"Buying the Istrian goat": regionalism and the economy in Croatian Istria.

Publication: East European Quarterly

Publication Date: 22-SEP-05

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COPYRIGHT 2005 East European Quarterly

The political scientist Janusz Bugajski labeled the 1990s the "springtime of ethnicity" in Eastern Europe due to the widespread resurgence of ethnonationalism and the politicization of national identities in the region. (1) New nationalist parties used the political and economic crises of the late 1980s and early 1990s as justifications to bring down many of the communist regimes. The nationalists were successful in mobilizing their target populations by creating overly optimistic political, social, and economic platforms and programs, which seemed to provide historical legitimacy and personal and group stability in this period of confusion and destabilization. (2) Once in power many of the nationalist or newly nationalist leaders knew little of governing, or were one time communists and only familiar (or even comfortable) with a one-party system. (3) Because the new elites were so insecure with their newly won power and positions and generally inexperienced with multiparty democracy, internal resistance to the nationalist program was labeled as subversive or even traitorous. Those who did resist or expressed other forms of identity were seen as "outsiders" who did not belong within the "national territory." (4)

Regardless of the implied threat emanating from the center, opposition against the new nationalization and centralization was evident. In 1990, one of the most successful non-national resistance movements in Eastern Europe appeared in the newly independent Republic of Croatia on the Istrian peninsula. The movement led by a regional party, the Istrian Democratic Assembly (IDS), resisted the nationalization and centralization policies of the ruling party, the Croatian Democratic Alliance (HDZ).

But questions arise as to why a significant proportion of the Istrian population followed a questionable party with, at first, ill-defined goals. It seems highly unlikely that a geographically specific group would suddenly become very antinationalist and politically active without some underlying reason or reasons to spark such outspoken vigor against a supposedly liberating national movement. And why would these individuals support the tenuous platform of a regional party, when clearly no historical precedent for such a movement existed at any time in Istria? (5)

Though there is no single answer to this question, one explanation is evident: the long-term economic crisis in Istria and Croatia as a whole. Many Istrians, fearing a total collapse of the economy in this time of rebellion and war in Croatia, looked to alternative ways to maintain the civility and stability upon which the regional economy depended. While the HDZ and the other nationalist parties of Croatia mobilized the population to fight against the Serbian rebels and their allies, the regional movement and the IDS seemed to offer a road to peace, outside the nationalism that dismembered Yugoslavia and alienated its successor states from the West. Furthermore, the war itself and the HDZ's reputation for corruption and hard-line centralism facilitated the regional party's growth. The IDS called for the building of a strong regional economy and sought Western European and American protection from the exploitation of the central state. Thus, it was perceived that the IDS offered the inhabitants of Istria an option that was an alternative to the instability precipitated by the national movements.

Istrians primarily resisted the ruling national party and supported the regionalists due to three major economic factors. First, Istria, as a constituent part of the Croatian republic during the communist period, experienced many of the problems associated with a semi-planned and centrally organized country. The economic crisis that hit Yugoslavia in the late 1970s and plagued the state throughout the 1980s led the more developed parts of the federation to push for more autonomy, while Belgrade and the undeveloped or underdeveloped regions responded with calls for increased centralism. While the Istrian economy did not suffer as much at the remainder of Croatia, Istrians did experience uncertainty about their futures and resented the centralistic policies of Belgrade, which they saw as socially, politically, and economically regressive. During dissolution and shortly after independence, Istrians wanted the Croatian government to decentralize, but much to their chagrin, the ruling party implemented a number of centralizing programs that were reminiscent of those from Belgrade in the previous system. For many Istrians a bad Yugoslavian economic policy was replaced by a worse Croatian one. (6) The outbreak of open violence and war would only exacerbate the situation.

Second, because of the uncertain political situation and war in Croatia and Bosnia-Hercegovina, and the ruling party's support of the illegal statelet of Herceg Bosna, Istrians feared a long-term economic crisis. Both the Croatian and the Istria economies suffered terribly due to the instability sparked by the two armed conflicts. Many Istrians were against these conflagrations, especially the Croatian involvement in Bosnia-Hercegovina, and they resented that resources were funneled into fighting and not into local and regional development. On top of this economic drain, tourism, so critical to Istria's economy, all but collapsed. Because of the political instability and rebellion in Croatia, the tourist industry all but collapsed, making Istria economically dependent on a new country, which had already endured a prolonged economic crisis as a republic in Yugoslavia. Foreign investment, too, could not be secured for these same reasons, severely limiting the possibilities of economic recovery and renewed prosperity. (7) Not wanting any part of the crisis in Bosnia-Hercegovina, the majority of Istrian voters supported a regional movement in the hopes of quickly improving its economic position.

