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  CROATIA

REPUBLICAN REFERENCE

Area (sq.km)
56,400

Population
4,334,142

Capital
Zagreb

Currency
Kuna

President
Stipe Mesic

Private sector
% of GDP

55%

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Background:
In 1918, the Croats, Serbs, and Slovenes formed a kingdom known after 1929 as Yugoslavia. Following World War II, Yugoslavia became an independent communist state under the strong hand of Marshal TITO. Although Croatia declared its independence from Yugoslavia in 1991, it took four years of sporadic, but often bitter, fighting before occupying Serb armies were mostly cleared from Croatian lands. Under UN supervision the last Serb-held enclave in eastern Slavonia was returned to Croatia in 1998.

Update No: 063 - (23/07/02)

Premier resigns but is reappointed
On July 5th the Premier of Croatia, Ivaca Racan, who heads the Social Democrats, the largest party, resigned in a ploy to oust a rival party in the five-party coalition government. He blamed infighting within the coalition, in particular over Croatian participation, in owning a Slovenian energy plant. The rival in question is the Social Liberals, the second largest party.
The very next day 84 of the 151 deputies of parliament requested Stipe Mesic to appoint Racan as premier designate, with a 30-day period of grace to form a new government approved by parliament, if fresh elections are to be avoided.

Promising legacy
Racan become premier in January 2000 and his government has lasted thirty months. Mesic's agreement to opt for Racan again was a foregone conclusion since they have worked well together in that period, with the president taking a load of foreign affairs functions off the premier's back.
The record of Racan's government is strongly approved abroad, with a series of reforms to its credit. But these have failed to bring a real boom at home or to erode unemployment, officially put at 20% but more like 30%. 
What Racan needs is not just a new profile for his coalition, but time. The sluggish growth throughout the EU and the advanced world generally are not propitious for a boom yet. Growth of GDP has in fact been respectable at 3.7% in 2000; 4.1 in 2001 and a prospective 3.5% in 2002. But Croatia really needs 5%-plus growth on the Hungarian model if there is to be any serious dent in unemployment. 

FDI to the rescue
Hungary had such growth for most of the 1990s and in 2000-01 by reason mainly of attracting a great deal of foreign direct investment (FDI), US$27bn to date in its case. Croatia was in the doldrums in the 1990s due to wars and a repressive, backward-looking regime under President Franjo Tudjman. His death in December 1999 was as if on cue to allow a new dispensation in the new millennium.
Mesic and Racan have provided that and a surge in FDI resulted. It came to US$827m in 2000 and US$470m in 2001. This year it is estimated to top the US$ one billion mark for the first time, amounting to uS$1,090m. This is the more creditable in that Croatia is bucking the world trend here; world-wide FDI is running at less than half of last year's level.
But then Croatia is a logical place to invest to enter a more stable market throughout the Balkans, to which it forms a natural gateway. Its own attractions as a burgeoning tourist country are enormous, beautiful countryside and coastline and historical architecture, which was by no means all destroyed by the early 1990s wars. Its islands in the Adriatic are becoming ever more popular with EU tourists.
As new Racan administration will have an awful lot on its plate and will need to announce a new agenda in the autumn. Its members will not themselves be tourists in the coming weeks, but be having a very hard-working August.

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ENERGY

Major companies express interest in 25% INA stake


Ten bidders have entered the contest for a 25% stake in Croatia's state-owned INA, the country's biggest firm dealing in exploration and refining as well as operating a retail network in Croatia and neighbouring countries, New Europe has reported.
Companies making the list include Edison, LUKoil, Rosneft, Sibneft, OMV and MOL; and some other regional groups acting alone or in consortiums. The official naming of the list will take place at a later stage. Deputy Prime Minister, Slavko Linic, noted that a successful privatisation of INA is of strategic interest to Croatia and a precondition for its integration into Europe.
Sell-off advisors, Deutsche Bank and Price-waterhouseCoopers, who have valued the firm at between 1.2bn and 1.8bn Euros, will review the offers according to the strategic vision presented by the bidders and their proposed contribution to the Croatian economy, while short listed bidders will be able to submit binding offers after the summer.
Croatia intends to float around 15% of INA on the local market at a later stage. Following years of losses, INA reverted to profit in 2001 (output totalled two million tonnes of crude and 1.8bn cubic metres of natural gas), posting a group net profit of 48m Euros on 1.9 billion Croatian crowns in revenues, CEE News reported. This is mainly attributable to liberalisation of oil prices and restructuring efforts.

