Mmd Political Overview Croatia

The Croatian Cross-road: Where next? The sudden and unexpected resignation by Croatian prime minister Ivo Sanader stirred the country’s political scene and shed new light on internal and external problems, leaving new prime minister Jadranka Kosor to confront the realities of the economic crisis, budget deficit and obstacles preventing European Union accession. by Natasa Trslic Stambak, Director, Mmd Croatia Late in the evening on 6 July 2009, after a day of passionate debate, the Croatian Parliament approved a new centre-right coalition cabinet headed by Jadranka Kosor which put an end to one of the most intriguing moments in Croatia’s recent history. The decision was triggered by the sudden and unexpected resignation of Ivo Sanader as the nation’s prime minister and president of the Croatian Democratic Union (HDZ) political party on 1 July. The public was shocked by Sanader’s move coming at an untimely moment with the country in the midst of economic and political turmoil. With presidential elections scheduled later this year, the decision gave credence to rumours about Sanader’s presidential aspirations. However, following his announcement, Sanader named Jadranka Kosor – a loyal colleague for many years – as successor to both positions, and proposed Andrija Hebrang – leader of the party’s right wing – as the HDZ presidential candidate. Following the announcement, the proposed new leadership acted quickly. By Saturday 4 July, Jadranka Kosor was unanimously elected as the new HDZ president during the party’s general convention in Zagreb; and on Monday 6 July the Croatian Parliament backed the nation’s eleventh government since independence from the former Yugoslavia in 1991. The new Kosor government differs only slightly from the Sanader administration; the major changes being the return of the Ministry of Agriculture to the HDZ, while coalition partner HSS (Croatian Peasant’s Party) was instead given a vice-presidential position in the government as well as the Ministry of Regional Development. Cunning spin or avoiding issues? As Ivo Sanader failed to provide clear reasons for his drastic decision, speculation and rumour multiplied by the second: from the PM’s health problems and major political disagreements within the governing coalition to mafia blackmail.

Although some believe that Sanader’s resignation represents a temporary departure from the political scene – amounting to a

Chronology, 1-6 July 2009 PM Ivo Sanader announced his resignation and withdrawal from politics on 1 July. He proposed Jadranka Kosor to be his successor as PM and as President of the HDZ Jadranka Kosor mandated by President Stjepan Mesic to form new coalition Government, 3 July On 4 July at the HDZ general convention Kosor unanimously elected as the new President of the HDZ by 10,000 HDZ delegates On 6 July the Croatian Parliament approved new centre-right coalition cabinet headed by Jadranka Kosor. She was backed by 83 MPs in the 153-seat assembly, while 45 voted against her

cunning move with the goal to prepare a more favourable platform for the presidential race scheduled in the autumn this year – there are more people convinced that Sanader is running away from the ever growing pile of problems resulting from his leadership of the country since 2003. Sanader’s withdrawal could have been triggered by both internal and external factors. During his speech at the recent HDZ convention, the former prime minister directly accused Slovenian politicians for halting Croatia’s aims for EU accession. This is significant as Sanader started his second mandate as prime minister in January 2008 making Croatia’s entry to the EU and NATO his priorities, while committing internally to the implementation of reforms in the public and judicial sectors, anticorruption measures and the fight against organised crime. However, it soon became clear that the coalition government lacked the strength to address these internal issues, leading Sanader instead to focus on EU and NATO integration. Slovenian veto threatens Croatia’s EU aspirations Preparations for NATO entry went smoothly and Croatia celebrated its formal entry on 1 April 2009. Just as NATO preparations reached the final stage, EU negotiations faced an unexpected obstacle when Slovenia vetoed 13 chapters of the accession treaty, centring on border disputes with its neighbour. In addition, several other EU states are reticent to approve Croatian accession after Serge Brammertz, the chief prosecutor of the Hague Tribunal, criticised Croatia for its failure to deliver military files (artillery diaries) from Operation Storm. However, it is the Slovenian question that is perceived by the Croatian public as the cause closing Croatia’s accession talks tentatively scheduled for the autumn. After several failed mediation attempts by EU enlargement commissioner Olli Rehn, the bloc decided to withdraw from accession negotiations with Swedish foreign minister Carl Bildt, whose country took over the EU presidency on 1 July, stating that the dispute between Croatia and Slovenia is a bilateral issue and the responsibility for solving it lies between the two countries themselves. Thus, the date of Croatia’s EU entry became uncertain. New PM Jadranka Kosor emphasised that EU accession remains a priority and stated that Croatia will make all necessary undertakings to finalise negotiations as soon as Slovenia unblocks Croatia’s EU application. Hence, the country’s officials still hope that negotiations will close late in 2009 or early 2010, with accession deferred to 2012. Croatian economy in crisis Croatia has also confronted major economic issues, not solely related to the global recession. Major structural issues have been neglected for many years with critical topics including: significant foreign debt of almost EUR 40 billion in 2009; the failure to complete the privatisation of industry sectors such as shipyards; the slow implementation of measures to enhance market competition; and finally the issue of corruption and organised crime. Croatia's GDP fell 6.7 per cent year-on-year in the first quarter, the first decline since 1999 and throwing doubt on Government forecasts. Namely, the Government has refused to admit that the country may face economic crisis with vice-prime minister Damir Polancec bravely forecasting 4.5 per cent GDP growth late last year. Very soon his forecasts were seen as unrealistic and the 2009 state budget was drafted on the basis of two per cent GDP growth. Already in March 2009, the Government was forced to make budget amendments based on a two per cent contraction of the economy and on estimated decline in tourism revenues.

