PRESIDENT TUDJMAN IN PARLIAMENT ON THE STATE OF THE NATION

ZAGREB, Jan 15 (Hina) - Croatian President Franjo Tudjman on Monday addressed a joint session of both Chambers of Parliament on the state of the nation in 1995. Tudjman said that "1995 was a year of tumultuous and important events of the highest historic significance" in which "the establishment of independent Croatia was completed and in which Croatia gained full and even exceptional international renown." He said that a peacetime period would start in 1996 after "the occupied Danubian area is finally integrated in the Croatian constitutional and legal system." "The successful end of the (Dayton) Conference meant the end of the war, the arrival of peace, and the start of establishment of a new international order in the region," Tudjman said. The two and a half hour address focused on the Homeland War and the liberation of occupied areas, foreign policy and international position, government administration and democratic order, economy, social issues, and state policy targets for 1996. Following are excerpts from the speech: "In 1995 we celebrated the fifth anniversary of the establishment of the independent, sovereign and democratic Croatian State. (...) "However, it was a year of so many events, and one of such crucial significance, that we could call it the year in which the establishment of independent Croatia was completed, and in which Croatia gained full and even exceptional international renown. "It was a year of tense political and diplomatic negotiations and - to the surprise of many - major political and military victories of Croatia which thoroughly changed both its position and international circumstances. (...) "Croatia inflicted total defeat on Great-Serbian imperialism and its bicentennial plans to conquer Croatian lands and the Croatian sea. "These accomplishments were the best, the crowning proof of the soundness of Croatian State policy over the past five years. (...) "It was the year of our greatest accomplishments since the establishment of the independent and democratic Croatian State! "It is, therefore, more than surprising to see that we are faced with manifestations of denial of all this success, with openly expressed intentions to discredit and destabilize the existing democratically established bodies of authority without which all these admirable accomplishments would not have been possible. "Such manifestations are detrimental to Croatian State policies with respect to the solution of the main domestic and as well as of international issues. "Regardless of the differences among their sources and intentions, they can only serve, and be an instrument of, those forces interested in restoring the old state of affairs, a state with no sovereign Croatia. "One should not for a single moment forget that systematic efforts to overthrow the democratic authorities which have brought about the establishment of the independent Croatian State are being covertly pursued, even in the plans of the continuously present and definitely influential international factors and forces - plans about the need to bring Croatia back into a Yugoslav, or even greater Balkan community, which is also given more attractive names, e.g., Euroslavia, Adriatic Confederation, Union of Southeastern Europe. "Only a stable and strong Croatia can successfully withstand new historical pitfalls. Tudjman talked about Croatian army operations which crushed Serb rebellion in the areas of central Croatia in May and August and about cooperation with the Croatian Defence Council (HVO) and the Bosnian Army in the liberation of western parts of the Bosnian Croat-Moslem federation. "Throughout the Homeland War from 1991 to 1995, the Croatian people suffered the following losses: in the Republic of Croatia, 10,668 killed and 2,915 missing (total 13,583 killed and missing), and 37,180 wounded. "In Bosnia and Herzegovina, 9,909 Croats were killed or are missing, and 20,649 have been wounded. "This brings total Croatian losses to 23,492 killed and missing (20,577 killed and 2,915 missing), and 57,289 wounded persons, or altogether 81,321 persons directly affected by the war: 50,763 or 62 percent in the Republic of Croatia, and 30,588 or 38 percent in Bosnia and Herzegovina. This accounts for 1.8 percent of the total number of Croats in the Republic of Croatia and Bosnia and Herzegovina; however, the number of casualties (killed and wounded) in the Republic of Croatia accounts for 1.4 percent of the total Croatian population in the Republic of Croatia, whereas in Bosnia and Herzegovina it accounts for 4 percent of the Croatian population there. (...) "The total material losses of Croatia amount to about 145 billion kunas (about US $ 27 billion) according to the so far established direct war damage. "Damage or total destruction has been sustained on about 25 percent of production facilities, 9 percent of housing, i.e. about 145,000 housing units, and many fixed monuments of culture; huge Croatian property has been misappropriated in the countries of the former community. These figures do not yet include the value of misappropriated military property, the amount of environmental damage, of the damage sustained by the movable monument heritage, losses of the transportation and economic infrastructure, and all indirect damage." "The signing of the Basic Agreement on the Peaceful Reintegration of the Croatian Danubian Area, and of the Dayton Agreement on Peace in Bosnia and Herzegovina, has created the preconditions for demobilization and transition to the peacetime organization of the Croatian armed forces. "During 1995 the Croatian Army numbered from 96,800 to 205,397 persons, out of which 158,412 were mobilized conscripts. "The Homeland War also involved the participation of 38,350 members of the police force of the Ministry of the Interior. "Immediately after the termination of combat operations we carried out partial demobilization, and after the aforementioned agreements I issued a decree on complete demobilization. By the end of December 123,236 conscripts were demobilized; an additional 14,000 will be demobilized by the end of January, 1996. (...) "The war effort which Croatia had to sustain is illustrated by the following figures: from 1995 until 1995 mobilization involved 360,000 person subject to military conscription. "The direct savings in the budget of the Ministry of Defence