World Bank, Greece guarantee support for Croatian energy

During meetings between the Greek Minister of Development, Akis Tsochatzopoulos, and Croat government ministers in Zagreb recently, a number of issues regarding the host's participation in the south-eastern European electricity market were discussed, the establishment of which was recently decided in Athens, were discussed, New Europe reported.
With contacts concentrating primarily on energy issues, it was noted that Athens will hold the seat of the electricity common market for a six-month period, during which it will operate under the Greek EU presidency.
Following meetings conducted by the Greek visitor to the capital, it was made known that Greece will support EU subsides for the reconstruction of the Croat electricity network restoring the link between the Balkans and western Europe.
Furthermore, announcements were made that the Hellenic Petroleum company would soon submit a proposal for the purchase of 25% of state-run INA, Croatia's petrol and natural gas company. Meanwhile, Croat government officials expressed interest in their country's participation in the extension of the Greek-Turkish natural gas pipeline that will carry Caspian Sea natural gas to the Western markets. 
Andrew Vorkink, the World Bank's (WB) director for Croatia, Bulgaria and Romania, and Croatian Finance Minister, Mato Crkvenac, recently signed a US$5.07m WB deed of donation contract for the preservation of Karst eco-systems. The contract was signed in the presence of Croatian Environmental Protection Minister, Bozo Kovacevic. The 27th WB donation to Croatia is the bank's biggest donation to Croatia thus far, and has been approved by the WB Global Environment Fund (GEF). Funds are to be managed by the Ministry of Environmental Protection and Zoning and employed in the protection and preservation of endangered species in the national parks of Plitvice, Paklenica and Risnjak and the Velebit nature park.
The project's total value amounts to US$8m, Minister Kovacevic said, as quoted by HINA News Agency. He added that the remainder, some US$3m, would be secured by Croatia, adding that apart from environmental protection and the management of natural resources, the donated funds would also be used to develop traditional and environmentally sustainable activities. Crkvenac stressed the significance for the WB's cooperation and support for numerous reforms in Croatia, and said that his government was preparing wider reforms aiming to increase economic growth and reduce unemployment. Since 1995, the WB has granted Croatia donations totalling US$6.4m, while the country had been given close to US$1bn through other projects as well.

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FORESTRY

Croatian government to protect timber industry from excessive exports 

Croatia's government on 13th June passed a decree on the protection of the domestic production against excessive imports. The decree stipulates conditions and procedures for the introduction of protective measures such as an increase in duties and the determination of imported amounts for some goods, HINA News Agency has reported.
Protective measures can last no longer than four year, Economy Minister Hrvoje Vojkovic said, adding that the government's measures did not clash with the commitments Croatia has as a World Trade Organization member.
The members of the government supported this move, but they also suggested that a decree should be adopted for the protection of the domestic production from excessive export, referring to the situation in timber and wood industry.
The timber and wood industry, which is the second biggest exporter among the industrial branches, was almost completely devastated in the past 10 years, but the incumbent government, which has been in the office for two years, has also failed to do anything to change the situation, Reconstruction Minister Radimir Cacic claimed...

