Croatia: Basic Facts

Croatia: Basic Facts

Order Code 95-668 F
Updated June 11, 2001
CRS Report for Congress
Received through the CRS Web
Croatia: Basic Facts
Steven J. Woehrel
Specialist in European Affairs
Foreign Affairs and National Defense Division
Summary
This short report provides background and analysis on Croatia, including its history,
current political and economic situation, foreign policy, and U.S. policy toward Croatia.
This report will be updated as events warrant.
Historical Background
After the collapse of the
Croatia at a Glance
Hapsburg empire at the end of
World War I, Croatia (most of
Area: 56,538 sq. km., slightly smaller than West
which had been under Turkish and
Virginia
Population: 4.78 million (1991 census)
Hapsburg rule since the 11th
Ethnic Composition: 78% Croat, 12% Serb, 10%
century) was incorporated into the
others (1991 census)
Kingdom of the Serbs, Croats and
Gross Domestic Product (GDP): $20.2 billion in
Slovenes (Yugoslavia). Croats
1999 (Economist Intelligence Unit)
favored a federation which would
Leadership:
afford them a great degree of
President: Stipe Mesic
autonomy, but the dominant Serbs
Prime Minister: Ivica Racan
imposed a centralized admin-
Foreign Minister: Tonino Picula
istration. In 1941, Hitler invaded
Defense Minister: Jozo Rados
and occupied Yugoslavia. He set up
a Croatian puppet state (including
large parts of Bosnia-Hercegovina) under the dictatorship of Ante Pavelic, the leader of
the Croatian fascist Ustashe movement. The Ustashe killed hundreds of thousands of
Serbs and members of other ethnic groups. After World War II, Croatia became one of
the six republics of the new Socialist Federal Republic of Yugoslavia, led by Communist
Partisan leader Josip Broz Tito.
With the collapse of communism in Eastern Europe, Croatia and the other republics
of Yugoslavia held their first multi-party elections in 1990. The nationalist Croatian
Democratic Union (HDZ), headed by Franjo Tudjman, won the majority of votes and
parliamentary seats. Croatia pushed for a de facto independent Croatia within a
Congressional Research Service ˜ The Library of Congress

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confederation with other Yugoslav republics, but was rebuffed by Serbia. Croatia held a
referendum on sovereignty on May 19, 1991. The referendum was approved by over 90%
of those voting (many ethnic Serbs in Croatia abstained). Croatia (along with neighboring
Slovenia) declared independence on June 25, 1991. Local Serb insurgents and the
Yugoslav Army seized about one-third of Croatia (mostly areas in which Serbs formed a
majority or a plurality of the population) with the goal of uniting these areas with Serbia.
The outgunned Croats agreed to the deployment of a U.N. peacekeeping force in
December 1991 to separate the two sides, but used the respite to build up their forces.
In May and August 1995, Croatia unleashed its revamped army against the Serb-held
regions of western Slavonia and Krajina, respectively, brushing aside U.N. forces and
killing several peacekeepers. Bosnian Serb forces and Serbia-Montenegro did not come
to the aid of local Serb forces, which were quickly crushed. Each offensive triggered a
massive exodus of Serbs from the conquered areas, emptying them of most of their
population. Serbs attempting to return to their homes were attacked by Croat mobs or had
their houses burned. Far from stopping the attacks, Croatian authorities moved Croat
refugees from other regions into abandoned housing. After the offensives, the final Serb-
held area, eastern Slavonia, agreed to be reincorporated in Croatia without bloodshed.
After a two-year transitional period under U.N. administration, Croatia assumed full
control of the region in January 1998.
Political Situation
From 1990 until 1999, Croatia was led by President Franjo Tudjman and his
nationalist Croatian Democratic Union (HDZ). Tudjman’s successes in securing Croatia’s
independence and restoring Croatia’s control over its territory made him popular with
many Croats. He won re-election as President in 1992 and 1997 by large margins.
According to the 1999 State Department Report on Human Rights Practices, Tudjman’s
regime, while nominally a democracy, had strong authoritarian elements. Opposition
parties and media were harassed, and official media slavishly praised the regime. Election
laws were manipulated to the HDZ’s advantage. Government cronies were given control
of lucrative privatized businesses. The popularity of the regime began to wane in the late
1990s, as Croatia’s independence appeared secure and the economic situation in the
country deteriorated. Croats were also angered by rampant high-level HDZ corruption
and cronyism. Moreover, many Croats appeared to feel that Tudjman’s autocratic, highly
nationalist regime was increasingly inappropriate for their country, which they wanted to
become a “normal” European state.

