privileges to its members and supporters when it came to buying shareholdings in the newly privatized companies. One example was the case of Slobodna Dalmacija, an independent daily published in Split, and one of the only papers prepared to report human rights violations against Serbs in Croatia.40 It had first been privatized at the end of the 1980s under the Markoviç privatization law which had allowed companies to be sold to their workforce through an employee buy-out. After the HDZ government introduced its own privatization laws in 1991 it was able to overturn the earlier privatization of the newspaper. The shares were then bought out under favourable terms and on the basis of easy bank loans by one of the more notorious new Croatian tycoons, Miroslav Kutle, who was on close terms with leading politicians in the ruling party. Many of the newspaper’s journalists resigned in protest. After that, there was little space for the airing of opposition opinion. However, there were some notable exceptions. These included the regional newspaper Novi List published in Rijeka which maintained a steady output of opposition opinion, and the impertinent and humorous satirical paper Feral Tribune. Both papers could be found openly on sale on the main square in Zagreb, and indeed throughout the country. The latter paper was the target of particularly fierce attacks from the government, and was on several occasions prosecuted in the courts for libel and required to pay onerous fines which threatened its continued existence. Feral Tribune in particular had courageously reported on human rights violations and war crimes committed by Croats against Serbs and Muslims in the various wars of the early 1990s. On one occasion, the paper reported on the vicious attacks against Croatian Serbs carried out by militia group in Pakrac in 1991. Instead of leading to prosecutions of the alleged perpetrators of the crimes, Feral Tribune editors found themselves in court unsuccessfully defending a libel case brought against them and were convicted to pay damages.41 New opposition journals were established from time to time, such as the weekly magazine Tjednik, but they usually found it difficult to break into the mass market. Tjednik survived for about a year before closing down. More successful were newspapers such

Transition to democracy 1111 2 3 4 5 6 7 8 9 1011 1 2 3111 4 5 6 7 8 9 20111 1 2 3 4 5111 6 7 8 9 30111 1 2 3 4 5 6 7 8 9 40111 1 2 3 44111 45111

53

as the weeklies Nacional and Globus and the daily Jutarnji List, which became increasingly critical of the government towards the end of the decade and were influential in turning public opinion gradually away from the HDZ. It is therefore not really true to say that the political system was entirely authoritarian and undemocratic on the basis of its control of the media. The degree to which the government exercised control in this area was subject to significant exceptions. Nevertheless, the government was able to make life difficult for the opposition media by more subtle means of control such as placing commercial obstacles in their way to limit their business expansion. The most important such obstacle facing the independent press was the late payment of bills by the newspaper distribution network. The main newspaper distribution company Tisak had a virtual monopoly on the circulation of the printed media, and had been bought by the notorious tycoon Miroslav Kutle who as already noted was closely linked to the HDZ government. Tisak controlled around 65 per cent of the newspaper and magazine distribution market. Newspapers and magazines which were regarded as hostile to the government would stand little chance of being widely distributed, or if they were distributed, would be paid only with long delays. For example, in November 1998, it was reported that Tisak owed 800,000 German marks to the opposition newspaper Nacional, and 200,000 German marks to Feral Tribune.42 According to Ivo Pukaniç, editor-in-chief of Nacional : The [hard-line] faction of the HDZ, headed by Iviç Pa‰aliç is trying to ruin Nacional with the help of Miroslav Kutle and his Tisak, because it has obviously become a big obstacle in carrying out their plans. The attempt to destroy Nacional is, I believe, the severest attack so far on freedom of the press in Croatia.43 The government also controlled newspapers through indirect and hidden ownership links. It was not until the new government came to power in January 2000 that it was discovered that the main daily paper in Zagreb and most of mainland Croatia, Veãernji List, was actually owned and effectively controlled by the HDZ.

54

Transition to democracy

The intelligence services Within former Yugoslavia, the intelligence services had played an important role in the suppression of political opposition, and nationalist groups in particular. When a non-communist government was elected in Croatia in 1990, it was only to be expected that the intelligence services would seek to undermine it. Very early on the Yugoslav State Security Service (SDB) began to infiltrate agents and paramilitary forces into the Serbian communities of the Krajina region and to supply them with arms, money and tactical intelligence.44 Very quickly, however, the Croatian government built up its own extensive network of intelligence services in Croatia. This was justified both by the exigencies of war and to counter espionage operations conducted from Serbia. The main intelligence service was the Office for National Security (UNS), which was set up by Josip Manoliç, the former head of the SDB in Croatia, as an umbrella organization for the intelligence services in Croatia. The Ministries of Interior, Foreign Affairs and Defence each had their own intelligence agencies. The Security Information Service (OBS) was established within the Ministry for Foreign Affairs, and the Service for the Protection of the Constitutional Order (SZUP) was established within the Interior Ministry. The Ministry of Defence had its own intelligence service (VOS) and also set up a counter-intelligence service known as the Security and Information Service (SIS). The Croatian Army also had its own military intelligence service (OSHV).45 Altogether, eleven separate intelligence services were established under the HDZ regime. The various services were under the control of the different factions within the HDZ, and practised intense rivalry. In 1992, in an attempt to maintain overall control of the intelligence community, Tudjman appointed his son Miroslav to the post of head of the UNS, and in 1993 to head another intelligence agency, the Croatian Information Service (HIS), the branch of UNS responsible for overall coordination of the activities of the intelligence services. However, the rivalry between the services continued unabated and eventually went so far as to involve the different services in leaking damaging information to the press against opponents in rival factions of the ruling party. The practice inevitably served to discredit the regime as a whole.

Transition to democracy 1111 2 3 4 5 6 7 8 9 1011 1 2 3111 4 5 6 7 8 9 20111 1 2 3 4 5111 6 7 8 9 30111 1 2 3 4 5 6 7 8 9 40111 1 2 3 44111 45111

55

Just how damaging this all was to the consolidation of democracy in Croatia was illustrated by the ·ariniç affair in October 1998. Hrvoje ·ariniç was a former Prime Minister of the 1992 government, and a leading politician among the HDZ’s moderate faction. He was attacked in the Imperijal news magazine, which he alleged was acting on information provided by the SIS at the instigation of his right-wing rival within the HDZ, Tudjman’s special adviser on internal affairs, Iviç Pa‰aliç. ·ariniç accused the military counter-intelligence service (the SIS), which was closely allied to Pa‰aliç and the right wing of the party, of conducting a campaign to undermine his position.46 But Pa‰aliç was not alone in encouraging the distribution of damaging material by the intelligence services through pliant media outlets in order to attack political opponents. The practice was widespread among the politicians of all factions within the ruling party. In this way, normal democratic methods of political conflict were replaced by backstabbing and intrigue, leading to a general disillusion with the excessive manipulation of civil society by leading politicians within the HDZ, and contributing ultimately to their electoral defeat after ten years in power.

The return of the Left in the 2000 elections The manipulation of the intelligence services and the media, the authoritarian nature of the government and the persistent and growing influence of the right wing of the party led by the ‘Herzegovina lobby’, led to a progressive reduction in the popularity of the HDZ towards the end of the decade. But perhaps the most important reason for the government’s loss of popularity was the economic crisis which had unexpectedly erupted in 1998, sparked off by the collapse of a number of regional banks. Economic policy under Tudjman, strongly influenced by the hardline nationalist faction, was more interested in pursuing a protectionist policy towards the economy which would promote the interests of the new Croatian capitalists, than in promoting economic efficiency or social welfare. A privatization programme initiated during the war had transferred ownership of a large part of the Croatian economy to individuals who were either members of, or associated with, the ruling party. The economy had become

56

Transition to democracy

dominated by a new breed of tycoon capitalists who, in most cases, had little interest in productive accumulation, but were more interested in asset stripping, getting rich quick, and in conspicuous consumption.47 Alongside this, there was a rapid rise in unemployment, and an increase in poverty and income inequality. The scandals and corruption surrounding the depletion of the economy by HDZ members and fellow travellers contributed further to a widespread and growing disenchantment with the regime. But the opposition had for a long time been too disunited and fractious to take advantage of the popular mood in parliamentary elections. New parliamentary elections were scheduled for December 1999. The election law was once more altered in October 1999, leaving little time for the parties to adjust to the new arrangements.48 Majority voting in constituencies was abandoned altogether and replaced by a system of proportional representation based on the creation of ten in-country constituencies and one out-of-country constituency. Each in-country constituency was to elect fourteen members on the basis of party lists, while the number of members to be selected from the out-of-country lists was adjusted to reflect the number of votes cast per member in the election of in-country members. This technique was ostensibly used to reduce the over-representation of the ‘overseas’ Croats in the parliament. There were 350,000 registered voters eligible to vote in the ‘11th constituency’, from which six members were eventually elected. An additional five seats were reserved for parties representing national minorities which could contest for votes from a single list from the ten main constituencies.49 Within this arrangement the number of seats reserved for the Serbian national minority was reduced to one.50 In the run-up to the election the main television channel, HTV, as usual supported the government position. It gave overwhelmingly favourable reports in regular TV news on government achievements and on President Tudjman in particular. On the other hand, all parties including opposition parties were granted access to airtime on an equal basis to the ruling party in special election programmes. Overall, outside observers concluded that the HTV favoured the ruling party.51 However, the press had become much more vocal in criticizing the government than had been the case in previous elections. In particular, newspapers such as the weekly Nacional had played a significant role in

Transition to democracy 1111 2 3 4 5 6 7 8 9 1011 1 2 3111 4 5 6 7 8 9 20111 1 2 3 4 5111 6 7 8 9 30111 1 2 3 4 5 6 7 8 9 40111 1 2 3 44111 45111

57

exposing the corrupt practices of the HDZ government, ministers and MPs, as well as the way in which the business tycoons were involved in asset stripping the privatized business sector and funnelling large amounts of money out of the country. In the autumn of 1999 Tudjman became obviously ill with cancer, and although he managed to continue in office, his grip on power weakened. He died at the end of 1999 aged 77, just before the election was scheduled to take place. Despite fears that the HDZ might benefit from a sympathy vote, the opposition, having managed to unite in a six-party coalition known as the ·estorka (‘the Six’), was swept to power in general elections held in the New Year of 2000.52 The coalition was composed of two groups. The main group was a partnership of the SDP and the HSLS. Their coalition partners were a group of four smaller parties known as the ‘Group of Four’, including the Croatian Peasant Party (HSS), the Istrian Democratic Assembly (IDS), the Liberal Party (LS) and the Croatian People’s Party (HNS). For the first time in ten years the opposition remained united throughout the election campaign, and thus managed, at last, to defeat the HDZ in the election. Overall, the SDP-HSLS coalition won 39 per cent of the vote, and their coalition partners in the ‘Group of Four’ won 13 per cent. The HDZ managed to win only 28 per cent of the vote. A right-wing alliance of the Croatian Party of Right and the Croatian Christian Democratic Union won 5 per cent of the votes. The SDP-HSLS coalition won seventy-one seats. The four-party centreright coalition led by the HSS won twenty-four seats. In the ‘diaspora constituency’ the HDZ won an overwhelming majority with 86 per cent of the constituency vote and won all six available seats. The HDZ was the second largest party with forty-six seats; but the winning coalition, with ninety-five seats, had a clear majority. The SDP, together with their coalition partners in the HSLS and the four other smaller parties, formed a new government led by Ivica Raãan, the reformist communist politician who had initiated multiparty elections ten years earlier. Zlatko Tomãiç of the Croatian Peasant Party (HSS) was elected President of the Parliament. Shortly afterwards presidential elections were held and resulted in a further debacle for the HDZ when its candidate, former foreign minister Mate Graniç, dropped out after his defeat in the

58

Transition to democracy

first round of voting. DraÏen Budi‰a of the HSLS, and Stipe Mesiç, now a member of the Croatian People’s Party53 (one of the four smaller parties in the government), contested the second round which was won by Mesiç with 56 per cent of the vote.54 Mesiç’s victory came as a surprise to many and signalled a clear shift to the left among the Croatian electorate. He was also helped in the campaign by his reputation as a long-standing and outspoken critic of Tudjman’s authoritarian policies, a position he had adopted ever since he had resigned from the HDZ in 1994. He was also a leading opponent of the idea of the de facto integration of Herzegovina into Croatia. It was the start of a new era in Croatian politics. The democratic opposition had finally been returned to power. Untainted by association with tycoon capitalism and the corruption of the HDZ, the new government quickly established a rapprochement with the European Union. It seemed as though Western-oriented Croatians were at last in a position to fulfil their vision of inclusion and integration into Europe, if not immediately, then at least the first steps could be taken. But Europe had other ideas. Croatia was to be encouraged first to seek rapprochement with her Balkan neighbours. Rather than membership of the EU, what was on offer was the negotiation of a ‘Stabilization and Association Agreement’ within the framework of the EU programme for the Western Balkans. Croatia was once again in the dilemma of identity between Europe and the Balkans, with no resolution as yet in sight. The election results were nevertheless widely welcomed by leading European politicians. Joschka Fischer, the German foreign minister said the victory of the SDP-HSLS coalition was a sign that democracy in Croatia was gaining ‘maturity’.55 Almost immediately, Romano Prodi, President of the European Commission, paid a visit to Raãan in Zagreb. The meeting was almost euphoric, and high expectations of fast progress towards reconciliation between Zagreb and Brussels were voiced. According to one report: Just how good the atmosphere was prior to the meeting can be seen by what occurred following the completion of talks. Following statements given before the media by the two delegation heads, Romano Prodi, completely unexpectedly before everyone, hugged Ivica Raãan and kissed him on both cheeks.

Transition to democracy 1111 2 3 4 5 6 7 8 9 1011 1 2 3111 4 5 6 7 8 9 20111 1 2 3 4 5111 6 7 8 9 30111 1 2 3 4 5 6 7 8 9 40111 1 2 3 44111 45111

59

Considering that in the last couple of years, relations between Croatia and the EU were practically completely severed, such an expression of open-heartedness is a real diplomatic sensation.56 One of the first actions of the new government was to reduce the salaries of the ministers and Prime Minister by about twofifths. Ministerial salaries under the HDZ government had reached absurd levels in relation to average wages. The arrogance and insensitivity of the previous government in the face of the economic crisis and mass unemployment had been a major factor in its downfall. After the election defeat the HDZ began to break up, as its factions could no longer hold their alliance together. The centre faction of the party led by Mate Graniç established a new party, called the Democratic Centre, leaving the HDZ led by Vladimir ·eks to lead a much diminished rump party, which soon became a reduced force in Croatian politics. One of the main election promises of the new government had been to reduce the excessive power of the President and to transform the political system into one which was closer to a parliamentary system than a presidential one. Constitutional changes were introduced on 10 November 2000 which replaced the semi-presidential political system by a parliamentary system of government in which power would be shared between the President, Prime Minister and parliament. The President lost the right to nominate the cabinet, but would instead be able to appoint the Prime Minister who would then select his own cabinet. The new constitution also introduced joint control by President and Prime Minister over the appointment of the heads of the secret services. A further significant break with previous policy was the announcement by the Interior Minister ·ime Luãin that there would be a rationalization of the various intelligence services. During the presidential election campaign the intelligence services had gone too far by leaking a smear story to the newspaper Slobodna Dalmacija that Mesiç had been in the pay of the notorious UDBA secret police under the communist regime. This Mesiç was easily able to refute; and by that time in any case people had become inured to the practice of both real and false intelligence

60

Transition to democracy

leaks and paid little attention to the claim. Luãin also forbade the secret services to engage in surveillance and wiretapping of journalists which had previously been a standard practice.57 It took some time for the new government to wake up to the fact that the intelligence services were still manned by HDZ supporters, and posed a real threat to the new regime. A more direct approach was needed to deal with the problem, and in May 2000 police were sent to the Zagreb suburb of Kuni‰ãak to surround, and then take over, the headquarters of the HIS.58 The new government was composed of politicians who in the main had little experience in power. Its major success was in its rapprochement with the EU leaders, and under Raãan’s leadership Croatia finally came in from the cold as far as the EU was concerned. Despite this undoubted achievement, the new government was slow to consolidate its election victory. By the end of its first year in office, it had failed to make as rapid progress in the urgent economic and social policy fields that the voters had been expecting and hoping for, and had instead become bogged down in political rivalries and conflicts between the coalition partners. In June 2001 the Istrian Democratic Assembly (IDS) left the government in a disagreement over economic policy and in a dispute over the IDS proposal that Italian should become an official language in Istria. A month later, four ministers of the HSLS threatened to resign in protest at the government’s decision to hand over General Ante Gotovina, the army commander during the 1995 Oluja offensive in the Krajina, to the Hague Tribunal. More seriously, DraÏen Budi‰a opposed the government policy on this issue, and resigned from the leadership of his party in order to allow the party to remain in the government coalition, and claimed that he was withdrawing from politics. But such gestures rarely last long in a professional politician and Budi‰a was re-elected party leader in March 2002 and re-entered government as the Deputy Prime Minister. Once back in power he adopted a more conciliatory tone towards the Hague, indeed he was placed in charge of Croatian government’s relations with the Tribunal. During all this time, Gotovina had avoided arrest and remained in hiding. The issue was one which threatened to overwhelm the government, which although anxious to meet one of the key conditions for deeper European integration, faced a growing opposition from supporters of the indicted generals, who increasingly saw the

Transition to democracy 1111 2 3 4 5 6 7 8 9 1011 1 2 3111 4 5 6 7 8 9 20111 1 2 3 4 5111 6 7 8 9 30111 1 2 3 4 5 6 7 8 9 40111 1 2 3 44111 45111

61

Hague Tribunal as persecuting the victims of the independence war rather than the aggressors. While the government was distracted by internal political bickering, and by squabbles over the demands of the Hague Tribunal and struggling to meet the political conditions laid down by the EU, its ability to deal effectively with economic policy was severely impaired. Unemployment continued to increase as the government failed to make any really important changes in economic policy. One of the biggest challenges was to reduce the overblown public sector expenditure which was draining the economy of resources. At the same time the government was faced with the problem of tackling the legacy of HDZ-style tycoon capitalism and encouraging the development of a more productive entrepreneurial economy geared towards export-led growth. It was clear that economic policy was not a strong point of the new government. Its failure in this respect gave an impetus to a resurgence of support for the HDZ. The disappointing results of the municipal elections in May 2001 gave a warning to the new government. The HDZ, either on its own or in coalition with other right-wing parties, gained 26.5 per cent of the vote, compared to just 20 per cent for the SDP. As soon as the first results were known, Croatian evening TV and the next morning papers announced the results as a big victory for the HDZ, and a debacle for the six-party coalition. But Mirjana Kasapoviç, one of the leading political scientists in Zagreb, challenged those superficial media assessments.59 She pointed out that the so-called ‘big victory’ of the HDZ was in fact probably the worst election result in the party’s history, compared to its share of the vote in all previous elections on national, regional and local levels. Moreover, the HDZ had previously managed to win elections standing on its own, whereas now 2 or 3 per cent of their votes were contributed by their coalition partners in the so-called Croatian Bloc. After the elections the HDZ lost governing power in many counties, cities and districts. Whereas previously the HDZ had held power in seventeen counties, after the local elections the HDZ was left with a working majority in only six. Nevertheless, the HDZ remained a force to be reckoned with. As the government struggled to reconcile the conflicting political objectives of respect for the independence of Croatia, reflected in popular support for the indicted generals, and its need for a closer

62

Transition to democracy

integration with the European Union, its popularity was increasingly vulnerable not just to a right-wing backlash, but also to internal rifts among the coalition partners. Its ability to tackle simultaneously the conflicting demands of its international policies and obligations, and to tackle the increasingly desperate economic conditions without undermining its popularity by making too stringent cuts in public expenditure and welfare programmes seemed to be the defining challenge of Croatia’s fledgling social democracy.

1111 2 3 4 5 6 7 8 9 1011 1 2 3111 4 5 6 7 8 9 20111 1 2 3 4 5111 6 7 8 9 30111 1 2 3 4 5 6 7 8 9 40111 1 2 3 44111 45111

3

International relations

We do not want to join any type of Balkan integration process and we refuse to be anyone’s puppets! (President Franjo Tudjman, Croatia Weekly, 1 July 1999) When asked about the future regional co-operation on this territory, Raãan replied that Croatia supported co-operation with its neighbours. But this, he insisted, did not mean that Croatia accepted any kind of new integration of Balkan states. ‘Serious people no longer hold such views’, he stated categorically. ‘Regional co-operation, yes, regional fate of Croatia, no,’ he emphasised. (Vjesnik, 7 November 2000)

Throughout her history, Croatia has been pulled in several conflicting directions in her international relations, due to an unresolved tension between her identity as both a central European and a Mediterranean country, as well as from her proximity to, and close historical connections with, the Balkan region. Historically, after the demise of the early mediaeval kingdom of Croatia, the country came within the orbit of the Austro-Hungarian Empire, firmly linked to the central European economic and cultural area. From 1918, however, Croatia was integrated into the kingdom of Serbs, Croats and Slovenes, later to become Yugoslavia, bringing Croatia far closer to the influence of the Balkan region than before, although never abandoning the central European cultural and economic influence and connections. For example, in the 1980s, the Socialist Republic of Croatia became a member of the Alpe-

64

International relations

Adria organization, whose aim was to foster cultural links between regions which had mainly previously formed part of the AustroHungarian Empire. When Croatia became an independent state in 1991, this dramatic event was the fulfilment of the efforts made over a long period of time towards self-determination, and vindicated those who had argued in favour of independence from both the central European legacy of Austria-Hungary and the Balkan legacy of Yugoslavia. Clearly, as the quotations from leading politicians at the start of this chapter indicate, one of the main objectives of Croatia’s recent foreign policy has been to differentiate herself from the Balkan states to the south-east. Croatia has been keen to project and emphasize her identity as a central European country, sometimes as a Mediterranean country, but definitely not part of the ‘Balkans’. This was a central element in the creation of a separate identity for the new independent state which declared its independence from the former Yugoslavia in 1991, dominated as it had been, in the Croatian view, by ‘Balkan’ Serbia. Proponents of this orientation argued that Croatia is a predominantly Catholic country, using the Latin alphabet, whereas Serbia is predominantly Orthodox and uses the Cyrillic alphabet. Croatia’s historical legacy lies in its experience as a part of the Austro-Hungarian Empire, while Serbia’s legacy lies in subjugation and liberation from the Ottomans. In this long historical perspective, Croatia’s unification with Serbia, first in the kingdom of Serbs, Croats and Slovenes, and subsequently in the kingdom of Yugoslavia and then after the Second World War in the Socialist Federal Republic of Yugoslavia, was seen as an aberration, at best an unhappy alliance, and at worst as a subjugation, never fully accepted by the population. The decision-making elite had always been divided over the choice of union with Serbia, and from time to time the prospect of a more independent position for Croatia had gained support among its members, for example during the Croatian Spring events of 1971. This chapter focuses on the attempts to define the identity of independent Croatia in the 1990s as a European state, and the foreign policy decisions which have followed on from that. Yet at the same time it is important to understand that the attempt to define herself as a European state, as a member of the European family of nations, has not been the single uni-dimensional driver

International relations 1111 2 3 4 5 6 7 8 9 1011 1 2 3111 4 5 6 7 8 9 20111 1 2 3 4 5111 6 7 8 9 30111 1 2 3 4 5 6 7 8 9 40111 1 2 3 44111 45111

65

of Croatia’s foreign policy. Complicating factors have co-existed with this central aim. Of particular importance has been Croatia’s relationship with Bosnia and the closeness of the connections with the Croatian Catholic population there, concentrated particularly in Herzegovina, but also distributed throughout Bosnia, in a mirror image of the Serbian Orthodox presence in Croatian Krajina. The drive to incorporate the Bosnian Croats in the affairs of Croatia, even as far as incorporating parts of Bosnia-Herzegovina into the territory of Croatia, has also been a key aim of Croatia’s foreign policy, and one which has had the effect of blocking Croatia’s progress towards developing its European identity, instead pulling Croatia back into an association with the Balkans. This pro-Balkan component of Croatia’s foreign policy has intermingled with another element which has blocked the drive towards Europe, namely a backward looking protectionist trend towards an autarchic model of independence, based upon the idealistic notion of a go-it-alone Croatia. These protectionist and isolationist currents were a powerful influence in the period of HDZ rule in the 1990s and accounted for a large part of the failure of Croatia to integrate its economy into a wider set of economic relationships. The issue of the return of the Croatian Serb refugees to the Krajina has become a central issue in Croatia’s relations with the international community at the end of the 1990s, and especially in the foreign policy of the new post-HDZ coalition government. Since this orientation has had such an influential impact on Croatia’s foreign policy in the 1990s I begin this chapter with a discussion of Croatia and the Balkans. This should not be taken to mean that the pro-Balkans element of policy has been the predominant feature of Croatia’s international relations. Much more important for the long-term development of the country has been, and will be in the future, Croatia’s relationship with the European Union. Two aspects of this have been the development of her Central European identity, including the attempts to enter CEFTA as a stepping-stone towards EU membership, and the development of her Mediterranean identity especially based around her critically important relationship with Italy and the key role of the regional economy and politics of Istria in defining the Mediterranean plank of Croatia’s proEurope foreign policy. The second part of the chapter therefore

66

International relations

deals with Croatia’s orientation and policy towards Europe, including Central Europe, Mediterranean Europe and the European Union itself. The third part looks at the wider context, covering Croatia’s relationship with the US, with the United Nations and the post-Dayton aspects of policy especially in relation to dealings with the International Criminal Tribunal on the former Yugoslavia (ICTY) in The Hague.

