STRONG HDZ FORCES Prime Minister Sanader in the Security Council with Neven Jurica, Katarina Fucek and Gordan JandrokovicA heated row between Croatian President Stjepan Mesic and Prime Minister Ivo Sanader over Croatian foreign policy and Croatian ambassadors has grown even bitter over the past few days, and some of the details of the almost open war have come to the attention of the public. For the moment it is clear that Neven Jurica, the ambassador to the United Nations, will not in fact be dismissed, and that his colleague Jovan Vejnovic will, by all accounts, never return to Tripoli. A great many ambassadors have been living for days in fear of losing their positions as the row between the national leaders is being fought by proxy through them. Mesic has for some time now had information compromising to the HDZ's ambassador Neven Jurica, while Directorate VII at the Ministry of Foreign Affairs is compiling dossiers and spying on "Mesic's" people looking for reasons to sack them. Indicative of just how serious the row is, is the bitter struggle between opposing factions. Jurica has for months now accused his colleague Kolinda Grabar-Kitarovic of having made off with contentious documents that were in the safe of the Washington embassy and passing them on to Mesic. That, says Jurica, is proof that the former foreign minister has betrayed her party and crossed over to Mesic, which is why Jurica wants Sanader to fire her. In retaliation to the President and to defect an attack against Jurica, Sanader has ordered the intensive tailing of all Mesic's ambassadors, which even led to HDZ spies tailing some of them in cafés while they were in Zagreb for the Christmas holidays in an effort to get any compromising information on them.

Behind the row between Mesic and Sanader are in fact opposing interests, that is to say, Sanader's intention to, near the end of Mesic's mandate, have the ruling party gain complete control over the diplomatic network. Sanader's goal is clear: regardless of who the future President is, foreign policy should be determined from the Prime Minister's office over the coming years. The chief prerequisite for that is that he as quickly as possible remove all diplomats sympathetic to Mesic and to replace them with his cadres. Mesic, on the other hand, has three goals in the last year of his term in office: the first is to hold on for as long as possible to those diplomats he considers to be of high calibre, the second is that Croatia keeps at least a part of the promises he and his closest associates gave to many countries when lobbying for Croatian membership in the Security Council, and the third, which appears personal only at first glance, is a final showdown with Jurica. Not, however, because of personal animosity, but because Jurica is the archetypal specimen of a backward HDZ politician from the mid 1990s: lazy, incompetent, given to scheming and a spendthrift, but very arrogant and obedient.

Of the fifty ambassadors about thirty are now under Sanader's control, fifteen are "Mesic's" people, and the remaining ten are politically neutral, professional diplomats. If you include the lower ranking staff of diplomatic offices, the difference is even more is favour of Sanader. According to some estimates, as much as 80 percent of these people are close to Sanader and the HDZ. This, of course, is particularly relevant to the security staff, representatives of the foreign ministry's Directorate VII, who are nominally lower ranking staff in the embassies, but who closely monitor every step the head of mission makes and send daily reports to that effect to Zagreb. There they are read every morning by the temporary head of the Directorate for Security Analysis, Communications and Protection, Dinko Barbaric, who came into the post recently from the SOA security and intelligence agency.

Also with access to these notes is Bianca Matkovic, the nominal State Secretary for Political Issues, and in fact the most powerful woman in Croatia – through her all of the collected data is immediately also available to Sanader. And while Directorate VII lost its formal intelligence character a few years ago, the structure of the people employed there and the assignments they have been given for years now by Sanader and Bianca Matkovic have led to their chief mission being the prevention and control of information leaks from the foreign ministry building on Zrinjevac Square and spying on diplomats who are not to Sanader's liking. In practice that often takes the form of a staffer at Directorate VII endeavouring to satisfy the desires of superiors by concocting false constructs, exaggerating or erroneously interpreting events in their reports. Zelimir Brala, the former ambassador to Portugal from "Mesic's quota" had an opportunity to experience this in the past. He was dismissed in April of 2007 because of alleged fisticuffs with Ivica Grlic, the nominal embassy chauffer, but in fact an operative of Directorate VII.