This shift in public sentiment caused a sea change in Croatian politics when Tudjman
died in December 1999, after a long bout with cancer. In January 2000, the HDZ suffered
a crushing defeat in parliamentary elections. An opposition coalition led by the former
Communist, center-left Social Democratic Party (SDP) and the center-right Croatian
Social Liberal Party (HSLS) won 71 of the 151 seats in the lower house of the Croatian
parliament. The SDP-HSLS coalition then formed a majority with a grouping of four
smaller center-right opposition parties (the Croatian Peasant Party (HSS), the Croatian
People’s Party (HNS), the Istrian Democratic Assembly (IDS) and Liberal Party), which
won 24 seats. The HDZ won 46 seats. The new majority formed a government headed
by SDP leader Ivica Racan.

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The parliamentary election was followed by presidential elections in late January and
early February 2000. Croatian voters again demonstrated their desire for change. In a
surprise result to many observers, Stipe Mesic, a former HDZ leader who broke with
Tudjman in 1994 over Tudjman’s support of Croat hardliners in Bosnia-Hercegovina, won
42% of the vote. HSLS leader Drazen Budisa finished second with 28%. HDZ moderate
Mate Granic finished third with 22%. In a runoff vote between the two leading candidates,
Mesic beat Budisa handily, 56% to 44%. Both Mesic and Budisa campaigned on a pledge
to break with the authoritarian excesses of the Tudjman regime and support Croatia’s
integration into Europe. However, observers say voters appeared to prefer Mesic’s
humorous, down-to-earth style, a sharp contrast with Tudjman’s aloof and many
detractors said pompous manner.
The new government has attempted to dismantle many of the most unpopular aspects
of the Tudjman regime. Shortly after taking office, President Mesic released Watergate-
style tapes from a recording system Tudjman had installed in his office. Although many
of the most damaging tapes had reportedly been destroyed before Mesic took office, the
ones that remained painted a sordid picture of cynicism and corruption that further
blackened the reputation of the former regime. In November 2000, with the support of
President Mesic, the Croatian parliament amended the Constitution to reduce the vast
powers of the Croatian presidency. The government has also tried to reform media laws
to make them more democratic and to prosecute corruption cases against the previous
regime (including against Tudjman’s daughter), but has not been able to make rapid
progress.
Economy
In 1993, Croatia embarked on an ambitious macroeconomic stabilization program
that cut inflation from 1,517% in 1993 to an estimated 3.6% in 1997. It also stabilized
Croatia’s currency, the kuna, which was introduced in May 1994. After years of decline
due to the effects of war and economic mismanagement (Gross Domestic Product
declined nearly 60% between 1989 and 1994), the economy began to recover. Croatia
embarked on a voucher privatization program, which turned most small and mid-size firms
over to private owners, mainly company management and employees. The privatization
of several large, “strategic” enterprises (in such areas as telecommunications, banking and
energy) has been slower. The Tudjman government handed over control of many key
firms to regime cronies. Some regime-linked businessmen mismanaged their firms and
stolen large sums from them. Many companies are heavily indebted and lack the capital
needed for restructuring. Bad debts to enterprises led to the collapse of several banks.
A key factor in the defeat of the HDZ in the January-February 2000 elections was the
deterioration of Croatia’s economy.

Since coming into power, the new government has cut spending, especially defense
spending and subsidies to the Bosnian Croat military, and reduced taxes. It has maintained
the previous government’s stress on price and exchange rate stability. Economic growth
has resumed. Gross Domestic Product increased by 3.5% in 2000. However,
unemployment remains high at 15.4% in 2000 and living standards have not shown
dramatic improvement as yet, which has contributed to a decline in the government’s
popularity. In 2000, Croatia joined the World Trade Organization. In a vote of
confidence in its policies, Croatia received a $250 million stand-by loan from the
International Monetary Fund in March 2001.

