At last, good news from the former Yugoslavia: Croatia has held free and fair parliamentary elections, and the nationalists lost.

In a move that the West hoped for but did not count on, the citizens of Croatia handed the ruling Croatian Democratic Union (HDZ) a resounding defeat. Despite constitutional arrangements that favored the HDZ, voters took the first big step in ending the stranglehold that the party has perpetuated since the country's independence.

Their message: First, the mantle of nationalism cannot shield the HDZ from its accountability for the dismal economy, pervasive corruption and crony capitalism. Second, the people of Croatia can no longer tolerate earning $400 a month while pals and relatives of the late president Franjo Tudjman and his inner circle flaunt illicitly gained wealth. And those working for such meager wages are the lucky ones; unemployment in Croatia stands at a record 20.4 percent.

The people of Croatia have clearly demanded economic improvements and institutional reform, but their struggle for real change is not over. Presidential elections will be held on Jan. 24. Recognizing the prevailing winds, the HDZ nominated one of its moderates, Mate Granic, to run against the opposition's Drazen Budisa, a highly regarded former dissident. Nevertheless, even if Granic wins, the parliamentary strength of the opposition coalition, likely to control nearly two-thirds of the seats, should make desperately needed constitutional and other reforms achievable.

These reforms must include:

* Revision and enforcement of privatization: Too many valuable Croatian economic assets such as hotels and factories were handed over to Tudjman cronies. Business experience and investment capital were not required--just unwavering loyalty to the HDZ. Enacting privatization reforms will attract serious investors and ultimately improve the economic well-being of all Croatia's citizens.

* Free press: While independent newspapers have emerged in Croatia, their distribution is often thwarted. Some newsstand owners have feared HDZ retribution for selling papers viewed as hostile to the party. Even more troubling is the state of the electronic media, on which HDZ "political commissars" interfere in news reporting and other programming, such as talk shows. Popular TV personalities have not been fired, but they have been prevented from working in front of the camera.

* Electoral reform and the end of expatriate voting rights: The HDZ's loss would have been even more devastating if ethnic Croats from neighboring Bosnia had not been allowed to have the same voting rights as citizens in Croatia. Indeed, it was in the Bosnian region of Herzegovina that the HDZ performed best. This perverse electoral arrangement has had two negative effects: First, it has enabled people who do not live in Croatia to hold political power. Second, it has removed the incentive for many ethnic Croats in Bosnia to participate in the political process of their own country. Ironically, this strengthens the political influence and power of the SDA, the ruling nationalist party in Bosnia, at the expense of Bosnia's Croatian constituency.

* Rule of law: Tudjman's era was marked by favoritism and widespread corruption in all institutions, including the police and courts. Ethnic Serb citizens have faced harassment and discrimination. Legal reforms must be made on all levels to ensure equal rights for all of Croatia's citizens, irrespective of political party or ethnicity. In addition, those indicted for war crimes must be immediately surrendered to the International Criminal Tribunal in the Hague.

* Dilution of the constitutional powers of the presidency: Tudjman's authoritarian rule was made possible by constitutional changes that gave the presidency widespread powers. There were few significant checks on the president's authority. If the opposition candidate wins the presidency, the ability and likelihood of the constitution's being changed to weaken the institution of the presidency and establish checks and balances will be substantially increased. Such revisions to the constitution would ensure that democratic rule of law is firmly rooted in Croatia.

These proposals are not exhaustive, but they do incorporate the minimum actions that must be taken to ensure that Croatia returns to the path toward democracy and integration with the West. These measures will be difficult to enact, but they are essential to Croatia's being included in NATO's Partnership for Peace and the European Union. I believe that the United States will be ready and willing to assist Croatia as it undertakes these necessary reforms.

Neither the significance of this election for Croatia nor its effect on the region can be underestimated. A truly democratic Croatia, in partnership with the West, can be a bulwark of stability in the region and a shining example for its neighbors that extreme nationalism can and should be defeated.

The writer, former Senate majority leader, was the Republican candidate for president in 1996.