achieved by demobilization are being estimated at about 168 million kunas a month. (...) "During the Homeland War, it is being estimated, about two million antitank and antipersonnel mines were laid on both sides of the front line, and more than a million artillery shells were fired, out of which at least 10 percent did not explode. The extent of mine clearance operations is illustrated by the fact that mines were laid in an area 1,180 km long and 4-10 km wide, and, moreover, within many industrial facilities. "At present about 1,100 soldiers, policemen and members of the civil defence are involved in mine removal, but this effort will also require the engagement of civil authorities. (...) "Mine clearance is an extremely difficult problem requiring high cost (of about 2.5 billion kunas or half a billion US dollars), and several years of work by thousands of experts. It is being calculated that 2,000 experts would have to be engaged in mine clearance over a period of 8-10 years. (...) "In 1995 more than one-third of the national budget, i.e., more than one-tenth of the gross domestic product, has been allocated for overall defence requirements - and this includes the...welfare for persons who have suffered in the war." (...) "Forthcoming in 1996 is the implementation of the agreement on the peaceful reintegration of the occupied Croatian Danubian area (Eastern Slavonia, Baranja and Western Srijem) which accounts for 4.5 percent of land or 2.8 percent of the overall area of Croatia. Before the war (according to the 1991 census) the Croatian Danubian area had a total population of 194,809: 87,051 Croats (44.7 percent), 39,880 Hungarians and other (20.5 percent) and 67,878 Serbs (34.8 percent). Therefore, Croats and non-Serbian minorities accounted for 65.2 percent of the total population. The total number of displaced persons from the occupied part of the Croatian Danubian area is about 100,000, out of which 76,669 are currently in Croatia. The occupied territory is controlled by Serbian forces of the so-called 11th East Slavonian Corps of the Yugoslav army; a considerable part of the population is also armed. Within the scope of the Dayton negotiations, we agreed to sign the Basic Agreement on the Area of Eastern Slavonia, Baranja and Western Srijem (signed on November 12, 1995) in order to avoid new human losses and destruction. (...) "As Head of State and Commander-in-Chief of the Armed Forces I can claim with every right that we have achieved complete military victory in the Homeland War. We have accomplished this by developing the Croatian armed forces in extremely unfavourable and difficult war-time conditions. By its admirable victory in the Homeland War Croatia has become a respectable regional force and an essential factor of stabilization in this part of Europe." (...) President Tudjman then proceeded to outline the main Croatian foreign policy goals in the past year. "At the start of 1995 we were faced with the mandate of UNPROFOR, which failed to implement the so-called Vance Plan providing for the existence of 4 areas under UN protection in the territory of Croatia. With their "neutral" and "impartial" attitude towards the continuous opposition of the rebel Serbs to the reinstatement of Croatian authority, the peacekeeping force actually helped to sustain occupation." (...) "In early 1995 we decided to cancel the mandate of the peacekeeping force. At the persistent intercession of international factors, we agreed (..) to a new, changed mandate of the peace- keeping force called UNCRO." (...) "We were given firm assurances that peaceful reintegration would be achieved during the new, altered mandate. However, even the UNCRO forces were not able to implement the reintegration of occupied areas into the overall system of the Croatian State. (...) When it became manifest that the Serbian rebels did not agree to peaceful reintegration, I decided to resort to a military-police operation." (...) "The major war victories of the Croatian Army altered the strategic balance and made possible the peace initiative of the countries of the so-called Contact Group under the leadership of the United States. Croatian victories finally toppled the myth about Serbian military might and superiority, a myth believed not only by the Serbs but also by a sizable share of Western military experts and politicians. With these victories we secured the strategic interests, indeed the very future of the independent and sovereign Croatian State because it could no longer be jeopardised from its very centre. We have strengthened the international position of Croatia, and we have reached the point where Croatia, as the main regional power, has become the strategic partner of the United States in the region, and an irreplaceable factor in the establishment of a new international order in this part of Europe. Since the start of the aggression against Croatia and Bosnia and Herzegovina it was obvious that the crisis in Bosnia and Herzegovina was one of the most complex crises in the present world because of the profound causes underlying the civilizational, religious, cultural and national or political contrasts, conditioned not only by the historic heritage. On the basis of such an awareness, I personally suggested, as early as the beginning of 1993, that the United States ought to get involved in a more determined way in the solution of the crisis, and that only the NATO, as a credible military force, could provide for peace which should even be imposed upon the parties unwillingly to accept a political settlement. However, it was only the changed strategic situation, which developed since Croatia's successful military operations, that created the preconditions for the peace initiative of the Contact Group States - the United States, Germany, France, the United Kingdom and Russia - under the leadership of the United States and, therefore, the preconditions for the achievement of the Dayton Agreements and their signing in Paris on December 14, 1995. After Operation "Storm", Croatia and its armed forces could have carried on the operations to liberate Banja Luka and the Croatian Danubian area. However, the international factors did not want to accept this option because of estimates according to which new 300,000 - 500,000 refugees from the areas in question would inevitably lead to the direct involvement of the FRY in the conflict and, thereby, pose