The Balkan orientation of Croatian foreign policy Croatia’s strong links with the Herzegovinian Croats of BosniaHerzegovina have had an important bearing on her attitude towards that neighbouring state. In the run-up to the first elections in Croatia in 1990, the leaders of the HDZ had canvassed for support among the émigré Croat diaspora in North America. Franjo Tudjman had been especially successful in this, and had formed a strong alliance with the émigrés from Herzegovina. For example, his Defence Minister, Gojko ·u‰ak, was a Canadian of Herzegovinian descent. Under Tudjman, the HDZ pursued a policy of creating a ‘Greater Croatia’, and attempted to incorporate Herzegovina into the Croatian economic, political and social space. Bosnian Croats were allowed to vote in Croatian elections. The ‘Herzegovina lobby’ had a strong influence on the development of relations with Bosnia, which came to provoke severe tensions in Croatia’s relationship with the international community. There is ample evidence that one of the main foreign policy objectives of the HDZ government under Franjo Tudjman was to partition Bosnia-Herzegovina and to incorporate Herzegovina into Croatia. In March 1991 Franjo Tudjman met Slobodan Milo‰eviç at a notorious meeting in Karad–ord–evo and allegedly agreed on the division of Bosnia-Herzegovina along the lines of the 1939 Sporazum.1 This indicated that Croatia’s relationship with FRY (Serbia and Montenegro) was much more complex than one of outright conflict, despite the war that had been fought between them. There were significant elements of cooperation throughout the 1990s, especially through the coordination of policy towards Bosnia, with the ultimate aim of dividing the Bosnian state. As their part of this shadowy foreign policy orientation, the Croats pursued their objective to achieve control over the mainly

International relations 1111 2 3 4 5 6 7 8 9 1011 1 2 3111 4 5 6 7 8 9 20111 1 2 3 4 5111 6 7 8 9 30111 1 2 3 4 5 6 7 8 9 40111 1 2 3 44111 45111

67

Croatian-inhabited areas of Herzegovina. In 1990 the Bosnian HDZ had won a significant number of seats in the Bosnian elections, and in November 1991 the Bosnian Croats established the ‘Croat Community of Herceg-Bosna’, as an autonomous unit with its main centre in the divided city of Mostar. Herceg-Bosna had some of the trappings of a state with its own flag, currency and armed forces known as the Croatian Defence Council (Hrvatsko Vijeçe Obrane – HVO). The President of the new one-party parastate was Mate Boban, leader of the Bosnian HDZ, who campaigned for the secession of Herzegovina and union with Croatia. Croatia had been supplying arms to the Croats in Herzegovina, and when war broke out in April 1992, the Croats were prepared to meet the attacks of the Bosnian Serbs with armed resistance. Nevertheless many Croats, as well as Muslims, were ethnically cleansed from Serbian held regions of Bosnia, and a huge number of refugees made their way to Croatia.2 Not surprisingly the Croatian army began to send both soldiers and weapons over into Herzegovina to support the Bosnian Croats. Not all the Croats in Bosnia-Herzegovina supported the creation of the new mini-state of Herceg-Bosna. Many of the Croats living in Sarajevo and in the interior of Bosnia-Herzegovina supported the idea of an integral multi-ethnic Bosnian state. This moderate wing, however, had far less influence on policy making in Zagreb. In 1993 a ‘war within a war’ broke out in central Bosnia between the Bosnian Croats and the Bosnian Muslims. Bosnian Croat forces were involved in numerous atrocities against both the Muslim and Serbian civilians in the area. Croatian regular troops became involved in a shadow war in Bosnia-Herzegovina on behalf of the Herzegovinian Croats, and they in turn gained significant power and influence within the Zagreb government. Many atrocities were committed, the most notorious being at the village of Ahmiçi in central Bosnia on 22 April 1993. The massacre was uncovered by British troops of UNPROFOR stationed in the area, but the perpetrators were protected by the Tudjman regime in Zagreb. It was only much later under the Raãan government that any attempt was made to arrest those responsible. Over 10,000 Croats died in this war and even more Muslims. Some of the worst fighting occurred in Mostar, and on 9 November 1993 the Croat army destroyed the old Turkish bridge built in 1566, a symbol of Bosnia’s multi-ethnic past. Croatia lost much of its earlier support

68

International relations

from the international community as a result of its support and involvement in this conflict with the Bosnian government forces.3 The vicious Croat-Muslim struggle lasted throughout the year and into 1994 by which time many of the Croat population had been forced out and fled as refugees to Herzegovina and Croatia. In February 1994 the UN set a two-week deadline for Croatia to pull her troops4 out of Bosnia-Herzegovina or face international sanctions. At the last moment Tudjman agreed to an end to hostilities between the two sides and to enter into negotiations with the Bosnian government in Washington. The negotiations were successful and the ‘Washington Agreement’ of March 1994 led to the creation of a formal alliance in Bosnia between the Bosnian and Croat governments. Croatia agreed to pull its troops out of Bosnia and in return the US agreed to offer Croatia more support in its attempt to recover the Krajina region from the rebel Croatian Serbs. The US had adopted a much more active approach to policy in the region since the election of President Clinton in comparison with its European allies and was keen to engage the Croats as allies in an attempt to inflict a damaging defeat on Milo‰eviç’s Serbia which the US saw as the main source of instability in the Balkans. The creation of the Muslim-Croat alliance brought about a dramatic turnaround in the position of the Krajina Serbs in Croatia. As part of the deal with Croatia to cease its support for the extremists in Herzegovina, the US government began to offer covert support to a military build-up in Croatia, and began to train and equip the Croatian army in spite of the UN arms embargo.5 By early 1995, the Croatian army was sufficiently strong to be able to consider a renewed offensive to recapture territory from the Krajina Serbs. Aware that the UN presence in the Serb-held Krajina region was leading to a de facto partition of Croatia, Tudjman had repeatedly threatened to rescind the UNPROFOR mandate in the Krajina. He finally announced that he would not renew the mandate in January 1995, and the decision came into effect in March 1995.6 This announcement threw the international community into confusion.7 The US ambassador to Croatia, Peter Galbraith, argued that the international community could not support Croatia’s claims over the Krajina so long as Croatia itself maintained aspirations to control over Herzegovina, a part of the internationally recognized state of Bosnia.8 Nevertheless, in May

International relations 1111 2 3 4 5 6 7 8 9 1011 1 2 3111 4 5 6 7 8 9 20111 1 2 3 4 5111 6 7 8 9 30111 1 2 3 4 5 6 7 8 9 40111 1 2 3 44111 45111

69

1995, the Croatian army attacked part of the breakaway Serb republic in western Slavonia, capturing Okuãani and Pakrac in an offensive called ‘Operation Flash’ (Bljesak). Many of the Serbian residents from the region fled to Bosnia. In response, the Serbs fired rockets at Zagreb, but to little military effect. Events moved on in rapid succession throughout the rest of the year. In July the Serbs in Bosnia retaliated with attacks on Srebrenica and Îepa, leading to the worst massacre of the Bosnian war at the eastern Bosnian town of Srebrenica. The Serbs also attacked the Bihaç pocket, with a combined offensive launched by the Serb armies of the Bosnian and Croatian Serbian mini-states (RS and RSK). Franjo Tudjman and Alija Izetbegoviç, the Bosnian President, signed an agreement on military cooperation which permitted Croatian troops to enter Bosnia-Herzegovina openly. They soon recaptured some territory on the border with Dalmatia, thus threatening Krajina from the rear and putting a stop to the Serbian attacks on Bihaç. In August the Croatian army mobilised 200,000 troops and launched a major offensive called ‘Operation Storm’ (Oluja), which regained the whole of the Krajina for Croatia in the space of a few days. The town of Knin, an important rail junction and capital of the RSK, was quickly taken. Knin also had a deep symbolic value for the Croats, as it had been the capital of the early mediaeval kingdom of Croatia. As already noted, President Tudjman raced to Knin on a ‘Freedom Train’ to celebrate victory from the battlements of Knin castle. It was the culmination and high point of his political career, and of his popularity. Just as in the case of the Karad–ord–evo agreement, there was evidence of military cooperation on the ground between Croatia and Serbia. For example, some time before the Croatian army attack on the Krajina, the Yugoslav army had withdrawn from its positions there. In return for Serbia’s ‘gift’ of the Krajina to Croatia, it seems that the Croats agreed to limit the extent of the reconquest of territory in Bosnia-Herzegovina by Federation forces in the military actions leading up to the Dayton Agreement. According to Michael Rose, UNPROFOR commander in BosniaHerzegovina in 1994: A secret deal had almost certainly been struck between President Tudjman and President Milo‰eviç to allow the

70

International relations

Croats to reoccupy the Serb-held parts of the Krajinas, in return for preventing the Muslims from achieving total victory over the Serbs [in Bosnia]. A resurgent Muslim nation situated in their midst was something neither the Croats nor the Serbs were willing to accept. Although the evidence for such a deal is circumstantial, it is known that well before the Croat Army attacked into the Krajinas, all regular Yugoslav units were ordered to withdraw . . . to a line later enshrined in the Dayton Agreement.9 The Serbian population of Krajina was thus simultaneously evacuated by its own government authorities and pushed out by the advancing Croatian army. In all, some 180,000 Serbs fled the area, leaving few behind apart from elderly people who could not easily leave. The international community and especially the Americans gave tacit support to this act of ethnic cleansing,10 although US Ambassador Galbraith complained of the mistreatment of the fleeing refugees. Most of the refugees ended up in Serbia or in eastern Slavonia. Croatia regained most of its territory. The Croatian recapture of the Krajina region and the virtual expulsion of the entire Croatian Serb population of the region demonstrated forcefully that the United Nations policy of protected areas in Croatia had failed. Massive population transfers had been achieved by force of arms as the Croatian government decisively rejected the UN idea of peacekeeping. But Croatia had not pursued this policy in isolation – in its campaign against the Serbs it had received both political and practical backing from the US which had decided to back Croatia in pursuit of its wider objectives to contain Serbian expansionism in the Balkan region. The violent recapture of the Krajina region was not the only option available to the Croatian government. In contrast to the Oluja offensive, a peaceful solution was adopted to achieve the reintegration of UNPA Sector East. On 12 November 1995 Croatia signed the ‘Basic Agreement on the Region of Eastern Slavonia, Baranja and Western Sirmium’,11 which was designed to ensure the peaceful reintegration of UNPA Sector East into Croatia. The UN forces there were renamed UNTAES (United Nations Transitional Administration in Eastern Slavonia). The UNTAES mission in eastern Slavonia ended on 15 January 1998 with the

International relations 1111 2 3 4 5 6 7 8 9 1011 1 2 3111 4 5 6 7 8 9 20111 1 2 3 4 5111 6 7 8 9 30111 1 2 3 4 5 6 7 8 9 40111 1 2 3 44111 45111

71

peaceful reintegration of the region into Croatia. Many local Serbs then left the region for FRY while few Croatian refugees returned. A support group of international police remained until September, after which the task of monitoring events was passed over to Organization for Security and Cooperation in Europe. Could the Krajina region have been peacefully integrated into Croatia just like eastern Slavonia? At the last moment the Krajina Serbs had tried to negotiate a peaceful settlement. Whether or not it was a realistic possibility, the violent expulsion of the Krajina Serbs from Croatia, a controversial but largely forgotten act of ethnic cleansing, was widely popular within Croatia, and reinforced the political position of the HDZ in Croatian politics. After the initial aims of the Oluja offensive were met the Croatian army continued to advance into Bosnia. Together with the Bosnian government army and supported by NATO air attacks against the Serbs, they made significant territorial gains.12 Once an equal division of territory had been reached the US stepped in to stop the warring armies fighting further. The leaders were called to a peace conference in Dayton, Ohio, to cement the ethnic division of Bosnia-Herzegovina behind a smokescreen of a federal democratic structure. In reality Bosnia-Herzegovina was divided between the Serbian Republika Srpska and the Muslim-Croat Federation. Yet, despite the achievements of the Muslim-Croat Federation in Bosnia, the Washington Agreement and the cease-fire under the Dayton peace agreement, the Croatian public was becoming wary of the influence of the Herzegovina lobby on the HDZ. The Dayton Agreement of 12 November 1995 settled Croatia’s relationship with Bosnia. After Dayton, conditions in Croatia began to improve for a few years. Foreign Minister Mate Graniç signed an agreement on normalization of relations with FRY in September 1996. Relations with Serbia were eased and transport and trade routes to Serbia were gradually reopened. The Serbian market was particularly important for the eastern Slavonian region, but less so for the western regions of Dalmatia and Istria, which are more oriented towards the West. Croatia was admitted to the Council of Europe in November 1996. The economy began to recover, and Tudjman was re-elected to office in June 1997 with a majority of 61 per cent of the popular vote. His personal popularity was clearly still high despite the

72

International relations

stirrings of misgivings with the behaviour of the HDZ. Within Bosnia-Herzegovina the Dayton Agreement had effectively led to the de facto partition of Bosnia-Herzegovina into three entities united in a loose confederal structure, in which each entity had a veto over the decisions of the central government.13 The Croatian entity within the Muslim-Croat Federation had a high degree of autonomy, although the HDZ dream of Bosnia-Herzegovina integration into Croatia had been prevented by the Dayton Agreement.

Croatia and the European Union The European Community (later the European Union after the Maastricht Treaty of 1994) was closely involved in the internal affairs of Croatia right from the beginning of its creation as an independent state. Foreign ministers of the European Community countries (the Troika) visited both Belgrade and Zagreb in 1991 in an unsuccessful attempt to diffuse the looming conflict. A peace conference was established for the former Yugoslavia chaired by the European Community. Spurred on by Germany’s foreign minister Hans Genscher, the European Community agreed at a meeting of foreign ministers in mid-December 1991 that the republics of former Yugoslavia were eligible for recognition so long as they conformed to international principles and met valid legal and constitutional criteria.14 The European Community established an advisory arbitration body known as the Badinter Commission. It assessed the constitutional and legal position of the Yugoslav republics concerning their rights to be recognized as independent states, and identified criteria for recognition. The Commission drew a distinction between the secession of a minority group from an existing state, and the secession of a republic linked to the dissolution of a federation of states into its component parts.15 From a purely legal and constitutional point of view, it advised that the Yugoslav republics (but not minorities such as the Croatian Serbs of the Krajina, or the Bosnian Croats of Herzegovina) had the right to self-determination following the dissolution of the Socialist Federal Republic of Yugoslavia. The Badinter Commission delivered its report on 15 January 1992 and recommended recognition of Croatia (subject to conditions on the treatment of minorities16).

International relations 1111 2 3 4 5 6 7 8 9 1011 1 2 3111 4 5 6 7 8 9 20111 1 2 3 4 5111 6 7 8 9 30111 1 2 3 4 5 6 7 8 9 40111 1 2 3 44111 45111

73

International recognition followed immediately and Croatia was recognized as a sovereign state by the European Community on the same day that the Commission reported, on 15 January 1992.17 Recognition by the US followed some months later, and Croatia gained admission to the United Nations in May 1992. A Cooperation Agreement had been in existence between the European Community and former Yugoslavia since 1980. When Yugoslavia fell apart the agreement was suspended but the EC maintained autonomous trade preferences for Croatia which involved reduced duties for some Croatian goods entering the European Community market. The European Community also provided humanitarian assistance which amounted to an inflow of aid of some €350 million between 1991 and 1997, while a further €1,166 million were provided on a bilateral basis by individual European countries. In addition the European Bank for Reconstruction and Development provided loans of €511 million over the same period for private sector development projects. Therefore, although Croatia was outside the main European assistance programme for the post-socialist states of Eastern Europe, known as the PHARE programme,18 it nevertheless benefited from substantial European aid in various other ways. Following the end of the war in Bosnia-Herzegovina and the signing of the Dayton peace agreement in December 1995, the European Union (EU) began to reorientate its policy towards Croatia away from solely humanitarian assistance towards assistance for reconstruction, refugee return and support for the independent media. It placed Croatia within the category of the so-called ‘Western Balkan’ countries, together with Albania, Bosnia-Herzegovina, Macedonia and the Federal Republic of Yugoslavia, i.e. all the countries of south-east Europe that did not have an Association Agreement with the EU. The policy towards these countries was called the ‘Regional Approach’ although there was little in the way of a common regional policy towards them. Its essence was, in fact, to differentiate assistance towards the five countries on the basis of a set of political and economic conditions announced by the EU Council of Ministers in 1997. The primary objective of the Regional Approach was to underpin the implementation of the Dayton Agreement by promoting democracy and by ‘relaunching’ economic activity through assistance geared towards reconstruction and economic reforms. Subject to meeting

74

International relations

various conditions regarding economic reform, democratization and human rights, the Regional Approach offered the prospect that Croatia would benefit from assistance through the PHARE programme and could eventually negotiate a Cooperation Agreement of its own with the EU.19 The Croatian government had an ambivalent attitude towards the EU. On the one hand it was keen to enjoy preferential trade relations with its largest export market. But on the other hand it did not like the way in which the EU was placing Croatia diplomatically alongside the Balkan states from which it was doing its best to establish a separate identity. As one leading analyst of Croatia-EU affairs put it as early as 1994: The active development of a Central European identity is extremely important for Croatia, since it has historically, economically, geographically and culturally always been part of this region. The central European developmental option could secure for Croatia, over a longer term, the kind of treatment now accorded to four countries in Central Europe . . . such an option could secure for Croatia associate membership in the European Union . . . This is the objective that Croatia’s long-term policy is geared to achieve.20 The HDZ government established a Ministry for European Integration in 1998, and appointed Ljerka Mintas-Hodak, a Deputy Prime Minister, as Minister for European Integration. In September 1999 the Ministry produced an Action Plan for European Integration.21 According to the Plan: Full membership of the EU is a priority strategic goal of Croatian policy, as reiterated on several occasions in a number of declarations and conclusions of the President of the Republic, the Government and the Parliament.22 The document acknowledged the conditionality imposed by the EU for eligibility for the PHARE programme assistance and for negotiating a Cooperation Agreement. It stated, in the convoluted language of diplomacy, that although ‘in recent years, Croatia has made several specific steps in regard to each of the . . . EU conditions’ there were nevertheless ‘areas in which there is still room for

International relations 1111 2 3 4 5 6 7 8 9 1011 1 2 3111 4 5 6 7 8 9 20111 1 2 3 4 5111 6 7 8 9 30111 1 2 3 4 5 6 7 8 9 40111 1 2 3 44111 45111

75

progress’.23 The most direct and strident comments were reserved for a critique of the EU’s policy of placing Croatia alongside the other Balkan states which were grouped together within the Regional Approach within the ‘Western Balkans’. The document commented that: The Republic of Croatia interprets the term ‘Western Balkans’ as an exclusively technical term. Croatia does not accept that it carries any political connotations which would place the Republic of Croatia within the Balkan framework.24 Following the end of the Kosovo war in June 1999 the EU extended the Regional Approach into a much more wide-ranging ‘Stabilization and Association Process’. In developing its concept for a new policy towards the Western Balkans, the European Commission took into account that following the eastern enlargement of the EU this ‘area of instability’ would be right on the its new borders. Alarmed by the future potential consequences, the EU introduced two important new dimensions to its policy towards Croatia. Instead of a mere Cooperation Agreement, Croatia and the other countries within the Western Balkans group were offered the prospect of a more substantial Stabilization and Association Agreement (SAA) which held out, albeit tenuously, the prospect of eventual EU membership. The SAAs were to be similar to the Association Agreements which many other countries in Eastern Europe had already negotiated, including Slovenia, Romania and Bulgaria, although with additional and specific elements of conditionality. The proposed SAAs were to cover economic and financial assistance and cooperation, political dialogue, approximation with EU legislation, cooperation in other policy areas and the development of a free trade agreement between Croatia and the EU. In the words of the Presidency Conclusions of the EU’s Lisbon European Council the Stabilization and Association Process was the ‘centrepiece of its policy in the Balkans’.25 More controversially, an essential component of the EU Stabilization and Association Process was the promotion of intraregional cooperation.26 The EU stressed that ‘assistance must have a regional perspective, encouraging and requiring that the countries [of south-east Europe] work together . . . to further their

76

International relations

economic development’ and that ‘the multilateral dimension of the existing approach must be enhanced to avoid the risks of concentrating solely on a policy of selective bilateralism to the detriment of a truly regional strategy’.27 This emphasis on the need for greater regional cooperation was decidedly unpopular in Zagreb, where it was seen as potentially leading to the recreation of a Yugoslav-style federation of the ‘Western Balkan’ states. No selfrespecting politician in Zagreb could be seen to be associated too enthusiastically with such a policy, and while Prime Minister Raãan accepted the principle of regional cooperation, he also emphasized its limits. The negotiation of a Stabilization and Association Agreement with Croatia was conditional on improvements in the record on human rights and in the rule of law, including demonstrating an absence of discriminatory treatment of minorities; the implementation of the first steps of economic reform; holding free and fair elections; a willingness to establish ‘good neighbourly relations’ with neighbouring countries; compliance with the Dayton and Erdut Agreements concerning the return of refugees; and cooperation with the International Criminal Tribunal on the Former Yugoslavia (ICTY) at The Hague. The elections which brought the new government to power at the beginning of 2000 provided a practical demonstration that Croatia had fulfilled the conditions regarding the holding of free and fair elections. Further steps towards negotiating an association agreement and on increased EU aid to Croatia were conditional on progress on the return of the Croatian Serb refugees who had fled the country from Krajina in 1995, and the resettlement of displaced persons within Croatia. This issue is dealt with in the final chapter which considers Croatia’s refugee problem in detail. The EU also required Croatia to cooperate fully with the terms of the Dayton Agreement, especially in regard to cooperation with the Hague Tribunal, an issue to which we return later in this chapter. Before that, it is worth considering Croatia’s relations with the US.

Relations with the US Croatian relations with the US were a vital part of Croatia’s foreign policy orientation throughout the process of gaining and

International relations 1111 2 3 4 5 6 7 8 9 1011 1 2 3111 4 5 6 7 8 9 20111 1 2 3 4 5111 6 7 8 9 30111 1 2 3 4 5 6 7 8 9 40111 1 2 3 44111 45111

77

consolidating independence. The Croatian American diaspora had given substantial support to the HDZ in its formative stages, although the US government was initially less supportive of Croatian independence. James Baker, US Secretary of State, had vigorously supported the cohesion of Yugoslavia in the early 1990s. In 1992 the US had delayed recognition of Croatia for four months beyond the recognition by the EU and its member states. After the election of President Clinton, US policy turned towards a more active support of Croatia. The US helped to broker the Muslim-Croat Federation in Bosnia-Herzegovina that ended the conflict between Croats and Muslims. Tudjman believed that the US would give more support for Croatia in its efforts to reintegrate the Krajina region, in return for his agreement with the Bosnian government to create the Muslim-Croat Federation. The US began to provide military support to Croatia, while not overtly contravening the UN arms embargo on the former Yugoslavia. On 29 November 1994, Croatia and the US signed a military cooperation agreement. This brought Croatia into the International Military Education and Training (IMET) programme, which provided training to Croatian military officers and civilians in American military schools.28 By May 1995 David Owen observed that ‘The US and Germany had long since abandoned any pretence of impartiality and were now overtly supporting the Croatian government. The EU was left on the sidelines’.29 The US Ambassador to Croatia, Peter Galbraith, was particularly active in promoting Croatia’s case, while also being a strident critic of the Croatian government in its handling of human rights, media and refugee issues. The US attitude towards Croatia became cooler after the appointment of Madeleine Albright to the post of Secretary of State, replacing Warren Christopher, in 1997. Following a visit to Croatia at the end of May 1997, Albright argued that the IMF and the World Bank should stop supporting the Croatian government and withhold loans for reconstruction.30 This did not happen, but US policy towards Croatia cooled and began to place greater emphasis than it had previously on the return of Serbian refugees, and on Croatia’s compliance with the International Criminal Tribunal on Former Yugoslavia set up in The Hague. Gradually the pressure on Croatia increased. Further criticism of Croatia’s administration of eastern Slavonia over the failure to establish

78

International relations

effective local government and to facilitate the return of refugees, led to the cancellation of an $80 million loan disbursement by the IMF.31 The pressure seemed to be at least partially effective. The government passed a law to validate court judgements passed in eastern Slavonia, established a special refugee return programme, and arranged for the surrender of ten Bosnian Croat war crimes suspects to The Hague. In October, the IMF agreed to lift the suspension of its loan, but encouraged by record hard currency inflows from the recovering tourism industry, the government refused to take up the loan. However, the US persisted with its pressure on Croatia. A year later, at a donor conference on post-war reconstruction held in Zagreb in November 1998, the new Ambassador to Croatia, William Montgomery, warned the Croatian Government that: The degree of support Croatia can expect from the international community is entirely linked to the degree to which Croatia embraces the ideals of the international donor community.32 Nevertheless, military cooperation continued, especially after Croatia provided full support to the NATO attacks against Serbia in the 1999 war over Kosovo. The US suspended its arms embargo against Croatia in April 1999, and continued to provide substantial military education and training assistance through the IMET programme. The Croatian Foreign Minister was invited to Washington, bolstering Croatia’s image as a US ally.33

Croatia and the ICTY Cooperation with the International Criminal Tribunal on the former Yugoslavia (ICTY), which had been established in The Hague, was a key condition for closer relations with both the EU and NATO. The EU first established this conditionality in 1997 with the announcement of the Regional Approach. It was one of the conditions, which were never fulfilled, for Croatia to join the PHARE programme and to negotiate a Cooperation Agreement. Later, in 1999, it was carried over conditionally in relation to negotiating a Stabilization and Association Agreement which was

International relations 1111 2 3 4 5 6 7 8 9 1011 1 2 3111 4 5 6 7 8 9 20111 1 2 3 4 5111 6 7 8 9 30111 1 2 3 4 5 6 7 8 9 40111 1 2 3 44111 45111

79

eventually achieved under the Raãan government in 2000. The new government quickly issued a Declaration on Cooperation with the ICTY on 14 April 2000, in which it acknowledged the ICTY’s jurisdiction over the 1995 ‘Flash’ and ‘Storm’ offensives in the Krajina, and the stepping-up of all war crimes investigations. The Tudjman government had been reluctant to cooperate with the ICTY ever since its inception in 1995. It drew a distinction between an act of war committed by an army on foreign territory (such as in the case of the JNA attacks on Croatia), and a ‘policing operation’ on its own territory, which it argued was the case in the actions fought against the Krajina Serbs. It therefore argued that Croat ‘defenders’ could not have committed war crimes, and could not be sent to the Hague Tribunal. However, the embarrassing fact was that numerous atrocities had been carried out by Croatian forces both during the liberation war and during the actions to regain the Krajina region. These atrocities had been openly reported in the opposition press, notably in Feral Tribune34 and later in Globus. Organizations such as Human Rights Watch repeatedly criticized the government on the grounds of its reluctance to cooperate with the ICTY except in cases involving crimes against Croat victims.35 In addition to the atrocities that were committed against Croatian Serbs in 1991 in the Pakrac region, many Serbs were also murdered in Gospiç. Atrocities were also carried out in the Krajina region in the aftermath of Operation Storm, when a number of elderly Serbs who had been unwilling or unable to flee with the rest of the Serb population of the region were murdered, and their houses torched. Croatian commanders were also implicated in the atrocities committed in central Bosnia during the Croat-Muslim conflict in 1993–4, in particular in the village of Ahmiçi where over 100 Bosnian Muslim civilians were massacred. These crimes were covered up by the Tudjman government, which persistently tried to present Croatia as the innocent victim of Serb aggression. While it was broadly true that Croatia had suffered a disproportionate burden of losses in achieving independence, the unwillingness of the government to admit to the crimes of various individual officers and politicians led to a rapid loss of international sympathy and support, especially after the complicity of the Croatian government in supporting the aggressive stance of the Bosnian Croats from Herzegovina was better understood in the mid-1990s.

80

International relations

War crimes trials had taken place within Croatia in the Croatian courts, but these had been exclusively trials of Croatian Serbs, often carried out in absentia and in a highly emotionally charged atmosphere. For example, the Osijek County Court tried nineteen Serb defendants in absentia for war crimes committed in the village of Sodolovci in eastern Slavonia in 1994. They were all found guilty of the charges and in May 1995 were sentenced to twenty years in prison. However, the verdict was eventually quashed by the Supreme Court on grounds of procedural irregularities.36 It was clearly difficult to deliver just verdicts for cases tried within Croatia. Eventually, the government persuaded one of the Croatian indictees, General Tihomir Bla‰kiç, commander of Croatian forces in the La‰va valley in Bosnia during the Croat-Muslim war, to voluntarily surrender to the Tribunal. Regarding himself as innocent he expected a speedy trial. However, the government held back critical information in his defence. In effect he was being used to cover for other perpetrators of crimes closer to the government. When he received an extraordinary forty-five year prison sentence in March 2000, there was public outrage and demonstrations against the Tribunal took place in Zagreb. Matters had already come to a head in July 1999, when Louise Arbour, the Chief Prosecutor of the ICTY, visited Zagreb and lodged a strong complaint against the government for its refusal to cooperate effectively with the Tribunal. She raised a number of outstanding issues including the refusal of the government to extradite the indicted war criminals Mladen Naletiliç alias ‘Tuta’, and Vinko Martinoviç alias ‘·tela’. She also pointed to other examples of the government’s failure to cooperate with the ICTY including a refusal to hand over requested documents. Towards the end of August, despite the extradition of ·tela, the Tribunal President, Gabrille Kirk McDonald, requested the UN Security Council to impose sanctions against Croatia for non-compliance with the Tribunal.37 It is possible that the HDZ government had engineered the crisis in order to whip up popular support against the international community in advance of the forthcoming presidential and parliamentary elections. However, the threat of sanctions brought a quick response by the liberal Foreign Minister Mate Graniç in a letter to the Security Council in which he promised to extradite Tuta38 and deliver the requested documents to the

International relations 1111 2 3 4 5 6 7 8 9 1011 1 2 3111 4 5 6 7 8 9 20111 1 2 3 4 5111 6 7 8 9 30111 1 2 3 4 5 6 7 8 9 40111 1 2 3 44111 45111

81

Tribunal, with the excuse that the delays which had occurred were purely procedural.39 But despite Louise Arbour’s criticisms and the hard line called for by the Tribunal President, there were indications that the EU and the US were beginning to change their attitudes towards Croatia. Croatia had cooperated with NATO during the Kosovo crisis, and the formal EU-Croatia political dialogue, which had been suspended in 1995, resumed in July 1999. A report by Human Rights Watch noted that this ‘suggested that the EU may be willing to relax its previous human rights conditionality’.40 NATO had made cooperation with the ICTY a condition of Croatia’s accession to Partnership for Peace. But US support for Croatia’s membership of the Partnership was announced in a statement issued by US Ambassador William Montgomery in April 1999. The overthrow of the HDZ government by the opposition coalition in the January 2000 elections ushered in a new phase in the relationship with the ICTY. The new President, Stipe Mesiç, insisted from the outset that suspected war criminals should be arrested and tried in order to expunge the collective guilt of the nation. Initially the new government was cautious to act. But it was soon rudely awoken from its lethargy by the shock created by the extraordinary sentence handed down by the Tribunal against General Bla‰kiç. In despair, the new Prime Minister Ivica Raãan complained ‘Why did they do this to us? Why now?’.41 A further blow to the government came as protests against cooperation with the ICTY turned to violence when Milan Levar, a key witness to the Tribunal concerning the war crimes committed in the Gospiç area, was murdered at the end of August. Raãan realized that the only solution was to take the initiative and arrest war crimes suspects for trial within Croatia. In September the government arrested two generals and ten other army and police officials who were suspected of complicity in the Gospiç atrocities and other crimes. One of the two arrested generals was retired General Tihomir Ore‰koviç. He was suspected of complicity in the murder of Milan Levar. The other was active General Ivan Andabak who had been commander in Herzegovina in 1994 and under whose command the indicted war criminal ‘Tuta’ had served. Andabak was the general who had been responsible for the destruction of the old bridge at Mostar. Unable to

82

International relations

bring any war crimes charges against him, the police arrested him on charges of heroin smuggling. The right wing, and the supporters of the HDZ, were enraged by the arrests. A protest movement emerged centred on the so-called ‘Headquarters for the Defence and Dignity of the Homeland War’ which sprang up around the country. Twelve army generals wrote an open letter of protest to the government. In the face of incipient revolt President Mesiç acted decisively by dismissing the army generals who had written the letter on the grounds that active service generals should not engage in politics. After a few weeks of high tension the situation calmed down when opinion surveys revealed that a large majority of the population supported the government’s actions. The actions of the new government brought the issue of Croatian war crimes in the Yugoslav wars of succession out into the open. Its agreement to tackle the issue by bringing the alleged criminals to trial within Croatia defused the potentially politically risky situation that would have followed further demands for extradition of Croatian generals to The Hague. The government was open to the criticism that Croatia was being treated more severely than the Federal Republic of Yugoslavia (FRY) which had also thus far refused to cooperate with the Tribunal. In particular FRY had persistently refused to extradite the commanders responsible for the Vukovar hospital murders to the Tribunal. In September, the newly elected President Ko‰tunica also refused to cooperate with the Tribunal, but was nevertheless greeted with enthusiasm by the international community. This gave rise to the perception within Croatia that the international community was treating Croatia more severely than the ‘aggressor’ Serbs. Nevertheless, the actions of the new Croatian government in tackling the issue of war crimes and human rights helped to pave the way to Croatia’s negotiation of a Stabilization and Association Agreement at the end of November.