Finally, the HDZ acquired a well-deserved reputation for massive corruption, not only among Istrians and Croats, but among Western Europeans as well. Because of this perception of corruption and the West's seeming abandonment of the country, many Istrians saw the HDZ as a barrier to economic stability and a successful future. The projects it did allow were often rife with nepotism and other forms of graft. Furthermore, many Istrians believed that the centralist program of the ruling HDZ dealt only peripherally with economic issues and had no tangible plans for development and economic recovery, whereas the IDS focused directly on the improvement of the Istrian economy and less on the mobilization of the population by ethnicity. Because of its focus on the nation and nationalism, the HDZ lost much of the support it gained from Western European countries during the Yugoslavian People's Army (JNA) attack on the breakaway state. Most Istrians believed that making connections to Western Europe was essential in overcoming the economic crisis in Croatia, and therefore the HDZ was not the party to support due to foreign criticisms of the centralizing ruling party. (8) Thus the HDZ was widely perceived as an obstacle to economic recovery and future prosperity while the IDS generally was not. These perceptions allowed the IDS to maintain enough voter support in all elections after 1990 to challenge the HDZ in Istria as voters tried to remedy the economic problems in their region.

Failing Economies in Yugoslavia, Croatia, and Istria

The 1990s economic crisis had its roots in the mismanagement of the communist system. During the Cold War, Yugoslavia held a privileged position between East and West, as it received huge loans from the West to keep the country out of the Soviet sphere of influence. Even with the influx of foreign credits, Yugoslavia experienced a steady economic decline throughout the 1970s even though some indicators showed growth. Between 1973 and 1979, it appeared that the Yugoslavian economy was experiencing real growth, averaging 6% per year and was significantly higher in the more developed regions and republics. (9) Furthermore, throughout the 1970s most Yugoslavs experienced a rising standard of living based on this falsely bolstered economy. But these figures were very deceptive. For example, from 1956 to 1970 exports only amounted to 69.3% of the total imports. This percentage would decrease in the 1971-5 period to 56.4%. (10) The loans and credits only buttressed an economy that could not hold its own in the European and world markets. With the reduction in these stop-gap loans, this deceptive growth rate plummeted dramatically to 2.2% in 1980 and further fell in 1981 to 1.4%. (11) When the borrowing well completely dried up, an economic crisis ensued that eventually led to dissolution. (12)

To meet the Western demands for guaranteeing and servicing the staggering debt, Yugoslavia had to put a substantial and increasing percentage of its revenue into financing it. By 1980, Yugoslavian debt was over $17 billion (20% of its foreign earnings), (13) and by 1983, debt obligation increased to $5 billion. (14) As a consequence of this, the value of the dinar, the Yugoslavian currency, fell dramatically, sparking uncontrollable inflation. (15) Annual inflation rates soared from 14% in 1978 to 58% in 1983 to 80% in 1985. (16) Businesses, too, suffered, allowing for stagflation, which characterized the economic situation throughout the 1980s. (17)

The people, too, felt the economic crunch as the value of the dinar fell and businesses faltered. Prices rose dramatically while wages could not keep pace. Prices jumped 30% in 1980 and another 40% in 1981, as real earnings fell 12% in the same period. (18) In all, consumer prices rose 108.7% in the 80s, and in 1989 alone, they jumped 58.8%. (19) With the loss of the credits and loans plus the high rates of inflation, the Yugoslavian and Croatian economies could not support the artificially high employment rate, and businesses started to trim their number of employees. Unemployment increased by 15.3% in this decade (20) at a time when the gastarbeiters were returning from Western Europe due to the general European economic decline, driving the numbers well beyond the state's capacity to aid unemployed workers. Because of the high inflation, the decline in the value of the dinar, and the soaring unemployment rate, the 1989 standard of living fell dramatically to the same level it had been in the 1960s. (21) In fact, in 1990, rising food prices exceeded real wage increases across Yugoslavia, further decreasing the standard of living. (22)

