RS21703 -- Croatia: 2003 Elections and New Government January 6, 2004 The November 2003 elections were Croatia's fourth parliamentary contest since the country became independent in 1991. In the lastvote of January 2000, a coalition of center-left parties soundly defeated the incumbent Croatian Democratic Union(HDZ)government, weeks after the death of Franjo Tudjman, the longstanding leader of the HDZ and President of thecountry. To supporters, Tudjman represented the father of Croatian independence. To critics, however, Tudjman closely resemblednationalist Serb leader Slobodan Milosevic and demonstrated similar territorial designs on neighboring Bosnia. In1995, Croatialaunched two military operations, "Flash" and "Storm," to regain control over the Krajina, Croat territory held byrebel Serbs after1991. The attacks drove out much of the local Serb population from Croatia and tipped the balance of forces inBosnia againstMilosevic and the Bosnian Serbs. Tudjman was a signatory to and guarantor of the 1995 Dayton peace agreementthat ended the warin Bosnia. However, he and other HDZ leaders came under frequent international criticism for nationalist policies,authoritarianleadership, and overt support for ethnic Croat separatists in Bosnia. Domestically, the HDZ's popularity eventuallydeclined as theeconomy deteriorated and as HDZ officials became tainted by corruption scandals. The 2000 parliamentary andpresidential votesbrought in a new set of leaders. Ivica Racan of the Social Democratic Party (SDP) became Prime Minister and StipeMesic of theCroatian People's Party (HNS) became President that year. The Racan government swiftly took measures to reform the economy and repair Croatia's damaged relations with its neighbors andwith the international community. Above all, improving the country's international standing and prospects for EUand NATOintegration became a focal point for the Racan government. Since 2000, Croatia has joined NATO's Partnershipfor Peace (PFP)program and Membership Action Plan (MAP). It has concluded a Stabilization and Association Agreement withthe EuropeanUnion (EU) and formally applied for EU membership. It also joined the World Trade Organization (WTO) in 2003. The Racangovernment sought a second mandate in the 2003 elections that would enable it to fulfill these goals, possibly inits next term. Economic reforms as well as international support yielded steady growth and other positive indicators in 2001 and2002; however,Croatia's external debt and unemployment levels remained high. Corruption scandals also plagued the government,though not atthe level of the Tudjman era, and it failed to deliver major prosecution victories from its anti-crime rhetoric. (1) The official 2003 campaign period ran for three weeks, from November 5 until the 23rd. Pre-election polls predicted a close racebetween the SDP-led coalition parties and the HDZ. Since its fall from power in 2000, the HDZ has attempted aradical overhauland re-invention of its image and platform. HDZ leader Ivo Sanader emphasized the party's new moderate,pro-European outlook,economic reform and tax cutting plans, and support from prominent and mainstream European conservatives. During the campaign,Sanader reversed the party's longstanding opposition to the International Criminal Tribunal for the formerYugoslavia (ICTY) andpledged full cooperation with the court in principle. Sanader also called for the return to Croatia of ethnic Serbrefugees uprootedsince the 1995 conflict. On behalf of the government, Prime Minister Racan presented his cabinet as the best means to guarantee the country's path towardEU membership, a goal shared by a large majority of the population. However, the coalition parties opted tocompete separately andin an uncoordinated fashion, thus dividing allegiances of the center-left electorate. The large number of smallcenter-left parties alsodiluted support for the larger parties. A prominent campaign issue was the case of former Croat General Ante Gotovina, who has been indicted by the ICTY for warcrimes related to the 1995 offensive against formerly Serb-held areas in Croatia. The Racan government pledgedto hand him overto The Hague, but claimed not to be able to locate him after he went into hiding in mid-2001. Despite mountinginternationalpressure, the former Croat general remains a popular figure in Croatia, especially among the population's right-wing,who view himas a national hero and a symbol of Croatia's right to self-defense. Strong support for Gotovina among HDZfollowers and localpoliticians was evident at some HDZ rallies. (2) Croatia's electoral system is based on proportional representation. The country is divided into ten electoral districts, plus oneconstituency each for ethnic minorities and the expatriate community (mainly in neighboring Bosnia). The Organization for Security and Cooperation in Europe (OSCE) assessed that the November 23 elections were conducted"generally in line" with international standards for democratic elections. The organization said that improvementswere needed inelection legislation and voting access for refugees. (3) Turnout was 69% for the 10 electoral districts in Croatia. The total turnoutdropped to 60% because of lower turnout among the expatriate community and ethnic minorities (each counting asseparatedistricts). The HDZ ended up with a plurality of the vote and 66 seats in parliament - still several votes short of a majority. All four diasporaseats went to the HDZ. The