The coalition government and the rapprochement with the West Very soon after the election of the new government, the attitude of the West towards Croatia warmed dramatically. In early May 2000 a NATO subcommittee visited Zagreb and gave a favourable

International relations 1111 2 3 4 5 6 7 8 9 1011 1 2 3111 4 5 6 7 8 9 20111 1 2 3 4 5111 6 7 8 9 30111 1 2 3 4 5 6 7 8 9 40111 1 2 3 44111 45111

83

report on Croatia’s performance under the new government. On 9 May Raãan attended a summit meeting of the North Atlantic Council (NAC) at the NATO headquarters in Brussels. He pointed out that Croatia was now cooperating fully with the Hague Tribunal and had extradited Tuta and ·tela, and handed over requested documents from the secret service files. He also offered to send a military unit for peacekeeping operations in Kosovo. By 25 May Croatia had been admitted to Partnership for Peace.42 Foreign Minister Tonino Picula went to the NATO ministerial meeting in Florence to accept the offer of membership in the Partnership for Peace. He declared Croatia’s intention to subsequently apply for full membership of NATO. Raãan and Mesiç visited Washington in July. Clearly, the NATO Council accepted that the conditions concerning cooperation with the ICTY had been achieved. The new six-party coalition government also quickly revised Croatia’s foreign policy towards Bosnia. At the NATO summit in Brussels in May, Raãan declared that ‘The time of the mentoring of the Bosnian Croats by Zagreb is finished and it will be replaced by a long-term and consistent partnership’.43 A few days before an agreement on financial assistance from Croatia to the Ministry of Defence of the Bosnian Federation had been signed, making the Croatian involvement in Bosnia-Herzegovina at last open and transparent. Following the success of the opposition parties in the general elections in December 1999, Croatia leapt ahead in its relations with the EU. A Feasibility Report44 on opening negotiations for a Stabilization and Association Agreement (SAA) was published in June 2000. It gave a favourable assessment of Croatia’s position with regard to the conditionality criteria. But the Commission also criticized the failure of the Croatian government to introduce structural reforms as well as criticizing its failure to facilitate the return of refugees to the Krajina. Croatia was therefore required to make further progress in the fields of respect for minorities and human rights, democratization of the media and in the area of electoral law.45 On 26 September the Council of Europe withdrew its monitoring mission from Croatia, declaring that Croatia had fulfilled almost all of the twenty-one conditions set down when it became a member in 1996. On 1 November the OSCE unit monitoring the Croatian police was closed down, reflecting the finding

84

International relations

of the mission that Croatia’s performance in this area was ‘very good’. Negotiations for a Stabilization and Association Agreement (SAA) with Croatia were promptly announced at the EU’s Balkan Summit held in Zagreb on 24 November 2000. The negotiations proceeded smoothly and less than a year later, on 29 October 2001, the Croatian government signed a Stabilization and Association Agreement with the EU in Luxembourg. In that way Croatia became the last country of the former Austro-Hungarian Empire apart from Bosnia-Herzegovina to formally announce its intention to ‘return to Europe’ through integration with the EU. Ratification of the Agreement was expected to take a further two to three years, but in the meantime an Interim Agreement covering the main free trade provisions and transport was signed with the European Commission which came into force at the beginning of 2002. At its most basic level, associated status ensured a set of rights and obligations between Croatia and the EU on a firm contractual basis. On the economic front it provided for the gradual establishment of free trade between Croatia and the EU. It further involved setting up a framework for political dialogue and it provided a basis for cooperation in the field of legal and home affairs. Perhaps most significantly it provided for the gradual adoption by Croatia of the legislative framework of the EU, known as the acquis communitaire. In addition, the SAA also required Croatia to participate in a process of regional cooperation with other countries of the so-called Western Balkans within the framework of the Stabilization and Association Process to which Croatia committed itself by signing the SAA.46 The SAA involved the creation of a number of new institutional forums which enabled civil servants and ministers to engage in discussions and coordination activities with their EU counterparts. These institutions consisted of a Stabilization and Association Council, a Stabilization and Association Committee and an Association Parliamentary Committee. The Council was organized at ministerial level involving members of the EU Council of Ministers and the European Commission, together with Croatian government ministers. It was responsible for reviewing the implementation of the Agreement, and for ironing out differences and disputes. The Association Committee dealt with more detailed

International relations 1111 2 3 4 5 6 7 8 9 1011 1 2 3111 4 5 6 7 8 9 20111 1 2 3 4 5111 6 7 8 9 30111 1 2 3 4 5 6 7 8 9 40111 1 2 3 44111 45111

85

technical matters and met more frequently than the council and, together with its subcommittees, provided an opportunity for senior civil servants from the Croatian side to become deeply involved in the work of the Association Agreement and to familiarize themselves with EU rules and procedures. The Parliamentary Committee provided a forum for meeting between Croatian parliamentarians and members of the European Parliament. Therefore the SAA provide for an intensive dialogue between Croatian politicians and officials and their counterparts in the EU. Yet, despite this gratifying inclusion in some of the chambers of the EU, Croatian politicians had little real impact on decisions made within the EU which affected Croatia deeply. In spite of this, Croatia was required to adopt EU laws and regulations, drafted and decided upon by the member states.47 In the meantime Croatia may be waiting for several years to join the membership queue. One of the most pressing tasks facing the present and future Croatian governments will therefore be to implement policies which will enable Croatia to catch up with the first wave of East European accession states preparing for EU entry in the near future. In doing so, the government will be able to rely on the support of a mature electorate, less willing than in the past to be drawn into the excesses of nationalist propaganda, and able to discriminate between policies that are genuinely in Croatia’s long-term interest and those which in practice promote a narrow nationalist programme of protectionism and isolation from both her Balkan and European neighbours.

1111 2 3 4 5 6 7 8 9 1011 1 2 3111 4 5 6 7 8 9 20111 1 2 3 4 5111 6 7 8 9 30111 1 2 3 4 5 6 7 8 9 40111 1 2 3 44111 45111

4

Economic policies

In contrast to the situation that confronted the post-socialist states in the rest of Eastern Europe neither Croatia nor the other successor states of former Yugoslavia were faced with the problem of creating a market economy from scratch in 1991. Central planning had been abandoned in the 1950s following the break between Yugoslavia and the Soviet bloc, and replaced by the system of workers’ self-management. Enterprise managers had already been given extensive autonomy over business strategy, and although subjected to political interference in their business decisions, they nevertheless operated in a relatively free market environment. The economy was open to trade and the visa-free movement of labour with both the West and East. The Socialist Republic of Croatia had a high level of foreign exchange earnings, partly from tourism and partly from remittances of migrant workers. A number of further pro-market reforms had already been introduced within the state of Yugoslavia at the end of the 1980s. The problems of economic transition were therefore of a different nature than elsewhere in Eastern Europe.

Key problems A main problem facing the Croatian economy in transition was controlling inflation. Unemployment was also high and had to be reduced, while efficiency and productivity in the economy had to be increased. Industry was well developed but linkages with other former republics were broken. Tourism was a potentially important earner of foreign exchange but needed substantial

88

Economic policies

improvement especially of infrastructure. Agriculture had declined in importance over the post-war years and the small private farms were uneconomic. The service sector had been neglected and needed to be developed. Attracting foreign investment was another important requirement. In bringing all this about the key policy issue was whether liberalization of the market would be sufficient to achieve the desired objectives, or whether a strong state was needed to ensure the necessary reforms were pushed through. In the event, the country elected a government prepared to build a strong state. However, its policies turned out not to be those required or appropriate for effective transition and development, but on the contrary were essentially inward looking and protective. In consequence the Croatian economy failed over the decade of the 1990s to realize its full potential. The immediate problem in the post-war setting after the end of the war in 1992 was, however, to address the reconstruction of the war-damaged economy. In this task a strong state would prove essential.

War damage The destruction wrought by the six-month-long war was enormous, and resulted in the destruction of infrastructure, schools, hospitals and factories throughout the conflict zones. The city of Vukovar was almost totally destroyed, and eventually occupied by the Yugoslav army after a siege of several months. According to official estimates, about 30 per cent of the industrial capacity was destroyed.1 Damage to public utilities and infrastructure amounted to $4.2 billion.2 Ten per cent of the housing stock was destroyed or damaged, affecting more than 170,000 homes and apartments. Nine large regional hospitals were also damaged.3 Transport links with Dalmatia were cut due to the destruction of the Maslenica bridge on the coast near Zadar, and there were also extensive power cuts to the coastal region. Transport links to Slavonia, the fertile agricultural region in the eastern part of the country, were also disrupted. Most of the pre-existing economic networks and connections with other republics of the former Yugoslavia to the south were severed.4 A large part of agricultural land was rendered unusable due to the estimated one million landmines and other

Economic policies 1111 2 3 4 5 6 7 8 9 1011 1 2 3111 4 5 6 7 8 9 20111 1 2 3 4 5111 6 7 8 9 30111 1 2 3 4 5 6 7 8 9 40111 1 2 3 44111 45111

89

explosives which prevented access to over 6,000 square kilometres, or approximately 10 per cent of Croatian territory.5 The territory held by the rebel Serb para-state was effectively lost to the Croatian state, and there were large numbers of refugees and displaced persons to support. More than a quarter of a million people (5 per cent of the population) were internally displaced, and were living in temporary accommodation dependent on aid. Real wages were reduced to the levels of the mid-1960s,6 and real household income had fallen to less than half the level achieved in 1990.

Recession Owing to the effects of the war and the disruption of trading links with the rest of former Yugoslavia, Croatia’s Gross Domestic Product (GDP) fell dramatically. Estimates compiled by the Croatian government gave figures of $22–$25 billion of lost output due to the war, or one and a half times pre-war national income. Certainly the effects of the war on the economy were severe. Social Product7 fell by one-third between 1990 and 1993. But a large part of the decline occurred before the war began. Measured in terms of GDP,8 total output fell from the equivalent of HRK 74 million in the third quarter of 1990 to HRK 59 million in the second quarter of 1991, or by 20 per cent. After the war began in the middle of 1991, output fell further to HRK 49 million, or by 17 per cent. Clearly more than half of the cumulative decline in output in the early 1990s was due to the break-up of Yugoslavia and the loss of traditional markets in the southern republics. The war only made a bad situation worse. Along with the decline in output, employment also fell precipitately. Between 1990 and 1992 the number of people in full-time employment fell by over 300,000,9 and registered unemployment increased from 160,000 to 267,000, an increase of 66 per cent. The official unemployment rate reached 17 per cent. Tourism, one of Croatia’s most important export industries, suffered a huge reduction in activity with tourist nights down by four-fifths10 between 1990 and 1991, and it only began to recover in 1994. The number of foreign tourists, who brought much needed foreign exchange into the country, fell even more sharply

90

Economic policies

120

100

Index

80

60

40

20

0 1990

1991

1992

1993

1994

Year

Figure 4.1 Index of manufacturing production, 1990 = 100

from 45.8 million nights in 1990 to 6.7 million in 1991, a fall of 85 per cent. Regional differences increased. Istria, with its tourist resorts located in parts of the coast far away from the war zone, emerged as an increasingly prosperous area relative to the rest of the country. Incomes also fell. The average wage dropped to the equivalent of a mere $180 a month while the cost of the minimum consumer basket rose to two and a half times the average wage and to five times the minimum wage of $70 per month. Household savings were depleted as people attempted to maintain their living standards in the face of falling incomes. Some suffered more than others as income differentials increased sharply, reflecting a growing gap between rich and poor.11 Marko ·kreb, later Governor of the National Bank, observed that in addition to the decline of social infrastructure, ‘economic inequalities seem to be increasing. The emergence of “instant new capitalists”, with their conspicuous levels of consumption, is causing frustration among

Economic policies 1111 2 3 4 5 6 7 8 9 1011 1 2 3111 4 5 6 7 8 9 20111 1 2 3 4 5111 6 7 8 9 30111 1 2 3 4 5 6 7 8 9 40111 1 2 3 44111 45111

91

the impoverished population’.12 He argued that this could only be solved by economic growth based on a stable economy with low inflation.

Economic policies of the HDZ-coalition government 1991–2 Macroeconomic policies and inflation Inflation had been an endemic feature of the Croatian economy within former Yugoslavia, averaging 69 per cent per annum between 1971 and 1991.13 The root cause was the lax monetary policy of the Yugoslav National Bank which led to a chronic wageprice spiral as workers in low productivity enterprises attempted to catch up with the pay of workers in high productivity enterprises. The adoption of a floating exchange rate policy also led to a loss in confidence in the currency owing to perpetual depreciation. Many people sought to keep their savings in relatively inflation-proof foreign currencies, especially German marks – a process known as currency substitution. The Markoviç reforms of 1989 had attempted to put a stop to this vicious cycle of inflation and economic decline, but its success was short-lived. Therefore when Croatia announced its independence at the end of 1991, inflation was again on the increase. In an attempt to break away from the inflationary Yugoslav environment one of the first actions of the new state in the field of economic policy was to introduce its own currency, the Croatian dinar. It established an independent central bank, the National Bank of Croatia (NBC), supervised by the parliament but with a high degree of autonomy. These measures, carried out in December 1991, established Croatia’s real monetary independence from Yugoslavia and also served as a symbolic statement of the independence of the new state. Nevertheless, in the aftermath of war the state found itself in a precarious economic position. The demands of defence expenditure, the cost of caring for hundreds of thousands of refugees, and the need to begin physical reconstruction of the destroyed infrastructure, houses and public buildings put a heavy strain on the government budget. There were no foreign currency reserves, and

92

Economic policies

one of the priority aims of the new government was to build up its reserves of foreign currency. To do this it began to operate in the foreign exchange market to buy up the reserves of foreign exchange held by enterprises and by the population, in return for domestic currency. Naturally this led to a further bout of inflation. By the end of 1991 inflation had returned to its earlier high levels of over 20 per cent per month. Inflation reached nearly 40 per cent per month by November 1993, equivalent to an annual rate of over 2,000 per cent.

Privatization The purpose of privatization of socially owned enterprises, or ‘property transformation’ as it was known, was to ensure that companies had ‘real owners’ who would impose a rational and efficient form of corporate governance on the already independent management. Reformists argued that the social ownership of company assets, which had been a unique characteristic of the Titoist system of market socialism in former Yugoslavia, had created a situation in which no one was responsible for the maintenance and efficient use of those assets. On this view, the reasons for the poor overall economic performance of the economy in the 1980s was due to the peculiar system of property rights which had been developed. Revival of economic growth therefore depended on a thorough reform of property rights and the system of corporate governance. The need for change had already been recognized at the end of the 1980s, and a federal law on privatization was introduced by the Yugoslav Prime Minister Ante Markoviç (a politician from Croatia) in the dying days of the former Yugoslavia. Under the new law, each republic established its own Privatization Agency and Development Fund. The law was ‘permissive’, allowing companies to choose whether or not to privatize, and whether to retain social ownership in whole or in part. But partly due to its permissive nature, the law was ineffective in bringing about a large-scale transformation of social ownership. Croatia was the first of the successor states to replace the federal law on privatization by its own privatization law, the Law on Transformation of Socially Owned Assets, which was introduced

Economic policies 1111 2 3 4 5 6 7 8 9 1011 1 2 3111 4 5 6 7 8 9 20111 1 2 3 4 5111 6 7 8 9 30111 1 2 3 4 5 6 7 8 9 40111 1 2 3 44111 45111

93

in April 1991 just before the declaration of independence in June and the subsequent outbreak of the war.14 Unlike the Federal law, the new Croatian law envisaged the compulsory elimination of social ownership. Socially owned enterprises were to be rapidly transformed into joint stock or limited liability companies. In order to raise revenue for the state, shares were to be sold rather than given away through a free distribution of shares. The mechanism of privatization was disputed by both the Vice-President in charge of privatization, Mate Babiç, and the Minister for Privatization, DraÏen Kalodjera (a member of the Croatian People’s Party). Kalodjera argued in favour of a mass privatization using vouchers which would distribute the socially owned wealth widely among the population. He subsequently resigned his post when his ideas were rejected. The opposition parties, including the SDP, also favoured the alternative model of rapid privatization,15 but the strength of the ruling party in the parliament allowed them to push the privatization laws through with ease. The Privatization Agency, which had been established under the Markoviç reform programme, supervised the privatization process. It made decisions on the valuation of assets, and it approved privatization plans. It had the power to install managers in loss making enterprises who could then initiate privatization. Management boards were invited to submit their own plans for privatization to the Agency by July 1992.16 In the meantime, workers’ councils were formally abolished in all enterprises and replaced by a five-member supervisory board consisting of one representative each from the government, the municipal assembly, and the local Chamber of Commerce, and two appointed by employees.17 Priority in the sale of shares was given to employees (and former and retired employees) who benefited from discounts of between 20 per cent and 40 per cent depending on the prior length of service, up to a maximum of DM 20,000 worth of shares. Discounted shares could be issued to employees up to a maximum of 49 per cent of the shares in any one company, a restriction which was intended to prevent the emergence of employee controlled firms. The general public, including employees, could also buy shares at their full price. Shares could be bought in instalments over five years, but they remained non-voting until they were fully paid up, and could not be sold on a secondary market.

94

Economic policies

A total of 2,701 enterprises submitted privatization plans by the July 1992 deadline. By February 1993 about half of them had been approved, and about 300–400 plans were rejected. But nearly all the approved plans involved small or medium sized enterprises, while larger enterprises were mostly taken over by the Privatization Agency. The membership of the supervisory boards of the privatized companies was changed to reflect the composition of shareholders. The Development Fund received the proceeds from shares sold in the privatization process, as well as two-thirds of all the shares which remained unsold. The other third of unsold shares was given to the Pension Fund and the Disability Insurance Fund. Firms which failed to meet the deadline for voluntary privatization were taken over by the Development Fund, to be privatized at a later date. Since the Fund was a state agency, the enterprises which it took over were in effect taken into state ownership. The Fund also appointed managers in those companies in which it held over 20 per cent of the shares. The Fund eventually had 1,304 representatives sitting on the boards of privatized companies. Therefore, through the Fund, the state ended up owning and controlling a substantial number of larger enterprises and had a powerful influence over the direction of economic activity.18 This opened the way to the packing of the supervisory boards of larger companies with representatives of the ruling party, the HDZ. A further route for the state to exercise control over the economy was provided by the practice of debt-equity swaps between the commercial banks and the privatized enterprises. In this way the banks, most of which were fully state owned, became significant shareholders in some of the biggest loss-making companies. The state also directly took over ownership and control of over 100 important large companies including major public utilities. New managers, most of whom were members of the ruling party, were installed in these companies.19 Moreover, state-owned companies could also buy shares. In this way state-owned companies also captured stakes in nominally private companies. Paradoxically therefore, privatization led to an increase in state control over the economy, at least initially. Social ownership and workers’ management had been eliminated, but it was not clear that a more efficient form of corporate governance had been substituted in its place.20

Economic policies 1111 2 3 4 5 6 7 8 9 1011 1 2 3111 4 5 6 7 8 9 20111 1 2 3 4 5111 6 7 8 9 30111 1 2 3 4 5 6 7 8 9 40111 1 2 3 44111 45111

95

Post-war policies 1993–5 The stabilization programme In an effort to overcome the endemic inflationary trends in the economy, the government launched an economic stabilization programme in October 1993. The programme was designed first of all to stabilize the foreign exchange rate against the German mark. By effectively fixing the value of the currency, and halting its further depreciation, the government hoped to eliminate inflationary expectations.21 In order to achieve this the government lifted controls on the market for foreign exchange and made the currency fully internally convertible. The National Bank took over the management of the foreign exchange market with an upper intervention exchange rate of 4,444 Croatian dinars for 1 German mark. At the same the National Bank restricted the expansion of the money supply, which was linked to changes in the foreign exchange rate. Since this was already declared effectively fixed this implied a severe restriction on the creation of new money. Simultaneously, the National Bank discount rate was reduced from 21 per cent to 7 per cent, demonstrating the government’s commitment to low inflation. Other measures to liberalize the economy were introduced. The sales tax rate was reduced from 50 per cent to 40 per cent, and the general import tax was reduced from 15 per cent to 10 per cent. A balanced government budget was announced which implied the introduction of a squeeze on public expenditure, backed up by a tight incomes policy – wages in the public sector were to be held to just a 4 per cent increase in November compared to a 25 per cent increase in the previous month. The policy was successful in eliminating inflation and confidence in the domestic currency was restored to such an extent that people began to sell their hoarded foreign currency holdings for Croatian dinars and on some days the banks in the centre of Zagreb briefly ran out of dinar cash holdings. As the demand for Croatian dinars rose, the value of the currency appreciated for the first time. After an initial appreciation of 20 per cent the exchange rate was pegged to the German mark, and thereafter the defence of the exchange rate became the central aim of macroeconomic

96

Economic policies 45 40 35

% inflation

30 25 20 15 10 5 0 –5 1990

1991

1992

1993

1994

Year

Figure 4.2 Monthly inflation 1990–4

policy. The policy succeeded in eliminating inflation, and for a few months prices even fell before eventually stabilizing almost completely. Imports became cheaper owing to the initial depreciation, which also contributed to the reduced level of inflation. In this way inflationary expectations were dramatically eliminated. Croatia had been admitted to membership of the International Monetary Fund (IMF) and the World Bank in early 1993. Once the stabilization policy had been implemented and inflation had been brought under control, the IMF agreed to a stand-by arrangement in autumn 1994 that offered a line of credit to the Croatian government.22 The stand-by arrangement gave Croatia access to 75 per cent of its quota at the Fund until 1995. This increased the country credit rating and was a precondition for further loans from the International Bank for Reconstruction and Development and other lenders. The existence of the stand-by arrangement signalled a confidence in the government’s manage-

Economic policies 1111 2 3 4 5 6 7 8 9 1011 1 2 3111 4 5 6 7 8 9 20111 1 2 3 4 5111 6 7 8 9 30111 1 2 3 4 5 6 7 8 9 40111 1 2 3 44111 45111

97

ment of the economy by the IMF, and gave the green light to Croatia’s creditors to restructure the foreign debt, which had built up to $2.8 billion by the end of December 1994 (20 per cent of GDP), half of which was owed to other governments and half to foreign banks. One of the main aims of government economic policy had been to build up the country’s foreign exchange reserves which were virtually non-existent at the start of independence. By the time the stand-by agreement was made foreign exchange reserves of over $1 billion had already been accumulated. The arrangement enabled the government to continue to build up foreign exchange reserves rather than deplete them in repayment of the foreign debt. The intervention of the IMF was therefore an important factor in enabling the HDZ government to proceed with the stabilization policy, and to continue to enjoy the political support of the population following all the hardships of independence and war. But the cost of the stabilization policy was the high level of short-term real interest rates which discouraged investment and growth. Although the National Bank had sharply reduced its own discount rate this had little impact on interest rates charged on bank loans to individuals and businesses, since in its process of monetary tightening the National Bank stopped granting any new credits to the banks.23 Interest rates fell from their previous astronomic rate of 2,500 per cent per annum to a ‘mere’ 60 per cent in December 1993, but this still had an adverse impact on the level of economic activity, as it was so high relative to the rate of inflation. Banks were able to maintain high interest rates due to the highly concentrated nature of the banking system which reduced competitive pressures on the banks to reduce their prices. Banks’ costs were also exaggerated due to the existence of numerous bad and non-performing loans which continued to be made to the old large-scale and inefficient industries, even after they had been ‘privatized’. The inefficient management of large banks was also cited by one authoritative observer as a reason for their relatively high level of operating costs.24 Some measures to reform the banking system were undertaken. But they were not enough to ensure the effective restructuring of the banks, a deficiency which came back to haunt the government a few years later when a banking crisis was to signal the onset of recession and the eventual fall of the HDZ.

98

Economic policies

The immediate success of the stabilization programme and the new found stability of the exchange rate encouraged the National Bank to push ahead with plans to replace the Croatian dinar, which had been in use since independence, with a new currency, the kuna, which was introduced in May 1994. This had been the currency used in the Independent State of Croatia during the Second World War, and its introduction was an emotive and symbolic statement about the attitude of the HDZ government towards the type of state that was being created. The move was widely unpopular at the time, but soon the new currency was accepted as a fait accompli, especially as it became associated with a welcome period of stability and the beginning of a longed-for economic recovery.

Post-war reconstruction The early post-war reconstruction effort in Croatia was carried out with relatively little outside assistance. Some bilateral aid was made available, especially from Germany, but the Croatian state took the lead role in organizing and funding reconstruction. A Croatian Bank for Reconstruction and Development (HBOR) was established in 1992 with a capital of DM 1 billion, 50 per cent of which came from the German government. In addition to providing loans for physical reconstruction, the bank provided soft loans up to a value of DM 20,000 to workers, pensioners, state employees, and employees of firms excluded from the privatization process, to buy shares in companies undergoing privatization. The German foreign aid agency, the Kreditanstalt für Wiederaufbau based in Frankfurt, was a main adviser and provided the model for the HBOR. The Deutschausgleichbank was a major partner, and provided funds for start-up loans for the development of new small businesses targeted towards assistance for returnees from Germany, and for refugees returning to the war affected areas. The HBOR issued bonds on the international market. It cooperated with EBRD on an investment programme to develop mini-hotels on the coast and on the islands. The World Bank approved a $128 million Emergency Reconstruction Loan to Croatia in June 1994 to assist the reconstruction of infrastructure damaged in the war, and to repair damaged

Economic policies 1111 2 3 4 5 6 7 8 9 1011 1 2 3111 4 5 6 7 8 9 20111 1 2 3 4 5111 6 7 8 9 30111 1 2 3 4 5 6 7 8 9 40111 1 2 3 44111 45111

99

housing, schools and health centres. Croatia was, however, barred from EU PHARE assistance on the grounds of political conditionality. The conditions for membership of the PHARE programme included progress with democratization, permitting the return of the refugees expelled from the Krajina region and cooperation with the International War Crimes Tribunal in The Hague. Although Croatia managed to gain admission to the Council of Europe in 1996, she was never included within the PHARE programme. By the time Croatia was deemed eligible for EU assistance following the Kosovo war in 1999, the PHARE programme was replaced by another programme specifically oriented towards reconstruction in south-east Europe known as CARDS.25 Nevertheless, substantial European assistance was provided in the form of bilateral assistance amounting to over one billion ECU between 1991 and 1997, which in practice more than made up for the exclusion from the PHARE programme.