As one of its anti-recession measures, the Government in May issued a record EUR 750 million in state bonds. This was, given the circumstances on the international market, celebrated as a success and recognition of Croatia’s economic and monetary policy. The money was primarily intended to repay foreign debt and to meet gaps in the state budget following declining revenues.

New Government The Kosor coalition Government differs only slightly from the previous administration, bringing in only four new names:

Zeljko Rohatinski, governor of the central bank (who takes credit for Croatia avoiding the crisis in 2008, when many other European economies already stumbled), thinks that the annual decline in 2009 GDP will be around five per cent. Two factors that Rohatinski will insist upon to ensure economic stability are a low inflation rate (forecast at 2.8 per cent) and a stable Kuna exchange rate (set at HRK 7.5 for one Euro).

Four Deputy Prime Ministers in the new coalition Government are: Damir Polancec (HDZ) who is also Minister of Economy; Bozidar Pankretic (HSS) who is also a Minister of Regional Development, Forestry and Water Management; Slobodan Uzelac (SDSS); and Djurdja Adlesic (HSLS).

Can Jadranka Kosor meet the challenge?

Radovan Fuchs, who was until now a State Secretary in the Ministry of Science, Education and Sport replaced Dragan Primorac who resigned as minister.

These pessimistic forecasts make budget amendments a necessity, as well as much more substantial reforms if the country is to enter the EU. Therefore, the first task of PM Kosor’s coalition government is to work on rebalancing the budget – and this time to make deep cuts in expenditure, including the salaries of local officials (such as mayors and county heads), removing free school books or reconsidering the ban on public smoking. This budgetary rebalance, currently discussed in Parliament, will only save around HRK 800 million – a drop in the ocean. Hence, a new more severe budget amendment will take place this autumn. The government will likely be forced to cut state subsidies – currently expending over HRK 7 billion (the majority of which are supporting agriculture and Croatian railways). This may result in faster-paced reform of the healthcare and pension systems that currently expend more than HRK 60 billion per year (over 50 per cent of the state budget). Croatia may therefore need to seek IMF support – a much dreaded solution in the eyes of both the government and the public. As a result, PM Kosor and her government need to act quickly and firmly, but it is unclear how the public will accept more substantial change and steeper cuts. A potential problem for Kosor might be the relationship with coalition partner, the Croatian Peasant’s Party (HSS), which will object to further cuts in the agricultural sector. It is left to be seen whether the government will be able to overcome the differences or if there will be mid-term parliamentary elections. Whoever governs Croatia in the coming years will be forced to say farewell to populist politics and commit to essential reform. If not, Croatia will find itself in even deeper crisis – and further away from EU accession. Ends.

The new Minister of War Veterans, Family Affairs and Inter-Generational Solidarity, replacing Kosor’s previous role is now Tomislav Ivic. The Kosor cabinet introduced a new ministry: Ministry for Public Services and Administration led by Davorin Mlakar. Bianca Matkovic entered the new Government as Minister without portfolio. Petar Cobankovic, former Minister of Regional Development, is now a Minister of Agriculture, Fishery and Rural Development – a crucial change which brought this ministry back to the HDZ. The Ministries of Foreign Affairs, Interior, Justice and Defence will remain with Gordan Jandrokovic, Tomislav Karamarko, Ivan Simonovic and Branko Vukelic respectively. Ivan Suker stays at his post in the Ministery of Finance; Bozidar Kalmeta assumes the post of Minister of Maritime Affairs, Transport and Infrastructure; Darko Milinovic is nominated as Minister of Health and Social Welfare; Bozo Biskupic is Minister of Culture while Marina MatulovicDropulic is Minister of Environmental Protection, Zoning and Construction. All come from the ranks of the HDZ. Damir Bajs (HSS) again assumes office as Minister of Tourism. Overview prepared by Robert Skunca, Mmd Croatia