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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: 062 - (20/06/02)

The Croats are doing much better of late. For the last two and a half years they have been forging ahead, free of the incubus of post-communism in the shape of Franjo Tudjman, strong-arm dictator, and his uncongenial cronies. Stipe Mesic, the new president, is widely popular. The premier, Ivica Racan is a real reformer, unlike his predecessors in the 1990s, although reform is not always so popular.

Bright prospects ahead
Croatia is a country that should eventually do very well. It has a marvellous countryside and Adriatic coastline and an abundance of historical architecture, not much of which was damaged in the war with the Serbs in the early 1990s. It has numerous delightful islands in the Adriatic. It is therefore a natural for tourism, the more so for being largely unspoilt - as yet - by Western commercialism, while being right on Europe's doorstep. Tourism itself is likely to change all that.
For the Croats themselves rather more humdrum considerations predominate. Unemployment is very high, officially 22%, but more like 30% in practice. The obvious remedy of state-subsidised employment, devised by the Nazis and Swedish Social Democrats alike in similar circumstances in the 1930s, is proscribed by the IMF.

Foreigners show interest
Nevertheless, GDP is growing, 3.7% in 2000, 4.1% in 2001 and a prospective 3.5% in 2002 (despite a general growth forecast of only 1.3% in the EU on average). The Croats are favourites of Germany, receiving lots of German investment as well as German tourists. The Italians are also very active in the country; Croatia's 2:1 defeat of Italy in the soccer World Cup was a great pleasure to Croatians, who are concerned about the undue attentions of the Italian mafia, now the subject of an official investigation into the activities of President Milo Djukanovic of neighbouring Montenegro. Smuggling is endemic in the Balkans, especially on the Adriatic coasts.
Foreign investors have begun to show serious interest. The figures for foreign direct investment (FDI) are US$827m in 2000, US$470m in 2001 and a prospective US$1,090m in 2002. The accumulated total of FDI by the end of last year was US$4.2bn, which means that the US$5bn level should be surpassed by the end of the year. But then Croatia is a natural gateway to the entire Balkan region, on the Adriatic and with a strategic location in the north-west. 

Banking troubles
The 1990s saw several severe crises in the banking sector, only resolved by government bale-outs and funding that aggravated inflationary problems. In March this year the third largest bank, Rijeka Banka, experienced a run on its deposits of 248m Euros after the revelation of losses of 98m Euros by a rogue trader.
The striking thing is that this has not led to a general banking crisis. In the last two years Croatian banking has come 90% under foreign ownership. That made all the difference. 

EBRD to the rescue
Croatia needs to go further with reforms of its economy if it is to carry on recovering. Racan is aware of this - Mesic, who conducts much of the official visits abroad, met with EBRD representatives recently in London and agreed to a further programme of loans to the republic. These are naturally also being coordinated with the government. There are over 35 projects under way with the EBRD involving 2.8bn Euros. Another 300m Euros is in the pipeline. 
Among the most important projects in which 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.
Jean Lemierre, President of the EBRD, 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.

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BANKING

Croatian government turns down Italian offer for its shares in major bank

Deputy Prime Minister Slavko Linic on 28th May stated that the majority owner of the Commercial Bank Zagreb (PBZ), Italy's Gruppo IntesaBci, had offered the government 125m euros for a 25 per cent share in the bank, HINA News Agency has reported. The government does not want to accept any price below 150m euros, he said.
"The last written offer the government received from PBZ's majority owner was 125m euros, while a verbal offer amounted to 130m euros. The bottom price for the government is 150m euros," Linic stated at a press conference.
IntesaBci Group is the majority owner of PBZ with a 66.3 per cent share and as such has priority in purchasing the remaining shares.
Linic said that the government was not satisfied with the offer of 125m euros and that negotiations with the majority owner were continuing.
If the government does not come to an agreement with the majority owner, it could accept offers by other financial institutions that are more than willing to enter PBZ, Linic said, adding that there was even a possibility that PBZ shares could be offered on the capital market.
Linic stated that the sale of the 25 per cent of the state's share in PBZ should be concluded this year.
He explained that the government decided to sell its share in one of the country's largest banks because it needed money for employment, development and regional development funds.
The fact that IntesaBci offered 125m euros for the 25 per cent share in PBZ was confirmed by PBZ sources. PBZ officials were unpleasantly surprised by information published recently in the media, which quoted unofficial government sources as saying that IntesaBci had offered only 30m euros for 25 per cent of the bank's shares.
PBZ said that IntesaBci had offered 30 euros per share, which makes 125m euros since the State Agency for the Rehabilitation of Banks has more than 4m shares in PBZ.
PBZ was privatised in late 1999 and Banca Commerciale Italiana (BCI) paid 300m euros for 66.3 per cent of the bank's shares. BCI later merged with Banca Intesa and PBZ became part of Gruppo IntesaBci.