Developments in privatization policy A number of changes to the basic privatization law were made once the war was over in Croatia. On the advice of the World Bank, the Privatization Agency and the Development Fund were merged into a new organization known as the Croatian Privatization Fund (CPF) on 1 January 1993. The new organization was controlled by a management board consisting of thirteen political appointees or politicians and one Trade Union representative.26 Many companies remained firmly under the control of the party and the state through the controlling shares held by the Privatization Fund which appointed its own politically connected directors. Concerned that the privatization process had failed to raise enough revenue for the cash-strapped government budget, Tudjman issued a Presidential Decree in February 1993 which allowed the sale of enterprises owned by the CPF by public tender in order to attract the capital of the diaspora. But the involvement of the latter group was very often the subject of political favouritism, and the privatization process became even more politicized as a result. More and more strident voices were raised in criticism of the failure of the privatization process to provide a wider distribution of share ownership. The inequity of the privatization

100

Economic policies

process was a particular cause of concern.27 In response to these criticisms a number of amendments to the privatization law were passed in October 1993 which allowed small shareholders to trade shares even if they were not fully paid up, and further amendments passed in December allowed them to receive dividends. A free issue of shares up to the value of DM 20,000 was made to war invalids and families of war victims. In March 1994 a measure was passed which allowed people to buy shares with frozen foreign currency savings.28 But these measures were essentially cosmetic and only served to disguise the fact that the principal new owners of the formerly socialized industries were now for the most part the state, and a narrow elite of tycoon capitalists.

The post-Dayton boom Economic growth resumed in Croatia in the aftermath of the Dayton Agreement after several years of economic disruption and stagnation. GDP grew by over 6 per cent per annum for three years between 1995 and 1997, before slowing to just under 3 per cent in 1998. In part, the rapid growth of GDP represented a phase of post-war recovery as excess capacity was brought back into use, damaged factories were repaired, and communications disrupted or damaged during the war were restored. A more substantial economic expansion appeared to be on the cards when gross investment picked up in 1996, increasing in that year alone by almost 40 per cent. The impact of this investment was felt in the growth of industrial production in the following year. Throughout this time inflation remained subdued, but this was perhaps partly explained by the fact that unemployment remained worryingly high with registered unemployment of over 14 per cent, which increased persistently in the following years. The economic recovery was assisted by generous loans from the international community, and in particular by the international financial institutions, who were less concerned than the EU with maintaining a spurious balance of responsibility for the war between Croatia and Serbia.29 The World Bank invested in numerous projects in the years following the Dayton Agreement through loans for purposes such as health care equipment, transport projects and railway modernization. Two of the largest

42

–3.0

Foreign debt (% of exports)

Inflation (% pa)

3.7

54

3,809

–7.7

6.8

4,029

1995

3.4

68

5,308

–5.5

5.9

4,422

1996

3.8

91

7,452

–11.6

6.8

4,398

1997

5.4

112

9,586

–7.1

2.5

4,805

1998

4.4

122

9,872

–6.9

–0.9

4,399

1999

7.4

126

10,877

–2.1

3.7

4,179

2000

Source: Bulletin of the Croatian National Bank, No. 67, January 2002. Reprinted with permission of the Croatian National Bank, Zagreb.

3,020

5.9

Current account balance (% of GDP)

Foreign debt ($m)

5.9

3,137

GDP growth (% pa)

Per capita GDP ($)

1994

Table 4.1 Basic economic indicators

1111 2 3 4 5 6 7 8 9 1011 1 2 3111 4 5 6 7 8 9 20111 1 2 3 4 5111 6 7 8 9 30111 1 2 3 4 5 6 7 8 9 40111 1 2 3 44111 45111

102

Economic policies

loans were for emergency transport and mine clearance ($102 million) beginning in March 1997, and for railway modernization and restructuring ($101 million) beginning in June 1999. Altogether the World Bank, through the International Bank for Reconstruction and Development (IBRD), financed loans worth $762 million for fourteen projects between 1994 and 1999. A further $57 million was provided as loans to specific enterprises through the International Finance Corporation (IFC). In addition, by the middle of 1996 the European Bank for Reconstruction and Development (EBRD) had committed €230 million for private sector development projects. It had provided loans to a major pharmaceuticals company and to a brewery, to a number of banks to finance small business credit lines, and for air navigation systems, reconstruction of roads and the electricity network, and for the rehabilitation of the tourist sector.30 In addition to these international sources of funds and technical assistance, a large number of bilateral aid programmes were also active in assisting reconstruction, and implementing humanitarian projects for refugees and displaced persons. The non-inflationary growth of output between 1995 and 1998 was hailed as one of the success stories of economic transition in Eastern Europe, and Croatia received favourable international credit ratings and many plaudits for the success of its stabilization policy. But despite the efforts of the government and the substantial foreign economic assistance which was available during this time, problems were accumulating which would soon have adverse consequences not only for the economy, but for the electoral popularity of the HDZ as well.

Foreign trade policy One of the main problems which built up at this time was a deteriorating balance of payments position. The expansion of the economy resulted in a sharp increase in imports for both consumption and investment purposes. Following the conventional model of transition, Croatia had introduced a liberal foreign trade regime. Import quotas were gradually dismantled and a Customs Tariff Law of 1996 abolished all remaining non-tariff instruments. The law introduced a set of tariffs ranging from 0 per cent to 25

Economic policies 1111 2 3 4 5 6 7 8 9 1011 1 2 3111 4 5 6 7 8 9 20111 1 2 3 4 5111 6 7 8 9 30111 1 2 3 4 5 6 7 8 9 40111 1 2 3 44111 45111

103

per cent, with an average rate of 12.1 per cent, broadly in line with rates typical in many other market economies.31 The balance of payments problem developed because there was no corresponding improvement in export performance to pay for the increased import bill. Moreover, tourism, the traditional balance of payments buffer, had still not recovered. It would take a while, even after the Dayton Agreement of 1995, for tourists to regain the confidence to return to the once-popular Croatian seaside resorts. One positive development was an increased inflow of foreign direct investment which grew from 0.7 per cent to 3.6 per cent of GDP between 1994 and 1998 reflecting the favourable country credit ratings which Croatia had quickly managed to regain. But it was still not enough to make a significant contribution to the balance of payments position. The IMF had made available an extended funding facility in 1997, but the government decided not to take up the whole of the loan after it was delayed for several months due to disagreements over the implementation of Croatia’s commitments under the Dayton peace agreements. The deterioration in the balance of payments was therefore fuelled by the growth of imports while exports stagnated. The value of exports in 1998 (at $4.5 billion) was lower than it had been in 1992 (when it had reached $4.6 billion). At the same time imports increased dramatically, virtually doubling between 1992 and 1998 (from $4.5 billion to $8.4 billion). As a result the trade deficit reached $2.9 billion in 1995 and increased to almost $5 billion in 1997 at the height of the boom. Croatia had turned into an import-led economy. It became clear that, owing to a lack of effective industrial restructuring, the peculiar method of privatization of industry which had been adopted (often covering de facto nationalization) had failed to create an economy that was internationally competitive. One main source of the increase in imports was the growth in imports of machinery and transport equipment. Imports of these items grew by 33 per cent between 1996 and 1998. Although partly reflecting the rapid increase in investment in the boom years, especially in 1997, this can also partly be explained by the rapid growth in purchases of imported motor cars. The government had relaxed the import duties on the importation of motor cars by war veterans, and the banks had begun to provide short-term loans at

104

Economic policies

relatively affordable rates both of which fuelled a rapid growth of car imports. The registration of new cars increased from 73,600 in 1996 to 109,000 in 1998, or by 48 per cent. The consumer boom produced a short-run feel-good factor. Measures were taken to counter the looming balance of payments crisis this soon turned against the government which became increasingly unpopular thereafter. For many years before independence, Croatia had benefited from preferential trade arrangements under the Trade and Cooperation Agreement signed between the EU and the former Yugoslavia in 1980. The EU continued to apply the commercial aspects of this agreement with Croatia after the break-up of Yugoslavia. However, Croatia soon fell behind other countries in Eastern Europe which were able to negotiate Association Agreements with the EU. Owing to the EU’s continuing dissatisfaction with Croatia over the elements of conditionality such as refugee return and human rights, it was unwilling to negotiate an Association Agreement with Croatia under Tudjman’s HDZ regime. Croatia was invited to negotiate an Association Agreement only after the HDZ had lost the elections at the beginning of 2000. In the meantime, the Association Agreements signed by the other East European countries gave them preferential access to the EU markets, on a duty-free basis for many goods, and they further benefited from the process of harmonization of standards and the elimination of non-tariff barriers. This development began to make Croatian goods relatively uncompetitive in EU markets. The most damaging development was linked to the EU regulations concerning rules of origin. These stipulated that duty-free imports to the EU from the Associated countries were to contain minimum levels of inputs originating either in the EU or within the country concerned, or in other Association Agreement countries. Since Croatia was not among the latter, this discouraged export producers in those countries from sourcing their inputs in Croatia. Moreover, since Croatia had not gained admittance to the Central European Free Trade Agreement (CEFTA) she was also excluded from the duty-free zone covering her immediate neighbours to the east: Hungary and Romania.32 Thus Croatian exporters had an uphill struggle in gaining access not just to the EU market, but also to the natural export markets to the east.

Economic policies 1111 2 3 4 5 6 7 8 9 1011 1 2 3111 4 5 6 7 8 9 20111 1 2 3 4 5111 6 7 8 9 30111 1 2 3 4 5 6 7 8 9 40111 1 2 3 44111 45111

105

It is therefore not surprising that the main growth area for Croatia’s exports was in Bosnia-Herzegovina. Exports to that neighbouring Balkan republic grew substantially in the postDayton period, especially as Bosnia-Herzegovina was also engaged in a process of reconstruction and consequent growth in demand for imports as its economy began to recover in the aftermath of war.

Developments in privatization policy and PIFs By March 1995, most formerly socially owned enterprises had formally completed the process of ownership transformation. Small private shareholders, of whom there were over half a million, held 40 per cent of the value of the shares in the privatized companies, the Croatian Privatization Fund (CPF) held 32 per cent and the Pension and Invalidity funds held 16 per cent.33 The fully privatized firms were on average much smaller with an average capital value of DM 1.7 million, while those owned by the CPF and the two state funds were much larger with an average value of DM 24 million. Despite the large numbers of companies which had completed the privatization process, the private sector still accounted for only 50 per cent of economic activity and there had been relatively little involvement of foreign investment other than from the Croatian diaspora. A number of new institutional developments were implemented in the aftermath of the Dayton Agreement. A Ministry of Privatization was set up in 1995 with the remit to complete the process of privatization and divest the CPF of its remaining share holdings. From then on, the proceeds of privatization were to be used to finance the Croatian Bank for Reconstruction and Development. A new privatization law was passed in March 1996. The law stipulated that privatization vouchers were to be distributed free of charge to individuals adversely affected by the war, including returning refugees and displaced persons, disabled war veterans, families of soldiers who had died in the war, and various other similar groups. Privately owned fund management companies known as Privatization Investment Funds (PIFs) were established into which individuals could invest their vouchers, which the PIFs would then exchange for shares held by the CPF.

106

Economic policies

Seven licensed PIFs were established at the end of 1997. Altogether, four-fifths of the vouchers which were issued to the eligible public34 were placed with the newly established PIFs.35 Some $2 billion of shares, or 29 per cent of the remaining shares held by the CPF, were included in the free distribution through the voucher privatization programme which was completed by the end of September 1998. The PIFs collected 90 per cent of the vouchers which had been issued, and exchanged them for shares in 471 companies offered for privatization by the government. The total valuation of the PIF portfolio was $400 million, and the largest of the PIFs, a company called ‘Dom’, was valued at $125 million. The funds were expected to begin trading their share portfolios on the stock market, which would dramatically increase the liquidity of the capital market in Croatia. The 1996 law also envisaged the eventual privatization of the publicly owned utilities. The first of these was not offered for sale until 1999 when a 35 per cent stake in Croatian Telecom was sold to a German company. The sale of the petrochemical giant INA, the largest company in Croatia, was expected to follow in 2002. In addition, thirteen of the largest loss-making companies were to be restructured by the state under the law on the Rehabilitation of Selected Companies.36 Overall, the privatization process in Croatia did little to bring about improvements in economic performance. Instead of transferring ownership to private hands, many industries, especially where the largest firms were concerned, ended up under state ownership, whereas they had previously been under decentralized social ownership under which managers had been accountable at least to their workforce. Many of the medium sized firms had been taken over by new owners who had little interest in restructuring and improving the long-run efficiency of the privatized companies. One comprehensive study of the privatization process concluded that it was only among the smaller fully privatized firms that efficiency had increased as a result of improved incentives to owners and managers.37 Yet the small business sector, including both privatized firms and new start-ups, faced many obstacles to its further development as the potential dynamic driver of economic growth, a role which it could have been expected to play in a more normal market economy.

Economic policies 1111 2 3 4 5 6 7 8 9 1011 1 2 3111 4 5 6 7 8 9 20111 1 2 3 4 5111 6 7 8 9 30111 1 2 3 4 5 6 7 8 9 40111 1 2 3 44111 45111

107

The development of SME policy As in many transition economies there had been a rapid increase in the number of small and medium sized enterprises (SMEs) in Croatia since the end of the 1980s. By 1997 the number of registered private firms, most of which were small or medium sized, reached over 175,000 in Croatia, of which approximately 60,000 were active, employing 30 per cent of the workforce. There were also approximately 90,000 craft firms with an average employment of only one worker. One of the main problems facing entrepreneurs wishing to expand their business has been a lack of financial credits and loans. The liquidity crisis in the Croatian economy added to the reluctance of the banks to finance risky small businesses. Many banks had a backlog of bad debt and most of the available credit went to large state owned or privatized firms to maintain employment, or to reduce lay-offs. As a result, little credit was available for new start-up firms, and banks typically required between 200 per cent and 300 per cent collateral cover for a loan. In the late 1990s, loans were only available at an interest rate of 15 per cent per annum, while price inflation was only 3 per cent per annum, giving an extremely high real rate of 12 per cent per annum. Banks usually financed loans to small firms on a short-term credit basis, and the supply of long-term finance was extremely limited. The Croatian Investment Bank, the World Bank and the EBRD supplied some special credit lines, but these schemes were oriented towards large and medium sized firms and did not benefit the majority of small businesses. At the beginning of 1997 the Ministry of Economy formulated a ‘Programme for Encouraging Small Business’. This envisaged establishing business incubators, small business zones, expert and financial assistance to encourage entrepreneurial products, the commercialization of innovation, support for start-ups, and business development, and the training and education of trainers and advisers. The Ministry allocated HRK 32 million (DM 10 million) to the counties (Ïupanije) to implement the programme in its first year of operation on the basis of plans which they had each submitted. The local authorities supplemented these funds with HRK 22 million of their own money, and the commercial banks provided HRK 103 million (mobilizing a total of HRK 157 million

108

Economic policies

in the first year of the programme). Backed up by guarantees from the Croatian Guarantee Agency, the programme succeeded in lowering the cost of credit to participating businesses to an average of 5 per cent (with a range of 0 per cent to 8 per cent). A network of local consultants was established to provide subsidized consultancy services to small businesses. Priority was given to manufacturing businesses, but there was an equal emphasis on new start-ups and on growth of established businesses. The programme was implemented at local county level by an announcement of a competition for credits. These credits could be for a maximum of the equivalent of DM 50,000 for start-ups and DM 100,000 for expanding firms. By September 1998 about 1,200 loans had been granted to entrepreneurs, and the Ministry claimed that 2,600 jobs had been created. Altogether twelve small business incubators, twenty-eight small business zones and eight entrepreneurial centres were established or planned with the assistance of the local authorities. The programme may have had some limited success in creating jobs and stimulating enterprise, but the major problems of the economy were not addressed, and probably could not be in a programme of this type. The focus on subsidized credits left a gap in the area of information, advice, counselling and training. Greater investment in information and advice services and training programmes was needed to relieve those bottlenecks, and would have supported a more efficient use of the available financial support.38 One positive aspect of the SME programme was that it was decentralized and sensitive to local conditions. Local administrations participated in the design of the programme, which was adapted to the differing requirements in different regions. The local administrations and local banks also participated in the programme by the addition of their own resources. In some areas revolving funds to provide micro-credits to small businesses were established, in others the available resources were used to subsidize loans directly through the commercial banking system. The programme operated more effectively where there was a higher degree of local involvement.39 In âakovec, a town in the northwest region of Medjimurje, a local committee was established composed of representatives from the commercial and business sector and the local administration. The committee established a set of economic and social criteria to screen applicants before their

Economic policies 1111 2 3 4 5 6 7 8 9 1011 1 2 3111 4 5 6 7 8 9 20111 1 2 3 4 5111 6 7 8 9 30111 1 2 3 4 5 6 7 8 9 40111 1 2 3 44111 45111

109

loan applications were passed on to the banks. In Split, the applications were handled directly by the banks, and it was likely that successful applications were those with the highest short-term profitability who would probably have obtained loans even without the existence of the programme. One of the few initiatives which took place outside the government programme was based in the town of Osijek in eastern Slavonia, which had been badly affected by the war. There, an innovative non-governmental organization established a mutual-guarantee credit cooperative known as NOA, which successfully managed local funds for the development of small businesses. The loans were guaranteed by mutual support of small groups of local entrepreneurs. As a local initiative of independent actors the initiative was regarded with suspicion by the government. Yet such decentralized and autonomous initiatives are probably essential if Croatia is to turn around her economic fortunes in the future. Centralized governmental programmes to develop entrepreneurial activity are rarely successful and, where they are not simply ignored by wary entrepreneurs, are often vulnerable to hijacking by politically connected individuals and groups.

The economic crisis of 1998–9 and the fall of the HDZ The post-Dayton recovery which took the form of an economic boom came to an abrupt end as industrial production peaked in mid-1998, and fell during the rest of the year. The balance of payments deficit, which had jumped from 4.3 per cent of GDP in 1996 to an unsustainable 12.2 per cent in 1997, fell back to 7.4 per cent of GDP in 1998 due to the economic slowdown and renewed monetary and fiscal tightening. International indebtedness increased from $2.4 billion in 1993 to $6.1 billion in 1997, reaching 33 per cent of GDP.40 This experience gave a practical demonstration of how the growth of the economy was being held back by a structural balance of payments constraint as any upturn in the economy tended to suck in imports unmatched by growth in export revenues. New policies would be needed to release the constraint by reducing the propensity to import or by introducing new measures to improve the international competitiveness of the Croatian economy and boost exports of goods and services.

110

Economic policies

The economy was further weakened by a number of interrelated factors including a banking crisis, low investment, a growing deficit in public finances driven by the ever mounting losses in the pension fund and a high level of military expenditure, a failure to stimulate the small business sector, and a growing illiquidity crisis due to late payments of bills.41 Privatization had failed to produce the expected improvement in economic performance since the new owners had not restructured their companies, or invested enough in them to make them internationally competitive. This was partly to do with the form of privatization itself which had created a Croatian version of tycoon capitalism. The new owners were not dynamic risk takers, but all too often political place-men, whose connections to the ruling party were more important than their abilities as managers or entrepreneurs. Many of the new owners were too often more interested in shortterm profit taking and asset stripping than in long-term investment and strategic restructuring of the companies which had been put in their hands. There were of course some exceptions and some success stories. But domestic capitalists were unable to lift the Croatian economy out of the doldrums on their own. The other part of the explanation was the disastrous absence of foreign investment and the new management and marketing skills which foreign investment might have been expected to bring into play.

Tycoon capitalism In addition to institutionalizing the effective state ownership and control over a large segment of the economy, the privatization process in Croatia gave rise to a new breed of wealthy domestic capitalists, industrial barons who became known as ‘tycoon’ capitalists: ‘In Croatia’ the word tycoon ‘stands for wealthy persons who have become . . . owners of former state enterprises . . . the concept of tycoon in fact implies a rapacious person, a favourite of the party in power, charged with the task to take over control of what once used to be [a] sound enterprise and to suck out all their ready money which is then shared by the tycoon and the party in power.’42

Economic policies 1111 2 3 4 5 6 7 8 9 1011 1 2 3111 4 5 6 7 8 9 20111 1 2 3 4 5111 6 7 8 9 30111 1 2 3 4 5 6 7 8 9 40111 1 2 3 44111 45111

111

Many of these nouveau riche were rich expatriates or local businessmen with close links to the governing party, or even members of it. The HDZ had created a system in which some of the largest and most profitable companies had been transferred to a small new elite of privileged owners with party connections. One analyst concluded that a large part of the privately held shares were taken up by ‘a narrow elite made up of those who had the capital to buy the most attractive parts of the socially owned assets’.43 Other beneficiaries included managers of socially owned firms who bought shares through special loan schemes set up to support management buy-outs through which managers obtained loans from the banks using the future value of the companies’ own shares as collateral. Managers with connections to the ruling party, government officials or politicians found it easier to get loans of this type.44 Often, banks gave such loans to managers to buy out their companies without proper guarantees that the loans would ever be repaid.45 Moreover, shares sold through management buyouts were often sold on the basis of undervalued assets. Employees also benefited from the discounted sale of shares, but many sold them at the first opportunity. In some cases managers persuaded employees to buy shares at a discount on their behalf and then to sell them, or just cede them, to the managers in return for preserving their jobs.46 Thus, the policy involved an uneven and unfair distribution of gains and losses between those who were able to benefit from the process on account of favourable employee discounts, or because they were able to buy shares with subsidized loans, or were politically favoured buyers of companies. Others less favourably placed, such as public sector workers and farmers who had no privileged access to privatized resources, were effectively losers from privatization.47 An unhealthy and incestuous relationship between the political and the economic elite developed. Ministers, members of parliament, and top civil servants frequently became members of supervisory boards (nadzorni odbor) which controlled the companies, or even company directors. One notable case was that of Ivica Mudriniç, a Canadian Croat who had been appointed early on as Minister of Transport and Communications with the support of Gojko ·u‰ak, the Defence Minister. He subsequently became director of Croatian Radio-Television (HRT) and following that, director of Croatia Telecom. The politicization of the privatization

112

Economic policies

process was neatly captured in a report from the Zagreb daily newspaper Nacional which argued that from the very beginning of privatization, the goal of the governing party has not been to build an effective economy and productive enterprises, rather to distribute the national wealth and power specifically according to political lines to individuals through which the HDZ would be able to retain its power, even if it were to lose the elections, over the better part of the nation’s financial and economic resources.48 Some of the tycoons achieved notoriety, the most spectacular being the case of Miroslav Kutle, whose affair illustrated the fundamental problems with the privatization process which had been introduced and managed by the HDZ. Before independence, Miroslav Kutle was a minor businessman who owned a small coffee shop. However, his close connections to the ruling HDZ gave him the opportunity to rapidly expand his small business into a major commercial empire. Kutle acquired the companies in his group sequentially, using the assets of one company as collateral for loans with which to buy shares in the next. In this way Kutle amassed an empire of over 170 enterprises, called the Globus Group. He bought the companies with low-cost loans granted by both state banks and minor private banks, such as the Dubrovaãka banka. His business empire covered a wide range of different industry sectors and included media companies such as Slobodna Dalmacija and the newspaper distribution company Tisak, and the Karlovac Milk Industry (KIM). Profits from one company would be used to cross-subsidize losses in another, so that the companies were linked together in a network of interfirm debt. Many of the group’s companies were inactive ‘shell’ companies formed to facilitate money-laundering from one account to another. According to Andrew Kropotkin, head of the Zagreb office of the EBRD: [Kutle] would buy a company, take out its cash to buy another company and repeat the process. Tisak was a hugely profitable company when he got control. But he was never able to invest in his acquisitions or put in new management.49

Economic policies 1111 2 3 4 5 6 7 8 9 1011 1 2 3111 4 5 6 7 8 9 20111 1 2 3 4 5111 6 7 8 9 30111 1 2 3 4 5 6 7 8 9 40111 1 2 3 44111 45111

113

With the onset of recession and bank failure in 1998, the pyramid-like structure of the group collapsed. Globus Group, which at the peak of its success had been valued at $12 billion, became bankrupt, with its creditors claiming it owed them a total of $170 million in debts. The unpaid debts of the Globus Group were estimated to amount to 25 per cent of the outstanding unpaid debts of the whole economy.50 By early 1999, due to the downturn in the economy as well as his mismanagement, many of the companies he owned were virtually bankrupt and had not paid wages to their workers for many months. One such firm, the milk producer KIM from Karlovac, was brought to the brink of bankruptcy when Kutle was unable to repay the credits he had raised on the basis of the firm’s assets. The repayments were made out of the firm’s income, which was then unable to pay the 3,700 local dairy producers who supplied milk to the company. It was further widely alleged that Kutle had asset stripped the Globus Group’s firms to the benefit of the HDZ and that the profits from the companies had been transferred abroad into private bank accounts.51 Other companies in Karlovac met a similar fate including the Karlovac Timber Industry, bought by Josip Guãiç, another tycoon, a member of a family of Croats from Kosovo; and the gas turbine producer, Jugoturbina, owned by Slavko Canjuga, which by September 1999 was paying wages three months in arrears. Karlovac, an old industrial town south of Zagreb, had also been badly affected by the war with the Serbs of the Krajina region. But the mismanagement of the privatized industrial companies resulted in a general economic stagnation in the years which followed. According to the town’s mayor, Marko Mariç, by the end of the decade, Karlovac had been ‘plundered by tycoons’ and ‘turned into a ghetto of hungry workers’.52 The full extent of the involvement of the tycoons in asset stripping and mismanagement of the privatized companies was brought to light when Kutle was arrested and questioned in February 1999 for financial irregularities in the management of the Zagreb company Gradski podrum (the City Wine Cellar). During this case it was revealed that Kutle had a debt of around one billion dollars, and that many of his companies were bankrupt and unable to pay their workers’ wages. In February, social unrest began to spill onto the streets, as 2,000 workers from the department store chain Diona, owned by

114

Economic policies

Kutle, staged an angry demonstration in the centre of Zagreb. The workers expressed their resentment at the threat to their own jobs and livelihoods, while the tycoons and the political elite were enriching themselves at their expense. The mismanagement of the economy by the government and the tycoons had given rise to a new mood of militancy and dissatisfaction among urban workers who had previously supported the regime, and indicated trouble ahead for the HDZ in the forthcoming elections. By the beginning of 1999, the HDZ realized that the excesses of tycoons such as Kutle was leading to a loss of political support. Kutle was charged with fraud in the privatization of the Gradski podrum restaurant. But it was too late to reverse the fortunes of the HDZ at the polls. Kutle was eventually arrested in February 2000 after the new government came to power. Many of his companies were taken over by the Privatization Fund, although by then most had been turned from successful and profitable companies into loss making shells. Not all tycoons built up their businesses through patronage connections. Some emerged from the private craft sector which was permitted by the communist regime. One of the most successful of these legitimate tycoons was Ivica Todoriç, owner of Agrokor, one of the largest private enterprises in Croatia, a conglomerate enterprise in the food processing sector.53 Its three divisions covered food and drink production, food processing and a supermarket chain known as Konzum. The company had its origins in a flowertrading business set up by Todoriç’s father. By 1998, the company had invested around $200 million, mainly in revamping the Konzum supermarket chain, mainly financed by long-term debt. It is also probable that one of the reasons which underlay the success of the business was the high degree of import protection offered to the agricultural sector. Other successful companies such as Dukat and Vindija were also engaged in the food processing industry. Agriculture and processed agricultural goods in particular, along with chemicals and pharmaceuticals, therefore emerged as success stories of Croatian privatization. By 2002, one such firm, Podravka, was making incursions into the large neighbouring market in Serbia, setting up factories to process agricultural products there and aiming to rapidly expand operations in the market of the former enemy state.