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INSURANCE

The government favours foreigners on Croatia Osiguranje deal 

One of the bidders for Croatia Osiguranje, the Consortium of Croatian Companies, reproached the government for favouring foreign bidders in the sale of the Croatia Osiguranje insurer at an organized press conference, CEE News has reported. 
The Consortium representatives reiterated during the press conference that polls have been showing that the general public wants to see the insurance company remain in Croatian hands; the poll claimed some 94 per cent of those surveyed have expressed such a view. The government, in its turn, played down the accusations and has described the latest claims by the consortium of domestic bidders on the criteria for accepting the bids as unprofessional and being set against market competition and business customs. The deadline for the offers for Croatia Osiguranje to be submitted is July 4th, 2002.

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SHIPPING

Tanker built for Italian company launched in Croatian shipyard 

A tanker, which will be used for the transport of petroleum products and chemicals, left the slipway in the Rijeka shipyard "3. Maj" on 29th June. This is the second ship built for the Italian company CA.LI.SA, HINA News Agency has reported.
The company's owner, Marco Novella, expressed dissatisfaction with the fact that there was a delay in the completion of the building of the ships his company ordered from the Croatian shipyard. The delivery of the first ship was one year late, while the second ship, the 35,000-ton tanker Iblea, should have been built a month ago.
Croatia's Deputy Prime Minister Slavko Linic told reporters that some weak spots in the Croatian shipbuilding industry had not yet been removed. Being behind schedule imposes higher prices, which those who order ships do not want to pay, Linic said, adding that it is very important to have good management in shipyards.
The "3. Maj" shipyard's managing board chairman, Zdenko Marcelja, declined to comment on the statement of the Italian partner and the government official.

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TRANSPORT

Road building loan agreement signed with European Investment Bank 

Representatives of the European Investment Bank (EIB) and the Rijeka-Zagreb motorway company on 24th June signed a loan agreement worth 60m euros for the completion of the construction of the 146.5-kilometre-long Rijeka-Zagreb motorway, HINA News Agency has reported. 
The loan will be used for the construction of the Vrbovsko-Bosiljevo 2 (13.57 kilometres long) and Bosiljevo 2-Vukova Gorica (7.81 kms) sections. The construction of the entire motorway should be completed by June 2004. So far, 104.4 kilometres have been built.
The variable interest rate of the loan can be no higher than Euribor plus 0.40. The grace period is five and a half years, and the loan should be paid back within 20 years.
The agreement was signed by Zoran Klaric, the chairman of the company's board of directors, and Ewald Nowotny, the EIB Vice President, in the Croatian seaport of Rijeka.
After this agreement, Mr Nowotny and a Croatian Deputy Prime Minister, Slavko Linic, signed collateral for the loan.
The conclusion of the contract with the EIB is a part of an arrangement between the Croatian company and the European Bank for Reconstruction and Development (EBRD) on completion of the building of the said section.
Last October, the Rijeka-Zagreb motorway company and the EBRD signed a contract on a 60m-euro loan. The grace period for this loan ends in 2005, and it should be paid back within 18 years.
The Bosiljevo 2 interchange, which should be built by next year, connects the Zagreb-Rijeka motorway with the Zagreb-Split-Dubrovnik motorway.

Central European railway directors discuss cooperation in Croatia

Seven railway managing directors of the G-4 Group member-countries i.e. railways from the Danubian region to the Adriatic, decided at the 21st June meeting at Plitvice Lakes National Park to establish a freight transport group which will suggest joint guidelines for the modernization of such transport in the region, and the setting in motion high quality international trains to run East-West in order to increase the share of railways in the overall transport of passengers. 
The directors of Croatian, Austrian, Hungarian, Slovene, two Slovakian, Bosnian Federation's and Austro-Hungarian railways believe that the congestion of road traffic and ecological advantages of railways direct the further development of freight transport towards multi-modal transport.
The two-day meeting, which was hosted by Croatian Railways, focused on the promotion of passenger traffic, increasing competitiveness in freight traffic, the modernization of infrastructure and current events relating to the restructuring of individual railways.
The participants concluded that the problems of European railways were the same, and included debts to suppliers, losses in passenger and freight traffic, restructuring and surplus employees.

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