the threat of expansion of the war, and thwart the peace efforts already under way. Having obtained firm guarantees with regard to the peaceful reintegration of occupied areas, Croatia was the most appreciated constructive factor at the Dayton conference. The successful end of the Conference meant the end of the war, the arrival of peace, and the start of establishment of a new international order in the region. The Dayton Agreement settled the constitutional arrangement of Bosnia and Herzegovina according to which it remains a composite State - called Bosnia and Herzegovina - made up of two equal entities, the Federation of Bosnia and Herzegovina and the Serb Republic. The equality of the Croatian people as a constituent people has been guaranteed both in Bosnia and Herzegovina and in the Bosniac-Croat Federation. In their endeavour to provide peace and establish a new order in the region, the international factors are attributing particular importance to the Federation, as confirmed by the fact that the Agreement on the Implementation of the Federation of Bosnia and Herzegovina, signed by the representatives of the Croatian and Bosniac-Moslem peoples, was witnessed by the representatives of the United States, the European Union and Germany." (...) "While noting this fact we should not, however, forget that the future of Bosnia and Herzegovina, and generally of the entire area of the former Yugoslavia, is obviously the subject of a number of varied second thoughts. Their existence is obviously also confirmed by a side letter to the Dayton Agreement suggesting, among others, the consideration of a customs union between Bosnia and Herzegovina and the present Yugoslavia. The Transitional Statute of Mostar has also been signed as an annex to the Federation Agreement. According to the Statute, Mostar will be an integral city with several municipalities. Agreements have also been signed on the return of Croatian and Bosniac-Moslem refugees, and of Moslem refugees (about 30,000) from the areas of Velika Kladusa and Cazin, who fled to Croatia from the Moslem authorities after the lifting of the Serbian siege of Bihac. As far as the latter agreement is concerned, it should be noted that the refugees agreed only partly to return to their homes, after agreement had been reached with the Government of President Izetbegovic that their safety would be guaranteed by the presence of a special Croatian-Turkish-Sarajevo police force. Credit should at the same time be given to the Turkish President Suleyman Demirel who agreed to send a Turkish police unit which, together with the units of the Ministries of the Interior of Croatia and the Federation, will guarantee the safety of the returnees who, albeit slowly, are coming back to their homes after all. The existence and equal footing of the Croatian people in the Federation of Bosnia and Herzegovina, based on its lasting link with Croatia, has been provided for by the Agreement on the establishment of the Joint Council for Cooperation between the Republic of Croatia and Bosnia and Herzegovina and the Federation of Bosnia and Herzegovina." (...) The Council will deal with the promotion, strategic planning and coordination of cooperation in all fields of economic, cultural and scientific life, with the coordination of foreign and defence policies, and with all matters of mutual interest. The Joint Cooperation Council comprises fourteen members, its President being the President of the Republic of Croatia, and its Vice-President the President of the Presidency of Bosnia and Herzegovina. The agreement on the resolution of the crisis in Bosnia and Herzegovina has been achieved under the leadership of the United States with the participation of other States of the so- called Contact Group: Germany, France, the United Kingdom, and Russia. These major international factors found it most important to achieve a peaceful resolution of the crisis, the duration of which might otherwise lead not only to even greater war horrors but even to the expansion of the conflict with possible civilizational implications. In the solution of the Bosnian crisis the main international factors proceeded from the state of affairs resulting after the four-year war, with delimitation between the Federation and the Serbian Republic being based on the formerly envisioned ratio of 51 to 49 percent. In order to achieve this, the Croatian delegation had to agree to give up the area of Mrkonjic Grad-Sipovo, but in return at our persistent insistence, the Serbian side had to give up the area of Odzak in Bosnian Posavina. Therefore, Croatia did not lose Bosnian Posavina in Dayton but, rather, got back part of it thanks to its victories and its policies. With its contribution in the war in Bosnia and Herzegovina Croatia provided the greatest possible degree of protection to the Croatian people there, helped the Bosniac-Moslem people and, by its military victories in Western Bosnia and the Federation Agreement, also ensured the strategic interests of the Croatian State. As a whole, the role of Croatia in the peace process has been evaluated positively by the entire international public, and in the view of most politicians and serious international commentators only Croatia has emerged from the war and peace negotiations as the real, major winner. In spite of this, such an outcome in Bosnian Posavina is painful for the entire Croatian people, and particularly to the Croats from the area. However much one must sympathize with them, one should also understand the necessity of accepting the Dayton Agreement because it is in the interest of the Croatian people as a whole. The area lost in the war will be made up by the area gained by the Croatian people in Western Bosnia where - like in Western and Eastern Slavonia - the Croats from Posavina will be able to find a new, peaceful and safe home if conditions for their return are not provided for. "One of the most important results of the Dayton Peace Conference, and one of far-reaching importance, is the agreement concluded between the Croatian and Serbian delegation on the peaceful reintegration of the occupied parts of the Croatian Danubian area into the constitutional and legal system of Croatia. From the very beginning of the crisis Croatia has expressed itself, in its state policy, in favour of normalization of Croato- Serbian relations on the basis of reciprocal