Economic policies 1111 2 3 4 5 6 7 8 9 1011 1 2 3111 4 5 6 7 8 9 20111 1 2 3 4 5111 6 7 8 9 30111 1 2 3 4 5 6 7 8 9 40111 1 2 3 44111 45111

115

Collapse of the banking sector The disastrous results of economic management under the HDZ and the inefficiency of tycoon capitalism began to have damaging effects on the economy. Company debts began to mount, and when they became unable to repay their commercial loans the crisis spilled over into the banking sector. Signs of structural weakness in the economy had already begun to emerge in 1997 especially in the banking sector which, with as many as sixty-one separate banks, was one of the weak points of the Croatian economy. Many banks were burdened by bad debts linked to large loss-making companies. The banking sector was dominated by two large commercial banks: the Zagrebaãka banka with assets of HRK 23 billion and was listed on the London Stock Exchange, and the Privredna banka with assets of HRK 17 billion. Small new private banks, which had attempted to expand by offering high interest rates on deposits to savers, and regional banks had made loans to local loss-making industries in an attempt to boost their local economies. Already as far back as 1994 the state had attempted to clean up the banking system and had intervened with a programme of rehabilitation and recapitalization of the banks with the support of World Bank loans. The programme was designed to rehabilitate the loss-making banks by recapitalizing them with public capital, and to improve their systems of management and corporate governance. The ultimate aim of the programme was to privatize the banks. Their non-performing assets were transferred to the Bank Rehabilitation Agency. Altogether since 1991 the banking sector absorbed $7 billion of public money in an effort to recapitalize and rescue loss making banks. But this intervention was not enough to overcome the inherent defects of a politicized economy which seemed capable of absorbing vast resources to little productive effect. In 1998 a major economic crisis was heralded by the collapse of several of the small and medium sized commercial banks. The crisis was led by the collapse of a medium sized regional bank, the Dubrovaãka banka in Dubrovnik, which was dangerously exposed to bad loans which had been offered to local hotels to keep them afloat when the tourist industry collapsed. The bank was rescued by an intervention of the National Bank and taken under the rehabilitation

116

Economic policies

programme. This was followed by the collapse of a number of small private banks, including Glumina banka, which managed to accumulate losses equal to twice its capital base through reckless lending.54 The government had to step in to bail out the failing banks. More and more subsidies were offered to the failing privatized enterprises. The collapse triggered a retrenchment in monetary policy and a tightening of credit conditions. The economy was stalled in its tracks, and economic growth came to an abrupt stop. In 1999 the economy contracted instead of growing, unemployment increased and it became clear that the Croatian model of tycoon capitalism was failing badly. A new banking law was introduced at the beginning of 1999 that gave greater supervisory powers to the National Bank. As soon as the law was passed the Bank initiated bankruptcy proceedings and appointed administrators in Glumina banka, Komercijalna banka, Gradska banka and Îupanjska banka. Altogether the four failed banks accounted for 7 per cent of the banking sector’s assets. One of the largest banks, Privredna banka, was privatized in 1999 and was bought out by the Italian bank BCI. The Privredna banka had been included the bank rehabilitation programme, and had emerged with much improved prospects, and confident enough to look for a strategic investor. In the judgement of the Banker magazine ‘the bank is no longer a soft touch for heavily indebted, but politically influential, corporate clients’.55 Some of the more important regional banks, Slavonska banka, Bjelovarska banka, Cakoveãka banka and Trgovaãka banka were also sold to foreign banks at the same time. Slavonska banka went to Austria’s Hypo Alpe Adria Bank with support from the EBRD.

The dénouement The economic crisis worsened in 1999. Some of the corporate groups which had been created by tycoons out of the privatization process began to experience financial difficulties. The rapid expansion in numbers of new start-up small firms also came to an end, even before they had managed to create enough jobs to reduce unemployment. Nor were they sufficiently innovative to guarantee growth and improvements in international competitive-

Economic policies 1111 2 3 4 5 6 7 8 9 1011 1 2 3111 4 5 6 7 8 9 20111 1 2 3 4 5111 6 7 8 9 30111 1 2 3 4 5 6 7 8 9 40111 1 2 3 44111 45111

117

ness. Industrial output decreased by 3.6 per cent in the year up to the first quarter of 1999. Real trade turnover decreased by almost 12 per cent in the first two months of the year alone, and by almost 9 per cent on an annualized basis.56 Total employment fell by more than 2,000 people to a low of 1,308,785, and industrial employment decreased by 5.6 per cent in the first quarter of 1999. Registered unemployment increased to over 300,000 at the end of March, bringing the unemployment rate to nearly 20 per cent. At the same time it was estimated that around one-quarter of the labour force was working in the grey economy.57 The effects of the war in Serbia and Kosovo in the spring and summer of 1999 exacerbated the downturn. Revenues from tourism, normally about one-fifth of total export revenues,declined as tourists cancelled their holidays on the Adriatic coast. Overnight stays in the tourist industry fell by 40 per cent as charter companies and travel agencies cancelled their holiday packages to Croatia. Some estimates put the foreign exchange losses as high as $1.5 billion, or 1 per cent of GDP. By the end of 1999 the crisis in the Croatian economy had reached serious proportions. In September a report by the Lehman Brothers financial consulting agency advised foreign investors not to invest further in the Croatian economy before the elections due at the beginning of 2000. Apparently heeding this advice, the German insurance company Allianz AG pulled out of a bid to buy a 65 per cent stake in the largest Croatian insurance company Croatia Insurance.58 The government had to bail out many lossmaking firms with subsidies so they could pay wages and meet the basic costs of production. Special subsidies were arranged in the form of short-term credits (known as pozajmica) which in most cases had little prospect of ever being repaid. Increasingly such subsidies were being paid for in goods rather than cash. During the year between HRK 300 and 400 million (about £35 million) was paid out of the state budget and from the Croatian Privatization Fund, leading to cuts in social welfare programmes as well as to cuts in payments to companies involved in government contracts.59 One such firm, Torpedo, in Rijeka, was provided with funds for three months’ minimum wages for its workers. The company had had no orders for over a year and the director had not visited the company for several months. The Ministry of Economy and the Privatization Fund pressed for his dismissal but

118

Economic policies

he was protected by the company’s supervisory board. In the meantime the company was managed by a crisis committee of the workers.

Economic policies of the coalition government 2000–2 One of the key problems facing the economy was the lack of competitiveness of Croatia’s exports. The protectionist inward-looking policies of the HDZ had been designed to protect domestic Croatian capitalists – the tycoons. This policy had resulted in a stagnation of exports. Any increase in growth on the other hand led to a surge of imports, despite protection of domestic markets, leading to an increasing deficit on the balance of payments, and surging levels of foreign debt. Measures such as tax concessions on imported cars for ‘war veterans’ had only added to the shortlived import-led consumer boom in the post-Dayton years in 1996 and 1997. The new government had to find a way to overcome this propensity towards import-led growth. In September 2000 a drastic measure was introduced when the government imposed severe quantitative restrictions on imports of goods for personal consumption such as coffee, detergents, sugar, milk, juices and similar products. Imports of food and beverages were limited to a kilogram and a litre per person. But Croatian citizens were used to shopping abroad, especially in Slovenia. The import restrictions cut off their access to cheap goods over the border. It was reminiscent of the sort of stop-gap measures which used to be applied under the former communist regime. The effects were dramatic, and the level of public protest so great that the policy was reversed after being in place for only a week. However, it revealed the enormous reliance of Croatian consumers on buying cheaper goods abroad. Some economists argued in favour of currency devaluation as a key measure to promote a ‘development strategy’ for Croatia. A leading proponent of this view was Zvonimir Baletiç a senior professor at the Economics Institute in Zagreb. He argued that the focus on privatization had been misguided and had diverted attention away from the real priority of state-led economic development strategy which was export promotion. The solution was to be found in stimulating exports through devaluation:

Economic policies 1111 2 3 4 5 6 7 8 9 1011 1 2 3111 4 5 6 7 8 9 20111 1 2 3 4 5111 6 7 8 9 30111 1 2 3 4 5 6 7 8 9 40111 1 2 3 44111 45111

119

We [sh]ould return a part of the market to agricultural products and increase the market for certain services, but primarily industrial products. Without a reconstruction of industry, Croatia has no real chance. But it must be an export industry . . . [F]oreigners with their own capital would arrive and start production here, if it were not more expensive here than in other competitive countries . . . we must put a stop to the current state of stagnation because in this state, with this macroeconomic policy, we cannot get the economy going. We must turn to setting the development processes in motion and, with the current monetary policy, which primarily places importance on stability of prices and in whose defence the state is becoming financially exhausted, the state has neither development nor stability. The only right move is devaluation . . . Firstly, by devaluing the kuna we primarily redistribute income in favour of production and the export sector and against the flood of imported products. Secondly, we give a clear signal to the export sector and production in general that they can count on active state support. The policy up until now has favoured import and not domestic production, export and employment.60 Others argued against devaluation. Their view was that without accompanying measures to control inflation, devaluation would lead to higher prices and wage costs and threaten an inflationary spiral, just as in old Yugoslavia. They indicated that the key to solving the economic problems lay in cutting public expenditure. But despite the promises given in the election campaign the new government had been slow to act to implement these policies. Since unemployment continued to rise, the government revenues would fall and expenditures increase unless radical action was taken to reign in the government deficit. The only solution was a cut in public expenditure which would enable the government to cut taxes and so stimulate business investment and production. As the arguments continued the government dithered, sidetracked by internal bickering among the coalition parties and political controversy over its cooperation with the Hague Tribunal. By February 2002, registered unemployment had risen to almost 24 per cent, and over 400,000 people were out of work. As usual

120

Economic policies

the Labour Force Survey data showed lower figures for unemployment, but it was clear that the economy was continuing to function below its potential. While exports rose by 5 per cent in 2001, true to form, imports rose more rapidly by almost 15 per cent, pushing the trade deficit up to $4.4 billion. The gap was covered by tourism revenues which amounted to $4.5 billion, reflecting the importance of tourism to the Croatian economy. Nevertheless, the overall current account on external payments remained negative, amounting to 3.4 per cent of GDP, and external indebtedness rose to $11.2 billion, or 53 per cent of GDP. Yet there were also some positive signs of structural change. While inflation remained subdued, interest rates continued to fall. The rates on short-term credits had fallen below 10 per cent for the first time by the end of 2001. The falling interest rates were in part spurred on by a continuing wave of take-overs of local banks by foreign banks with their much larger capital base, integrating the Croatian financial system into low interest rates of the major European capital markets. At the same time, both industrial production and tourism showed rapid growth. Industrial production grew by 6 per cent, with especially strong growth recorded in shipbuilding, machinery and equipment, and publishing and printing. Tourism in particular was in a state of full recovery. Total tourist nights reached over 43 million, representing a 10 per cent growth over the previous year. Since tourism is effectively an export good, it is a critical factor in Croatia’s economy. In effect, Croatia can earn a rent from the tourist industry, in much the same way that Norway, for example, earns a rent from North Sea oil. This industry also has a strong tendency to recover rapidly from any setbacks. The essential factors are regional peace and stability, and, naturally, good weather, which is virtually guaranteed on the Dalmatian coast during the season. What is lacking is investment in infrastructure, training, and the development of tourist niche specialisms. A key question for the future is therefore whether Croatian entrepreneurs can succeed in developing this prime natural resource in a sustainable way, or whether the sector, following the drive to EU integration, will be opened up to foreign capital and the rents appropriated by owners with little interest in the sustainable growth of the local economy and environment.

1111 2 3 4 5 6 7 8 9 1011 1 2 3111 4 5 6 7 8 9 20111 1 2 3 4 5111 6 7 8 9 30111 1 2 3 4 5 6 7 8 9 40111 1 2 3 44111 45111

5

Social welfare

The constitution of the new Croatia declared the country to be a welfare state. But provision of social welfare had also been a key element of the communist regime in former Yugoslavia, and had to some extent substituted for weak political rights. The social welfare system provided for an extensive system of income transfers, including pensions and family benefits such as child and maternity benefits. Unemployment benefits were relatively weakly developed though, since unemployment was not seen as a typical outcome of the socialist system. In fact, unemployment had reached high levels considering that Croatia was part of a socialist country – in 1989 it was around 8 per cent of the labour force.1 But it was mostly concentrated among young people who had not found their first job – over three-fifths of the unemployed were less than twenty-four years old. Once in a job, it was very unlikely that a worker would be dismissed or made redundant. The social welfare system also provided extensive in-kind benefits in the form of free and universal health services, and free education. There was limited provision of social care services, which although more developed than in the East European socialist states were less developed than in the West. However, the social welfare system as a whole had come under increasing strain due to the economic crisis of the 1980s. The system of social welfare provision that had been developed under the communist regime was distinctive in that it was highly decentralized. Local ‘self-management communities of interest’ had been established at the various tiers of local government. These interest communities brought together the enterprises which were paying social contributions with the provider organizations

122

Social welfare

which were supplying the services (hospitals, schools and so on), to bargain over the appropriate level of contributions and expenditures in the locality, at both republic and local level. The outcomes of this bargaining procedure were formalized in local self-management planning agreements, which provided a contractual basis for the provision of services in each locality. The system was in some respects ahead of its time in introducing market-type elements into the provision of welfare state services.2 After independence the old regime was abolished and the system of financing and organizing social expenditure became much more centralized. However, the exigencies of war, and the collapse of the economy led to much greater demands on the budgets for social expenditure than had been the case under the old regime, and social expenditures began to increase alarmingly.

The rising burden of public expenditure The war of independence had resulted in extensive damage to the basic infrastructure of the Croatian economy. Much of the damage was to hospitals, schools, and the housing stock. Both GDP and living standards fell, and unemployment, poverty, and income inequality increased. Taxes had to be increased to pay for reconstruction, for the large social expenditures, and for the army. At the same time, the war brought about an enormous increase in the pressure on the social welfare system. The new government needed to provide for large numbers of refugees, war invalids, and for the families of those who died in the war (orphans and widows). Hotels were used to accommodate refugees, which contributed to large losses in the tourism industry. The increased political risk of the country led to a dearth of the foreign investment that was badly needed to assist post-war reconstruction and development. One of the most serious problems facing policy makers in Croatia was the high and growing level of public expenditure, particularly in the area of pensions and other social benefits. In the early 1990s, firms began to lay off workers through early retirement as they restructured their operations. The unemployed, together with one million pensioners, over 300,000 refugees and internally displaced persons, and war invalids accounted for 40 per cent of the population, all potentially in receipt of social benefits.

Social welfare 1111 2 3 4 5 6 7 8 9 1011 1 2 3111 4 5 6 7 8 9 20111 1 2 3 4 5111 6 7 8 9 30111 1 2 3 4 5 6 7 8 9 40111 1 2 3 44111 45111

123

The need to pay for the war and maintain a large army also added to defence expenditure, although this began to decline as a share of GDP after 1995. Altogether, government expenditure increased from 39 per cent of GDP in 1991 to 49 per cent of GDP by 1999,3 although most of this increase occurred after the war had ended. Partly this was a consequence of the government’s policy to create jobs in the public administration for demobilized war veterans, but also in a self-defeating attempt to prevent unemployment from increasing. Taxes were increased to unprecedented levels to finance this expenditure, crowding out the formal private sector and encouraging the growth of the grey economy. Despite the increase in taxation the government continued to run a fiscal deficit, and in recent years has resorted to the privatization and sale of some of the most lucrative public utilities to finance the gaping hole in the budget. On assuming power in 2000, the coalition government was faced with the unpopular task of reducing public expenditure, with inevitable adverse effects on the provision of welfare services. The extent to which it was able to avoid such cuts in welfare services depended on the government’s ability to control other aspects of expenditure, especially the defence budget,4 payment to public sector workers,5 and subsidies to the failing larger companies and to the banking sector. This in turn depended on the ability of the interest groups linked to these sectors to influence the government’s expenditure decisions. In 1999 the government spent 26 per cent of GDP on social programmes including education, employment and unemployment, social protection, pensions, health care and post-war reconstruction. The World Bank anxiously reported that expenditure on these items amounted to one half of total government expenditure.6 Two of the largest items of expenditure were on pensions and health care. Expenditure on pensions had increased from 9.2 per cent of GDP in 1994, to 13.5 per cent of GDP in 1999. This increase in pensions was related to the widespread use of early retirement as a way of laying off redundant workers in industries which were bankrupt, or else were going through a process of restructuring. But even so, 47 per cent of pensioners received less than HRK 1,000 per month (about £90). The World Bank report argued that social spending was not well targeted on the poor.7 It pointed out that, for example, although the poor

124

Social welfare

comprised 8 per cent of the population, they only received 2.5 per cent of the health expenditure benefits. Finance Minister Mato Crkvenac submitted a draft of the second budget of the new government in November 2000.8 Tax cuts, fiscal decentralization, slashing of public spending in relation to the Gross National Product and flexibility towards the socially most endangered segment of the population were the basic tenets of the budget. The government forecast total public expenditure of HRK 59 billion compared to forecasted budget revenues of HRK 53 billion. Given the commitment to cut taxes it was almost inevitable that the forecast budget deficit would have to be covered by new borrowing. But at the same time expenditure would be under enormous pressure to increase because: ‘we need to finance the reform of the health and the pension insurance systems, repay huge debts from the past and keep the budget at almost the same level as this year after the budget revision’.9 In supporting the draft budget, Prime Minister Raãan said: This government passes or falls on the policy it can cover with real funding. Taking into account that there are numerous additional, even justified, needs, we can add to public spending only if we find other sources or reduce allocations for some items in the plan. Anything else is unfeasible. This must be borne in mind by all members of the Government when discussing the budget, but also by all deputies. Therefore, I expect Parliament to make an additional contribution to reducing the budget.10 In order to support high levels of public expenditure the government was forced to rely on the privatization of banks and public utilities. The sale of the most valuable state enterprises including Croatian Telecom, the Split and Rijeka banks, shares of Croatian Insurance, the oil and gas company INA and Croatian Electric were all planned. Although privatization did not yield as much revenue as expected, the goverment succeeded in cutting public expenditure to 44 per cent of GDP in 2001, its second year in office. As a result, the overall budget deficit was kept down to 2.4 per cent of GDP. But due to the need to maintain social payments, the cuts fell mainly on capital expenditure, undermining future growth.

Social welfare 1111 2 3 4 5 6 7 8 9 1011 1 2 3111 4 5 6 7 8 9 20111 1 2 3 4 5111 6 7 8 9 30111 1 2 3 4 5 6 7 8 9 40111 1 2 3 44111 45111

125

Poverty, income inequality and income support After years of war and economic crisis it was hardly surprising that serious problems of poverty and income inequality had developed. By the time the Raãan government came to power it was estimated that about 8 per cent of the population was living in absolute poverty, measured in terms of the Croatian national poverty line figure of HRK1,290 per person per month (about £100).11 The World Bank used a lower figure of $133 per month per person (about £83), and on this basis argued that ‘only’ 4 per cent of the population were living in absolute poverty. Whatever the figures, there is no doubt that poverty in Croatia has increased dramatically in comparison with the period before the independence war. In comparison with previously achieved living standards, large numbers of people have experienced a decline in well-being. Even if not living in a technically defined state of ‘absolute poverty’, many people would nevertheless describe themselves as ‘poor’. Behind the statistics, the reality of poverty is felt by unprecedented numbers of people. The benefits of what little growth took place under the HDZ regime accrued to a small elite, while the vast majority of the population saw their incomes stagnate or decline. Increasing numbers of people lost their jobs and either joined the grey economy or became unemployed. Workers trapped in the grey economy have suffered from poor working conditions, and their social contributions have not been paid. Even those in regular employment often found that their wages were delayed, and their social contributions in some case also went unpaid. Those with no work or income opportunities were left with insufficient levels of social protection. This eventually was a major cause of the increased unpopularity of the HDZ regime and its eventual defeat at the polls at the beginning of 2000. The findings of an in-depth study of living conditions and poverty in Croatia were set out in a report by the World Bank.12 Its report identified two distinct groups of people who were most at risk of poverty which it referred to as the ‘old poor’ and the ‘new poor’. The old poor includes long-term unemployed, single mothers and handicapped people. The new poor includes low paid workers, pensioners and small farmers. The risk of being in one of these groups of poor people was found to be particularly related

126

Social welfare

to old age, unemployment and low levels of education – the main ultimate causes of poverty in Croatia today. Pension levels are so low that as many as half of all pensioners receive pensions that are below the poverty line. Almost a quarter of retired people do not receive any pension at all, and around two-fifths of poor people live in households whose head of household is retired. Unemployment in Croatia is high and increasing. It also has a regional dimension, being severe not only in rural areas but in some badly affected urban areas such as Split and Osijek. Because few new jobs have been created since independence, many unemployed people have become trapped in longterm unemployment and their skills have fallen behind the times. Insufficient job generation is thus a major cause of poverty. In addition, many workers are employed in firms that are technically bankrupt and fail to pay wages to their employees. It is estimated that as many as 170,000 workers were in this situation in March 2000.13 The World Bank report found that almost threequarters of poor people live in families whose head of household has only primary level education or less.14 Farmers have a high poverty risk partly because they are poorly educated. Poverty is also worse in rural areas, especially in rural Slavonia and in the Krajina regions. Although social assistance benefit is provided to households which are in poverty, many poor people rely on family solidarity to survive. It would not be an exaggeration to say that most poor people in Croatia rely on the family as the main source of social assistance. Between 1993 and the end of 1997, social assistance was given to eligible people who had been registered for a ‘social card’. The amount of assistance was related to the minimum wage, and in 1996 was HRK 270 per month (less than £30). Its amount is related to the minimum wage, being 90 per cent for a one-member household, rising to 270 per cent for a four-member household (i.e. less than 70 per cent of the minimum wage per family member). However, the possession of a social card also gave entitlement to a number of in-kind benefits as well as cash social assistance. By 1995, nearly 110,000 social cards had been issued and almost 240,000 individual family members benefited from the scheme. Most social cardholders were unemployed, pensioners and invalids and others incapable of work, although a large number of low paid workers also benefited from the scheme.

Social welfare 1111 2 3 4 5 6 7 8 9 1011 1 2 3111 4 5 6 7 8 9 20111 1 2 3 4 5111 6 7 8 9 30111 1 2 3 4 5 6 7 8 9 40111 1 2 3 44111 45111

127

But the value of social benefits was low and food kitchens were set up for the poorest people. By 1996 seventeen of these public kitchens were providing 3,615 meals per day.15 The system was reformed in 1998 with the introduction of a new Law on Social Welfare. This law ended the use of social cards, and severed the link between social assistance payments and the minimum wage and introduced a poverty baseline set at HRK 350 per month. Eligible single people received cash assistance at this level, while family members received supplementary payments at a lower percentage of the poverty baseline. Individuals in need could apply to Centres for Social Work for help with paying for essential items such as utility bills. In addition, child and family allowances accounted for 5 per cent of all social spending. But, owing to the deterioration in the economic situation, the new government suspended the payment of child benefits in 2000. Overall there were fewer beneficiaries under the reformed system,16 and the range of benefits was reduced. Inequality has also increased dramatically, well in excess of the level observed in other transition economies in Central Europe.17 At the top end of the scale a small elite consisting of tycoons and others with political connections has obtained high incomes from unproductive entrepreneurship. There are relatively few active small firms in comparison with other East European countries, and they employ relatively fewer workers. For example, the share of employment in small firms in Croatia is around 6 per cent compared to over 15 per cent in Poland. A restricted and privileged elite of business people have been able to capture ‘rents’ or excess profits by virtue, often, of connections and a privileged position vis à vis the authorities. According to World Bank estimates, the self-employed in Croatia earn two and a half times the average salary, which is a much higher premium than that found in other East European countries (in Hungary the premium is only 40 per cent).18 About one-half of all inequality (and one-third of all incomes) is accounted for by the high earnings which can be achieved from entrepreneurial activities and from the informal sector (including income from self-employment, additional earnings, freelance income and profits). The World Bank suggests that the high premium observed in Croatia is probably due to entry barriers and corruption.19 While low-level administrative corruption is not such

128

Social welfare

a problem in Croatia compared to other East European countries, high-level corruption is much more of a problem.20 Hellman, Jones and Kaufmann suggest that this is the result of ‘state capture’ which they define as the ability of entrepreneurs to influence court procedures and government policies through connections with political parties. Although low-level corruption is less prevalent than in some other countries it nevertheless exists. For example, according to the World Bank report,21 invalidity pensions can be obtained by bribery or through connections. War veterans obtain benefits, whether or not they are poor. But, overall, it seems that ‘petty corruption’ is largely under control in Croatia.

Pensions and pension reform Due to transition, war and the break-up of the country, businesses in Croatia have been more adept at laying off workers than in creating new jobs. As a result, unemployment increased in almost every year since independence and by 2000 Croatia had one of the highest unemployment rates in Central East Europe.22 On the basis of data provided by the Labour Force Survey unemployment stood at about 15 per cent in 2001. Officially recorded unemployment was even higher: according to the statistics of the Employment Office, registered unemployment in Croatia had reached almost 24 per cent at the beginning of 2002.23 The decreasing number of people in regular employment has reduced the revenues flowing into the Pension Fund and brought about a growing Pension Fund deficit. To compensate for this, social contributions, which are a tax on labour, are higher in Croatia than in the average of Central East European countries.24 This in turn has increased labour costs paid by employers and has reinforced the pressure on them to cut employment, or employ workers unofficially. This has led to a growth of the grey economy, and a consequent reduction in the tax base. Croatia has also faced a severe crisis in the provision of adequate pensions to retired people. Since independence, the number of retirees had grown dramatically. This has not just been due to the rapid growth of the elderly population, but also to the practice of using early retirement as a means to lay off redundant workers. The former factor has been a common phenomenon throughout

Social welfare 1111 2 3 4 5 6 7 8 9 1011 1 2 3111 4 5 6 7 8 9 20111 1 2 3 4 5111 6 7 8 9 30111 1 2 3 4 5 6 7 8 9 40111 1 2 3 44111 45111

129

Europe,25 while the latter factor has been specific to countries in transition. In Croatia, layoffs of redundant workers were particularly severe in 1991 and 1992 when a quarter of a million people lost their jobs. Many of those took early retirement or were given disabled persons pensions.26 Altogether, the number of pensioners increased from almost three-quarters of a million in 1991 to over one million in 2000.27 Consequently retired people now make up nearly a quarter of the whole population, a situation which has been called ‘probably an unprecedented phenomenon anywhere in the world’.28 The growth in the number of pensioners combined with the reduction in the number of employees has led to a dramatic reduction in the dependency ratio, which indicates the number of employed people available to support each pensioner. This ratio almost halved from 2.56 employees per pensioner in 1991 to just 1.36 employees per pensioner in 2000.29 At the same time the size of the Pension Fund has shrunk partly due to economic recession, but also due to the growth of the grey economy and the evasion of employees’ social contributions by employers. This behaviour was not just confined to small employers, but was also typical of the largest companies. In consequence, up to 30 per cent of the expenses of the Pension Fund has had to be funded directly from the state budget. The special rights granted to categories of beneficiaries such as war pensioners has further stretched the pension fund. The increase in expenditure and the simultaneous decline in revenue has brought about a huge deficit in the Pension Fund from a surplus of HRK 479 million in 1994 to a deficit of HRK 8.9 billion in 2000. The crisis was reached such proportions at one point that in April 1999, pensions were paid a month in arrears. The Pension Fund received HRK 12.5 billion (about £10 billion) from privatization proceeds. Usually it held only a minority holding in the companies involved and it had little expertise in assessing their efficiency and thus exerted little influence on the performance of its share portfolio. Some of the companies it owned went bankrupt, and the capital value of the Fund’s shares in those companies was wiped out. The Fund did not have the capability to manage its shareholding properly, and part of the shares were sold and used to pay current benefits. By 1999 the value of the Fund’s shares had fallen to less than £1 billion. Dividend income was negligible, and more money was raised from the sale of shares than through receipt of dividends.

130

Social welfare

Table 5.1 Pension Fund surpluses and deficits 1994 Surplus/ 479 deficit (HRK million)

1995

1996

1997

1998

1999

2000

–141

–875

–2,773 –5,456 –8,199 –8,926

Source: National Bank Bulletin, IV/38, May 1999, Table I1 and VII/67, January 2002, Table I1. Author’s calculations.