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Foreign Policy
During the Tudjman era, Croatia’s relations with Western countries were often
difficult. Tudjman’s authoritarianism and nationalism often put him at odds with Western
objectives. On the other hand, Tudjman viewed his country as part of the West, and
sometimes made grudging concessions in an effort to gain acceptance, aid and to head off
possible sanctions. Western officials demanded more respect for democracy and human
rights in Croatia. They called for real progress in returning Serbs refugees to their homes.
Western countries also demanded that Croatia cooperate fully with the International
Criminal Tribunal for the Former Yugoslavia (ICTY). One particular area of dispute
between Western countries and Croatia was the West’s demand that Croatia compel its
Croat allies in Bosnia-Hercegovina implement the Dayton Peace Accords (DPA). Croatia
provided large amounts of material aid, advice, and personnel for Bosnian Croat military
forces during the Bosnian war, and continued to do so after the war. Critics charged that
while providing lip service to the DPA’s goal of an integrated Bosnia, Tudjman had built
a client state within a state, in hopes of one day breaking it away from Bosnia and merging
it with Croatia.
The new Croatian government has stressed that its main foreign policy goal is
integration into Western institutions. The new government has vowed to bring greater
democracy to Croatia, including reforming media laws. The new government has pledged
to allow all Serb refugees to return to their homes. Progress on this issue has been
modest. Only about 80,000 of the 300,000 Serb refugees or displaced persons have
returned to their homes, in part due to the lack of an administrative and legal framework
to permit refugees to quickly regain possession of their property. In February 2001,
President Mesic said that Croatia has cut off all funding to the Bosnian Croat military.
Analysts note that Tudjman’s support for Croat separatism in Bosnia-Hercegovina was
largely due to the presence of Hercegovina Croats among his senior advisors and cronies.
The policy had little real support among most Croats in Croatia. Croatia’s new leaders say
that Croatia does not want a special relationship with Croat-majority areas of Bosnia, but
would like a good relationship with a unified Bosnia. In March-May 2001, Bosnian Croat
hardliners attempted to secede from the Federation of Bosnia-Hercegovina (one of the two
semi-autonomous “entities” within Bosnia). The effort failed, in part due to the firm
opposition of Croatia and the international community.
The new government has cooperated more closely with the ICTY than the Tudjman
regime. In March 2000, the new government turned over indicted Bosnian Croat war
criminal Mladen “Tuta” Naletilic to the ICTY despite public outrage in Croatia against a
45-year sentence handed down a few days earlier by the court against Bosnian Croat
military leader Tihomir Blaskic. In September 2000, the Croatian government arrested five
Croats for war crimes against Serbs during the war in Croatia. In February 2001, Mirko
Norac, a former Croatian general, was arrested by Croatian authorities on war crimes
charges against Serb civilians in Croatia in 1991. In April 2001, ICTY investigators
exhumed the bodies of Serb civilians killed by Croatian forces in Krajina in 1995. Croatian
and ICTY investigations of war crimes committed in Croatia have created tensions within
Croatia’s military, civilian population, and in the Tribunal’s relations with the Croatian
government. Croatian leaders have expressed fears that the ICTY could indict
commanders of Croatia’s successful military campaign to retake Serb-held regions of
Croatia in 1995. While most Croats have little wish to shield Bosnian Croat war criminals
or those who committed individual atrocities in Croatia, the vast majority of Croats