recognition, i.e., after Serbia desists from the occupation of Croatian areas and recognizes the territorial integrity of the Croatian State. We consider normalization of Croato-Serbian relations to be a necessary precondition for the resolution of the Serbian rebellion in Croatia, as well as for the achievement of peace and the establishment of a new international order in the area of the former Yugoslavia, and this also means throughout the Balkans and South-eastern Europe. I have personally, as early as twenty-odd years ago, written about the necessity of "Scandinavizing" the region on the basis of cross-recognition of independent States. The agreement on the peaceful reintegration of the still occupied areas means that this goal, which is today of the highest importance for Croatia, will be achieved without new casualties and destruction. Under the control of the Transitional Authority comprising the representative of the United States (General Jacques Klein has been appointed for the purpose), the representative of the Croatian Government (Vice-Premier Dr. I. Kostovic has been appointed), and one representative each of the Croatian displaced persons and minorities, and of the Serbian population, the occupied areas must be demilitarized by the disarmament of the Serbian rebel paramili- tary and police units within one month of the establishment of the Authority. After that displaced persons will be able to return to their homes. Their safety will be guaranteed by the police force to be organized by the Transitional Authority, and the overall legal and economic system of the Croatian State should be gradually and fully established over a transition period of one year, during which elections must also be held for local self-government. Although the possibility of extension of the period for one more year has been envisaged, one may realistically assume that we shall tolerate no reasons for such an extension. At the same time the implementation of the Basic Agreement will permit the stationing of the Croatian border police and customs authorities along the border with the FRY. The institution of Croatian authority and the return of displaced persons will certainly raise a problem related to the stay of the Serbian population. We agree to all the native inhabitants of the area - who have not committed any war crimes - staying in the area, while the problem of the new settlers should be resolved as normally and humanely as possible by giving them the possibility of choice. We have also reached an agreement, with the Serbian and Montenegrin delegation, on the immediate resolution of the problem of missing and detained persons. An agreement in principle has also been achieved on the normalisation of relations between Croatia and Serbia (FRY) in all fields, primarily through the establishment of traffic and economic ties, and normal diplomatic relations. The normalisation of overall relations would guarantee the peaceful reintegration of occupied areas, and would be of great economic importance and benefit not only to Croatia and Serbia but also to other States, primarily because of the traffic connection of Southeastern and Central Europe. As I have already mentioned, one of the tasks of Croatian foreign policy is integration in the Central European civilizational and economic region, i.e. orientation to the goals of European integration. Although it could be said that we have achieved essential progress in our relations with major European countries, we cannot be satisfied with the progress attained in our endeavours to join European integrations. Although we have met all the essential requirements for admission to the Council of Europe, and for the conclusion of the Agreement on Cooperation with the European Union, and although the agreement on our integration in the PHARE Program has already been completed both in principle and in detail, final decisions on these issues are still being delayed. There are many grounds for assuming that the decision on Croatia's participation and membership is being postponed in order to retain the possibility of bringing pressure to bear on Croatia which - because of its current position and influence in this part of Europe - is not fully to the liking of certain European factors because it hinders some of their political goals, which include the return to certain old Yugoslav, Balkan and wider frameworks. The roots of such ideas are to be found in the belief that disintegration of the former Yugoslavia was unnecessary because the region could have been maintained by a comprehensive promotion of democracy and market economy. They are not only defective because of the ignorance of historical circumstances and of the experience of civilizationally different peoples, but also contrary to reality, and they are wholly unacceptable to Croatia. Croatia is prepared to maintain normal relations on an equal footing, and to broad cooperation with all neighbouring countries and with all States of Europe or the European Union, but it will not renounce its individuality and independence. In consideration of its historical experience, Croatia, which is, whether one likes it or not, an integral part of Central European civilization, can join only those integrative relations which guarantee its belonging to this civilization and - first and foremost - its independence as a State subject. Where European integrations are concerned, we can point out that we have established successful cooperation with the countries of the European Union as well as with the NATO even if we are not formal members of these associations. Over the previous period the main lines of activity of Croatian foreign policy were focused on the promotion of Croatian interests with respect to the major international factors - the UN Security Council, the US and other Contact Group powers, and the European Union. We can establish with satisfaction that such efforts have provided purposeful results. Because of its principled policy and assured strength of its State, Croatia has become a support and partner of the United States and the Western world in their endeavours to achieve lasting stability in the region. The development of our comprehensively good relations with the United States is also attested by my several encounters with President Clinton, Vice-President Gore, Secretary of State Christopher and Undersecretary Holbrooke, by the many