Both wages and pensions had been frozen in 1993, and thereafter increases in pensions were limited by indexation to prices, rather than earnings as they had been in the past. Pensioners’ living standards thus fell further and further behind those of employees. Legal challenges by the pensioners’ associations resulted in a partial re-indexation on prices in 1998, but as we have seen, pensioners were still at a high risk of living in poverty. According to one survey,30 pensioners’ families had an average income in 1997 of only HRK 1,800 per month (about £160) compared to average food and housing costs of nearly HRK 2,000. Almost onefifth of pensioners had household incomes below HRK 1,000. New reform proposals were urged on the government by the World Bank and were incorporated in the Pension Insurance Act passed by the parliament in July 1998. The pensionable age was raised to sixty for women and sixty-five for men. The contribution period relevant for the calculation of pensions was increased from the previous ten most favourable years to cover all of an individual’s contribution years, and lower pensions were introduced for those taking early retirement. In early 1999 the Pension Fund was converted into a Western-style investment fund with the intention to create, for the first time, a proper management structure for the Fund’s portfolio of shares. The value of the Fund was to be supplemented over the following years by the receipt of onethird of the revenue from the privatization of public utilities. The new pension system was built on three ‘pillars’. The first pillar was a continuation of the existing ‘pay-as-you-go’ system funded through current contributions and paying out a minimum basic pension to all eligible contributors. This component was

Social welfare 1111 2 3 4 5 6 7 8 9 1011 1 2 3111 4 5 6 7 8 9 20111 1 2 3 4 5111 6 7 8 9 30111 1 2 3 4 5 6 7 8 9 40111 1 2 3 44111 45111

131

intended to fund three-quarters of pension expenditure. The second pillar was a compulsory fully funded individual pension account. Pensions related to this pillar were made dependent on the performance of the investments held in an individual’s pension account. The proposals envisaged that employees’ contributions would be divided into two parts. The first part (levied at a rate of 16.5 per cent of wages) would be paid into the pay-as-you-go fund for existing pensioners, and the remaining part (levied at 5 per cent) would go into the second pillar fully funded individual pension scheme. Finally a third pillar was to be introduced which would be a voluntary individual pension account designed to top up the basic pension which itself was derived partly from the pay-as-you go element and partly from the compulsory savings element. The intention was to eventually reduce the scope of the pay-as-you-go burden on the pension fund. The second and third pillars of the new pension system were to be privately managed by newly established private pension funds. Individuals would be able to choose which company they would invest their contributions in and would thus manage their pension investment account. The law on the second and third pillars of the pension reform was passed in May 1999. This element of the reform involved a move away from the state as the only provider of pensions by permitting private companies to become pension providers for the first time, and it was envisaged that seven or eight such companies would be established. The law set out the structure of investment funds that would manage individual pension accounts, and stipulated that the government would make supplementary payments into the voluntary third pillar of the scheme up to a maximum of HRK 1,250 per person. Critics argued that more administration would be needed to record the individual contributions to the investment funds, that there had been little experience of administering an individual contribution system, and that there would be high transitional cost of implementing and administering the reform. Under the new system, which was eventually introduced in January 2002 after some delays, all employees less than forty years old were required to become members of one of the four private pension funds which had been established by various banks and insurance companies.31 Employees aged between forty and fifty years were able to choose whether to join the fully funded scheme.

132

Social welfare

But critics argued that it would be difficult to make a smooth transition to a fully funded pension system since the Croatian financial system was unstable and was not integrated into the global capital markets. There was also a need for a prior reform of the capital market, since there were not enough investment instruments in Croatia for the second pillar to place its investments in. In addition, the new pensions investment companies would only be allowed to invest up to 15 per cent of their funds abroad. The critics also argued that the timing of the reform was ill-chosen, and it would have been better if it had been introduced when the economy was growing. Moreover, it should have been based on a consensus of opinion and not imposed from above.

Health The beginnings of a national health service in Croatia were made in the early years after the end of the First World War when a Croatian physician, Dr Andrija ·tampar, obtained support from the Rockefeller Foundation to establish a public health research institute in Zagreb. ·tampar established a national system of public health services throughout the new state to combat epidemic diseases such as typhus, malaria and smallpox that were endemic at the time. After the Second World War the communist authorities established a national health service based on social insurance principles. By 1965, about four-fifths of health expenditure was financed by local workers and farmers insurance associations. After the implementation of the 1974 constitution these associations were transformed into highly decentralized local health authorities known as ‘self-managing communities of interest’. They were managed by boards consisting of representatives of local enterprises that paid health insurance contributions on behalf of their workers, and health services employees engaged in the delivery of the services. Hospitals were included in the system of social ownership, and self-managed by their own employees. The system of local financing meant that the central government retained little control over the total expenditure on health services, but in practice health costs were modest by international standards. Public health expenditure in socialist Yugoslavia amounted to just 4.1 per cent of GDP in 1984, compared to 5.4 per cent in

Social welfare 1111 2 3 4 5 6 7 8 9 1011 1 2 3111 4 5 6 7 8 9 20111 1 2 3 4 5111 6 7 8 9 30111 1 2 3 4 5 6 7 8 9 40111 1 2 3 44111 45111

133

the UK.32 Nevertheless, despite criticisms, a well-functioning universal national health service had been built up during the socialist period. The University of Zagreb had an internationally respected medical school and the population of Croatia in particular was well served with qualified medical practitioners. All the major towns had general hospitals, and there were also a number of specialist hospitals. It was therefore all the more tragic when, during the war for independence, great damage was inflicted on the infrastructure of the Croatian health service. Altogether, twenty-nine hospitals and three rehabilitation centres were destroyed. The health service lost almost 3,000 beds and in consequence the number of beds per thousand population decreased from 7.3 to 5.4. There was also enormous amount of damage to medical equipment. The pressure on the health service grew enormously during and after the war, since almost 30,000 people had been wounded in armed conflict, many of who required intensive medical treatment and in many cases amputation of limbs. A fundamental reform of the health care system was introduced through the Health Care Act of 1993 which brought the previously socially owned hospitals into public ownership. Teaching hospitals were transferred to state ownership while general hospitals were transferred to county ownership. Hospital management remained semi-autonomous, run by boards comprising not only representatives of the state but also employee representatives. The 1993 reform also envisaged a partial privatization of primary health care. General practitioners were allowed and encouraged to lease their premises from the state and to enter into contracts for the provision of their services. In less developed and war affected areas premises were leased to general practitioners free of charge in order to encourage a greater number of physicians into those areas. Doctors who did not choose to take up the opportunity to lease their premises ended up working in health centres owned and operated by the municipalities on a salaried basis. By the end of 1993, over 400 private medical practices had been set up under the leasing system, and the number increased to reach over 600 by 1995. By 1997, over 30 per cent of general practitioners were operating a private practice, either as sole practitioners or in group practices. The share of expenditure spent on primary care increased from 15 per cent to 18 per cent

134

Social welfare

in 1997, in line with the new emphasis on developing a primary care-led health service. The 1993 Act confirmed the continuing intention to offer a universal health care service provided free at the point of delivery. Health care is financed through the Croatian Health Care Fund which receives its income from payments of contributions from employees’ wages (in 1999 this was set at 18 per cent of gross salary). The health insurance contributions of pensioners and children are paid by the state, while the counties pay the health insurance contributions of unemployed people and those who are earning less than the minimum wage. A central administration known as the Croatian Health Care Institute (CHCI) was established to manage the Fund in an attempt to impose greater control over health expenditure and costs. There are a number of voluntary private health schemes that provide some additional benefits for their members, but there are as yet no comprehensive private insurance funds. One of the main tasks of the CHCI is to negotiate service contracts with health care providers including both hospitals and general practitioners. The secondary care contracts negotiated with hospitals set out the services which they are expected to provide, and the quality standards they should meet. The payments specified in the contracts cover the costs associated with the contracted number of beds, the hotel costs of care, staff salaries, the cost of drugs and a fee-for-service element. The latter is based on a points system that covers as many as 90,000 separate medical procedures. The primary care contracts negotiated with general practitioners by the CHCI are based on a mix of capitation payments and fees-for-service. But the new system failed to contain health care costs as had been intended and health care expenditures rose rapidly. By 1999 Croatia was spending 7.2 per cent of GDP on public sector health care, a higher amount than the average central and eastern European average of 5.2 per cent, and close to the EU average of 8.3 per cent. But maintaining this level of provision was hardly sustainable. The Fund was running a deficit amounting to HRK 3.8 billion, or 2.7 per cent of GDP. According to the dire warning given by the World Bank ‘Croatia’s health system is at a critical and unstable point, with its health finances haemorrhaging and its care delivery system under strain’.33 Part of the problem has been

Social welfare 1111 2 3 4 5 6 7 8 9 1011 1 2 3111 4 5 6 7 8 9 20111 1 2 3 4 5111 6 7 8 9 30111 1 2 3 4 5 6 7 8 9 40111 1 2 3 44111 45111

135

the reduction in income linked to the economic recession. Since the Fund’s income was based on employee contributions, the decrease in employment caused an automatic reduction in the revenue collected by the Fund. Moreover, increasing numbers of companies in financial difficulties were simply refusing to pay their required contributions. Some of the politically favoured tycoon companies would prefer to preserve their profits rather than pay their employees’ health insurance contributions. Part of the solution therefore was to promote economic recovery and job creation, and an imposition of financial and fiscal discipline on the business sector. But a further cause of the financial problems was a lack of effective control of health expenditures. Since 1990 the cost of drugs had increased dramatically, absorbing 25 per cent of the health care budget in 1997 (compared to only 7 per cent in 1990). This was partly the result of the elimination of subsidies after the liberalization of the economy, but it was also due to the monopoly pricing practices of the drugs companies, and the lack of control over doctor’s prescribing practices. In addition the Fund was also responsible for paying for the health care of the general population, not just those who had contributed to it, and for a range of social benefits such as sick pay and maternity leave which should more logically have been the responsibility of central government budget.34 Consequently the World Bank called for a further series of reforms in the health sector to deal with these problems. However, the essential problem was the rapidly falling income of the Fund due to the economic recession. In summary, the health system has become more centralized since independence than it was before, as previously locally managed hospitals have been brought into state ownership. The need to rebuild hospitals destroyed in the war, and the number of war injured people has put an increased pressure on the health care system. The family doctor service has been partly privatized, and many general practitioners now lease their premises and conclude contracts with the state for the provision of health care services. Some quasi-market arrangements have been introduced in primary care, in that patients have a choice of family doctor, and co-payments for medicines are increasing. However, there are no plans to privatize hospitals. Health care remains a critical area of public policy since employees’ health contributions are an increasing burden on employers and have contributed to the

136

Social welfare

growth of the grey economy. Despite the increase in health contributions, doctors complain of low salaries and many have left to work abroad.

Education The Croatian education system has four levels: pre-school education from the ages of three to six; basic education between six and fourteen; secondary education between fourteen and eighteen and tertiary education for age eighteen and over. The education system is state funded and regulated. At present there are almost half a million pupils studying at 881 basic schools, almost all of whom enter secondary education. Secondary education consists of academic gymnasiums and two types of vocational schools. One vocational programme lasts for four years and covers fields such as mechanical and electrical engineering, chemistry, agriculture, health care and economics. The other vocational programme lasts for three years and provides craft training with a high practical component. The classical craft curriculum has been supplemented since 1995 by the introduction of a second type of curriculum based on the German dual system of education, which involves practical work placement and apprenticeship in a craft firm preparing pupils for careers such as electrician, carpenter, plumber or builder. The general knowledge component of the craft programmes is regulated by the Ministry of Education and Sport, while the Ministry of Craft and Small and Medium-Sized Enterprises regulates the hands-on practical component of the new dual system curricula. The Ministry of Crafts also regulates the apprenticeship training in the craft workshops in cooperation with the Chamber of Crafts. The dual system was introduced in twelve counties in 1995 and was rolled out to all twenty counties within three years. By the 1999–2000 school year almost 6,000 pupils were being enrolled in the programme each year. The Chamber of Crafts evaluated the new programme and was broadly supportive of it but pointed to the need for more funding to properly equip school workshops.35 While the basic and secondary level education systems are effective in providing a good basic education for most pupils, the tertiary level of education has more severe problems. The country’s

Social welfare 1111 2 3 4 5 6 7 8 9 1011 1 2 3111 4 5 6 7 8 9 20111 1 2 3 4 5111 6 7 8 9 30111 1 2 3 4 5 6 7 8 9 40111 1 2 3 44111 45111

137

four universities (Zagreb, Rijeka, Split, Osijek) and sixty-six institutes of higher education are formally autonomous but in practice are closely regulated by the Ministry of Science and Technology. This ministry, together with the University Administrative Council which is appointed by the parliament, controls the election of all university heads and many aspects of the decision-making process. There is therefore ample scope for political intervention in university affairs. In practice, faculties are quite autonomous from central university administrations, which makes effective strategic planning at university level difficult. The system is so poorly funded that according to the European Training Foundation it is the worst financed in the whole of Europe. The system suffers from numerous problems including a high drop-out rate. While 26,000 students enrol for university studies each year, only about 10,000 complete their degree programme. The average length of study is seven years for a four-year programme since students are permitted to take their exams at times of their own choosing, and to repeat if they fail. Lecturers and researchers are poorly paid and there is a lack of transparency in the distribution of research funds within universities and their faculties, equipment is badly maintained and often obsolete, and there are great difficulties in providing an adequate core of up-to-date books and journals in the libraries. Despite this, Croatia has managed to maintain an international reputation in several fields, especially in medicine which has maintained the high standards introduced by Andrija ·tampar in the 1920s. However, overall the system is in a state of acute crisis and is failing to deliver the levels of education, training and research needed to propel the economy on to a new path of rapid growth. As Ivan Supek, a member of the Croatian Academy of Sciences and Arts, put it in an interview with Veãernji list in the autumn of 2000: The sciences today are at a lower level than they were during the communist regime. For example, the Rudjer Bo‰koviç Institute, which I helped build, was one of the best institutes in Europe in the Sixties. Today, it is in a sorry state . . . Tudjman left behind a very centralized state with a bulky bureaucratic apparatus, army and police . . . in this way he provided a very good livelihood for all these people, giving them good positions and thereby forming a new class of quasi

138

Social welfare

politicians who did nothing much but carry out his orders. The current government must get rid of this legacy of Tudjman’s state and create a new modern state . . . We must create the conditions for a modern economy and for the inclusion of Croatia in world trade ourselves. Firstly, we do not have large quantities of raw materials, energy supplies or even people. We cannot develop mass production with which to capture the world market. What is valuable is that we are a very pretty country, which gives us a chance in tourism, but this is seasonal and does not employ large numbers of people. Therefore, we must develop industry and science because the wealth of the West lies in the conjugation of these two fields. We must create a sophisticated industry which does not need much raw material or power supplies, but which needs intelligent people. Our priorities must be education, sciences and culture and this government is doing very little in all these fields. It is as if they have no vision of a new Croatia.36 A reform of the tertiary education system was attempted between 1993 and 1996 following the introduction of the Law on Scientific Research Activities and the Law on Higher Education. The tertiary system was separated into vocational and nonvocational studies. The aim was to reduce enrolment pressures at universities by establishing a system of vocational studies at polytechnic institutes, and to give a boost to vocational training and life-long learning. Some previously independent research institutes were also brought into direct government control. It seems likely that the reforms were driven as much by the need to reduce public expenditure in this field as to transform the system into a more efficient and effective provider of high quality training and research.37 Most worryingly, the expenditure on research remains well below European averages. Moreover, partly due to Croatia’s isolation from pan-European higher education exchange and research programmes there has been little opportunity for Croatian researchers to benefit from sufficient transfer of technology and know-how. Croatia was effectively subject to EU sanctions in this field until very recently and only admitted to the EU TEMPUS programme which promotes East–West European cooperation between universities in 2001. Her universities will be hard pressed to catch up with their East European competitors

Social welfare 1111 2 3 4 5 6 7 8 9 1011 1 2 3111 4 5 6 7 8 9 20111 1 2 3 4 5111 6 7 8 9 30111 1 2 3 4 5 6 7 8 9 40111 1 2 3 44111 45111

139

who are more deeply involved in international academic and research networks.

Housing The new Croatian state had inherited a mixed housing tenure from the communist period. Just as in agriculture a large private housing sector had continued to exist especially in the rural areas. Many families had built their own second homes in the countryside or on the coast and islands, known as vikendica. Along with the large private sector there was also a public housing sector which consisted of various forms of socially owned housing managed by companies, local authorities and the Yugoslav army. One of the first reform acts of the new government was to initiate the privatization of social housing which began in 1991, in part designed to raise money for the budget, but more importantly as a practical means of both ensuring popular support and a relatively quick and easy way to propel the new ideology of the private ownership market economy. Tenants of socially owned apartments and houses were permitted to buy the unit they occupied with very favourable discounts of up to 70 per cent of the property value. Even larger discounts were offered if payment could be made in full or in foreign currency.38 The discounts depended on the length of tenure and the family circumstances. Buyers with three or more children and war victims were given a specially favourable discount.39 The privatization policy was popular and over 300,000 houses and apartments, half the socially owned housing stock, were sold off during the 1990s, most of them within three years of the introduction of the privatization policy. Not surprisingly, the best part of the stock was sold, and consequently the units which remained in public ownership represented the least desirable and worst managed parts of the housing stock. Much of this remaining public housing stock is in the hands of local authorities with a protected rent, and in some cases subsidized utility costs as well. In larger cities, some limited programmes for the construction of new social housing have been developed. About one in every eight houses had been destroyed or damaged during war. The damage was highly concentrated in the regions of Slavonia, Krajina and Dalmatia where the worst fighting had taken

140

Social welfare

place. The most notorious example of destruction was in Vukovar, but many other small towns and villages had been badly damaged and in the worst cases had been razed to the ground. A large programme of reconstruction of housing in the war affected areas was carried out, aimed at repairing and rebuilding damaged housing in the worst affected villages. Usually this involved restoration of the basic fabric of the dwellings, repairing the roof and ensuring the provision of utilities. Proceeds from the sale of socially owned housing boosted the state budget and were channelled into the rebuilding of houses and infrastructure damaged during the war.40 Even in areas which had not been directly affected by the war there was an increased pressure on housing stock from refugees and displaced people. There were also numerous instances of forced transfer of property, especially of apartments whose tenants were members of, or had relatives in, the Yugoslav army. The housing privatization policy was not carried out in the Serbcontrolled Krajina region, and the right to purchase property on the basis of acquired occupancy rights resulting from previous tenancy of a socially owned apartment was abolished towards the end of 1995. Since most of the Serb population of the Krajina had fled the country during the Oluja offensive, they effectively lost their right to purchase the property they had been living in, supposing that they were willing or able to return. The Organization for Security and Cooperation in Europe (OSCE) estimated that Serb tenants lost their occupancy rights to some 50,000 properties, although the Croatian Helsinki Committee for Human Rights argued that not all the former occupants actually wished to return and probably only around 10,000 to 15,000 people were likely to request to return to their former apartments. Many had emigrated to other countries such as Australia and are never likely to return. Whatever the truth of the matter, the issue has become one of great contention. The facilitation and promotion of refugee return is one of the conditions of the Stabilization and Association Agreement which Croatia has signed with the EU, and the inability of former Serb tenants to purchase their old homes is a serious obstacle to further deepening of Croatia’s relationship with the EU. In many cases their former homes have been occupied by Croatian families who have lost their homes elsewhere in the republic, making the whole issue one of intense personal and social anguish in addition to the political heat and controversy which it has generated.

Social welfare 1111 2 3 4 5 6 7 8 9 1011 1 2 3111 4 5 6 7 8 9 20111 1 2 3 4 5111 6 7 8 9 30111 1 2 3 4 5 6 7 8 9 40111 1 2 3 44111 45111

141

The housing shortage has also been exacerbated by the general deterioration in economic conditions. Owing to the fall in incomes and the weak state of the economy, relatively few new homes have been built compared to former years. On average more than 20,000 new dwellings were constructed annually in the 1980s. But between 1992 and 1995 less than 10,000 new dwellings were constructed annually, and although there was a recovery in new construction as the economy began to recover in the post-Dayton period, even in 1998 only 12,500 new dwellings were completed.41 In some cities, especially Zagreb, there is a housing shortage which has driven up prices, but elsewhere housing costs are low. Since 1998 a German-style housing savings programme has been introduced, in which savers receive a 25 per cent subsidy from the state.

Refugee return and the problem of social exclusion By the beginning of 1995 Croatia was struggling to care for 383,000 displaced persons and refugees who had lost their homes and their livelihoods during the war. These included 195,000 persons, mostly ethnic Croats, who had been displaced from the Serbian rebel areas in the Krajina and Slavonia (the UNPAs) in 1991, as well as 188,000 Bosnian Croat and Muslim refugees from Bosnia-Herzegovina. Most were accommodated in private homes, while some were accommodated in hundreds of refugee centres which included hotels, workers’ holiday homes, disused military barracks as well as new refugee settlements. The EU, the UN High Commission for Refugees, the International Federation of the Red Cross and the International Islamic Relief Organization all provided food aid. The government Office for Displaced Persons and Refugees organized the distribution of aid and accommodation. State-funded Centres of Social Work run by social workers, psychologists, special-education teachers and lawyers became very involved in organizing assistance for refugees and displaced people. Numerous Non-Governmental Organizations were set up by feminist organizations, and others, responding to stories of rape and harassment of women. Public kitchens were organized in many towns and villages by the Catholic Church.

142

Social welfare

Return of Croatian Serb refugees to Croatia Under the Dayton peace agreement the Croatian Serbs from the Krajina and western Slavonia were guaranteed the right to return to their homes. But the implementation of this agreement was agonisingly slow. An Amnesty Law was passed in 1996 that lifted the threat of prosecution against Serbs who had participated in the armed revolt against Croatia. The law applied to all Croatian Serbs apart from those who had committed war crimes.42 Trust Committees were set up to foster the reintegration of the Croat and Croatian Serb communities but unfortunately these attempts at reconciliation had little effect. The HDZ government had little real interest in encouraging the return of the Serbian refugees to the Krajina. Senior members of the government made it quite clear that returning Serbs had few rights in the HDZ’s Croatia, and discriminatory clauses were introduced in the Law of Regions of Special State Interest and the Law of Refugee Return.43 The HDZ government argued it was doing all it could to facilitate the return of refugees. However, critics argued that in practice the government was implementing the law in such a way as to discourage the return of refugees. The OSCE mission in Croatia was vocal in pointing out the impediments to refugee return. It claimed that refugees found it difficult to regularize their status, to access social benefits, and to repossess their property and that they suffered from unequal access to reconstruction assistance.44 Housing commissions were established in 157 municipalities to supervise the process of refugee return, but the overwhelming majority of repossession orders were issued in favour of Croats and against ethnic Croatian Serbs. Local authorities often refused to implement eviction orders against Croats who had occupied houses of Croatian Serbs who had fled the region. The government’s reconstruction programme financed the rebuilding of houses belonging to Croats, and not those belonging to Serbs. Serb returnees found it difficult to obtain welfare benefits, including pensions and invalidity benefits, which made it much more difficult for them to return to their abandoned homes, and they had little prospect of finding employment there if they did manage to return.45 Often they also had difficulties in establishing citizenship or procuring the necessary documentation to enable their return to Croatia. A refugee return agreement was signed with the govern-

Social welfare 1111 2 3 4 5 6 7 8 9 1011 1 2 3111 4 5 6 7 8 9 20111 1 2 3 4 5111 6 7 8 9 30111 1 2 3 4 5 6 7 8 9 40111 1 2 3 44111 45111

143

ment of the Federal Republic of Yugoslavia (FRY) in April 1998, but similar practical obstacles were put in the way of the Croatian Serb refugees who wished to return to Croatia from FRY. Among the obstacles to return was discrimination in the application of regulations concerning property repossession. Under pressure from the EU, the Croatian government passed a series of laws and regulations on the return of refugees. A Programme for the Return and Accommodation of Displaced Persons, Refugees and Exiled Persons was adopted in June 1998. The plan was designed to assist Croatian Serb refugees living in Republika Srpska and FRY to return home to Croatia. The resumption of normal relations with the EU and assistance in reconstruction efforts was made conditional on the successful implementation of the plan. A Croatian Office for Displaced Persons and Refugees was set up and it worked closely with the United Nations Commissioner for Refugees to facilitate refugee return, providing for two convoys per week from FRY and Bosnian Republika Srpska into Croatia. The first organized returns of Croatian Serbs to Croatia did not take place until the end of 1998, and by the end of 1999 only about 38,000 Croatian Serbs had returned to Croatia from Republika Srpska and FRY, mainly to the Krajina region.46 The rest languished in often poor conditions in various parts of Serbia.47 Their position was complicated by the fact that many of the Bosnian Croat refugees who had earlier fled BosniaHerzegovina, as well as Croats displaced from other parts of Croatia, were settled in the homes of the Croatian Serbs who had fled the Krajina in the wake of the 1995 Oluja offensive. Many refugees chose not to return to Croatia while the HDZ government was in power. The unwillingness of the Croatian government to actively assist their return to Croatia was heavily criticized by the international community who interpreted this as further evidence that the Croatian government was positively hindering and discouraging the return of the Serbian refugees.48 This was one of the main reasons why the European Commission refused to allow Croatia to participate in EU programmes such as the PHARE and TEMPUS and, more importantly, blocked Croatia’s participation in the process of EU enlargement. The international community treated the problem as if it were a simple matter of restoring the status quo ante. Yet in practice as already indicated,

144

Social welfare

many dwellings were occupied by people displaced from other areas and so a complex chain of displacements and relocations had to be unwound. On the other hand, the blocking of refugee returns in the opposite direction received less international censure. At the end of 1999, there were still 22,500 registered refugees from BosniaHerzegovina and elsewhere living in Croatia. Of the 16,000 Bosnian Croat refugees living in Croatia in 1999, the UNHCR estimated that 14,500 wished to return to their homes in BosniaHerzegovina.49 Despite the existence of an agreement between the two governments, only 142 had done so. But this did not prevent the European Commission from opening the PHARE and TEMPUS programmes to Bosnia-Herzegovina. Most of the many thousands of internally displaced persons in Croatia returned home by the end of 1999. Others had deregistered themselves and integrated into new communities or emigrated. As many as 47,500 ethnic Croats had returned to eastern Slavonia, while 30,900 Serbs previously displaced into eastern Slavonia returned to their places of origin elsewhere in Croatia.50 Altogether, over 106,000 refugees and displaced persons were officially recorded as having returned to their place of origin since the 1995 Dayton Agreement. But, by the end of 1999, the proportion of ethnic Serbs in the Croatian population had fallen to just 4 per cent compared with 12 per cent in 1991. At the start of 2000, the new President, Stipe Mesiç, announced that the return of Croatian Serb refugees would be a priority of the new government. A Joint Declaration on the return of refugees was signed between Croatia and Bosnian Republika Srpska in March 2000. In September 2000, the Council of Europe Development Bank approved a loan of €30 million for Croatia to facilitate the return of refugees. The loan was to be used to build housing units, and infrastructure in thirty-five municipalities. By the beginning of 2002 the government was able to report that over 88,000 ethnic Serb refugees had returned to their homes, and that 200,000 displaced persons, mainly ethnic Croats, had also returned home.51 Although the refugee problem had been largely solved, there were still 13,000 ethnic Serb refugees in Serbia and Bosnia-Herzegovina waiting to return home, and even more thousands of internally displaced persons whose cases had not yet been resolved, including 20,000 ethnic Croats and 3,400 ethnic Serbs

Social welfare 1111 2 3 4 5 6 7 8 9 1011 1 2 3111 4 5 6 7 8 9 20111 1 2 3 4 5111 6 7 8 9 30111 1 2 3 4 5 6 7 8 9 40111 1 2 3 44111 45111

145

mainly displaced in Slavonia. The fate of these people remains a source of friction and conflict between the Croatian government and the European Union. The former claims it is implementing its refugee return and resettlement policy as quickly and as efficiently as it is able. The latter continues to see this as a critical issue for the further acceptance of Croatia as a reformed state fulfilling all the criteria for democratic consolidation and human rights which would enable Croatia to catch up with her Central East European neighbours and achieve EU membership in the next few years.

