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  CROATIA

REPUBLICAN REFERENCE

Area (sq.km)
56,400

Population
4,700,000

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: 057

The Croats are doing well, but from a low base with a mountain of problems still to sort out. The rate of unemployment, officially at 22%, yet almost certainly higher, is the biggest of them. The foreign trade sector, hit hard by a fall in tourism subsequent to 9:11, is also in a grave plight, exports barely covering 50% of imports. The national debt is in excess of US$11bn.
In other respects the economy has been faring rather well, with solid growth over the last two years, GDP rising 3.7% in 2000 and prospectively 4.2% in 2001. Inflation has come down, being only 2.8% on an annual basis in November (the latest month for which figures are available), and the reform process is well under way with international approval.
The key event was the death of Franjo Tudjman in December 1999. That cleared the way for a long overdue overhaul of the Croatian polity, without which none of the progress of the last two years would have been possible. The new president, Stipe Mesic, is a highly respected figure on the world stage. He was made welcome in London in mid-December, where he met with the president of the EBRD, Jean Lemierre, and addressed its shareholders.
The EBRD is a prime support of the new course in Croatia, having signed 36 projects with it. The bank's contribution has been 916million Euros, thus supporting 2.8bn Euros of investments. 
Among the most important projects the EBRD is participating in Croatia are contracts with the VIPnet mobile network and the Vetropack bottle production factory. As for significant infrastructure projects, the EBRD is involved in the building of the Zagreb-Rijeka motorway and a liquid waste management plant in Zagreb.
Lemierre said the Bank would work together with Croatia, taking advantage of this year's momentum and strengthening the market economy. He added that one of the most important priorities for Croatia would be privatisation, particularly in the tourist sector.
According to Bank data, Croatia expects US$470m of direct foreign investments in 2002, as against US$870m in 2000 and US$1.45bn in 1999.
In December Croatians exchanged more than one billion marks into Euros. Many in the population distrust the kuna and their own banking system. But the authorities are hoping that will change and the billions previously put under mattresses in D-marks or whatever will now stay as Euro accounts with banks.

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FINANCIAL NEWS

EBRD congratulates Croatian president on progress made in market economy


Croatian President Stipe Mesic on 19th December visited the European Bank for Reconstruction and Development (EBRD) in London, where he held talks with the Bank's president Jean Lemierre and addressed representatives of the Bank's shareholders, HINA News Agency has reported.
Mesic, who was on a four-day visit to Great Britain, was present at the signing of a contract between the EBRD and the Uljanik shipyard from the northern Adriatic town of Pula, whereby the Bank with 15m euros guarantees the building of a 47,000-tonne oil tanker.
During the talks with Mesic, Lemierre praised Croatia's progress in establishing a market economy and hailed two consecutive years of economic growth, the Bank said in a statement. He stressed the Croatian economy should open up to foreign investments even more.
According to Bank data, Croatia expects US$470m of direct foreign investments in 2002, as against US$870m in 2000 and US$1.45bn in 1999.
So far, the EBRD has signed 36 projects with Croatia, in which the Bank participates with 916m euros, thus supporting €2.8bn of investments in Croatia. The Bank said the past 12 months had been the most successful in cooperation with Croatia. It is expected the Bank will allocate around €300m for various projects in the country...
Among the most important projects the EBRD is participating in Croatia are contracts with the VIPnet mobile network and the Vetropack bottle production factory. As for significant infrastructure projects, the EBRD is involved in the building of the Zagreb-Rijeka motorway and a liquid waste management plant in Zagreb.
Lemierre said the Bank would work together with Croatia, taking advantage of this year's momentum and strengthening the market economy. He added that one of the most important priorities for Croatia would be privatisation, particularly in the tourist sector, the Bank statement read.

Croatian GDP expected to grow around 4 per cent in 2001

A stable macroeconomic framework and the strengthening of economic activity, yet a very strong continued problem of unemployment are the main characteristics of Croatian economy at the end of 2001 in which certain positive economic trends are being registered globally, although the majority of the population had not felt these improvements, HINA News Agency has reported.
This year expects to see a Gross Domestic Product increase by around 4 per cent or higher. The GDP in the first half of 2001 increased by 4.5 per cent as against the same period last year. All indicators point to the GDP being at the same level in the third trimester.
At the same time, the inflation rate is lower than expected. Gauged by retail prices, the inflation rate in November was at the annual level (as against November 2000) reaching a mere 2.8 per cent.
Despite the accomplished economic growth, the registered unemployment rate in Croatia had not decreased, but its growing trend in 2001 has significantly weakened. In late November, 385,300 people were registered at the Employment Bureau, which is 8,600 people or 2.3 per cent more than in November 2000. In the first 10 months of 2001, employers sought 177,000 employees, which resulted in the employment of 142,000 people or 32.3 per cent more than in 2000. This indicates that new jobs are being created, but still not enough to neutralise the inflow of newly unemployed into the Employment Bureau.
Unemployment thus remains the chief problem for Croatia, in which workers, according to data for the first nine months of 2001, had an average monthly net salary of 3,518 kuna.
Among the favourable achievements this year are: the growth of industrial production (by 6 per cent in the first 11 months), the revival of investments, a successful tourist season (10 per cent increase of tourists).
As regards foreign trade, the increase in exports has been significantly lower than that of import. According to statistics, in the first nine months exports reached US$3.92bn, which is 5.6 per cent higher than in 2000, while imports grew by 18.9 per cent to US$7.6bn.
The foreign trade deficit amounted to US$3.69bn. Exports covered imports by only 51.5 per cent...
Croatian foreign debt in 2001 exceeded US$11bn.

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FOREIGN LOANS

EIB to provide another €16m for private sector


The European Investment Bank (EIB) will provide an additional €16m to support Croatia's private sector in the form of a global loan to Privredna banka Zagreb d.d (PBZ), reports New Europe. The EIB funds will be used for financing small- and medium-sized investments in industry, the service sector, and infrastructure projects proposed by both public and private promoters in Croatia.
PBZ was founded in 1962 and has consistently been a leading financial institution on the Croatian market with an established business base and recognised national brand name. In early 2000, PBZ became a member of Gruppo IntesaBci - the largest Italian banking group and one of the most significant financial institutions in Europe.
Operating as a universal commercial bank, PBZ is the second largest bank in Croatia, enjoying a nationwide presence. It is a leading bank in catering to SMEs, having formed strategic partnerships with HBOR, the ministry for SMEs, as well as the entrepreneurial community, a press release noted. PBZ also intends to further expand activities with SMEs in Croatia, especially in the tourism sector, shipbuilding industry and family businesses.
Further to the global loans to the HVB Bank Croatia (HVB Croatia) signed in October 2001, and to the Croatian Bank for Reconstruction and Development (HBOR) signed in November 2001, this new EIB global loan further contributes to the availability of credit in the country.
The EIB loan is provided under the current mandate for Central and Eastern Europe, which also extended to Croatia following the EU's Council Decision of November 7th 2000.

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