meetings of Ministers Granic and Susak and other Croatian civilian and military officials, with their American counterparts, and particularly President Clinton's visit to Zagreb two days ago. Through such an activity, and through cooperation with the United States, and, among European states, particularly with Germany, Croatia meets the requirements for admission to the Partnership for Peace Program and for inclusion in the overall Western integration and security system. Our relations with France have also improved substantially over the past year. This was particularly manifest during my visit to President Chirac, on which occasion further progress was agreed upon in political and economic cooperation between Croatia and France. Of particular importance for the international renown of Croatia was participation at all major international meetings: the Summit Meeting on the occasion of the 50th anniversary of the UN; the Copenhagen World Summit on Social Development; the celebrations marking the 50th anniversary of victory over fascism and the end of the Second World War in Paris, London and Moscow; the Nonaligned Country Summit; the meetings of the Central European Initiative, of the countries of the Danube basin, and of the Alpe-Adria Community. All these numerous meetings and encounters with many statesmen from all the world provided a good opportunity for establishing the renown of Croatia as a Central European, Mediterranean and Danubian country, and for the explanation and promotion of the basic guidelines of Croatian foreign policy. The State Visits to Australia and New Zealand (June 18-28, 1995) were of great importance for the development and deepening of our relations with these countries, and especially for strengthening the links between homeland and expatriate Croatia. On the occasion, let me note with particular satisfaction, I inaugurated the magnificent new building of the Croatian Embassy the construction of which was funded by our people in Australia. Over the past period good relations with many Asian countries have improved further. In addition to our good, friendly relations with the People's Republic of China, relations with other Asian countries, e.g., Indonesia, Malaysia and the Republic of Korea, have also progressed. In the coming period one may look forward to the establishment of fruitful economic relations with other countries of the largest continent as well. Relations with the member states of the Conference of Islamic Countries are developing very well, especially after Croatia's contribution to the resolution of the crisis in Bosnia and Herzegovina. In view of the high potential of economic cooperation with these countries, it will be appropriate to promote good mutual relations with these countries also within the scope of the Joint Cooperation Council established with Bosnia and Herzegovina. It should be noted that the already established friendly relations with Argentina (which I visited from November 30 to December 2,1994) and Chile (November 27-29,1994) continue to develop quite well. Greater attention should also be devoted to further promoting relations with other Latin American countries as well. For 1996 I have received invitations for 12 State Visits, and fourteen Heads of State and Prime Ministers have been invited to visit Croatia. Obviously, for reasons of time and finance, it will be impossible to realise all these projects. Finally, it should be pointed out that Croatia has very good relations with almost all the member countries of the United Nations, which is best confirmed by the conclusion of more than 50 treaties covering relations between States in all fields - from economic, cultural and scientific cooperation to the cancellation of visa requirements. President Tudjman then addressed the issue of Government administration and the democratic order. He dwelt especially on the administration of the city of Zagreb. "As far as the counties and the city of Zagreb are concerned, attention should be drawn to the fact that their assemblies and administrations are not merely or even primarily bodies with tasks related to local self-government, as some have in particular been stressing lately, primarily because of their narrow and special party interests, and that these bodies, too, are primarily responsible for administrative tasks. In line with the foregoing the prefects - and the mayor of the City of Zagreb - are primarily representatives of central State authority at the local level, responsible not only for the constitutionality and legality of all county bodies - and of the administration of the City of Zagreb - but also for the purposeful and lawful performance of government administration functions in their area. This is why the Constitution, the Local Self-Government Act and the City of Zagreb Act provide for the confirmation of the election of the prefect and mayor of the City of Zagreb by the President of the Republic; it is likewise the right and duty of the Government to supervise their activity, to issue mandatory orders and instructions to them, and to relieve them if they should fail to protect the interests of the State, constitutionality and legality. It should also be borne in mind that the Croatian Constitution, just as the entire system of local self-government, from municipalities and cities to counties, in terms of its idea and in terms of all its constitutional and legal solutions, and primarily because of the circumstances in which independent Croatia was created, does not permit autonomist arrangements with all its attempts, whether overt or covert, at federalist regionalism, and even secessionism under the guise of transregionalism. According to Article 1 of the Constitution, the Republic of Croatia is an integral and indivisible State the sovereignty of which, according to Article 2, is inalienable, indivisible and untransferable. Accordingly, all attempts, from whomever they may be coming, to set up so-called transborder regions, regardless of their European mask, are anticonstitutional." (...) "Over the past year substantial results have been achieved in the democratic development of our society, and in the respect of human rights, in spite of the still heavy burden of the communist heritage and of the very unfavourable, even war-time circumstances in which the independent Croatian state was created. At the juridical and constitutional-legal level