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UPDATE January 2002

Croatia suffered terribly in the 1990s, and not just from wars. It had to endure the archaic dictatorship of Franjo Tudjaman and his cronies. His death in December 1999 has changed everything.
A new president and new government for the last two years has seen progress, albeit from a bad economic plight. The economy is still plagued with the usual problems of post-communist hangover, a swollen state sector (needing more radical privatisation) troubled enterprises in massive arrears to each other, a weak judicial system, an incompletely reformed banking system, an impoverished mass of the population with an effective rate of unemployment of 30% of the work force. There is an enormous amount to do.
There are plusses all the same. Tourism along the Adriatic coast was doing well (before the events of September that have hurt tourism everywhere). This may partly account for a large inflow of foreign direct investment (FDI), notably from Slovenia, which directed 45% of its 850m Euros of outward FDI to Croatia last year. The islands along the coast and its main ports have long attracted tourists from the EU. But the country cannot survive on tourism alone.
The government of premier Stipe Mesic are clear about that. They are in talks with the IMF for a stand-by agreement and are debating the usual wide range of reform measures advocated by the IMF, correcting the above list of grave problems. In March 2001 the IMF agreed to extend 200m SDRs (US$256m) under special terms, above all reduction of the budget deficit from 5.7% of GDP in 2000 to 4.3% by 2002.
The Croatia Privatisation Fund (CPF) is gradually reducing the number of firms in its portfolio, 1,852 in mid-2000, by September 2001 down to 1,598 by liquidation, sales of minority stakes and management changes. This is a tough and arduous job with each case having to be assessed on its own merits.
A new central bank law, was enacted in early 2001, an independent pensions regulator set up in May and new energy laws were adopted in July. The pace of change is likely to be slow, but firm and reaping rewards in due course. But the phase of transition is still a painful one - it is early days yet.

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ENERGY

Croatia, Russia sign protocol on Druzba Adria oil pipeline

Croatian Vice-Premier, Slavko Linic, and Russian Energy Minister, Igor Yusufov, on 26th November signed a protocol on the oil pipeline Druzba Adria, which, as of next autumn, will carry Russian oil via Belarus, Ukraine, Slovakia and Hungary to the Croatian terminal at Omisalj, from where the oil will be transported by tankers further towards the West.
The only obstacle to a speedier realisation of the project for the time being is Ukraine's stand. Namely, all states participating in the project have agreed that the price of oil transported via the integrated oil pipeline will be 64 cents per 100 tonnes of oil and 100 kilometres, however, Ukraine has demanded a higher price.
The Russian side has therefore bound itself to send its representatives to Kiev on 3 December to ask the Ukrainian government to accept the suggested price. On 3rd and 4th December Croatian President Stjepan Mesic will be paying an official visit to Ukraine as well and it is expected he will intercede with his host, Leonid Kuchma, so that the tariff barrier is overcome.
Before the signing of the protocol, Linic and the Russian energy minister discussed intensifying the economic cooperation and trade. The annual trade between the two countries revolves around US$730m, of which Russian exports account for US$670m while Croatia's exports account for merely US$60m.
Yusufov supported Linic's proposals for increasing Croatian exports to Russia, and the same support was voiced by the First Deputy to the Russian Economy Minister, Roald Biskopelj.
A delegation of the Croatian oil industry INA is visiting Moscow as well. The purpose of the visit is to find a strategic partner for joint access to the Russian market. Talks on the oil field White Nights have been announced as well, the company said.
Linic and his hosts will discuss ways to pay Croatia part of the clearing debt of the former Soviet Union.

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FOREIGN ECONOMIC CO-OPERATION

Croatia, Turkey initial free trade agreement

Croatia and Turkey initialled a free trade agreement in Ankara on 29th November, the Croatian Economy Ministry said in a statement, HINA News Agency has reported.
It is expected the agreement will be signed in the first quarter of 2002 in Ankara, where the third session of a joint Croatian-Turkish economic committee should take place at the ministerial level.
After the signing, the agreement will go through parliamentary procedure and its implementation is expected to start in mid- or second half of 2002.
When the agreement comes into force, Turkey will cancel customs duties on all industrial products from Croatia, while Croatia will cancel customs duties on most industrial products from Turkey.
Customs tariffs on the most sensitive imports from Turkey, such as textile, iron and petroleum products, will be cancelled gradually, in 2006 and 2007.
The agreement has opened another big market without limits for Croatia's exporters. Negotiations on the free trade agreement between Croatia and Turkey began a year ago in Zagreb.
The agreement was initialled by the Croatian Assistant Economy Minister Olgica Spevec and a deputy under-secretary at the Turkish Foreign Trade Under-Secretariat, Baki Alkacar.
The two officials expressed satisfaction with the initialling of the agreement and hope the agreement would improve the two countries' economic co-operation.
Spevec and Alkacar hope the agreement will increase the countries' trade, which in the first nine months of 2001 amounted to US$35m, which is 0.34 per cent of Croatia's overall foreign trade.
In the said period, Croatia exported US$6.2m worth of goods to Turkey while Turkish exports to Croatia amounted to US$28.7m.

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FOREIGN LOANS

World Bank grants Croatia US$202m loan for "structural adaptation"

Croatian Finance Minister, Mato Crkvenac, and the World Bank's director for Southern and Central Europe, Andrew Vorkink, signed a US$202m structural adaptation loan contract in Zagreb on 5th December, HINA News Agency has reported.
The loan is aimed at supporting the government's programme of structural and institutional reforms, and will be paid out in two instalments: the first, of 102m, when the loan goes into force, and the second about a year later, when Croatia has met the payment conditions.
The time of repayment is 15 years, with a five-year grace period. Croatia has a very ambitious development investment programme, Prime Minister Ivica Racan said after the signing. This support on the World Bank's part is extremely important and Croatia appreciates it very much, he added.
Racan reminded the bank decided earlier to activate, after four years of waiting, the second, DM80m instalment of the EFSAL [IBRD-financed Enterprise and Financial Sector Adjustment Loan] programme, intended for the adjustment of the financial sector and companies.
Vorkink described the US$202m loan as historic for Croatia as it is individually the biggest loan the World Bank has granted Croatia in the last 10 years.
He emphasised the loan would help in the management of the economic programme, passing the state budget and increasing the competitiveness of the domestic economy, lead to fewer permits required for opening new companies, help the flexibility of the labour market, foreign investments, and the social protection system...
Vorkink added the Croatian government and the World Bank were working on several other projects worth US$400m. These include projects related to the pension system, social protection, the arrangement of land registries and cadastral books, environmental protection on the coast, the islands and in national parks, the Rijeka port, and others...

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SHIPPING

Former Yugoslav republics sign letter of intent for managing Sava River

Representatives of Croatia, Slovenia, Bosnia-Hercegovina and Yugoslavia signed a letter of intent in Sarajevo on 29th November thus giving an international status to the Sava River, HINA News Agency has reported.
The document started a procedure for making the Sava River completely competent for navigation and commercial use.
Maritime Affairs, Transport and Communications Minister Alojz Tusek signed the letter on Croatia's behalf. The Pact on Stability in Southeast Europe's coordinator, Bodo Hombach, attended the signing ceremony.
The letter of intent was signed during the sitting of the Pact's working table, which is currently holding a session in Sarajevo and discussing economic revival and co-operation in the region.
Also announced was the preparing of an international agreement on managing the Sava River, and concrete projects for establishing free navigation on river.
According to Tusek, this agreement will be of great significance to Croatia, namely because it will enable the functioning of ports in Sisak and Slavonski Brod, which suffered great damage due to blocked traffic on the Sava River.

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