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strongly support the war of independence from Yugoslavia and object to prosecutions of
senior officers that could bring their victory into disrepute.
Western officials applauded the new government as a hopeful sign for Croatia and the
region. In a sign of their support, Croatia was admitted to NATO’s Partnership for Peace
program in May 2000. Croatia’s long-term goal is to join NATO. In May 2001, Croatia
joined the Visegrad group of 9 (now 10) Central European aspirants to NATO
membership. Croatia wants to join as soon as possible NATO’s Membership Action Plan
process, which helps aspirants improve their qualifications as possible NATO members.
Croatia also wants closer ties with the European Union, with the goal of eventual
membership. In November 2000, the EU held a summit of EU and Balkan leaders in
Croatia’s capital, Zagreb, to signal its approval of the changes in Croatia. In May 2001,
the EU initialed a Stabilization and Association Agreement with Croatia. The SAA
cements a closer relationship between the EU and Croatia, including a six-year transition
to a free trade area and a promise by Croatia to bring its laws up to EU standards. It also
holds out the prospect of eventual EU membership for Croatia.
U.S. Policy
U.S. officials hailed the victory of democratic forces in Croatia in January-February
2000 as the most hopeful development in the Balkans since the Dayton Peace Accords.
They say Croatia could develop into an anchor of stability and an engine of economic
growth in the region. In a June 8, 2001 meeting with Croatian Foreign Minister Tonino
Picula, Secretary of State Colin Powell welcomed Croatia efforts to improve its relations
with Bosnia and with the new democratic government in Serbia. He also welcomed
Croatia’s steps to cooperate with the ICTY and said that these efforts should continue.
Powell stressed the importance of the return of refugees to their homes in Croatia,
according to a State Department spokesman. Powell expressed U.S. support for Croatia’s
efforts to become a stable, democratic country with a free market economy that will be
attractive to foreign investors, as well as Croatia’s efforts to become more closely
associated with Euro-Atlantic institutions.
From FY1992 to FY1999, the United States obligated $95.8 million in aid to Croatia
under the Support for East European Democracy (SEED) Act. SEED technical assistance
is being used to help strengthen Croatia’s financial markets; and to bolster political parties,
independent journalism, and local non-government organizations.1 The United States has
sought to bolster the new government with increased assistance. Croatia received $36.2
million in SEED aid in FY2000, and is projected to receive $44.527 million in FY2001.
The Bush Administration requested $45 million in SEED aid for Croatia in FY2002.
Croatia received $4 million in Foreign Military Financing in FY2000 and is projected to
receive $3.98 million in FY2001. The Administration has asked for $6.2 million in FMF
for Croatia in FY2002. Croatia received $514,000 in IMET military training aid in
FY2000 and a projected $525,000 in FY2001. The Administration has requested
$600,000 for FY2002.2 U.S. political and economic aid is targeted at expanding technical
assistance to help Croatia plan and carry out economic reforms, as well as assist the return
1 SEED Act Implementation Report, Fiscal Year 1999, March 2000, Appendix.
2 U.S. Department of State, International Affairs, Function 150: Summary and Highlights, FY
2002 Budget Request.

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of Serb refugees to Croatia. The FMF and IMET aid is aimed at helping Croatia reform
its armed forces and participate in Partnership for Peace activities. Croatia will be eligible
to receive U.S. Excess Defense Articles in FY2002.
In February 2000, the United States opened offices of the Trade and Development
Agency and the Overseas Private Investment Corporation (OPIC) in Croatia. OPIC has
established a $150 million fund to invest in businesses in the region, including Croatia.
The TDA will provide feasibility studies for investment projects. Croatia is part of the
Generalized System of Preferences (GSP) program, under which a wide range of Croatian
products can enter the United States on a duty-free basis.
Austria
Varazdin
Hungary
Koprivnica
Ljubljana
Bjelovar
Slovenia
Zagreb
Virovitica
Ivanic-
Grad
Serbia
Osijek
Uljanik
Nasice
Sisak
Karlovac
Pakrac
Slavonska
Vukovar
Rijeka
Glina
Pozega
CROATIA
Porec
Vinkovci
Slavonski
Labin
Omisalj
Brod
Slunj
Krk
Senj
Krk
Cres
Otocac
Pula
Pag Karlobag
Gospic Udbina
Bosnia and
Hercegovina
Zadar
Dugi
Knin
Otok
Sarajevo
Sibenik
Sinj
Split
Italy
Brac
C ro a t i a
Hvar
Ploce
Capital
Poluotok
Korcula
Montenegro
Peljesac
City
Ston
Mijet
International border
Dubrovnik
0
70 km
0
50 mi
Adapted by CRS from Magellan Geographix.
3-00

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