Eastern Europe News Digest
Speculators Set Back, as Eastern European Privatizations Are Reversed
In the Czech Republic and Poland, the industrial powerhouses of Central Europe, some big privatizations of the past decade are in the process of being reversed. The scandals around Enron and WorldCom have prompted people in those countries to demand the truth behind the privatization "success stories" of recent years. Several multibillion-dollar privatizations have been put into the deep freeze.
The notorious accounting wizards from Arthur Andersen were involved in privatizing industry in Eastern Europe. In the Czech Republic alone, Andersen was the auditor for the biggest electricity producer, CEZ; the largest refinery, Ceska Rafinerska; the pharmaceutical producers Levica and Ivax-CR; and the Nova Huta steel company. The government called off the privatization of CEZ and Czech Telecom, as the latter company's stock fell by 18% on June 28. In Poland, Andersen's involvement in the planned privatization of PKN Orlen, the country's largest oil refinery, has prompted the government to postpone it indefinitely. Critics of the scheme are demanding a review of the figures provided by Andersen, in view of its book-cooking at Enron.
Polish Finance Minister Resigns Amid Economic Disputes
Marek Belka stepped down July 2 as Finance Minister of Poland, nominally over the decision of Prime Minister Leszek Miller to increase the 2003 state budget deficit above the 40-billion-zloty mark, which Belka had fought for. The new deficit target of 43 billion zloty does not mark a spectacular increase, but it drives the Polish deficit close to the level of 6% of GDP, which is double the Maastricht budget criterion of the European Union (which Poland wants to join). The projected rise of the deficit is attributed to a drastic drop in tax revenues, caused by a wave of corporate defaults and by shrinking consumer spending.
A visible increase in unemployment is further reducing the number of tax-paying citizens. The government cannot offset the deficit increase by carrying out new privatizations, which are not only increasingly unpopular in the country, but are also impossible, since the worldwide crisis in the so-called New Economy and the repercussions of the Enron and related scandals have soured potential investors on getting into the privatization of Poland's state telecom and utility sectors. The crisis is also driving down the "market value" of state assets, so that privatization is not profitable for the state these days.
Another bone of contention between Belka and other leading members of the governing coalition, was the status of the Central Bank, which strong currents in the coalition government majority want to cut down, if not re-nationalize. Prime Minister Miller himself recently has attacked the Central Bank for its hardline monetarist policy. Even if the Polish government does not fully re-nationalize the Central Bank, it may tighten government and parliamentary controls over it and appoint government representatives to the RPP, the monetary policy board, which would cease to be "independent." The government may also replace Leszek Balcerowicz, the Governor of the Central Bank, whose reputation among monetarist circles in the West as "Mr. Polish Reforms" is not a plus in the eyes of most Poles.
The willingness to abandon neo-liberal policies is indicated by the decision of the government to appoint Grzegorz Kolodko as the new Minister of Finance, three days after Belka's resignation. Not only is he known as a critic of the Central Bank's neo-liberal monetarist dogma, but he endorses higher state deficits, as opposed to budget-balancing, to help fund social and welfare programs, and to create new jobs, especially for the youth, which is the category with the highest joblessness of all45%. Faced with municipal and regional elections in the autumn, the government has a genuine interest in solving at least some of the problems with the economy, to prevent major social unrest.
In the context of fierce struggles inside Poland over neo-liberal dogmas, Economics Minister Jacek Piechota has came out in defense of state intervention to save at least sizeable parts of the Szczecin Shipyard, which is in default. The week of July 1, he said that the Szczecin crisis was not a local problem, but rather was indicative of the profound crisis in the entire ship-building sector, the survival of which is a matter of the national interest.
Human Rights Trampled in Hungary
Istvan Morvay, formerly a state secretary in the Hungarian Ministry of Interior, has issued a protest of police brutality at a demonstration July 4 in Budapest. The background of the incident is a conflict over charges of vote fraud, after the victory by a thin margin of the Socialist Party in parliamentary elections earlier this year. Since the election, the split in Hungarian society has been deepening, between the Socialist Party (MSZP) and the super-liberal Free Democrats (SZDSZ) on the one side and the supporters of the former conservative government of Viktor Orban (Fidesz-MPP). An official demand from Fidesz for a recount was denied July 5 by the government of Socialist Prime Minister Peter Medgyessy.