Croatian democracy, with its system of guarantees and safeguards of human rights, bears comparison - without any exaggeration - with the most developed democratic States. However, just as in all the new democracies in Central and Eastern Europe, in the realization of, and compliance with, human rights there have been misunderstandings and arbitrary unlawful phenomena, and even violations of specific rights. For the greater part this has been due to the consequences of the Yugo-communist and Serbian aggression, to the terrible suffering of the Croatian people in the occupied areas, but also, partly, to uncontrolled, violent and impermissible vengeful impulses of individuals." (...) "Further realisation of democracy, human rights and of all the basic values distinguishing the democratic order, and the improvement of life for all citizens, in the integral, sovereign and democratic Croatian State will require, by the end of next year, the completion of efforts focused on the conforming of the Croatian legislation and overall legal system with the Constitution. Although so far about 85 percent of laws conform with the Constitution, some very important, even fundamental laws, have not yet been enacted, e.g. the Property Act and the Denationalization Act. Moreover, all the mismatches between individual Acts will have to be corrected during 1996, so that the overall Croatian juridical system can properly serve its purpose and be efficient, on a part with the juridical systems of developed democratic States, European Union countries in particular." President Tudjman then dealt with issues relating to the security and protection of persons and property "With respect to the overall security situation, and to all the factors controlling it, considerable improvement was achieved in 1995 as compared with the preceding year. The most important activities of all the bodies of government administration, and particularly of the Ministry of the Interior, were focused on the establishment of law and order, and security, in the newly-liberated areas. About 3,500 members of the police force were stationed in these areas immediately after their liberation in order to provide for regular public order and peace. However, in spite of this, immediately after the termination of military-police operations there have been cases of burning of houses, robbery, looting, and even murder. The police have taken systematic steps to detect the perpetrators. Out of 26 murders, perpetrators have been detected in 16 cases; 961 out of 1,331 cases of grand larceny have been resolved, and 1,514 persons reported to court authorities. Officers of the Ministry of the Interior have established that 2,829 family homes and buildings were destroyed by fire or partly damaged: 2,072 buildings sustained damage because of war operations, while fire was deliberately set to 757 buildings which were partly or completely destroyed. The overall security situation throughout the State during 1995 showed considerable improvement both with regard to the downward trend of the overall crime rate and to the higher efficiency in the detection of offenders." President Tudjman then highlighted certain national economy issues. "The policy of economic revival in conditions of stability of the national currency, started in late 1993, was fully confirmed and justified in 1995. The rate of inflation recorded in 1995 was as low as 3.7 percent. This is the lowest inflation rate in countries undergoing transition." (...) "Foreign exchange reserves at the National Bank of Croatia increased last year by an additional US$ 500 million and totalled 1.9 million dollars at the end of 1995. Moreover, the operational foreign exchange funds of commercial banks exceeded 1.2 billion dollars." (...) "The indispensable and long-awaited rehabilitation of the banking system started in 1995. The restructuring and rehabilitation of large loss-running companies started late last year. All these are hard but necessary steps on the road to full qualification for the market economy." (...) "The national budget for 1996 proposed to the Parliament by the Government comprises a substantial developmental component. The proposal envisions greater changes in the structure of expenditure. First, investments into development will be increased by 62 percent as compared with last year. Owing to the cessation of war circumstances, overall military expenditure will decrease by 15 percent. The amount allocated to the reconstruction programme will be higher, as compared to 1995, by 162 percent. This will boost total investment into reconstruction to 4.5 percent of overall budget expenditure." (...) "The promotion and acceleration of privatisation, and the establishment of clear property relations, are of particular importance. In spite of the very adverse circumstances, considerable results have been achieved in privatisation. By the end of 1995 the transformation of ownership was completed in 2,560 enterprises. Out of this figure, 46 percent have been privatized completely, in 44 percent private owners have majority control, and only 10 percent are (majority) controlled by the Croatian Privatization Fund and pension funds." (...) "Croatia's economy is open. Croatia has accepted full convertibility in current payments accounts, and convertibility is also being considered for the balance of payments capital account. We must follow modern trends, and the growing reciprocity and interdependence of the global economy, and protect our economic and political sovereignty in joining the ever greater number of international integrations and treatises. The need for admission to the World Trade Organization, to be attained as soon as possible, deserves special emphasis. Because of its overall political and economic success Croatia has developed excellent relations with international financial institutions. Negotiations are currently under way with the International Monetary Fund on cooperation over the next three years, and cooperation with the World Bank is continuing successfully. The European Bank for Reconstruction and Development has shifted its policy from granting loans to direct investment. More than five thousand of the most severely damaged housing units in the liberated areas of Western Slavonia were reconstructed in 1995, or will soon be reconstructed. As interior work continues towards the stage where people can move into these facilities, conditions will be created for the return of about 40,000 displaced persons and refugees to the area by May 1, 1996. In late 1995, after Operation "Storm", the reconstruction started of an additional 20,000 housing units in the newly-liberated areas. (...) This will create the conditions for the return of additional 70,000 displaced persons and refugees." President Tudjman then proceeded to outline the essential tasks of Croatian state policy in 1996. Following is an abridged version of this part of the text: 1. This year we are starting a peace-time period. However, it should be remembered that it can fully start only when the occupied Danubian area is finally integrated in the Croatian constitutional and legal system. Until then, even exceptional measures have to be maintained or foreseen for the fulfillment of this task in certain spheres of government administration. 