Todoric’s company, Agrokor is collapsing under the weight of $7 billion in debt, a sum so large that bailing it out fully would bankrupt the Croatian state itself. But letting the company go under would threaten 60,000 employees and thousands more jobs through a supply chain that includes farmers across the region. Meanwhile, the main creditors — Russian banks — are on the war path to extract whatever value they can.

“Croatia faces an economic and financial tsunami that is beyond imagination,” Prime Minister Andrej Plenkovic said during a recent parliamentary debate over the government’s handling of the crisis and calls for his resignation.

The story of Todoric, 66, and Agrokor, which accounts for 15 percent of Croatia’s GDP, has exposed crony capitalism, shady privatization in the former communist country, and close connections between politics and business in the Balkans, which is still recovering from the bloody breakup of the former Yugoslav federation in the 1990s.

Together with his father Ante, Todoric constructed a greenhouse in 1976 selling flowers throughout former Yugoslavia when the country’s communist regime started introducing market reforms. The business went well, prompting the family to establish Agrokor as a joint stock company in 1989.

Like many Croatian businessmen with good political connections, Todoric took advantage of the war years in the 1990s to take part in the large-scale privatization process of the state-run companies, which were sold for cheap through shady and irregular deals.

With good connections to the ruling elite, Todoric in 1993 bought several companies, including supermarkets belonging to the biggest retailer in the capital.

Agrokor “became a bigger power than the state itself,” Miljenic said.

Running the company with his two sons and daughter, Todoric kept expanding aggressively, buying everything from agricultural land to water bottling firms, meat-processing farms to ice cream-making companies and newspaper stands.

Agrokor also expanded outside Croatia, with assets in neighboring Serbia, Bosnia and other former Yugoslav republics.

THE CRASH

Analysts say Todoric’s zeal for expansion triggered Agrokor’s financial collapse.

In 2014, Todoric bought 53 percent of struggling Slovenian retailer Mercator for 550 million euros, using loans from Russian state-owned bank Sberbank that carried a high interest rate. Analysts say the purchase of Mercator was the death blow for Agrokor’s finances as it made the debt unsustainable.

Agrokor’s financial collapse is a “combination of fast expansion, overinvestment, low profitability and high-cost borrowing, which resulted in not enough cash flow to service its credit obligations,” financial consultant Andrej Grubisic said.

RUSSIAN CONNECTION AND POLITICS

Russian money played a big role in Agrokor’s financing, prompting fears in Croatia that the Kremlin has been strategically trying to increase its political influence in the EU’s newest member.

Sberbank is Agrokor’s biggest creditor with 1.1 billion euros. Another Russian bank close to the Kremlin, VTB, contributed with rollover loans worth about 300 million euros. The other main creditors include Austria’s Erste Group and Raiffeisenbank and Italy’s UniCredit and Intesa Sanpaolo.

“Whenever there is big money, there’s some politics behind it,” said Miljenic, who was formerly Croatia’s justice minister and is now in the opposition. “If the banks are owned by a state, logically, there should be even more politics.”

The government caretaker of Agrokor has recognized creditor claims worth some $6.3 billion, but Sberbank’s loan was not included, officially because the bank has launched legal claims against Agrokor companies in other countries, including Britain.

That has triggered angry reaction from Sberbank, which said in a statement it was “unpleasantly surprised” with the Croatian government’s stance.

“Everyone, including Sberbank, can resort to any legally allowed measure, in Croatia or in other countries, to protect its interests and must not be discriminated against because of that,” the statement said, adding that the bank will appeal the decision.

TODORIC REMAINS DEFIANT

Todoric formally still owns Agrokor but the Croatian government has taken over its management and gave itself until next summer to rescue what it can of the company.

Todoric fled to London amid the charges of embezzlement, which Croatian authorities used to start seizing his private property to help pay off Agrokor’s debts.

After he appeared on European police’s fugitive arrest list, Todoric wrote on his blog that his conscience was clear.

“As a man whose human rights are deeply violated I have the right to oppose political persecution,” Todoric wrote.

