Knives Out for HDZ Cronies

Minutes after the out-going Croatian government wound up its last parliamentary session on January 27, the minister for tourism, Ivan Herak, was charged with embezzling 250,000 DM ($125,000) of state funds to pay off his wife's debts.

But Herak's alleged fraud was only the tip of an iceberg, as stories of crime, corruption and embezzlement, endorsed by the former ruling Croatian Democratic Union (HDZ) and its leader, the late President Franjo Tudjman, quickly began to unfold.

Just a few days after Herak's arrest, on February 3, Miroslav Kutle, one of the founders of the HDZ and a close associate of Tudjman, was also arrested. The sum Kutle is alleged to have embezzled far surpasses the amount that put Herak behind bars.

The new government is seeking to bring to justice those responsible for corruption and cronyism as part of efforts to revive the country's moribund economy.

Many of those now being investigated grew rich off the proceeds of privatisation. Industrial plants, factories, hotels, large agricultural enterprises and news agencies were bought up by a few chosen members of the HDZ.

The new owners either simply failed to pay for their new enterprises or purchased them using bogus credits. Croatia's fledgling tycoons continued in the same vain, never paying bills, sacking employees and running up massive debts.

Croatia is now in a catastrophic economic state, the scale of which has taken even the new government by surprise.

Unemployment has reached an astronomical 21 per cent, foreign debt has topped $9.5 billion and internal debt has climbed to around $14 billion.

Faced with such a huge crisis it is clear the new government must implement some painful economic measures. And it has begun to do so, albeit modestly, by leading from the front.

During its first parliamentary session, ministerial salaries were cut to 40 per cent of their pre-election level. Salaries for deputies were also slashed. Although these measures will not save vast sums of money, they reinforce the government's claim that times have changed and that those in power are prepared to share the economic hardships facing the public.

At the end of last year, the average salary in Croatia was around $424. Unemployment is rife. Even young highly qualified people struggle to find jobs. And thousands of those in work have not been paid for months on end. Emigration is the favoured option for many.

Expectations have been raised by the new government, but in the short term at least it may struggle to deliver significant improvements in living standards.

The International Monetary Fund has said the new administration will probably not be able to reduce taxes in the coming year. The IMF has also proposed a freeze on public sector salaries, expenditure on the police, defence forces, social services and reconstruction. The proposals have already sparked trade unions protests.

The new administration must introduce harsh and inevitably unpopular measures to turn the economy around. The exposure of new scandals involving former government figures and HDZ loyalists along with their prosecution may postpone public discontent, but it is unclear for how long.

Dragutin Hedl is a regular contributor to IWPR from Zagreb.