2. Croatian authorities at all levels must provide for the implementation of the agreement on the peaceful establishment of Croatian sovereignty over the remaining occupied area in this year. Along with participation in the Transitional Authority, preparations should start immediately for the return of displaced persons, traffic connection and the establishment of the overall legal and economic system. 3. The basic guidelines of Croatian foreign policy remain unchanged. We continue to attach primary importance to the intensification of friendly relations with the USA, the leading global power with which we achieved cooperation and partnership at a strategic level precisely last year. On these grounds we shall apply for the admission of Croatia to the Partnership for Peace, our goal being the complete integration in the Western security system through membership in the NATO Alliance. Aiming at inclusion in the European integration as soon and as purposefully as possible, Croatia must develop the best possible relations with all European Union countries, primarily with France and Germany, and improve its relations with the United Kingdom. Of particular importance is the maintenance of good relations with neighbouring countries - Hungary, Austria and Slovenia - and in particular with Italy, with which we have very developed economic relations. Greater attention ought to be devoted to maintaining good relations with great China. We have signed a number of treaties with China, and can expand our trade even more. Where Russia is concerned, we can point out with satisfaction the Russian recognition of the territorial integrity of Croatia, and the extent of our trade, but we must express our regret for the partial view of Croatia upheld by Russian representatives in international organizations (from the UN Security Council to the OSCE). The fostering of good relations with the Vatican must be our continuous concern because of the moral influence of the Holy Sea on the public, and particularly because of the understanding manifested with respect to sovereign Croatia. Croatia favours the normalization of relations with Serbia and Montenegro, that is, their Yugoslavia, not only because we are prompted to do so by all international factors so that we call peace-fully solve the reintegration of our occupied areas, but also because normalization, based on full mutual recognition, is the essential prerequisite for the achievement of peace and a new international order in this part of Europe. Moreover, the normalization of relations is not only of bilateral interest, but also in the interest of all neighbouring countries, as well as other countries in Central and Southeastern Europe. 4. All the Croatian public, Parliament and Government, and people in the economic, cultural and every other sphere of life, must be focused on the implementation of the most comprehensive relations, cooperation and connection between Croatia and Bosnia and Herzegovina and the Bosniac-Croat Federation. The implementation of this connection, in the spirit of the Washington and Dayton Agreements, which should also be served by the established Joint Cooperation Council, is of crucial importance for the destiny of Croathood in Bosnia and Herzegovina, and of particular strategic interest for the Croatian State. Croatia has also guaranteed the constitutional equality of the Croatian people in the Federation based on the establishment of mutual ties. The successful development both of the Federation and of Croato-Bosniac ties is stimulated by the main international factors, and this is of the greatest importance both for relations with the major Western States and relations with the many States in the Islamic world. 5. In this year the activity of legislative, executive and judiciary authorities should be coordinated in a more systematic way, with full compliance with the principle of the separation of powers. This is the prerequisite for increasing the efficacy of the Croatian government and overall political system. The system of local self-government and government admin- istration should be reconsidered and advanced. The current county structure, through decentralization of administrative authority, has proved to be the best dam against all autonomist and aggressive regionalist attempts. The tasks of the county assemblies and administrations (and, particularly, of the City of Zagreb) are primarily administrative ones, focused on the provision of purposeful and lawful functioning of all government bodies in their area, but also providing a broader scope for dealing with specific local problems through self-government. With respect to the changes occasioned by the outcome of the Homeland War, decisions on modifications in the territorial de- limitation to counties and municipalities should be considered and made as soon as possible. Because of the new circumstances of peace and stability the primary task of all bodies of State authority is the building of the Croatian State in every respect on the basis of the rule of law and social justice. Within this context particular attention ought to be paid to the protection of human rights and freedoms, and to the prevention of all forms of crime. In this connection, the judiciary should complete its structure, as envisioned by the Constitution and by the law. All government administration must serve the citizens and, therefore, be courteous and nonbureaucratic, efficient and incorruptible. All forms of corruption must be firmly detected and removed. In this connection, the Government must purposefully complete the structuring of administration, and establish a system for the efficient supervision of the work of individual bodies and civil servants. All supervisory government services must devote their full attention to the detection and prosecution of economic crime, especially where directly or indirectly connected with State finance and property. 