Todoric has been claiming that the government illegally took over his company and indicated that he will fight his extradition from Britain on the grounds that he is the victim of political pursuit. He has announced he would file a law suit against the so-called “Lex-Agrokor” — a law passed by the parliament that allowed the takeover.

Darko Bandic contributed.

Copyright 2017 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

https://www.washingtonpost.com/business/behind-the-croatian-bankruptcy-thats-shaking-the-balkans/2017/11/26/a916c0e4-d2a2-11e7-9ad9-ca0619edfa05_story.html?utm_term=.943ed24f5f84

Word of the policy change long sought by neighboring Turkey came Friday, not from Washington but from Ankara. Turkish Foreign Minister Mevlut Cavusoglu told reporters at a news conference that President Trump had pledged to stop arming the fighters, known as the YPG, during a phone call between Trump and his Turkish counterpart, Recep Tayyip Erdogan.

“Mr. Trump clearly stated that he had given clear instructions, and that the YPG won’t be given arms and that this nonsense should have ended a long time ago,” the Associated Press quoted Cavusoglu as saying to reporters following the call.

Initially, the administration’s national security team appeared surprised by the Turks’ announcement and uncertain what to say about it. The State Department referred questions to the White House, and hours passed with no confirmation from the National Security Council.

In late afternoon, the White House confirmed the weapons cutoff would happen, though it provided no details on timing.

Armed fighters of the People’s Protection Units, known as the YPG, gather in Kobane, Syria. The militia is made up of ethnic Kurds. (Ahmed Deeb/AFP/Getty Images)

“Consistent with our previous policy, President Trump also informed President Erdogan of pending adjustments to the military support provided to our partners on the ground in Syria, now that the battle of Raqqa is complete and we are progressing into a stabilization phase to ensure that ISIS cannot return,” the White House statement said, referring to the recent liberation of the Syrian city that had served as the Islamic State’s de facto capital.

The decision to stop arming the Kurds will remove a major source of tensionbetween the United States and Turkey, a NATO ally. But it is likely to further anger the Kurds, who already feel betrayed since the United States told them to hand over hard-won territory to the Syrian government.

[U.S. is trapped between its allies’ ambitions in Syria]

Turkey has pointed to the YPG’s affiliation with the Kurdistan Workers’ Party — a Kurdish rebel group that has fought the Turkish state for decades — as evidence of its terrorist ties. The YPG, which formed amid the chaos of the Syrian civil war, has worked with U.S. forces to oust the Islamic State from key areas there.

The Obama administration began arming the Syrian Democratic Forces, which is dominated by the Kurdish YPG militia, because they were considered the most effective fighters against Islamic State militants.

The phone call between Trump and Erdogan followed a summit on Syria held this week in Sochi, Russia. It was attended by Erdogan, Russian President Vladi­mir Putin and Iranian President Hassan Rouhani. Both Russia and Iran backed the government of Syrian President Bashar al-Assad and helped Syrian forces to rout the Islamic State.

The two powers, along with Turkey, have forged an alliance that is advancing its own peace plan, in which the United States would play little role beyond being an observer. They have said U.S. troops should leave Syria now that the Islamic State’s defeat appears imminent.

So U.S. officials have said they plan to keep American troops in northern Syria — and continue working with Kurdish fighters — to pressure Assad to make concessions during peace talks brokered by the United Nations in Geneva, stalemated for three years now. “We’re not going to just walk away right now,” Defense Secretary Jim Mattis said last week.

James Jeffrey, the U.S. ambassador to Turkey from 2008 to 2010, said the decision to cease supplying weapons to the Kurds appears to reflect an evolving strategy to keep playing a productive role in Syria and weaken Iranian-backed militias and Hezbollah, both of which fought alongside Syrian forces to regain territory from the militants.

“Fighting ISIS was such a priority, we had to focus on that before other things,” he said, using a common acronym for the Islamic State. “Now as the conventional fight is over, we’re trying to come up with a bigger policy. We can’t do it without Turkey. It’s pure geography. We have to mend fences with the Turks if we want to remain in Syria.”