1111 2 3 4 5 6 7 8 9 1011 1 2 3111 4 5 6 7 8 9 20111 1 2 3 4 5111 6 7 8 9 30111 1 2 3 4 5 6 7 8 9 40111 1 2 3 44111 45111

Conclusion Croatian society in the twenty-first century

Croatia had been the second most prosperous republic in the former Yugoslavia after Slovenia. But, ten years after gaining its independence it had still not regained the level of prosperity it had enjoyed under the communist system, despite having carried through many of the prescriptions of the standard transition reforms. A new economic elite which emerged under the patronage of the HDZ government in the 1990s had consolidated its power, characterized by the dominance of a group of tycoon capitalists over the economy, and a strong and highly centralized state apparatus. Social property and workers’ self-management had been abolished in the early part of the decade and the enterprise sector had been partly privatized, and partly taken under state ownership. Price controls were removed, and a successful stabilization programme was introduced in 1993 which had virtually eliminated inflation. Despite a few years of rapid growth after the conclusion of the Dayton Agreement of 1995, the economy entered a recession in early 1999. Output began to fall and unemployment rose to 20 per cent of the labour force. A large grey economy had developed fuelled by the excessive burden of taxation and social contributions on wages. The banking sector was weak and a number of banks had collapsed while others were burdened by a large amount of bad debts. Companies increasingly dealt with their economic failings by seeking ways to avoid paying their bills, and there was a worrying growth in intercompany arrears which led to a widespread liquidity crisis. This behaviour even extended to government ministries and agencies which were also among the culprits in the non-payment culture. Exports were stagnant and the

148

Conclusion

balance of payments was deteriorating leading to a growth in international indebtedness. Income inequalities had increased dramatically and the ruling party was becoming increasingly unpopular. A number of possible explanations for the failure of the system to generate sustained growth can be identified. These include the impact of the war; the authoritarian state together with corruption and clientelism; a lack of foreign investment; the high level of protectionism; the lack of integration into EU and CEFTA and the lack of assistance from the EU PHARE programme; insider privatization to managers and outsider privatization to the new tycoons, both leading to a low level of investment in the privatized companies; and the unreformed banking sector and the banking crisis. All of these explanations have some validity. But underlying them all is the fact that the strong state was not a ‘developmental’ state. It was easier for the new elite to ‘get rich quick’ by exploiting the system, by relying on connections rather than on productive entrepreneurship; by focusing on the strengthening of the monocultural and monoethnic aspects of state building rather than on developing institutions which would make Croatia an attractive place for foreign investors, and for indigenous talent to thrive. Some of the new entrepreneurs were successful, such as the owners of the food processing companies Agrokor, Dukat and Vinija. Others, such as the discredited tycoon Kutle, were prime examples of the tendency for the new entrepreneurs to grow their companies too rapidly through aggressive take-overs and asset stripping. Among the large established companies there were also some successes. Companies such as Pliva had expanded overseas and were internationally competitive. But there was a lack ofdynamism in the economy, and new small businesses found it difficult to expand on the domestic market, let alone the export market, due to high cost of capital and high labour costs and taxes. Ultimately the HDZ government was itself responsible for this parlous state of affairs. The authoritarian nature of the ruling party had provided ample opportunity for unscrupulous business practices and shady dealings to flourish. It displayed an arrogance towards opposition groups, whether on a political, ethnic or a class basis. Trade Unions were marginalized, partly through an appeal to nationalism and patriotic duty not to rock the boat, and to

Conclusion 1111 2 3 4 5 6 7 8 9 1011 1 2 3111 4 5 6 7 8 9 20111 1 2 3 4 5111 6 7 8 9 30111 1 2 3 4 5 6 7 8 9 40111 1 2 3 44111 45111

149

refrain from exercising a right to press for higher wages. This was also reinforced through the control the ruling party exercised over the media, but it was also a consequence of the inability of the opposition parties to organize themselves around a common programme. Economic policy was single minded in its pursuit of price stability and monetarist rectitude, placing enormous constraints on the ability of businesses to borrow money in order to finance expansion and investment. Many of the benefits of the decentralized system of worker selfmanagement had been thrown away in an attempt to follow meekly the advice of the international financial organizations such as the World Bank to create a free market capitalism which turned out to be more akin to a free-for-all capitalism. World Bank prescriptions in the areas of social policy, in particular pension reform, were carried through with a zeal which even the advanced market economies of the EU would have found extremely problematic, and was in any case vulnerable to the criticism that the new pension funds were being introduced in a country with an underdeveloped capital market. By the end of 2001 the new coalition government which had replaced the HDZ a year earlier had made little impression on the main problems afflicting Croatian society and economy, disappointing the early exuberant expectations of many voters. The government appeared to be preoccupied with attempts to please the West by meeting the various conditions which had been laid down to negotiate an Association Agreement with the EU. It had focused much of its energy and attention on war crimes issues, cooperation with The Hague war crimes tribunal, return of refugees and readjusting the constitutional balance of powers between the President and Prime Minister. Many crucial issues of economic and social policy had been ignored or allowed to drift into a deepening sense of crisis centred around growing unemployment. The main direction of the economic policy appeared to follow closely the guidance of the World Bank and IMF which called for government budget cuts and reductions in welfare programmes. There was little room for developmental expenditures in education, science and technology. On the other hand it must be recognized that the new government had inherited an economy in crisis and a complex international situation in

150

Conclusion

which Croatia was shunned by many countries and so had an uphill struggle to improve a desperate situation on may fronts simultaneously in a relatively short space of time. At the end of the 1990s, Croatia was still trying to find its way to become a part of the modern European ‘family of nations’. Unwilling also to look towards its closest neighbours to the south, and resisting appeals for south-east European ‘pacts’ and for regional cooperation, Croatia found herself isolated on the European stage for most of the 1990s. The defeat of the HDZ government at the dawn of the new millennium ushered in a new prospect of cooperation and integration into the mainstream of European life. At a political level, Croatia’s relations with the EU have improved dramatically, and a Stabilization and Association Agreement was already signed by the end of 2001, less than two years after the government came to power. By any measure this represented a dramatic improvement in Croatia’s international position and standing. However, years of protectionist and inward-looking economic policies will not be easy to turn around. There is a dearth of inward investment and unemployment is still increasing while the government is unable and unwilling to intervene to create jobs owing to the perceived need to cut public expenditure. Croatian products have become ever more uncompetitive in Western markets following a decade of rule by the HDZ and the dominance of the tycoons who failed to radically restructure and modernize Croatian industry. The reality therefore is that Croatian exporters are turning increasingly towards the softer markets of the southern Balkans. Despite protestations of unwillingness to be drawn into plans for regional cooperation agreements with her Balkan neighbours, Croatia remains tied in many ways to the Balkan south while struggling to extricate herself from that destiny and to rebuild earlier historically based links with Central Europe and the West. The main contours of Croatia’s historical ambivalence towards Europe and the Balkans will thus not be easily or quickly resolved. In the past this ambivalence has been a source of conflict and a brake on development. In the new context of European integration, however, Croatia may now find a new advantage in her pivotal position as a bridge between an unruly Balkans and an impatient Europe. If she is able to take a long-term strategic view

Conclusion 1111 2 3 4 5 6 7 8 9 1011 1 2 3111 4 5 6 7 8 9 20111 1 2 3 4 5111 6 7 8 9 30111 1 2 3 4 5 6 7 8 9 40111 1 2 3 44111 45111

151

and adopt a leading position in the south-east European region, Croatia may be able to lead the region into integration with Europe and play a decisive role in promoting peace and prosperity in a part of Europe which still holds many dangers for European stability in the twenty-first century.

1111 2 3 4 5 6 7 8 9 1011 1 2 3111 4 5 6 7 8 9 20111 1 2 3 4 5111 6 7 8 9 30111 1 2 3 4 5 6 7 8 9 40111 1 2 3 44111 45111

Notes

Introduction 1 See e.g. Goldstein (1999), Tanner (1997).

1 History 1 For a full account of Croatia’s early history and beyond see Goldstein (1999). 2 Maãek (1957: 28). 3 The port of Rijeka remained under direct Hungarian rule. 4 The military border was returned to Croatian jurisdiction in 1881 MaÏ-uran (1995: 83). 5 Khuen-Hedervary ruled Croatia for 20 years. Despite his unpopularity he presided over a measure of economic and social development. According to Vladko Maãek, a student at the time, ‘apart from its manifestly unfair political rule, the Khuen regime produced many positive results. Khuen surrounded himself with capable men, raised the Croatian judiciary system to a high level, improved public education quite effectively and contributed greatly to the development of the national economy. Yet, despite all his merits, he was judged only from the political viewpoint. We gymnasium students thought it not only patriotic but also fun to write on the walls and fences whenever possible, “Down with Khuen-Hedervary”,’ Maãek (1957: 32). 6 These ideas had their origin in a number of earlier developments in the modern development of Croatian intellectual life. The Illyrian Movement had originated in the eighteenth century influenced by the work of Ljudevit Gaj. It was essentially a language movement that emphasized the basic similarity of the southern Slavic languages. On this basis it proposed a union of the southern Slavs. But in practice its main focus was on the union of the Croatian lands within the Austro-Hungarian Empire. It was not until later in the nineteenth century that the idea to unify Croatia with the newly independent south Slav state of Serbia began to emerge.

154 7 8 9 10 11

12 13 14 15 16 17

18 19 20 21 22 23 24 25 26 27 28 29 30 31 32

Notes See Jelavich (1983: 252). MaÏ-uran (1995: 83). The adherents of the party became known as the Frankists. Peasants accounted for as many as 90 per cent of the population in the early twentieth century (Matkoviç 1999: 13). Franjo Supilo was one of its leaders. The Coalition was a purely Croatian affair, and had nothing to do with ideas of unification with Serbia. According to A.J.P. Taylor ‘The Croat leaders knew nothing of Serbia and were almost unaware of its existence; even the Serb leaders were in little better case’ (Taylor 1948: 209). The Entente powers included Great Britain, France and Russia. Boban (1993). Ibid. p. 12. Adamic (1934: 274–6). For an excellent account of the Radiç’s ideas and development of the Croatian Peasant Party see Banac (1984). Radiç attended the parliament despite rumours of an assassination attempt. His followers begged him to stay away from the Parliament but he replied ‘if it were a question of missing today’s session I would listen to you. But suppose they are really determined to do it and fail today? They will only postpone it until tomorrow or the day after. That means I would have to stay away permanently – which I certainly won’t do. Besides, they can perhaps kill me, but that will never enable them to destroy our ideology which, after winning all Croatia, has already penetrated far beyond her boundaries’, a statement which was recollected by Valdko Maãek in his autobiography (Maãek 1957: 110). Maãek (1957: 140). Tanner (1997: 125). Biçaniç (1936). See the discussion of this issue by Tanner (1997: 152–3). For an account of the Partisan war of resistance against the Nazis see Djilas (1977). Chetnik collaboration with the Germans was directed against the communist led Partisans, partly for ideological reasons, but also in a struggle for political supremacy after the war. Cohen (1996: 95–6). Cohen (1996: 97). See Matkoviç (1999: 434). Quoted in Irvine (1993: 150). The reason why Macmillan made this order is unknown. He refused to discuss the issue after the war. See Tolstoy (1980). Jelavich (1983: 272). Jelavich (1983: 295). Jelavich (1983: 296). Control of the Trieste region was disputed at the end the war with one part under the control of the Allied Military Government

Notes 1111 2 3 4 5 6 7 8 9 1011 1 2 3111 4 5 6 7 8 9 20111 1 2 3 4 5111 6 7 8 9 30111 1 2 3 4 5 6 7 8 9 40111 1 2 3 44111 45111

33 34 35 36 37 38 39 40

41 42 43 44

45 46 47 48 49 50 51 52

155

(‘Zone A’) and the other part under Yugoslav Military Administration (‘Zone B’). A final settlement of the city’s status was reached in 1954, and Trieste became part of Italy once again. Singleton (1985: 214–16). Shoup (1968: 81). Tanner (1997: 182), Irvine (1993: 202–3). Most notably Ivan Supek. Crkvenãiç (2000). See Singleton (1985). Glenny (1999: 545–52). The most common justification for the expropriation of property was on the basis of the collaboration of the owner with the fascist government, rather than the less popular justification of the building of a socialist society. Ramet (1984: 109–10). Doder (1979: 37). Doder (1979: 37). ‘Social Product’ was the Yugoslav version of the Western concept of Gross Domestic Product. The main difference was the neglect of the ‘non-productive’ services such as government administration in the Social Product concept. Statistiãki Godi‰njak Jugoslaviije, 1985, Table 205–1. Industrial production increased from 4.7 billion dinars in 1954 to 34 billion dinars in 1979, a seven-fold increase (Statistiãki Godi‰njak Jugoslaviije, 1985). Statistiãki Godi‰njak Jugoslaviije, 1985, Table 204–3. Data are for 1984. Statistiãki Godi‰njak Jugoslaviije, 1985, Table 214–3. Data are for 1983. Statistiãki Godi‰njak Jugoslaviije, 1985, Table 204–3. Data are for 1984. Harold Lydall called this turnaround in economic fortunes ‘the Great Reversal’ (Lydall, 1989). That constitution had been itself a response to the Croatian Spring events and the Croatian demands for greater autonomy. Tanner (1997: 226 and 252).

2 Transition to democracy 1 The HSLS contested the elections in a coalition known as the Coalition of National Accord (KNS). 2 They were backed up by the Slovenian reformists who had also won elections in Slovenia. 3 Mesiç had been a leader of the Croatian Spring events in 1971 and imprisoned for a year in the Stara Gradi‰ka prison. In 1990 he became secretary of the HDZ and the Prime Minister of Croatia

156

4 5 6

7

8 9 10 11 12

13 14 15 16

17

18

Notes following the elections of that year. He was nominated by the Sabor to be the Croatian representative on the Yugoslav collective Presidency, and briefly became President of Yugoslavia in 1991, until his resignation on 5 December. After the 1992 elections he became speaker of the Croatian parliament (Sabor). He resigned from the government and the HDZ in 1994. See Tanner (1997: 228). The parliamentary session which introduced the new constitution was boycotted by the Serbian deputies. The statue of the Croatian hero Ban Jelaãiç was returned to the main square in Zagreb. The square was renamed ‘Ban Jelaãiç Square’ and other street names were changed in Zagreb and other towns and villages. The chequered flag, which represented the coat of arms of Croatia, was widely displayed, although this had in fact been used during the communist period also as the emblem of the Socialist Republic of Croatia. ‘Instead of liberating the economy from very complicated and burdensome legislation and on the symbolic level finding some compromise solution, the new rulers did just the opposite. They changed the symbols in a radical and immediate way and in their attitude to the economy they maintained a considerable degree of continuity with the old regime’, Pusiç (1992: 259). Cohen (1997: 81). Ian Traynor ‘Beirut in the Balkans’, The Guardian, 5/10/90. Report of an interview with Mesiç by Victor Meier, in Meier (1999: 153). Judah (1997: 170–1). As Judah has made clear: ‘We now know, however, that a tacit secret deal was struck in January 1991 between Serbia and Slovenia. Milo‰eviç signalled to Kuãan that the Slovenes were free to leave Yugoslavia so long as they did not oppose Serbia’s plans for the rest of the country’, Judah (1997: 173). See the account by ·titkovac (1997: 160). UN Security Council Resolution 713 of 25 September 1991. ‘for the first six months of its operation it acted against the predominantly Roman Catholic Croats’, Owen (1995: 46). Although it later transpired that the Yugoslav army was actually far weaker than had been imagined or expected as a result of large-scale desertions, and an unwillingness of young men to mobilize for a war whose aims many could not understand, or with which they disagreed. The European Union (EU) was formed by the Treaty of Amsterdam in 1993. Before that the organization was known as the European Community, or ‘EC’. To avoid confusion with the use of the term EC to mean European Commission, I use the abbreviation ‘EU’ throughout, even for the years before 1993. ‘The process of democratic transformation in Croatia was more complex than in other countries of Central and Eastern Europe. The

Notes 1111 2 3 4 5 6 7 8 9 1011 1 2 3111 4 5 6 7 8 9 20111 1 2 3 4 5111 6 7 8 9 30111 1 2 3 4 5 6 7 8 9 40111 1 2 3 44111 45111

19 20

21 22 23 24 25 26

27

28 29 30 31 32 33 34 35

36

157

Croatian democratic transition began in one state and continued in another. It began in peace and continued in war’, Kasapoviç and Zako‰ek (1997: 11). A detailed analysis of the 1992 elections can be found in Kasapoviç (1993). Savka Dabãeviç-Kuãar, the former leader of the Croatian League of Communists during the Croatian Spring events of 1971, established her own party, called the Croatian People’s Party (HNS). Her personal popularity had survived over twenty years of political obscurity, and many people still fondly remembered her as the ‘Croatian Rose’. Despite that, the party gained little support. It had attempted to develop a non-nationalist and populist programme which was of little interest to the voters in the context of imminent conflict with the nationalist politics of Milo‰eviç’s expansionist programme. See Matkoviç (1999). Zako‰ek (1997: 46). Cohen (1997: 94). Cohen (1997: 95). Cohen (1997: 96). Following the pro-market economic reforms in Yugoslavia in the mid-1960s a serious problem of unemployment had begun to emerge. Many people from all over former Yugoslavia emigrated on a temporary basis to Germany and other rapidly growing west European countries as ‘guest workers’. The largest number of Yugoslav guest workers came from Croatia. What was intended to be a temporary stay turned out to be a permanent emigration for many and a sizeable Croatian diaspora grew up within Germany. Mesiç had also been, briefly, Vice-President of the Yugoslav federal state Presidency in late 1990 and early 1991, and for a few days in June 1990 had held the post of President of the Yugoslav Presidency. He resigned from that post on 5 July 1991 when it became apparent that the Yugoslav federation had terminally collapsed. Cohen (1997: 97–9). Kasapoviç (1993). Newspaper reports alleged that some of those who remained were killed by the Croatian paramilitary forces and army troops. Cohen (1997: 99). Cohen (1997: 107). A phrase coined by the Croatian political scientist Mirjana Kasapoviç. Zako‰ek (1997: 45). For a balanced account see Cohen (1997) who concludes that ‘the attitude of President Tudjman . . . and his more hard-line supporters regarding the illegitimacy of certain kinds of democratic expression . . . indicated that important facets of authoritarianism continued to survive in the country’ (p. 113). See for example Vejvoda (2000).

158

Notes

37 The new mayor was Marina Matuloviç-Dropuliç, a minor functionary from the state administration. 38 See report by K. RoÏman, ‘Kronika jednog skandala’, Gloria, Zagreb, pp. 11–15. 39 The son of the former wartime communist leader of the same name. 40 See Balas (1997: 265–78). 41 See account in Feral Tribune 21/8/95. 42 Report by Boris Raseta, ‘Stifling of independent media in Croatia’, AIM Press, 25/11/98. 43 Ibid. 44 See the account in Allcock et al. (1998: 122). 45 Cohen (1997: 86). 46 See ‘Change in the offing: the shifting political scene in Croatia’, International Crisis Group, 14/12/98. 47 Tudjman himself was not immune from this syndrome, and his family allegedly accumulated enormous wealth. 48 OSCE (2000), ‘Republic of Croatia Parliamentary Elections (House of Representatives) 2–3 January 2000: Final Report’, Warsaw: Office for Democratic Institutions and Human Rights, p. 6. 49 Seats for national minorities were voted on the first-past-the-post method. 50 The Serbian seat was contested in only four of the ten constituencies by the Independent Serb Democratic Party (SDSS) and the Serb People’s Party (SNS). 51 OSCE (2000), ‘Republic of Croatia Parliamentary Elections (House of Representatives) 2–3 January 2000: Final Report’, Warsaw: Office for Democratic Institutions and Human Rights, p. 19. 52 The elections were held on 3 January. 53 Stipe Mesiç was one of a group of members who defected from the Croatian Independent Democrats (HND) and joined the HNS in 1997. He was HNS executive Vice-President until winning the presidential elections in 2000. 54 In the first round of the elections held on 24 January Mesiç won 42 per cent of the vote, Budi‰a won 28 per cent and Mate Graniç for the HDZ won only 22 per cent. 55 Report by Robert Wright, ‘EU welcomes Croatian election result’, Financial Times, 5/1/2000. 56 Report by Robert Bajrusi and Mladen Ple‰e ‘The arrival of the head of the European government’, Nacional, No. 218, 20/1/00. 57 See report by Zeljko Rogosiç, ‘Inaugural interview by the Internal Affairs Minister’, Nacional, Issue 220, 3/2/00. 58 See report by Ivica Djikiç, ‘Attack on secret services’, AIM Press, 31/5/00. 59 Globus, 1 June 2001: Mirjana Kasapoviç.

Notes 1111 2 3 4 5 6 7 8 9 1011 1 2 3111 4 5 6 7 8 9 20111 1 2 3 4 5111 6 7 8 9 30111 1 2 3 4 5 6 7 8 9 40111 1 2 3 44111 45111

159

3 International relations 1 Goldstein (1999: 244). 2 Many of these refugees were accommodated in the empty tourist hotels on the Dalmatian coast. 3 At the same time Croatian forces were beginning to launch counterattacks within Croatia against the breakaway Croatian Serbs. Their first success came with the recapture of the strategically important Maslenica bridge on the Dalmatian coast in September 1993. 4 At the time it was reported that Croatia had 30,000 troops in Bosnia (Silber and Little 1995: 355). 5 The Croatian army was re-equipped and retrained under a semisecret programme assisted by the American military consultancy firm MPRI, which was run by senior retired US generals. 6 Between March and September 1995, the UN forces in Croatia were redesignated as UNCRO – an acronym which was diplomatically held to stand for United Nations Confidence Restoring Force so as not to offend the Krajina Serbs. 7 See Miller (1997). 8 Silber and Little: Ch. 25. 9 Rose (1999: 351). 10 Washington ‘had to accept precisely the kind of ethnic cleansing it had denounced on the part of the Bosnian and Croatian Serbs. The fact that the Croats had managed to carry out their version of the process more rapidly and effectively seemed to make it more acceptable to the Clinton administration’ (Miller 1997: 510). 11 Sometimes known as the ‘Erdut Agreement’. 12 Miller argued that through the new alliance forged between Croatia and the US ‘Tudjman was offering the US a force that could substitute for American ground troops in curbing Serbian appetites in Bosnia’ (Miller 1997: 510). 13 Burg and Shoup (1999: 383). 14 See Woodward (1995: 184). 15 See Gow (1997: 67–77). 16 The Croatian government met this condition by passing a Constitutional Law on Human Rights and Freedoms and the Rights of National and Ethnic Communities or Minorities in the Republic of Croatia, which was well received by the Badinter Commission (Goldstein 1999: 238). 17 Germany announced that it would recognize Croatia on 23 December 1991, but delayed formal recognition until 15 January 1992 in line with the other EU member states. See Tanner (1997: 274). 18 Croatia was temporarily included in the PHARE programme between 12 June and 4 August 1995, when it was again suspended as the EU reacted angrily to perceived human rights abuses following the Oluja offensive in the Krajina. 19 See SamardÏija (1997).

160 20 21 22 23 24 25 26

27 28

29 30 31 32 33 34

35 36 37 38

39

Notes SamardÏija (1994: 207). Government of Croatia (1999). Ibid. p. 44. Ibid. p. 41. Ibid. p. 44. Presidency Conclusions: Lisbon European Council, 23 and 24 March 2000, available on http://europa.eu.int/comm/off/index_en.htm. ‘In addition, taking into account the context of the Stabilisation and Association process, the Stability Pact and the future EU Common Strategy, there would be increased emphasis on progress in developing regional cooperation’ (EC 1999) italics in original. EC (1999). See ‘Croatia-United States Bilateral Relations: Overview of Issues’, March 1998, Croatian Embassy to the United States. In 1996 Croatia was allocated $200,000 under the IMET programme, rising to $350,000 in 1997. Owen (1995: 319). See ‘Croatia: shaky future’, Economist, 21/6/97. See ‘Constitution watch: Croatia’ Eastern European Constitutional Review, Vol. 6, No. 4, 1997. Kevin Done, ‘Reconciliation the key to reconstruction’, Financial Times, 14/12/1998. Human Rights Watch (2000). Quoting a report by UN monitors in the region, Feral Tribune reported that the ‘destruction of property of non-Croats has wide proportions and is coordinated and performed under orders, and, apparently, supported by the highest authorities. It is impossible to correctly estimate the degree of destruction but the EU monitors estimate that 60 per cent–80 per cent of the property in the former sector South has been partly or completely destroyed’, and that ‘day after day, a row of houses in flames, a row of looted houses, . . . and then corpses, old, . . . , but also new ones of recently killed persons’. Taken from ‘Interview with Alun Roberts, UN spokesperson in Knin’, Feral Tribune, 14/8/95. See Human Rights Watch World Report 1999 ‘Croatia’ available on http://www.hrw.org/worldreport99/europe/croatia.html. See ‘Croatia: Short-changing Justice – the Solodovci group’, Amnesty International (1999). ‘Sanctions knocking at the door’, Marinko âuliç, AIM Press, 30/8/99. Tuta’s extradition had apparently been resisted on health grounds. However, a doctor’s report at the beginning of September conveniently indicated a sufficient improvement in his health to permit his transfer to The Hague. Letter from Mate Graniç to Peter van Walsum, President of the Security Council, 1/9/99.

Notes 1111 2 3 4 5 6 7 8 9 1011 1 2 3111 4 5 6 7 8 9 20111 1 2 3 4 5111 6 7 8 9 30111 1 2 3 4 5 6 7 8 9 40111 1 2 3 44111 45111

161

40 ‘Croatia: human rights developments’, Human Rights Watch Annual Report 1999. 41 ‘Croatia cracks down on war criminals’, James Kliphuis, Radio Netherlands, 15/9/00 www.rnw.nl/hotspots/html/croatia000915.html. 42 American-Croatian talks on Croatia’s possible membership of the Partnership for Peace were already announced in April 1999, when Croatia forged a closer relationship with NATO on account of her cooperation over NATO’s air war against FRY. 43 ‘Exclusively from Brussels: Croatia in the Partnership for Peace’, Igor Alborghetti, Globus, 12/5/00. 44 EC (2000). 45 Despite the criticisms, Croatia was included in the EU TEMPUS programme in March 2000, and the European Training Foundation (ETF) started operating in the country. 46 For more details see Bartlett and SamardÏija (2000). 47 One cannot help thinking that this reflects that earlier association which Croatia had negotiated with Hungary in the eleventh century.

4 Economic policies 1 2 3 4

5 6 7 8 9 10

11 12 13 14

Cviic (1996). Report by Kevin Done, ‘War damage’, Financial Times, 14/12/98. Biçaniç (1993a). For example, the shipyards in Split in Dalmatia had traditionally been supplied with steel plate from the steelworks in Skopje. The loss of supplies to the shipbuilding industry was an important factor leading to the decline of the local economy in Split, where unemployment quickly rose above 20 per cent. Ibid. Biçaniç (1993b). Social Product was the Yugoslav measure of output similar but not equivalent to GDP. Anu‰iç et al. (1995: 163). See Central Bureau of Statistics (1999, Table 6–1). The number of tourist nights fell from 52.5 million in 1990 to 10 million in 1991 and 1992. In 1993 the number of nights rose only slightly to 12 million. Although the war was over, the presence of hostile forces in the Republika Srpska Krajina, near the main tourist resorts continued to discourage tourism to the region. Even by 1998 tourist nights had only recovered to 60 per cent of the pre-war level. Biçaniç (1993a). ·kreb (1995: 55). Anu‰iç et al. (1995: 6). Rather than using the term ‘privatization’ the more neutral term ‘transformation’ (pretvorba) was used to indicate that socially owned capital was to be converted into several new property forms including state property as well as private property.