6. The defence and national security system must be modified and advanced because of altered internal and external circumstances. The system and strength of the Croatian armed forces should be adjusted to new strategic requirements resulting from Croatia's current geopolitical and international position. Particular consideration should be given to the amendment of so far enacted regulations and decisions in connection with the transition from war (emergency) conditions to peacetime conditions. The budget and the activity of the Ministry of Defence should be relieved by transferring care for the participants in the Homeland War to other governmental bodies. The Ministry of the Interior, the activity of which was also necessarily controlled by circumstances of war, must resolutely focus on the prevention of internal and international crime, paying particular attention to the problems of drug trafficking and terrorism. With respect to manifestations of obvious abuses of democracy through open requests aimed at discrediting and destabilizing the democratically elected authorities and objectively focused on overthrowing the authorities which have rescued Croatia from the Yugoslav and communist system, not only the National Security Office but also the entire truly democratic Croatian public should take care of the sources and ultimate goals of such phenomena. Security services and the Croatian public need not attach excessive importance to such occurrences, but they should not neglect them either. 7. From the standpoint of the economy, the year before us must be distinguished by rapid and continuous growth. The stability of the national currency - the kuna - should be sustained. According to international assessments, Croatia will achieve the best economic results among all countries in transition during this year as well. This requires faster restructuring of the economy, bank rehabilitation, privatization and more efficient creditor protection. All economic agents must first of all deal with the reduction of operating expenses and provide for greater economy and higher productivity. The policy of the Government must stimulate domestic savings and ensure long-term investments of strategic importance. All economic and financial decisions should focus on the fullest implementation of the constitutional principle according to which Croatia is a democratic free market State but also a welfare State in which social justice represents one of the fundamental constitutional values. In this regard a special role must be played by the government budget. This is also manifest in the budget proposal for 1996, the modified structure of which - the summary of economic and overall State policy - is obviously focused on stimulating development, employment and the gradual improvement of the standard of living. In providing equal conditions for all, governmental authorities at all levels must stimulate the spirit of entrepreneurship and free market competition. Systematic efforts are required for a more determined severance of links with former socialist practice of passively waiting for a solution "from above". All bodies of authority at all levels, and all economic operators, must stimulate economic progress on their own initiative. 8. The discussion on nationalization and compensation for seized property, and the enactment of the relevant law, should finally be completed this year. In the process we must follow the principle of avoiding to cause even greater present injustice in correcting past injustice; at the same time, due account should be taken of impact on economic life as well as on State interests as a whole. 9. With the termination of the circumstances of war and anticipated economic growth in peacetime conditions, prerequisites are created for a different distribution of national wealth, and of budget funds. Somewhat higher, in some areas even much higher financial support of the State will become possible already this year in science, education, culture and sports. 10. The reform of the health care system should be continued focusing on extreme economy, better equipment and privatization. Considering the current material potential of our society, we can be satisfied with the health condition of the population measured by the standard criteria of the World Health Organization; however, steps should also be taken towards a more balanced structuring of the health service in the counties. In the past period the Croatian State has also spent a huge amount of money on the health care of hundreds of thousands of displaced persons and refugees. The coming period will require a clear delimitation and determination of criteria for welfare, so that it reaches only those segments of the population which really need it. 11. The overall reconstruction and development programme will require, in 1996, more specific programming, legal and economic steps for the systematic and gradual solution of the disturbing demographic situation as a whole, particularly in specific counties and municipalities. The programme of demographic revival must be the continuous concern and commitment of overall State policy and government at all levels. 12. All these, essential tasks of Croatian State policy in 1996 also constitute the operational programme and programming tasks of the Croatian Government for the coming period. With respect to all the success achieved in 1995, this year, the year of transition to peacetime conditions, holds every promise for further success in overall, economic and cultural development, and for the strengthening of the position of the independent, sovereign and democratic Croatian State. At the end President Tudjman said he was convinced that the results achieved in this year, in peacetime conditions, would worthily match the military accomplishments of 1995, while continuing the development of Croatia into a country of guaranteed human freedoms, happiness and prosperity of all its citizens. (hina) 152114 MET jan 96