IMF and Sanader

[Ivo Skoric]

http://www.nytimes.com/reuters/international/international-croatia-
cabinet.html

In yesterdays article (Reuters / New York Times) about the change of 
government in Croatia, Ivo Sanader is generally given a passing mark, 
by being called a "pragmatic technocrat" (which in the West is not an 
insult, like it use to be in the communist former Yugoslavia, where 
people in the 1970's even got jail-time for being labeled 
"technocrats"), albeit cautiously because Sanader is HDZ, and HDZ is 
Tudjman's party, and Tudjman - "the hardline nationalist" - was never 
considered a good guy by the NYT.

More interesting is to read the article "between the lines" to see 
what worries does the liberal capitalist West still really have 
regarding Croatia.

1) The HDZ brought Croatia "to international isolation because of its 
defiance of the West and poor human rights"  -> while I am not 
particularly fond of Tudjman's HDZ, I don't see how the NYT got to 
that conclusion, because a) Croatia was never under international 
isolation after 1991 - there was criticism, threats, etc. - but never 
isolation, b) Tudjman never defied the West - he did moves that 
angered the West a bit, but he always bowed to pressure when needed, 
c) while human rights record of Tudjman's Croatia was not exemplary, 
it is hard to - reading the comprehensive Human Rights Watch reports -
 label it POOR (particularly in light of other regional countries 
whose h.r. record was judged by HRW comparatively worse to 
Croatia's).

2) >>Political analyst Davor Gjenero said Sanader had secured his 
cabinet a peaceful start until the 2004 budget is passed in late 
March. ``Only after that, and after getting the EU's opinion on our 
candidacy, shall we see his administration's true face.''
An editorial in Novi List daily said the cabinet lacked ``big names. 
It is therefore hard to know what to expect.''<< This is trying to 
find reasons why Sanader would fail. A country of 4.5 million does 
not have many big names, so it is reasonable to expect that its 
administration would fall on the backs of less renowned 
personalities. Gjenero is right - but then, that truth holds for any 
government anywhere in the world.

3) >>Local media has suggested the new government will receive four 
new indictments from the United Nations war crimes tribunal in The 
Hague in January.
Cooperation with the tribunal is key to Croatia's EU candidacy and 
anything short of handing over the suspects will put Sanader on a 
collision course with Brussels.<< That's the perennial Damocle's 
sword over any government of Croatia. The warning is out: Sanader 
will have a choice between appeasing the domestic right wing 
constituency by hiding war crimes suspects, or appeasing the 
Eurocrats by sending the suspects to The Hague. Any Croatian prime 
minister would have the same choice. Conventional wisdom is that 
Sanader, because he is HDZ, will protect the war crimes suspects from 
The Hague. That's where his opponents wait for him to break. But we 
should not rush to judgement so soon - because he is HDZ, Sanader 
may, on the other hand, paradoxally, have easier time sending them to 
The Hague... He may build his right wing credentials elsewhere - 
civil rights activists in Croatia better be on lookout for where that 
is going to be!

4) >>Finance Minister Ivan Suker, a former tax expert, will have to 
balance election promises of higher pensions and benefits with 
announced tax cuts.
Suker told state television this week the cabinet will most probably 
vote at its first session to cut value added tax to 20 percent from 
22 percent -- a move seen as potentially risky by the International 
Monetary Fund. <<
Ah, the sweetest part was saved for the end of the article. Why would 
a bastion of laissez-faire capitalism, like IMF, find it potentially 
risky for a small country to cut its atrociously hight sales tax? 
22%! No governor of any American state would survive passing a 22% 
value added tax in his legislature. People would put him in the 
mental institution under close observation. Croatia's and 
international economists widely agree that 22% VAT hampers Croatia's 
economy, turns away investors, slows down economic growth, increases 
unemployment - in general the tax should have been cut from 22% to 
12%, yet the new government would do it just to 20%, and even that 
move is seen "potentially risky" by the IMF. The IMF should be in 
favor of cutting the tax if it is interested in healthy growth of 
Croatian economy. Sadly, the IMF is only interested in Croatia's 
ability to re-pay its foreign debt and interest - and those payments 
are largely financed by the outrageously high VAT. IMF is afraid that 
if the VAT is reduced, Croatia may default on the debt payments. 
Which may hold true in any case - given the size of the debt (big) 
and the size of the economy (small). That has nothing to do with VAT. 
It has everything to do with the lack of Marshall Plan for the 
Balkans. Countries devastated by wars, sanctions, and bad governance, 
simply cannot be expected to function well on loans. That was 
understood in 1945, but it seems that the West and IMF refuse to 
understand that now. Countries that helped precipitate the fall of 
former Yugoslavia and encouraged independence movements in its 
constitutive parts, are under moral obligation now to make this part 
of the world economically and politically stable. Pushing those 
emerging democracies in debt severally times larger than the size of 
their economies will not bring peace and stability to Europe.

ivo