In these circumstances the CNB and Governor Rohatinski face two challenges. The first is how to defend the exchange rate, and second is how to secure enough bank liquidity for them to be able to credit companies and the state. The problem is that increasing the amount of kuna on the market undermines its rate of exchange, while pulling kuna out of the market will defend the exchange rate, but also reduce liquidity. Banks usually compensate for reduced liquidity and a lack of capital on the market by increasing interest rates.

And so Governor Rohatinski finds himself in an difficult situation, and his job is further aggravated by the state, which is spending a huge amount of the capital available on the market to meet its needs. There is very little money left for the private sector in that kind of situation. Rohatinski's latest move was last week when the CNB pumped 7.6 billion kuna into the market, improving the liquidity of commercial banks. Nevertheless, many feel that the CNB cannot maintain this kind of two-edged policy on the long run.

Vladimir Gligorov, an analyst at the Vienna Institute for International Economic Studies, says that a decision has to be made as to what kind of monetary and fiscal policy is to be led. "Croatia has two possibilities. One is to continue with a deflationary policy of defending the rate of exchange. To achieve this there will probably be a need to turn to the IMF for help. The bad side of this policy is that it will probably cause problems in the economy, a lot of bankruptcies, and thereby a loss of jobs. The other possibility is that Croatia adjusts the exchange rate. That would lead to a drop in the standard of living, loan instalments would go up, but many jobs would be saved. Croatia now has to figure out which of these two options costs less. In theory that is the second model, but this general rule does not necessarily have to apply in the case of Croatia. Of course, regardless of the model Croatia chooses, a prerequisite of its success is a rebalancing of the national budget, a significant reduction in the expenditure of the public sector and deep-reaching changes in macro-economic policy."

The kind of cost effectiveness estimate mentioned by Gligorov, has probably already been made by the experts at the CNB, but it has never been presented to the public, making it very hard to conclude which of the options works better for Croatia. Nevertheless, it can be assumed what the reasons are for the concern of Governor Rohatinski as pertains to a depreciation of the kuna.

Brala worked in Portugal as a journalist in the 1980s, and came into the ambassadorship from the post of assistant at the Chair of Portuguese Studies at Zagreb's Faculty of Philosophy. When he returned to Lisbon as an ambassador, he frequented the Institute for the Portuguese Language* preparing for his doctorate, located in a part of Lisbon that is reputed to be frequented by prostitutes. Following the directives of his superiors, who were already looking for any opportunity to remove Mesic's people, chauffer/agent Grlic sent a constructed note to Zagreb in which he tendentiously wrote that Brala frequented a prostitute's quarter during working hours, even though he doubtless knew where Brala was spending his time. When Brala learned of these false accusations, he got into an argument with Grlic, and the row culminated when ambassador and his driver came to blows, which Sanader used as the main PRESIDENT MESIC with UN General Secretary Ban-Ki Moon and Jurica in the backgroundreason for asking President Mesic to urgently recall the provoked diplomat. Mesic, for his part, has even used his influence and presidential authorities over the past years to protect some diplomats close the HDZ that Sanader meant to dump. In 2005 after Miomir Zuzul tendered his resignation, Sanader intended to return Mirjana Mladineo, a long-time professional diplomat who was then serving as ambassador to the UN in New York, to Zagreb and to replace her with Zuzul, a move that Mesic opposed, insisting that Mirjana Mladineo remain at her post. A similar situation occurred in late 2007 when Sanader, under the influence of Bianca Matkovic, decided to sack his foreign affairs minister Kolinda Grabar-Kitarovic. She has long been out of favour with Bianca Matkovic, who convinced her party boss that the minister should be returned to Rijeka to lead the county branch of the HDZ, which would have been a complete degradation for her. President Mesic, however, stood up for her and she was in the end appointed ambassador to the USA.

