Croatia: Hotels Sell-off Row Threatens Coalition

A privatisation dispute may have grave political implications for the ruling Social Democrats.

A row over the privatisation of a hotel complex on the Adriatic coast could lead to the collapse of Croatia's ruling coalition and a shift in the balance of power.

A dispute between parliamentary speaker Zlatko Tomic's Croatian Peasant Party, HSS, and Prime Minister Ivica Racan's Social Democrat Party, SDP, about the sale of the Suncani Hvar Hotels firm has been rumbling for some time and appears to be coming to a head.

Observers have warned that if neither side is prepared to compromise, the issue could lead to the end of the already-fragile coalition, forcing early parliamentary elections. It could also mean the resurgence of the far-right Croatian Democratic Union, HDZ, if the HSS decides to switch its allegiances as a result of the row.

The government, labour unions and local authorities have been discussing the problem since last Friday. A final decision on the company - based on the well-known tourist island of Hvar - is expected next week.

SDP ministers are in favour of selling the company to the Terme Catez Slovenian hotel chain, which has offered the highest bid - 10 million euro for 62 per cent ownership, plus a 70 million euro investment over the next decade - and has promised to retain the existing employees and increase their wages.

Although the Croatian privatisation agency has approved the deal, the HSS has been digging its heels in for more than a month - effectively forcing the government to postpone its decision until a consensus is reached.

The HSS wants the island authorities and workers to gain a controlling interest in the company, arguing that both had financed the construction of the hotels through local taxes and voluntary contributions.

Hvar's mayor Zoran Domancic, an HSS member, told IWPR, "This company was created through the investments and efforts of Hvar citizens - and their interests should be protected by the party they elected."

Business analysts argue, however, that the HSS's proposition would only be feasible if the company was not in debt. And as the Croatian tourist industry was decimated by the Balkan wars and is only now beginning to recover, there are very few profit-making ventures left.

The government, it seems, cannot spare extra funds for the HSS plan, which would require a substantial state investment in order for it to work. "We simply have no money to invest in hotels," said Deputy Prime Minister Slavko Linic.

Analysts believe that the HSS is using Suncani Hvar to promote itself up as a protector of disadvantaged citizens - boosting its support and influence ahead of the parliamentary elections scheduled to take place before the end of 2003.

But while the majority of the island's population supports the party's move, the hotels' employees themselves are in favour of privatisation - as they stand to benefit financially if the sale goes through.

For Racan and the SDP, the affair may do more than lose them an important coalition partner. They run the risk of being accused of selling too cheaply- a charge that was often levelled at the former regime of the late president Franjo Tudjman.

On the other hand, if the sale is cancelled, potential buyers and investors may be discouraged from doing business with Croatia.

Should the privatisation lead to early elections, the SDP may lose power if the HSS joins forces with the HDZ. Neither the SDP nor the HDZ, the two biggest parties, would be able to secure an absolute parliamentary majority on their own, and the support of the HSS could tip the scales in favour of one or the other.

With so much hanging in the balance, the government may have to opt for compromise - selling only part of the Suncani Hvar Hotels group to the Slovenes in an attempt to placate the local HSS-run authorities.

Goran Vezic is a journalist with the STINA news agency in Split

Locations Croatia