To sum up the situation, the Yugoslavian economic decline was disastrous. By the end of 1989, the annual inflation rate rose 1500%, unemployment stood at 20%, and hard currency debt was over $20 billion. (23) Due to all of these unresolved problems Yugoslavia lost its advantage as an inexpensive place to shop, and the tourist industry, the bread and butter of the Istrian peninsula, sailed into the economic doldrums. (24) The economic situation would become substantially worse in Croatia and Istria throughout the next decade.

The Wartime Crises in the Croatian and Istrian Economies

By 1988, the factors for total economic stagnation were in place, and the prospects for future development looked grim throughout Croatia. (25) The gross national product (GNP) per capita of the republic decreased from $7350 in 1980 to $5820 in 1991. Within Yugoslavia, Croatia's GNP contribution to the federation decreased from 13.1% in 1988 to 9.9% in 1991 because of the failures inside the republic. (26)

One of the most important factors that caused the almost total collapse of the Croatian and Istrian economies in the early 1990s was the political instability and outbreak of violence during the dissolution of Yugoslavia. (27) At the beginning of the war in 1991, Croatia became increasingly unstable, especially in the Dalmatian areas bordering Bosnia, because of increasing Serbian agitation. Later that year open rebellion spread into Banija and Slavonia prompting even more instability. (28) The uncompromising attitude of the government toward the Serbs, in part due to the attack on Plitvice in spring 1991, drew criticism from centrist and leftist parties who suggested the HDZ, as well as Jovan Raskovic, the political leader of the Serbian rebels in the Krajina, were destabilizing the country. (29) Finally when open war broke out between Yugoslavia and Croatia, then spread into Bosnia-Hercegovina, many Croats saw no quick resolution to the economic and political crises. With war in this neighboring country and the question of the position of the Serbian Krajina, Western tourists and businessmen feared to travel to or spend money anywhere in Croatia. Such instability in the Balkans delayed restructuring and improving the economy until the end of the decade.

Croatian industry and agriculture suffered dramatically while foreign debt increased manifold due to the war and the corruption inherent in the economic system. In industry, output figures in 1996 only reached 53% of that of 1990. (30) In 1989, Croatia exported a total of $5.5 billion worth of goods, but the best it could do in a single year during the 1990s was $4.4 billion. (31) This remained problematic as late as 2000 where industrial production stood at least 40% below pre-transition levels. (32) To make matters worse, foreign debt increased from $2.6 billion in 1993 to $10.8 billion in December 2000. (33) Because of such massive debt and decreased domestic production, Croatia had a $2.8 billion budget deficit in 1999, fully four years after the war in Croatia and Bosnia-Hercegovina ended. (34) As of 2000, Croatia had the worst economy of the Central and Eastern European countries (CEE), well behind Hungary, the Czech Republic, and Poland. (35) The war also affected another important resource of Croatia--agricultural production. In fact, in the first years of transition, Croatia experienced the biggest fall in production of all CEE countries. (36)

Istria was not immune to the economic downturn in the 1990s. In 1991, Istria, like all other parts of Croatia with a Croatian majority, overwhelmingly voted for increased autonomy, which eventually led to full independence. (37) As in all other countries in transition during the early 1990s, independence was seen by many as a way to increase democracy and achieve a level of affluence that was slipping during the last decade of communist rule. (38) The population of Istria did this knowing full well the bad economic condition of the republic turning nation-state. But the populace had high hopes that the economy of the country as a whole in an independent, non-socialist Croatia would rapidly improve. However, the war dashed Istrian hopes as did the centralization of the ruling party, responding to the wartime conditions.

During dissolution, the people of Istria hoped to remedy the long standing economic problems that had plagued the region throughout the communist period. Even though the population greatly benefited during the communist period, (39) especially after the 1963 decision to establish a modern and open tourist industry, a great number of problems still ailed Istria. Issues of infrastructure, transportation networks, connectivity to the remainder of Croatia, and the continued underdevelopment of the interior of the peninsula were continually debated in the local newspaper, Glas Istre, and in numerous scholarly and journalistic works during the...

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