162

Notes

15 Biçaniç (1993c). 16 Small enterprises with assets less than DM 5 million were covered by a separate process and dealt with by the local offices of the PA. 17 Ostoviç, Graãanin and Mate‰a (1994). 18 ‘The fund has . . . great powers and no direct accountability. In its portfolio it has shares from almost all enterprises in the economy, making it the largest asset owner . . . it appoints managers and can initiate privatization when and how it sees fit,’ Biçaniç (1993a: 428) (EEPS). 19 Biçaniç (1993c). 20 âuãkoviç (1993). 21 Anu‰iç et al. (1995: 43–50). 22 Anu‰iç et al. (1995: 142). 23 Anu‰iç et al. (1995: 79). 24 ·kreb (1995). 25 The acronym CARDS stands for ‘Community Assistance for Reconstruction and Development in Southeast Europe’. 26 Ostoviç, Graãanin and Mate‰a (1994). 27 âuãkoviç (1995). 28 ·kreb (1995). 29 Throughout this period the EU refused to offer assistance to Croatia through its main aid programme for Eastern Europe, the PHARE programme, although the humanitarian aid programme, ECHO, was active in support of refugees and displaced persons. 30 European Bank for Reconstruction and Development. EBRD Information. EBRD Activities in Croatia, 28/8/96. 31 The average tariff rate of all IMF member countries was 12.7 per cent (IMF 2000: 78). 32 In fact Croatia had been offered CEFTA membership in 1993 but had rejected it. 33 âuãkoviç (1995). 34 There were 230,000 beneficiaries of the voucher programme. 35 Country Profile – Croatia 1998–1999, London: Economist Intelligence Unit, p. 13. 36 Ostoviç (1996). 37 See Bendekoviç (2000). 38 Franiãeviç and Bartlett (2002). 39 Ibid. 40 See National Bank Bulletin IV/38, May 1999, Table H8, and IMF ‘Republic of Croatia: Selected Issues and Statistical Appendix’, IMF Staff Country Report, No. 98/90, September 1998, p. 5. 41 ‘Much of the arrears is due to non-payment by public enterprises or government ministries’, Franiãeviç and Kraft (1997: 672). 42 Report by Boris Ra‰eta, ‘Stifling of independent media in Croatia’, AIM Press, 25/11/98. 43 âuãkoviç (1995: 87). 44 Biçaniç (1993b).

Notes 1111 2 3 4 5 6 7 8 9 1011 1 2 3111 4 5 6 7 8 9 20111 1 2 3 4 5111 6 7 8 9 30111 1 2 3 4 5 6 7 8 9 40111 1 2 3 44111 45111

45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60

163

âengiç (1996). Biçaniç (1993c). âuãkoviç (1995). Ple‰e (1999) ‘HDZ has completely destroyed the Croatian economy’, Nacional, No. 202, 29 September. Cited by Vincent Boland ‘Soured flirtation with capitalism’, Financial Times Survey Croatia, 9/7/99. Ibid. Report by Ivica Djikiç, ‘The epilogue of the story of Kutle’, AIM Press, 2/2/99. Ra‰eta (1999) ‘The collapse of Karlovac’, AIM Press, Zagreb, 13 January (available from the AIM Press archive on http://www. aimpress.org). See ‘Profile: Agrokor’, Financial Times Survey on Croatian Finance and Investment, 14/12/98. See ‘The promise of fresh sell-offs and better regulation could pull banks out of a hole’, Vincent Boland, Financial Times, 14/12/98. ‘On a tight rein, The Banker, April 1999, p. 48. Croatian National Bank Bulletin IV/38, May 1999, p. 9. Crnkoviç-Pozaiç (1999). Ple‰e (1999). Klepo (1999) ‘DrÏava udvostruãila pomoç poduzeçima pred bankrotom’, Poslovni Svijet, 15 December. Ibid.

5 Social welfare 1 See Statistiãki ljetopis republika Hrvatska (Statistical Yearbook of the Republic of Croatia) 1995, Tables 4 and 5. 2 It had some similarities to the quasi-markets systems introduced in social welfare services in the UK in the 1990s. 3 Croatian National Bank Annual Report 2001. 4 The defence budget amounted to 5 per cent of GDP in 1999. This was much higher than the average European figure of 2 per cent of GDP, but was nevertheless considerably below the 9 per cent share of GDP reached in 1995 (World Bank 2000a). 5 In 1999 there were 274,000 public sector employees, or 20.7 per cent of total employment. The public sector wage bill amounted to 11.5 per cent of GDP far above the average figure of 3.5 per cent for transition economies in Eastern Europe as a whole (World Bank 2000a). 6 (World Bank 2000b). 7 Ibid. 8 The first budget had been introduced when the new government had entered office at the beginning of 2000. 9 M. Jambroviç, ‘Proraãun daje vi‰e zdravstvu, stradalnicima i umirovljenicima’ (The budget allocates more money to health-care, war victims and pensioners), Vjesnik, 10 November 2000.

164 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31

32 33 34 35 36 37 38 39 40 41 42 43 44

Notes Ibid. World Bank (2000b). World Bank (2000b). Ple‰e, Nacional, No. 227, 23/3/00. World Bank (2000b: 9). BeÏovan (2000). In 2000, around 80,000 households (5 per cent of the total) benefited from state provided social assistance. World Bank (2000b: v). World Bank (2000b). World Bank (2000b). Hellman et al. (2000). World Bank (2000b). When measured by the ILO’s internationally standard basis of comparison (see World Bank, 2000b). See the Croatian National Bank Bulletin, No. 70, April 2002, p. 6. World Bank (2000b: vii). In 1991, for example, 17.7 per cent of the population was aged over sixty, very similar to the figure of 18.2 per cent in the OECD countries. Puljiz (1999). There were 719,868 pensioners in 1991 and 1,027,813 in 2001 (Zrin‰ãak, 2001). Puljiz (1999: 9). See Zrin‰ãak (2001: Table 2). Quoted in Puljiz (1999). Only four funds attracted the minimum number of 80,000 subscribers. At the time of writing it was proposed to reduce the limit to 50,000 in an attempt to increase the number of funds competing on the market. Parmelee (1992). World Bank (2000a: 27). World Bank (2000a). ETF (2001). Darko Paviãiç, ‘MMF radi u korist najbogatijih i ne treba mu robovati’, (We should not be slaves to the IMF as it acts in favour of the richest countries), Vecernji list, 25/9/2000. ·varc (1999). Biçaniç (1993a). BeÏovan (2000). BeÏovan (1993). Central Bureau of Statistics (1999, Table 19–3). See ‘Breaking the Logjam: Refugee Returns to Croatia’, International Crisis Group, 9/11/98. Ple‰e, Nacional, No. 227, 23/3/00. Organization for Security and Cooperation in Europe, ‘Return and Integration’, Return Update, available from http://www.osce.org/ missions/croatia/return/return_new.htm.

Notes 1111 2 3 4 5 6 7 8 9 1011 1 2 3111 4 5 6 7 8 9 20111 1 2 3 4 5111 6 7 8 9 30111 1 2 3 4 5 6 7 8 9 40111 1 2 3 44111 45111

165

45 See report of US Committee for Refugees. 46 UNHCR (2000). 47 Only 28,000 were reported to have gone to Republika Srpska (Croatian Embassy, Washington DC). 48 See ‘Croatia: Human Rights Developments’ in Human Rights Watch Annual Report (1999). 49 UNHCR (2000). 50 UNHCR (2000). 51 Ministry of Public Works, Reconstruction and Construction ‘Total of Returns to the Republic of Croatia & Displaced Persons and Refugees Awaiting Resolution’ http://www.mjr.hr/en/povratnici10. htm.

1111 2 3 4 5 6 7 8 9 1011 1 2 3111 4 5 6 7 8 9 20111 1 2 3 4 5111 6 7 8 9 30111 1 2 3 4 5 6 7 8 9 40111 1 2 3 44111 45111

Bibliography

Adamic, Louis (1934), The Natives Return, New York: Harper & Brothers. Allcock, John B., Marko Milivojeviç and John J. Horton (eds) (1998), Conflict in the Former Yugoslavia: an Encyclopedia, Oxford: ABCCLIO. Anu‰iç, Zoran, Îeljko Rohatinski and Velimir ·onje (1995), A Road to Low Inflation: Croatia 1993/4, Zagreb: The Government of the Republic of Croatia. Balas, S. (1997), ‘The opposition in Croatia’, in: J. Udoviãki and J. Ridgeway (eds), Burn This House: The Making and Unmaking of Yugoslavia, Durham: Duke University Press, pp. 265–78. Banac, Ivo (1984), The National Question in Yugoslavia: Origin, History, Politics, Ithaca: Cornell University Press. Bartlett, Will and Vi‰nja SamardÏija (2000), ‘The reconstruction of South East Europe, the Stability Pact and the role of the EU: an overview’, MOST-MOCT Economic Policy in Transition Economies, 10(2): 245–63. Bendekoviç, Jadranko (2000), ‘Privatization in Croatia’, Ekonomski Pregled, 51(1–2): 59–90. BeÏovan, Gojko (1993), ‘Evaluation of public housing sale process in Croatia’, paper presented to a Conference on Evaluation of Social Programmes, Bled, Slovenia. BeÏovan, Gojko (2000), Welfare Mix in Croatia, mimeo, Zagreb, Faculty of Law Department of Social Work. Biçaniç, Ivo (1993a), ‘Croatians struggle to make end meet’, RFE/RL Research Report, 2(45): 29–34. Biçaniç, Ivo (1993b) ‘The Croatian economy: achievements and prospects’, RFE/RL Research Report, 2(26): 33–8. Biçaniç, Ivo (1993c) ‘Privatization in Croatia’, East European Politics and Societies, 7(3): 422–38. Biçaniç, Rudolf (1936), Kako Ïivi narod (How the People Live), Zagreb: Tisak Tipografija. Boban, Ljubo (1993), Croatian Borders 1918–1993, Zagreb: Skolska Knjiga.

168

Bibliography

Burg, S.L. and Shoup, P. (1999), The War in Bosnia-Herz- egovina: Ethnic Conflict and International Intervention, Armonk, NY: M.E. Sharpe. âengiç, Drago (1996) ‘Privatization and management buy-out: the example of Croatia’, Communist Economies and Economic Transformation, 8(4): 549–63. Central Bureau of Statistics (1999), Statistãki Ljetopis (Statistical Yearbook), Zagreb: DrÏ- avni Zavod za Statistiku. Cohen, P.J. (1996), Serbia’s Secret War: Propaganda and the Deceit of History, College Station: Texas A&M University Press. Cohen, Lenard J. (1997), ‘Embattled democracy: postcommunist Croatia in Transition’, in: Karen Dawisha and Bruce Parrott (eds), Politics, Power and the Struggle for Democracy in South East Europe, Cambridge: Cambridge University Press, pp. 69–121. Crnkoviç-Pozaiç, S. (1999), ‘Measuring employment in the unofficial economy by using labour market data’, in: E.L. Feige and K. Ott (eds), Underground Economies in Transition: Unrecorded Activity, Tax Evasion, Corruption and Organized Crime, Aldershot: Ashgate, pp. 211–44. Crkvenãiç, I. (2000), ‘Emigration of Italians and Germans from Croatia during and immediately after the Second World War’, Dru‰tvena IstraÏivanja, 45(1): 19–39. âuãkoviç, Nevenka (1993), ‘Privatization in Croatia: what went wrong?’, History of European Ideas, 17(6): 725–33. âuãkoviç, Nevenka (1995), ‘The privatization process and its consequences for the distribution of welfare: the case of Croatia’, Moct-Most, 5(3): 75–90. Cviic, Chris (1996), ‘Croatia’, in: D. Dyker and I. Vejvoda (eds), Yugoslavia and After: a Study in Fragmentation, Despair and Rebirth, London: Longman. Djilas, Milovan (1977), Wartime, New York: Harcourt Brace Jovanovich. Doder, Dusko (1979), The Yugoslavs, London: George Allen & Unwin. EC (1999), Commission Communication to the Council and European Parliament on the Stabilisation and Association Process for Countries of South-Eastern Europe, COM(96) 476 final. EC (2000), Report from the Commission on the feasibility of negotiating a Stabilization and Association Agreement with the Republic of Croatia, Brussels 24.05.2000 COM(2000) 311 final. ETF (2001), National Observatory Country Report on the Vocational Educational and Training System: Croatia 2001, Torino: European Training Foundation. Franiãeviç, Vojmir and Will Bartlett (2002), ‘Small business development policy in Croatia: design and implementation’, in: Will Bartlett, Milford Bateman and Maja Vehovec (eds), Small Enterprise Development in South-East Europe: Policies for Sustainable Growth, Dordrecht: Kluwer. Franiãeviç, Vojmir and Evan Kraft (1997), ‘Croatia’s economy after stabilization’, Europe-Asia Studies, 49(4): 669–92.

Bibliography 169 1111 2 3 4 5 6 7 8 9 1011 1 2 3111 4 5 6 7 8 9 20111 1 2 3 4 5111 6 7 8 9 30111 1 2 3 4 5 6 7 8 9 40111 1 2 3 44111 45111

Glenny, Misha (1999), The Balkans 1804–1999: Nationalism, War and the Great Powers, London: Granta Books. Goldstein, Ivo (1999), Croatia: a History, London: Hurst. Government of Croatia (1999), Action Plan for European Integration, Zagreb. Gow, James (1997), Triumph of the Lack of Will: International Diplomacy and the Yugoslav Wars, London: Hurst & Company. Hellman, J.S., Jones, G. and Kaufmann, D. (2000), ‘Seize the state, seize the day: state capture, corruption and influence in transition’, World Bank Policy Research Working Paper No. 2444. Poverty Reduction and Economic Management Unit, Europe and Central Asia Region. Human Rights Watch (1999), ‘Croatia: Human Rights Developments’, Human Rights Watch World Report. Human Rights Watch (2000), ‘Croatia: Human Rights Developments’, Human Rights Watch World Report. IMF (2000), Republic of Croatia: Selected Issues and Statistical Appendix, Washington DC, International Monetary Fund. Irvine, Jill A. (1993), The Croat Question: Partisan Politics in the Formation of the Yugoslav Socialist State, Boulder: Westview Press. Jelavich, Barbara (1983), History of the Balkans: Twentieth Century, Vol. 2, Cambridge: Cambridge University Press. Judah, Tim (1997), The Serbs: History, Myth and the Destruction of Yugoslavia, New Haven: Yale University Press. Kasapoviç, Mirjana (1993), Izborni i stranaãki sustav Republike Hrvatske (Elections and Party System of the Republic of Croatia), Zagreb: Alinea. Kasapoviç, Mirjana and Nenad Zako‰ek (1997), ‘Democratic Transition in Croatia: between democracy, sovereignty and war’, in: Ivan Siber (ed.), The 1990 and 1992/3 Sabor Elections in Croatia: Analyses, Documents and Data, Berlin: Rainer Bohn Verlag, pp. 11–33. Lydall, Harold (1989), Yugoslavia in Crisis, Oxford: Clarendon Press. Maãek, V. (1957), In the Struggle for Freedom, University Park and London: The Pennsylvania State University Press. Matkoviç, Hrvoje (1999), Povijest Hrvatske seljaãke stranke (History of the Croatian Peasant Party), Zagreb: Naklada Paviãiç. MaÏ-uran, I. (1995), Croatian Parliament, Zagreb: ·kolska Knjiga. Meier, Viktor (1999), Yugoslavia: A History of Its Demise, Routledge: London. Miller, R.F. (1997), ‘Tudjman’s victory: Croatia, the UN, NATO and the US’, Nationalities Papers, 25(3): 501–16. OSCE (2000), Republic of Croatia Parliamentary Elections (House of Representatives) 2–3 January 2000: Final Report, Warsaw: Office for Democratic Institutions and Human Rights, p. 6. O‰toviç, D. (1996), ‘Privatisation in Croatia’, Seventh CEEPN Conference on Economic Transition, Dubrovnik, 6–7 December. O‰toviç, D., Graãanin, B. and Mate‰a, Z. (1995), ‘Privatization in Croatia – 1994’, in: A. Böhm (ed.), Privatization in Central & Eastern Europe 1994, Ljubljana: CEEPN, pp. 76–107.

170

Bibliography

O‰toviç, D., Graãanin, B. and Mate‰a, Z. (1994), ‘Privatisation report – 1994’, Fifth CEEPN Conference on Economic Transition, Bled, 2–3 December. Owen, David (1995), Balkan Odyssey, London: Victor Gollanz. Parmelee, Donna E. (1992), ‘Yugoslav health care: is the cup half empty or half full?’, in: J.B. Allcock, J.J. Horton and M. Milivojeviç (eds), Yugoslavia in Transition: Choices and Constraints, New York: Berg, pp. 297–336. Puljiz, V. (1999), ‘Crisis and reform of the pensions system in Croatia’, South-East Europe Review, 4: 9–18. Pusiç, Vesna (1992), ‘A country by any other name: transition and stability in Croatia and Yugoslavia’, East European Politics and Societies, 6(3): 242–59. Ramet, Sabrina P. (1984), Nationalism and Federalism in Yugoslavia, 1963–1983, Bloomington: Indiana University Press. Rose, Michael (General Sir) (1999), Fighting for Peace: Lessons from Bosnia, London: Warner Books (first edition Harvill Press, 1998). SamardÏija, Vi‰nja (1994), Europska Unija i Hrvatska: Putevi povezivanja i suradnje, Zagreb: IRMO. SamardÏija, Vi‰nja (1997), ‘Economic integration with the EU and regional cooperation: the case of Croatia’, in: Stefano Bianchini and Milica Uvaliç (eds), The Balkans and the Challenge of Economic Integration: Regional and European Perspectives, Ravenna: Longo Editore, pp. 117–26. Shoup, Paul (1968), Communism and the Yugoslav National Question, New York: Columbia University Press. Silber, Laura and Alan Little (1995), The Death of Yugoslavia, London: Penguin Books. Singleton, Fred (1985), A Short History of the Yugoslav Peoples, Cambridge: Cambridge University Press. ·kreb, Marko (1995), ‘Recent macroeconomic developments and financial sector changes in Croatia’, Moct-Most, 5(3): 37–52. ·titkovac, Ejub (1997), ‘Croatia: the first war’, in: Jasminka Udoviãki and James Ridgeway (eds), Burn this House: the Making and Unmaking of Yugoslavia, Durham: Duke University Press, pp. 153–73. ·varc, Jadranka (1999), ‘The need for a new university paradigm in an innovative society: implications for Croatia’, European Journal of Education, 34(3): 362–82. Tanner, M. (1997), Croatia: a Nation Forged in War, New Haven: Yale University Press. Taylor, A.J.P. (1948), The Habsburg Monarchy, 1809–1918, London: Hamish Hamilton. Tolstoy, N. (1980), ‘The Klagenfurt conspiracy’, South Slav Journal, 6(1): 6–22. UNHCR (2000), ‘Croatia’, http://www.unhcr.ch/world/euro/seo/croatia. htm. Vejvoda, Ivan (2000), Democratic depotism: Federal Republic of Yugoslavia and Croatia’, in: G. Pridham and T. Gallagher (eds), Experi-

Bibliography 171 1111 2 3 4 5 6 7 8 9 1011 1 2 3111 4 5 6 7 8 9 20111 1 2 3 4 5111 6 7 8 9 30111 1 2 3 4 5 6 7 8 9 40111 1 2 3 44111 45111

menting with Democracy: Regime Change in the Balkans, London: Routledge, pp. 219–37. Woodward, Susan L. (1995), Balkan Tragedy: Chaos and Dissolution after the Cold War, Washington DC: Brookings Institute. World Bank (2000a), Croatia: a Policy Agenda for Reform and Growth Volumes I & II, Zagreb: Albania and Croatia Country Office. World Bank (2000b), Croatia: Economic Vulnerability and Welfare Study, Zagreb: World Bank. Zako‰ek, Nenad (1997), ‘Political parties and the party system in Croatia’, in: Ivan Siber (ed.), The 1990 and 1992/3 Sabor Elections in Croatia: Analyses, Documents and Data, Berlin: Rainer Bohn Verlag, pp. 34–49. Zrin‰ãak, Sini‰a (2001), ‘Pokazatelji o sustavu mirovinskog osiguranja Hrvatske’, Revija za socialnu politiku, 8(3–4): 361–7.

1111 2 3 4 5 6 7 8 9 1011 1 2 3111 4 5 6 7 8 9 20111 1 2 3 4 5111 6 7 8 9 30111 1 2 3 4 5 6 7 8 9 40111 1 2 3 44111 45111

Index

Ahmic´i 67, 79 Albright, Madeleine 77 Arbour, Louise 80–1 arms embargo 40 Austro-Hungarian Empire 8, 11, 13 Badinter Commission 72 balance of payments 102–3; crisis 104 Bank Rehabilitation Agency 115 banking crisis 110, 115–16 Bic´anic´, Rudolf 19 Bihac´ 69 Bla‰kic´, Tihomir 80 Bleiburg 24 Bosnia-Herzegovina 8 Bosnian Croats 65, 67, 79, 144 Bosnian Serbs 67 Budi‰a, Drazan 31, 33, 43, 58, 60 Central European Free Trade Agreement (CEFTA) 104 Chetniks 22 Citizenship Law 36 Corfu Declaration 15 Council of Europe Development Bank 144 Croatian Army 47 Croatian Bank for Reconstruction and Development (HBOR) 98, 105

Croatian Banovina (Banovina Hrvatska) 18–19 Croatian Defence Council (HVO) 67 Croatian Democratic Union (HDZ) 34–5, 42–6, 48–9, 50–3, 57, 59, 61 Croatian Guarantee Agency 108 Croatian Health Care Fund 134 Croatian Health Care Institute 134 Croatian National Bank (CNB) 46, 91, 97 Croatian National Guard 39 Croatian Party of Pure Right 13 Croatian Party of Right 11, 12, 18 Croatian Peasant Party 11–13, 15–16, 21, 25, 43–4, 46, 49, 57 Croatian People’s Party (HNS) 43, 45, 57–8 Croatian Privatization Fund 99, 105, 117 Croatian Radio-Television (HRT) 51 Croatian Serbs 11, 41, 47, 65, 142–3 Croatian Social-Liberal Party (HSLS) 33, 42, 44–5, 48–9, 57, 60 Croatian Spring 31 Croatian Television (HTV) 56 Croatian Writers’ Union 29

174

Index

Croatian-Serbian Coalition 11, 12, 15 Cvetkovic´ government 19 D’Annunzio, Gabriele 15 Dabevic´-Kuãar, Savka 30, 43 Dalmatia 7–8, 9, 12–14 Dayton Agreement 69, 72–3 Dayton Peace Conference 71 Democratic Centre (DC) 59 devaluation 118 Development Fund 94 economic: crisis 109–10, 116; growth 100; stabilization programme 46, 95, 97–8 education reforms 136–9 EU PHARE programme 73–4, 78, 99 EU Regional Approach 73–4, 78 EU–Croatia Stabilization and Association Agreement (SAA) 58, 75–6, 78, 83–5 European Bank for Reconstruction and Development (EBRD) 46, 98, 102, 107 European Union (EU) 58, 60, 72–4, 76 Feral Tribune 52 foreign direct investment 103 foreign exchange reserves 97 Frank, Josip 11 Galbraith, Peter 68, 70, 77 general elections: in 1995 48; in 2000 55, 57, 81 general practitioners 133, 135 Globus 53 Granic´, Mate 51, 57, 59, 71, 80 grey economy 117, 125 Habsburg Empire 7–8, 11 Hague Tribunal (ICTY) 60–1, 77–9, 82 Headquarters for the Defence of the Homeland War 82

health care: costs 134; quasimarkets 135; reforms 132–6 Hebrang, Andrija 21, 23–4, 26 Hebrang, Dr Andrija (MP) 51 Herzegovinian Croats 44, 66–7 Herzegovinian lobby 47, 66, 71 Homeland War 40 housing: reconstruction 140; reforms 139–41 humanitarian assistance 73 Hungary 7, 9–10 import-led growth 118 independence referendum 38 Independent State of Croatia (NDH) 20 inequality 127 inflation 91–2, 96 interest rates 97, 120 International Monetary Fund (IMF) 46, 78, 96–7, 103 Istria 26 Istrian Democratic Assembly (IDS) 44, 48, 57, 60 Jasenovac concentration camp 21 Jelaãic´, Josip (Ban) 9; statue of 37 Jutarnji list 52 Khuen-Héderváry 10 King Aleksandar, assassination of 18, 20 King Petar 19 Knin 47, 69 Krajina 8, 11, 39, 41, 46, 68, 70–1, 79, 141 Krajina, Autonomous Province of Serbian Krajina 38 Krajina Serb Republic (RSK) 40, 47 Krajina Serbs 38, 68, 71 Kutle, Miroslav 52, 112–13 land reform 27 League of Communists of Croatia (SKH) 34

Index 1111 2 3 4 5 6 7 8 9 1011 1 2 3111 4 5 6 7 8 9 20111 1 2 3 4 5111 6 7 8 9 30111 1 2 3 4 5 6 7 8 9 40111 1 2 3 44111 45111

Maãek, Vladko 17–21 macroeconomic policies 91–2 managers’ loans 111 Maspok (Masovni Pokret) 30 media 51–3 Mesic´, Stipe 34, 36–7, 45, 58, 81–2 Military Frontier 8 Milo‰evic´, Slobodan 32, 36, 38–9, 49, 66 minimum wage 126 Ministry of Privatization 105 multi-party elections in 1990 35 Muslim-Croat alliance 68 Muslim-Croat Federation 71–2, 77 Nacional 53, 56, 112 Nagodba 9–10 National Council 14–15 National Party 10–12 NATO 83 new constitution, 1990 36 Operation Flash 69 Operation Storm 47, 69, 71, 79 Ottoman Empire 7–8 Partisans 21, 22–4 Partnership for Peace 83 Pa‰alic´, Ivic´ 52–3 Pa‰ic´, Nikola 14 Pavelic´, Ante 20, 24 Peasant-Democratic coalition 17 Pension Fund 94, 129–30 pensions 130 pension reform 128–32 poverty 125–8 Pribiãevic´, Svetozar 12–15, 17 Prince Paul 18, 20–1 privatization 55, 92–4, 99–100, 105, 107; laws 52; of the press 51; politicization of privatization 111; sales of shares 93; of social housing 139; vouchers 105 Privatization Agency 93–4

175

Privatization Investment Funds (PIFs) 105–6 Prodi, Romano 58 public expenditure 122–3 Pu‰ic´, Vesna 36 Raãan, Ivica 34, 57, 60, 76, 81 Radic´, Stjepan 11–17 Radio 101 50 reconstruction 91 refugee return policy 141–5 refugees 91 Reichl-Kir, Josip 39 Royal Dictatorship 17, 20 Sabor 7–8, 12–13 self-management communities of interest 121, 132 self-management planning agreements 122 Serbian Democratic Party (SDS) 35, 37, 41, 45, 57 Serbian Radical Party 12, 15, 17 Slavonia 9 small and medium sized enterprises (SMEs) 107–9 social card 126 Social Democratic Party (SDP) 42, 48–9, 61 social welfare 121 Srebrenica 69 Starãevic´, Ante 11 state control over the economy 94 Stepinac, Archbishop 25 Strossmayer, Josip 10–12 ·uba‰ic´, Ivan 24 Supilo, Franjo 12–13 ·u‰ak, Gojko 34, 44, 66 Tisak 52 Tito 22, 25 Todorovic´, Ivica 114 Tomãic´, Zlatko 57 tourism 89–90, 117 tourist industry 29 trade deficit 103

176

Index

Treaty of London 13–14 Treaty of Rapallo 15 Tripalo, Miko 30 Trumbiç, Ante 13 Tudjman, Franjo 28, 36, 39, 41, 44, 46–7, 49–51, 66, 69, 71, 77; death of 57 tycoon capitalism 110–14, 115 tycoon capitalists 56–7, 100 UN arms embargo 77 unemployment 100, 117, 119, 121, 126, 128 UNPROFOR 47, 68–9 UNTAES 70 US policy towards Croatia 77 Ustashe 20–2; regime 23–4

Vance Plan 40 Veãernji list 52 Venetian Empire 7–8 Vukovar 40, 88 war crimes 80, 82; Gospic´ 81 war damage 88–9, 122 Washington Agreement 68 Western Balkans 73, 75–6 workers’ self-management 28, 31 World Bank 46, 96, 98, 100, 102, 107 Yugoslav Committee 13–14 Yugoslav Communist Party 15, 22 Zagreb Summit 84 ZAVNOH 22–3