COMMENTARY: Sacking of Finance Minister Linic and Expected Repercussions to Business

milanovic linic12 May 2014, LPJ Croatia Issue 84

After months of political “in-fighting”, Croatian Prime Minister Zoran Milanovic (SDP) publicly sacked his Finance Minister Slavko Linic (SDP).  Linic’s dismissal is no surprise, given that their relationship has always been one of political necessity.  Milanovic needed Linic to maintain an “iron fist” control over the state’s finances and Linic needed Milanovic to maintain political influence within the government cabinet.

However, it was only a matter of time that this would culminate in Linic’s dismissal as minister and recalls a common man’s advice – “A wolf and a dog cannot coexist tied to the same chain.”  During the public announcement of the dismissal, Milanovic stated that it was more important to remain “clean”, meaning political and moral aspects were more important that any upcoming elections.  What are the potential repercussions to business and the economy?

Regardless of the political stability of the present government, due to the fact that the coalition government maintains a stable parliamentary majority, such a high-level dismissal and political battle within the Milanovic government and the ruling Social Democratic Party (SDP) oftentimes has serious repercussions, both political and to the economy. This is especially the case when the Finance Minister in question is such a dominant, popular and strong-willed character imposing his economic and financial policies on the populace, businesses, his own party and ruling coalition.

All Pre-bankruptcy Procedures in Question

One of Linic’s economic policies that he imposed was the instrument of Pre-bankruptcy Procedure, which allows struggling companies to agree to a “bail-out” procedure with creditors and the state (through the Tax Authority and the Ministry’s Fina), in order to save the business and jobs.  The implementation of this policy was also the rationale for his dismissal and the source of his downfall.  Even though the Pre-bankruptcy Procedure Act was proposed by Linic, it was eventually approved by the government cabinet and ratified by the government-coalition majority in the Sabor.  The act has always been controversial, because it allowed for the subjective negotiations and agreement by the Finance Ministry to “bail-out” companies at its discretion…

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