Weeks earlier, Medyessy himself was confronted with a big scandal, when the conservative newspaper Magyar Nemzet published that he had been an agent for the counter-espionage department of the Interior Ministry during the period of Communist rule. Zoltan Porkorni, leader of the opposition party Fidesz, spoke in terms of a severe constitutional crisis and demanded the Prime Minister's resignation. In a session of Parliament, Medgyessy confessed to having provided information to the secret services. In his own defense, he argued that, as a leading reformer in the Finance Ministry, he was involved in the 1970s in secret negotiations between Hungary and the IMF and the World Bank. It was important to conceal these negotiations from the Soviet Union and other members of the Warsaw Pact. After the negotiations ended with Hungary's joining the IMF in 1982, he stopped this work for the secret service. Other rumors persist, however, that Medgyessy was a double agent of Eastern and Western intelligence services.
On July 2, Zoltan Pokorni resigned as faction leader in the Parliament and as the president of the Fidesz-MPP party, after press reports that his father had been an agent of the secret police. The father was sentenced in 1952 to 12 years in jail for anti-communist activities. Three years later, the report said, the secret police offered to release him from jail, if he would work for them. He agreed. The son was shocked to learn this, and resigned.
In the morning hours after Pokorni's resignation, a group of people blocked one of the main bridges over the Danube in Budapest, renewing the demand for a recount of the votes. At 9:00 a.m., there were about 500 demonstrators. Police blocked the bridge from both sides and started to beat people brutally. In the afternoon, participants in a 1,000-strong peaceful demonstration in front of the Parliament building were also beaten, and about 60 people were arrested.
Istvan Morvay, a close friend of the Schiller Institute and speaker at Schiller Institute conferences in the 1990s, issued the following public appeal:
"Today, in the evening, this time the Hungarian police, under political pressure from the new Socialist-Free Democrat coalition government, are adopting inhuman, barbarous means against peaceful demonstrators at the Kossuth square in Budapest. The more than 1,000 demonstrators are surrounded by police commando squads, who have divided the mass into several groups, and arrested elderly men and women one at a time, using brutal violence. I have to call the attention of the world, to use every means to stop the spread of the new wave of violence, now beginning in Hungary. As a former statesman of the first democratic government, after the long period of communist dictatorship, I request the support of all nations to act against the current trampling of civil rights in Hungary."
Istvan Morvay
[Former state secretary of the Hungarian Ministry of the Interior]
Croatia: Why Prime Minister Ivica Racan Resigned
On July 5, Prime Minister Ivica Racan of the Republic of Croatia, presented his resignation. Observers in the Croatian capital, Zagreb, expect President Stipe Mesic to again give Racan, of the Social Democratic Party, the mandate to form a new coalition government. It is also believed that Racan will form a government within the constitutionally mandated period of 30 days. If not, there will be early elections, during which interim, Racan remains Prime Minister.
However, behind the formal details, there is an economic and social reality on the verge of explosion, which is not being addressed.
Governmental official data maintain that unemployment is "only" 23%. But reliable economists calculate that this year, unemployment reached at least 35%, now temporarily smoothed by the tourist season. There is also a rush to privatization as a desperate way to get some "financial fuel to keep the Croatian economy going." IMF and the other supranational institutions are continuing to pressure Croatia to privatize all assets, including even some of the Adriatic islands.
The situation is made worse by the grotesque diktats of the U.S. Administration, to which the government is extremely vulnerable given its eagerness to do everything to be accepted in the "NATO club." On June 19, the Vecernji List daily announced that following a visit in Washington by Foreign Minister Tonino Picula, Croatia yielded to pressures from the Bush Administration and cancelled a $12-million deal with Iran to build amphibian military patrol ships. The deal is badly needed by the Croatian shipyard industry, and cooperation with Iran is a long tradition for Croatia.
Furthermore, recently Hague War Crimes Tribunal Chief Prosecutor Carla Del Ponte apparently leaked to the media that a new wave of Croatian arrests will be announced soon. Last July the beginning of the clash between Dragan Budisa, a former student leader who leads the Social Liberal Party (HSLS), and Prime Minister Racan began around this war crimes issue. Budisa's party's rank and file protested violently against the Racan government decision to extradite two Croatian army officers to the Hague Tribunal.
Now, rivalry is escalating between the Racan and Budisa parties, which were responsible, 30 months ago, for the defeat of the government of late Croatian President Franjo Tudjman and his HDZ party. One issue in the tensions that were already beginning in July 2001, was a recent confrontation over the status of a nuclear plant in neighboring Slovenia that was built jointly by the two countries and supplies up to 25% of the energy for Croatia.
Such issues are considered in Zagreb as pretext, but Budisa has already announced that his party is an "opposition party" and that "early elections should be expected." Racan says he will be able to form a coalition without Budisa. "The clash of personalities, or maybe the clash of egos, is certainly an important factor," said a well-informed political source in Croatia. But this is minor, compared to the social and economic crisis.
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