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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: 066 - (22/10/02)

Croatia is not doing well enough to satisfy its population, or rather a sufficient proportion of them to count yet as a success story in transition. But it is not a basket case either, like several southern Balkan states, at least until recently.

Economy recovers
At the moment GDP growth is positive, being 4% on an annual basis in the first quarter and 4.3% in the second this year. Personal consumption and capital investment are leading the way. But this is coming from a low base, after dislocation by war in the early 1990s, followed by insufficient growth in the later 1990s to restore the status quo ante. Neighbouring Slovenia, which escaped the crippling wars of the disruption of Yugoslavia, almost, but not entirely, is in far better shape and is coming from a far higher base, with GDP per capita at US$16,800, three times Croatia's.
The official unemployment rate of 22% understates the true rate of 30% or so, according to trade union reports. With scanty and brief dole payments the jobless are obviously not participating in any recovery. A broad-based recovery in which they would is likely to be a fair way away, with the EU in the doldrums.

FDI to the fore
A promising portent here is that FDI is entering in reasonable quantity. Indeed Croatia, admittedly with double the population, is receiving more than twice as much FDI as Slovenia.
In 1999 it registered a record US$1.6bn of FDI, a remarkable result given that the regime under President Franjo Tudjman was still in charge. But Tudjman was known to be dying from cancer and, indeed, expired in December of that year. Foreign investors were doubtless anticipating a much more reform-minded new dispensation. And they were right.
Tudjman's successor, Stipe Mesic, and Premier Ivaca Racan are doing a good job in difficult circumstances. The investors have carried on coming in, FDI being US$1,442m in 2001 a 34% increase on 2000. This was the more impressive since FDI world-wide slumped 50% over the same period
Croatia is a natural gateway to the Balkan region like Slovenia, but with wages at one third. Tourism is thriving and should form, along with FDI, a mainspring of an eventual future boom. Those jobless may have to wait, but jobs in catering, the hotel sector and the like will be materialising as the decade advances.

IMF on side
The IMF is remaining supportive, extending an ongoing loan facility of which US$200m has already been taken up. A likely US$100m is due in 2003. EU membership is being discussed with Brussels and Croatia is eager to see what status awaits it in accession stages from the upcoming Copenhagen summit later this year. 

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FINANCIAL NEWS

Croatia's foreign debt exceeds US$13bn 

Croatia's foreign debt has exceeded US$13bn, having totalled US$13.283bn at the end of July, the Croatian National Bank (HNB) said on 27th September, HINA News Agency has reported. 
Indebtedness grew considerably in June, from US$12.3bn at the end of May to US$13.19bn at the end of June.
Compared to July 2001, Croatia's foreign debt at the end of July this year was US$1.85bn higher, or almost US$2.3bn higher than at the end of 2000. The last data from the central bank indicate that each Croatian citizen "owes" foreigners US$2,993.
The government accounts for 43.1 per cent of Croatia's entire foreign debt, its share at the end of July having been US$5.723bn.
Compared to May, the government's debt grew by US$391m and mostly relates to government bonds. Seventy-two per cent (US$4.124bn) of the entire foreign debt refers to bonds, while 28 per cent (US$1.597bn) refers to long-term loans.
The indebtedness of other sectors, such as non-financial companies and other financial institutions, grew in recent months as well, by some US$260m between May and July. These sectors' share in Croatia's entire foreign debt is 27 per cent (US$3.58bn). Eighty-seven per cent of the said figure refers to loans (US$3.111bn), of which 96 per cent are long-term ones, while trade credits account for US$306m.
The banks' share in the entire foreign debt exceeds 19 per cent, having totalled US$2.537bn at the end of July, which was US$213m more than in May. Of said figure, US$1.268bn refers to foreign currencies and deposits, and as much to loans, mostly long- term ones.
Direct investments account for ten per cent (US$1.331bn) of the entire foreign debt.
HNB's foreign debt (US$111m from an International Monetary Fund loan) accounts for 0.8 per cent of Croatia's entire foreign debt. The movement of the debt is somewhat influenced by dollar-euro exchange rate changes given the fact that some 66 per cent of Croatia's entire foreign debt is in Euro while the debt is stated in dollars.

Croatia attracted over US$1bn of foreign investment in 2001

Last year, Croatia attracted US$1.442bn of foreign direct investments (FDI), according to a World Investment Report which UNCTAD presented on 17th September, HINA News Agency has reported. 
Croatia registered a rise of 34.8 per cent in FDI in comparison to 2000, and thus 2001 was the most successful after 1999 when the country had a record of US$1.6b of FDI.
A rise in FDI was achieved in Croatia despite the fact that FDI decreased all over the world by over 50 per cent.
An adviser to UNCTAD and a member of the Croatian National Bank Council, Branko Vukmir, said the biggest drop of 59 per cent was reported from developed countries, while developing countries had a fall of 14 per cent in FDI. Countries in Central and Eastern Europe, however, were the only ones to have an increase (two per cent rise) in FDI in 2001 compared to 2000. In the World Investment Report, Croatia has for the first time after eight years been added to this category...
The data about Croatia, incorporated in this 12th consecutive UNCTAD annual report, were gathered by the Croatian National Bank's statistics bureau.
The bureau's head, Igor Jemric, said that in 2001, three quarters of the FDI in Croatia referred to three big transactions, i.e. ownership investment. A third of the total FDI in 2001 was invested into the financial agencies and services, another third went into telecommunications, and only 18 per cent accounted for the investment into the manufacturing industry.