Social Democrats came in second, but combined with their four previous coalitionpartners also cameup short of a majority. Initial analyses of the election results proclaimed Croatia's shift to the right, and the dramatic gain in support for the HDZ aloneappears to support this claim. However, many observers believe that the rightward shift resulted more from theelectorate's generic desire for change and a sense of frustration with the disparate incumbent leaders than from nostalgia for theproblematic Tudjmanera. The Racan government's strategic goals for Croatia - including full integration into Euro-Atlantic institutions- continue to behighly popular in Croatia, and Sanader closely echoed these goals in the HDZ platform. Moreover, the margin ofdifference in votersupport between the right and left remains small, with the left hurt considerably by its own infighting andfragmentation. After the vote, the HDZ reached out to other parties to try to form a majority coalition. Top partner prospects appeared to be thePeasant Party (HSS), part of the outgoing coalition, and the right-wing Party of Rights (HSP). Some Peasant Partyleaders appearedto favor a coalition, but the party as a whole did not approve such a move. European Union representativesexpressed strongopposition to the possible inclusion of the HSP in Croatia's government because of the party's extreme nationalisticreputation. HSPleaders, who insist that their party has reformed, have said they would remain in opposition. Instead the HDZresorted to solicitingsupport from various small parties including the Social Liberal/Democratic Center (HSLS/DC) coalition and thePensioners party. The HDZ also gained support from a handful of national minority deputies, including the Serb DemocraticIndependent Party(SDSS). In December, Prime Minister-designate Sanader announced that he had secured enough votes to support a minority government. OnDecember 23, he presented to parliament his cabinet and outlined the government's policy priorities, mainly relatingto economicreforms. Sanader's lack of sufficient coalition partners to secure a stable parliamentary majority will leave theHDZ-led governmentdependent on its cooperation agreements with parties outside of government. The return of the HDZ to power after the 2003 elections has prompted some speculation about the Sanader government's possibleareas of continuity or change from the last government. HDZ leaders wish to distinguish the party from, rather thanharken, itslegacy in government in the 1990s. Prime Minister Sanader has repeatedly tried to convey the party's transformationinto a moderateconservative movement that is pro-European and rejects "radicalism, extremism, xenophobia, and nationalism." The extent of theHDZ's transformation may become evident in the government's approach to numerous key issues. Government Stability The HDZ's inability to forge a majority coalition will make for an inherently unstable government. The Sanader government mayhave to grant concessions on a regular basis in exchange for parliamentary support from small parties and individualdeputies. Evenminor setbacks in parliament could lead to the government's fall. Maintaining unity within the HDZ could representanotherchallenge, especially if some party members do not approve of their leadership's outlook and direction. The HDZ's weak standing may negatively affect the government's ability to pursue its policy agenda. Croatia's overarching goals ofNATO and especially EU membership will require adherence to reform policies consistent with European standards. Observersbelieve that an HDZ-led government can only reach its strategic objectives by continuing the path-breaking workof the previousgovernment. However, the HDZ's dependence on a variety of small parties could lead to unpredictable policies. A first test for theSanader government is likely to be the budget, since planned spending and tax cuts may have to be sacrificed forconcessions toother parties on costly items such as pensions. Progress Toward EU Integration (including ICTY and refugee return issues) Foremost among the government's priorities is securing Croatia's path toward EU membership. Croatia has set 2007 as a target datefor EU entry, modeled after the date set by the EU for the accession of Romania and Bulgaria (both of which haveheld longerassociation relations with the EU). Croatia signed a Stabilization and Association Agreement (SAA) with theEuropean Union inJuly 2001 (the SAA has yet to be ratified by all EU member states). Croatia formally applied for EU membershipin February 2003and submitted its responses to a lengthy European Commission questionnaire in October. The Commission isexpected to give its"Opinion" on Croatia's candidacy by mid-2004, which may open the door for the Council to start accessionnegotiations. At ameeting of EU Foreign Ministers with their western Balkan counterparts in December 2003, EU ministers urgedthe incomingCroatian government to make all efforts toward compliance with EU political and economic conditions formembership. Inparticular, the EU ministers cited full cooperation with the ICTY, the return of refugees to Croatia, and minorityrights as keyperformance benchmarks. Cooperation with the International Criminal Tribunal for the former Yugoslavia (ICTY) remains a difficult issue for the HDZ. Despite Sanader's pledges to uphold Croatia's international commitments, the war crimes tribunal remains unpopularin Croatia,especially among