But even there she was not shielded from the attacks of her party colleagues, as demonstrated by a mysterious case in the summer of 2008. In early September some Croatian media said that Jurica, the former ambassador to the USA, who continued to represent Croatia in the UN and the Security Council, had spent tens of millions of kuna on expense accounts and lobbying in an non-transparent fashion. Quite expectedly, President Mesic weighed in, publicly criticising Jurica for his spending spree, demanding that Government and the foreign ministry, as co-creators of foreign policy, submit to him a list of the expenses of Jurica's lobbying efforts. Mesic made it clear in contact with Sanader, Jandrokovic and Bianca Matkovic that he already had some information that compromised Jurica. The HDZ leadership then undertook a covert investigation the only goal of which was to kind out how Mesic was so well informed as to much of Jurica's contentious lobbying. The internal investigation in the USA was carried out by Jurica himself, who soon after reported to Sanader and Bianca Matkovic that Mesic's "deep throat" was most likely Kolinda Grabar-Kitarovic. According to Jurica, when he left Washington to take up is new duties in New York in early February of 2008, he forgot several lobbying contracts in the maximum security safe of the Croatian embassy in Washington. They were found there, claims Jurica, by Kolinda Grabar-Kitarovic, who arrived in Washington in mid April, and who secretly sent copies to the Croatian President.

Although unsubstantiated, Jurica's accusations were further strengthened by Bianca Matkovic, who has, within the HDZ, not concealed her animosity towards Kolinda Grabar-Kitarovic, and so Sanader wrapped up the case believing in the guilt of Kolinda Grabar-Kitarovic. He was not convinced of the opposite even when Ambassador Grabar-Kitarovic organised an investigation within the Washington embassy in September, which showed that there were no contentious contracts in the safe, and that some of Jurica's contracts were available to the public in the registry of the US justice department. In spite of Jurica's harsh accusations, it is clear to many that Kolinda Grabar-Kitarovic would do nothing of the sort for at least three reasons: she is still loyal to the HDZ and Sanader, she lacks the courage for something of this kind, and it is quite clear that in the final year of Mesic's term in office she would not do something damaging to her own party as a favour to the President, because that would mean that Sanader would give her the boot as soon as Mesic was out of the President's office on Pantovcak Street.

In September and October Mesic continued to call for Jurica's dismissal, and a detailed investigation and a statement of his expenditures, which was backed by information that was slowly leaking into the public: it was discovered that, just in one year, Jurica had spend on expense accounts, i.e. food and drink, over a million and a half kuna, and that over 7 million kuna had been spent on lobbying during Jurica's term. The foreign ministry would not talk to reporters those days, citing operational secrets in not disclosing the most interesting information on which lobbyists Croatia was paying and for what lobbying goals. To, at least for a while, cover for Mesic's frequent attacks and the odd claims that Croatia was again using the "lobbying" services of the notoriously unsuccessful David Rivkin and Zdenka Gast, Minister Jandrokovic in early October of 2008 tried to depict it as quite normal and transparent, and even cited three firms, the Alexander Strategy Group Inc., Melady Associates and the Law Office of Paige E. Reffe, with whom Jurica had signed lobbying contracts.

The Minister's words calmed the curious for a while, even though these three names most lucidly revealed the true scope and nature of Jurica's and the HDZ's lobbying activities in the United States. The Alexander Strategy Group Inc. is a former US lobby firm, closed down in January of 2006 when Jack Abramoff, one of the companies best known lobbyists, wound up in court in a massive scandal facing charges of conspiracy, fraud, tax evasion and bribing members of US Congress. In exchange for reduced charges Abramoff confessed to some of the charges and cooperated with investigators. He admitted to taking money from many clients, which probably included Croatia, to lobby on their behalf, without ever having done anything concrete for them. The second company mentioned by Jandrokovic is Melady Associates, which is, it appears, the name of the joint household of the aging university professors Thomas and Margaret Melady. Thomas Melady is an 82-year-old former US ambassador to Burundi, Uganda and the Vatican. His wife is the former president of the privately owned American University of Rome. It is unknown in what way the two of them lobbied for Croatian interests in America, other than that Thomas Melady has evidently spent the past years working on the Croatian Prime Minister's image. He wrote several articles on a small country in the Balkans where a "refined Prime Minister" who "writes poetry" and has an "Austrian doctorate" keeps court. The third firm, the Law Office of Paige E. Reffe, which has, according to Jandrokovic been paid the most money between 2004 and 2008, almost 4 million kuna, is in fact the Washington law office of a certain Paige Reffe. His only evident connection with possible lobbying activities is the fact that in 1995 he worked fur under a year in the White House as assistant director for the organisation of visits by the US President to foreign countries. Over the past decade, however, Reffe has returned to his legal practice, and is only mentioned in the bar registry as an attorney specialised in divorce cases. Aware that Jurica was the greatest diplomatic millstone on the HDZ's neck, Sanader decide late last year to speed up and intensify the removal of Mesic's diplomats, secretly ordering the foreign ministry's Directorate VII to step up their surveillance and investigation of suspicious ambassadors and to look for reasons to sack them.