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ENERGY

Croatia says great interest shown in privatisation of INA oil company

The Croatian government has been informed about a significant number of companies interested in the privatisation of the country's oil company INA. Since this is the first phase of the process, the exact number will not be made public yet, nor the names of interested companies, the government's Public Relations Office said on 31st May. 
Unofficial sources have reported that some 20 foreign companies have expressed interest in purchasing INA's 25 per cent plus one stock so far, HINA News Agency has reported.
Detailed offers will be submitted to governmental advisers for the privatisation of INA by 14th June, after which the government will officially inform the public about the submitted offers, the Office said in a statement.
The statement cites basic information about INA, and states that, according to the draft audited financial reports for last year, the company's consolidated profit from sales amounted to 16.12bn kuna (US$1.92bn), and the overall assets 14.87bn kuna (US$1.78bn).
The government is expected to make a decision on a strategic partner by the end of this or the start of next year.
Besides selling 25 per cent plus one share to a strategic partner, the Law on INA envisages 7 per cent of shares being transferred without compensation to Croatian Homeland War veterans, the company's current and former employees would be able to purchase 7 per cent of shares under favourable conditions, and at least 15 per cent of shares would be sold by public tender.

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FINANCIAL NEWS

Croatian president, IMF delegation discuss economic problems

Croatian President Stjepan Mesic on 4th June received representatives of the International Monetary Fund (IMF) led by IMF mission chief to Croatia, Hans Flickenschild, the president's office said in a statement, HINA News Agency has reported. 
Flickenschild and John Noregaard, the head of the IMF office to Croatia, expressed their views about the current economic situation in Croatia and macroeconomic policy as well as measures which the government and the central bank should be carrying out this and next year.
The IMF said Croatia's economic policy achieved positive results in low inflation, a decrease in the current section of the balance of payment and accumulation of foreign exchange reserves, the statement said.
Problems which need solving include decreasing unemployment and a faster economic development.
Mesic and the IMF delegation also spoke about the chances of signing a new stand-by arrangement, about which talks with the government and the central bank should start in September.
Mesic believes that the best solution seems to be the drawing up of Croatia's own economic programme which would receive international support.
In the conditions of high unemployment in Croatia, the success of an economic policy can be assessed exclusively according to the unemployment decrease criterion, Mesic said.
He said Croatia had shown it could independently carry out a responsible stabilisation policy, which is confirmed by one of the lowest rates of inflation among transitional countries.
Mesic reminded the delegation about an agreement from Monterrey, that is, conclusions from an international conference on sustainable development organised by the UN, IMF, International Bank for Reconstruction and Development and the World Trade Organisation in Mexico. The agreement stipulates that international financial institutions must respect national reform courses and pay special attention to the needs of the countries in the sense of realising economic development, including employment and social welfare.
Mesic pointed out the necessity of Croatian citizens and parliament being acquainted with negotiations with the IMF and World Bank, especially if certain obligations will be assumed by them.
Croatia expects serious expert assistance in forming an independent economic and development policy from the IMF and World Bank, Mesic said.
He said he advocated a "Croatian model of a political and social partnership" in which a consensus on Croatia's key issues is the basic condition for the development of reform.
Imposed economic and social reforms under the model "from top to bottom" could increase the degree of social tensions in Croatian society, the president said.