HDZ supporters. The specific case of former General Gotovina is yet to be resolved. Moreover,new indictmentsare expected to be delivered to Zagreb in early 2004, likely against current or former HDZ members. The situationregarding refugeereturns is also problematic. According to the U.N. High Commissioner for Refugees, about 100,000 of 280,000ethnic Serbs whofled during the 1995 Croatian offensive have returned to Croatia. During the election campaign, Sanader said thathe favored refugeereturns, without outlining any specific plans. The refugee issue is complicated by property rights issues, the statusof Bosnian Croattenants in former Serb homes, and implementation of minority rights. In return for Serb party support in parliament,Sanaderpledged to accelerate property restitution and housing construction for returning refugees. Regional Relations The new Croatian government will face many challenges relating to regional affairs, especially given the HDZ's legacy in neighborlyrelations. The Racan government and President Mesic had made a concerted effort to end direct Croatianinvolvement in Bosnia'sinternal affairs and improve bilateral relations. During the 1990s, the late former President Tudjman had maintainedpolitical andfinancial ties to the separatist Bosnian Croat community, which hindered the development of an integrated Bosnianstate. Thecurrent HDZ's relationship with its sister party in Bosnia (HDZ-BiH) - still the strongest party among the BosnianCroat electorate -may have more complicated facets. On the one hand, HDZ leaders have repeatedly pledged to respect Bosnia'ssovereignty andindependence, and the Croat electorate generally favors this policy. On the other hand, all of the diaspora votes fromBosnia went tothe HDZ, demonstrating the Bosnian Croat community's strong political support for the HDZ, which the HDZ maynot wish to riskweakening. Meanwhile, the HDZ in Bosnia may itself be ripe for a transformation and image makeover similar toSanader's effortswith the HDZ in Croatia. Political relations with Serbia appeared to improve in 2003. Making his first official visit to Serbia in September, President Mesicreceived a public apology from Serbia and Montenegro President Svetovar Marovic for "all evils" committed againstCroatia in thepast. Mesic reciprocated with an apology for past "pain or damage" committed by Croatia. To some observers, thesymbolicgestures marked the possibility for greater reconciliation between the two countries, including closer economic tiesand cooperationon refugee returns. In 2003, the Racan government sparked a dispute with neighboring Slovenia by declaring an exclusive economic zone in the AdriaticSea. Slovenia has strongly objected to Croatia's claim and its potential impact on Slovenia's access to the open seas. Some Sloveneleaders have threatened to block Croatia's EU aspirations if this issue is not resolved, once Slovenia joins the EUin 2004. The previous Croatian government promoted closer regional ties in the security arena. At the Prague NATO summit in November2002, the Presidents of Albania, Croatia, and Macedonia proposed to President Bush the creation of a U.S. - AdriaticCharter,modeled after the U.S. - Baltic Charter (established in 1998). The Adriatic Charter initiative aims to deepen regionalcooperation,promote reforms, and improve the collective integration prospects of the three countries. Secretary of State Powelland the foreignministers of the three countries signed the Charter on May 2, 2003, in Albania. In 2000, the Clinton Administration warmly welcomed the electoral victory of the center-left coalition and subsequently praised thereform efforts of the Racan government. The United States continues to support Croatia's transition fromcommunism and theeffects of ethnic war, as well as its goals for full integration into Euro-Atlantic institutions. At the same time, theUnited Statessupports NATO and EU conditionality policies on meeting membership standards, including building democracy,implementinghuman rights policies, respecting the Dayton agreement, and cooperating with the war crimes tribunal. The BushAdministration hasdesignated over $30 million in SEED Act and security assistance to Croatia for FY2004. However, bilateral securityassistance toCroatia has been suspended since July 2003, when U.S. sanctions came into force against certain countries whichhad not agreed toexempt U.S. personnel from possible extradition to the International Criminal Court (ICC). The BushAdministration continues toseek to conclude bilateral agreements with all ICC party countries, including Croatia, that would provide for suchan exemption.

Summary: In parliamentary elections held on November 23, 2003, the Croatian Democratic Union(HDZ), a right-wing party of the late former wartime President Franjo Tudjman, won a plurality of the vote. TheHDZ haddominated Croatia's political scene from 1990 until its defeat in the 2000 elections. Ivo Sanader, who succeededTudjman as HDZparty leader and refashioned the party along more moderate, less nationalistic lines, became Prime Minister of aminoritygovernment in December 2003. The Sanader government will likely face significant domestic challenges as wellas closeinternational scrutiny over its performance in a number of issue areas. This report analyzes the elections and keyissues facing thenew government. It will not be updated. For additional information, see also CRS Report RL32136, Futureof the Balkans and U.S.Policy Concerns.