That would allow him to take control of the diplomatic network even during Mesic's term in office, and he would have enough ammunition for an overt war with Mesic, whenever the President of the Republic allowed himself the luxury of publicly mentioning Jurica and his suspicious dealings, following the old HDZ method of taking on political opponents: when someone attacks a HDZ member, dozens of HDZ members vehemently retaliate with counter-accusations, creating the impression that there is in fact no difference between various political options. There was not, of course, long to wait for Mesic's reaction: when the Ukrainian-Russian natural gas crisis became a certainty during the Christmas and New Year's holidays, the national leadership secretly worked out various plans for the alternative supply of natural gas, and someone suggested to Mesic that he seek the help of Libyan President Gaddafi. Mesic was again reminded of Jurica, because, far from the public eye, he had been for months trying to repair the damage done Croatia-Libyan relations, for which he chiefly blames Jurica. That relations between the two countries are, in fact, strained, became evident in the second half of 2008 when Gaddafi sent Mesic two impertinent letters in which he protested Jurica's departure from a session of the Security Council held in April of last year. Relations between Mesic and Gaddafi have not be smoothed out in the meantime, and the fact that Mesic secretly sent his personal envoy Budimir Loncar to Libya recently was to no avail, as the irate Gaddafi refused to receive him.

Probably foreseeing that Mesic could once again publicly attack Jurica, the HDZ in early January FINAL OPERATIONS President Mesic wants to return favours to the countries that helped us get into the Security Councilpre-emptively demonstrated its spying activities. A para-intelligence attack against Esad Prohic, a former Mesic advisor, now ambassador to Iran, appeared on an Internet site. Prohic was accused of having met in the Zagreb café Lisinski with two business people during the holidays with the aim of working out the details of opening a company for the import of Iranian stone, pistachios and cosmetics to Croatia. Prohic was then to have been accused of violating the Vienna Convention and recalled from his ambassadorial function, be he brushed it off, saying that he had indeed taken coffee at the Lisinski café but denying any kind of personal business engagements, for which there was, besides, no proof. That is why they have decided at the foreign ministry not to touch Prohic for the time being. Nevertheless, it has become clear to both him and to Mesic that he was followed by operatives of Directorate VII and probably illegally eavesdropped on, and that the Prime Minister wished in this way to let the President know that he intends to remove Mesic's people this year and take complete control of the diplomatic network.

This angered Mesic so much that he, in mid January, during the worst days of the natural gas crisis, publicly proclaimed Jurica the chief culprit for the fact that Croatia had not received natural gas from Libya. Sanader's answer was not long in the waiting: just a few days later media close to Sanader received compromising information about Jovan Vejnovic. Since this was documentation collected by the foreign ministry's Directorate VII for Sanader and Bianca Matkovic, there is no doubt as to how the story concerning Vejnovic made its way to the public spotlight. By the publication of compromising material on the ambassador, who is said to be Mesic's man, Sanader forced the President to recall Vejnovic a few days later. And since it has been heard from people close to the President that he considers the latest turn of events as one of the fiercest and open attacks against his person, there need be no doubt that the last year of his term will be marked by many covert, and some very public rows between Mesic and Sanader.