Croatian Privatisation Fund favours sale of companies in debt

The Croatian Privatisation Fund (HFP), in cooperation with the Economics Ministry, will suggest to the government the sale of the first 25 companies which might be covered by the new Payment Operations Law's provision relating to accounts frozen for more than 60 days, HINA News Agency has reported. These bad debtor companies would be sold for one kuna to bidders that would offer to take over the responsibility of old debts with the least amount of write-off. 
HFP Vice Chairman, Kresimir Starcevic, told reporters on 4th June that there was a considerable number of companies in the fund's portfolio to which the said provisions might refer. Therefore a programme is drawn up about their sale via tenders. The first group of companies include ship-yards: "3 Maj" in Rijeka, Kraljevica, Brodotrogir and Brodosplit, and tourist companies in the Dubrovnik area.
The HFP is drawing up two lists of companies. The first list will include companies for which some interest has been expressed and the other list would be of the remaining companies. The HFP will instigate bankruptcy procedure in accordance with those groups.
Starcevic told a press conference that four companies previously added to a list of 13 tourist companies that should be covered by a special programme, had been subsequently excluded from that group.
Interest has been expressed in the purchase of those four firms - Suncani Hvar, Primosten, Makarska and Mlini - and they will soon be offered for sale. Three potential buyers from Britain, Hungary and Italy, have shown interest in Primosten.

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FOOD & DRINK

Carlsberg buys majority stake in Croatian Panonska

Danish Carlsberg Breweries A/S has increased its share-holding in Croatia's Panonska brewery to 80% through the acquisition of Podravka Food Industries' 40% share-holding. The purchase price amounts to approximately US$11m.
With this latest move, the Danish company aims to secure greater influence on the future development of the brewery. Investment Fund for Central and Eastern Europe owns the remaining 20% of the share capital, New Europe reported.
Carlsberg Brewery's history in Croatia and its cooperation with Podravka date back to 1971, at which time the two entered into an agreement regarding the brewing and marketing of Tuborg beer. Carlsberg acquired a 40% share-holding in Panonska in 1995. In order to extend the capacity, approximately US$50m was invested in 1977 in a modern and efficient brewery, which was built by Danbrew Ltd A/S, a subsidiary of Carlsberg Breweries.
In 2001 the company recorded a turnover totalling US$40.3m, while beer production amounted to 396,000 hectalitres. The company's market share totals 11%, with per capita consumption amounting to 74 litres. The Danish firm employs 310 persons.

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FOREIGN ECONOMIC RELATIONS

Croatian premier, US officials discuss expansion of economic cooperation 

During talks with US officials in Washington on 7th June, Croatian Prime Minister, Ivica Racan, focused on economic issues, HINA News Agency has reported.
Racan held talks with US Secretary of Trade, Donald Evans, Under-Secretary in charge of economic issues, Alan Larson, and directors of the Croatian components in the IMF and the World Bank, Onno de Beaufort Wijnholds and Pieter Stek.
The Croatian premier expressed satisfaction with talks and announced that competent ministries would agree on the expansion of the two countries' economic cooperation and the cooperation with international financial institutions.
Croatia does not accept the fact that the USA is in the eighth place on the list of Croatia's trading partners, particularly because the two countries' economic relations can enable better economic cooperation, Racan said. The US administration gave a sign to the business world that Croatia is not only a reliable political partner, but also a worthy economic partner, the prime minister said.
The meeting with Wijnholds and Stek was an opportunity to discuss new projects in Croatia which could be interesting to the World Bank.

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INFORMATION TECHNOLOGY

Navision steps up operations with new Croatia subsidiary 

Navision, the leading global provider of integrated software solutions for small- and medium-sized businesses, has announced the opening of its new Zagreb-based Croatian operation. The Croatian office, a subsidiary of Navision Slovenia, will serve to fill the mid-market gap between the existing high-end and local vendor offerings, New Europe has reported.
The Zagreb office, bringing Navision closer to its 26 Croatian-based customers, will be managed by Andreja Loncar, while the externally owned subsidiary will be responsible for the distribution of Navision Financials and Navision Attain and will build upon Croatia's existing network of five NSCs with plans to contract an additional 15 before the end of 202, a news release stated.
"The Croatian operation fits very well within Navision's existing European business. I consider all Navision expansions to be an important step in our continued effort to become the leading provider of integrated business solutions for small- and medium-sized companies across the globe. The Croatian market-place has great potential for Navision and with Andreja Loncar's expertise and knowledge of the market, we are confident that we can exploit this potential," stated Per Pendersen, senior vice president, International Sales, Worldwide Operations.

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