Croatian premier unveils medium-term investment plan

"The consolidation of economy and the reconstruction of economic 'ruins' are nearing the end, while at the same time, we are showing that we are creating adequate infrastructure for economic development," Croatian Premier Ivica Racan said at an economic forum held at the International Zagreb Autumn Fair on 17th September, HINA News Agency has reported.
At the traditional meeting of representatives of the Croatian government and economists, the prime minister presented investment plans for the power industry, road construction, railways, the continuation of reconstruction in war-torn areas and socially stimulated housing construction.
Strong and developed infrastructure is crucial for a long-term sustainable economic development and it is a condition for direct investments and encouragement to regional development, Racan said.
Presenting power industry projects, Racan pointed out the construction of the Ernestinovo transformer-station (investment worth about 380m kuna or 52m Euro) and the Zerjavinec transformer station (270m kuna or 37m Euro).
The prime minister said he expected that gas pipe lines would be constructed in most of Croatia over the next several years.
A total of 460m kuna (63m Euro) will be invested in the gas system, namely in the building of the Pula-Karlovac gas pipe-line, a gas pipe-line to Dalmatia and the modernisation of the existing gas network in central and eastern Croatia.
Strategic development projects in the construction of highways were enabled by a new financing model, no longer from the budget, but from the prices of oil products, Racan said.
A total of 1,365 kilometres of highways are currently being built, or will be built, and by 2005, 2.4m Euro will have been invested in the highways.
The prime minister also spoke about a decision on the extension of the construction of the Zagreb-Split highway.
Racan presented investment plans for the railway worth about 2.6bn kuna (0.35bn Euro) and the continuation of the reconstruction project in war-torn areas worth 1.9bn kuna (0.26bn Euro). The 2002 budget earmarked 131m kuna (17m Euro) for socially stimulated housing construction, while the 2003 budget will earmark 232m kuna (31.7m Euro) for the same project.
He said the government's priority tasks were the reforms of the state administration and judiciary. "This will not happen overnight and both us and the future government must persist in that," Racan said.
The prime minister informed numerous businessmen about macroeconomic indicators and said this year's economic growth is expected to reach 4.5 per cent. The government is aware of a certain imbalance in the exchange of goods, Racan said, and announced the government would try to achieve a balance of export and import.
Also present at the Zagreb Autumn Fair were numerous businessmen, Vice Premier Slavko Linic, Economy Minister Ljubo Jurcic, Maritime, Transportation and Communications Minister Roland Zuvanic and Tourism Minister, Pave Zupan Ruskovic.

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FOREIGN ECONOMIC RELATIONS

CEFTA countries keen to see Croatia join organisation by end of 2002

The prime ministers of the Central European Free Trade Agreement (CEFTA) countries at a summit meeting in Bratislava on 14th September, expressed the wish that Croatia be admitted to this organization by the end of the year, HINA News Agency has reported.
The prime ministers welcomed the fact that negotiations on Croatia's admission to the CEFTA are almost over, and urged all participants to accelerate the preparation of all documents and invest every effort so that the agreement on Croatia's membership may be signed by year's end, the summit's final declaration read.
Croatia has removed the last obstacle for its entry into the CEFTA by wrapping up negotiations on the signing of a free trade agreement with Romania.
Addressing the summit on Croatia's behalf, Deputy Prime Minister, Slavko Linic, stressed the economic importance that CEFTA has in the region.
"Croatia sees the significance and role of the CEFTA as a regional trade organisation in the further strengthening and encouragement of trade among the countries of central and east Europe, as well as in the deepening and expansion of cooperation to other economic sectors," said Linic.
Membership of CEFTA will give the Croatian economy access to the central European market with fewer barriers and more joint programmes, Linic said. He stated that CEFTA was also important as preparation for membership of the European Union.
Linic suggested the agreement on Croatia's membership be formally signed in Zagreb at the ministerial level later this year.
Slovak Prime Minister Mikulas Dzurinda said that membership of CEFTA gave each member a chance to develop their economy and improve foreign trade. This year the CEFTA is chaired by Slovakia.

British, Croatian businessmen meet

The exchange of goods between Croatia and Great Britain last year amounted to US$293.3m and Great Britain believes Croatia is a promising market for the export of British goods, HINA News Agency. 
Last year Croatia exported US$67.2m in goods to Great Britain, while imports from that country amounted to US$226.1m it was stated at the 26th September talks between Croatian and British business people held in the Croatian Chamber of Commerce (HGK).
A delegation of British businessmen, which included representatives of 15 British companies interested in business cooperation with Croatian firms, visited Zagreb. The visit was organised by the London Chamber of Trade and the government's organisation, Trade Partners UK.
The director of HGK's sector for international relations, Dunja Konjevod, said Croatian companies were interested in cooperation in joint ventures, as well as in trade with British firms.
The executive director of the London Chamber of Trade and Industry, Daniella Batley, said Great Britain believed that Croatia is a promising market. She said Croatia had a significant role as a business partner in the region.

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FOREIGN LOANS

World Bank loans US$27m for pension system reform

The World Bank (WB) has approved a US$27.3m loan to Croatia for pension system reforms. The bank's Zagreb office said that funds will be used for reconstructing and modernising the Croatian Pension Insurance Institute, the agency for monitoring pension funds and the central register of insured persons.
Dpa reported that the loan, granted for 15 years with a five-year grace period, was signed in Zagreb by Croat Finance Minister, Mato Crkvenac, and the WB Director for south-eastern Europe, Andrew Vorkink. "This is a significant project which should ensure the stabilisation of contribution rtes, the reduction of the investment risk and the expansion of the capital market," Vorkink was quoted as saying. For his part, Crkvenac said the loan would put a more efficient pension system in place with less risk and more security for pensioners. 

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