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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: 064 - (27/08/02)

The Croatian premier, Ivica Racan, has made a clever use of internal strains in his centre-left coalition government to reconstitute it entirely. He simply resigned, knowing that President Stipe Mesic and, indeed, the country at large would not want to see his departure.
Parliament duly voted in favour of the new cabinet he proposed to Mesic in August. He has brought in independent experts to run the science and economy ministries, hoping to put an end to the wrangling and in-fighting inseparable from coalition politics among five parties.

Activism the order of the day
Racan is well aware of the scale of the problems. Croatia has endemic corruption, linked to inefficient public administration, high public debt and massive unemployment, officially 20% but in fact over 30%, and lack of competitiveness on the international market. Under-employed as well as non-employed resources and labour abound. A new technocratic activism is to be the order of the day, experts devoting themselves to solving problems rather than politicians pursuing vested interests, both theirs and those of their followers.
The huge hangover of expenditures of a burdensome state, dating from communist times, is the prime problem for Croatia. The state after independence ran up huge debts with the public then with foreigners. Foreign debt surpassed US$12bn in July for the first time.
Clearly a massive programme of retrenchment is required, which will hurt all sorts of vested interests. But Racan is unperturbed by that. He obviously feels himself called upon to further the general interest, advised by technocrats schooled in their disciplines, and freed from the incubus of overmuch party politicking, although some degree of it is, of course, inevitable in a democracy.

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AGRICULTURE

ZABA introduce new lending to Croatian agribusiness sector


Businesses in the Croatian agricultural sector can apply for loans using commodities as collateral, thanks to a new €71m (HRK 530m) partnership between the European Bank for Reconstruction and Development and Zagrebacka banka (ZABA), the country's largest commercial bank, a recent EBRD press release reported.
Croatia is reviewing legislation that would allow farmers, processors and traders in the agribusiness sector to borrow working capital from local banks using grain and other commodities as collateral - a mechanism known as "warehouse receipt financing." The legislation will be vital to the agribusiness sector in Croatia. The joint EBRD/ZABA initiative will provide both parties useful working experience with the warehouse-receipt system. Both banks will share the risks associated with this type of financing.
Hans Christian Jacobsen, Director of the EBRD's Agribusiness team, said the EBRD has been assisting in the implementation of warehouse receipt financing since 1998 in 10 countries. This is the first time, he said, that the EBRD has undertaken such a programme before laws are in place to protect the lender. The timing is particularly important because it will demonstrate that commodity-backed agricultural lending is commercially sound and further prepare the grounds for the law expected to be implemented next year.
Damir Odak, Member of the Management Board of ZABA, said the scheme will help smooth the further development of the Croatian agribusiness sector. He expressed hope that the EBRD's work with the Ministry of Agriculture will soon lead to the establishment of the legal and institutional framework enabling further expansion of lending against agricultural commodities.
The EBRD and ZABA have been working together since 1995, although this is the first collaboration in the agricultural sector. ZABA is owned by UniCredito and Allianz. It has over €6.5bn worth of assets and is rated BB+ by Standard and Poors and Fitch. Its strong presence in the Croatian market has been built through prudent lending procedures and sound business judgement.
To date, the EBRD has signed 167 projects worth more than €2.8bn to assist the agribusiness sector throughout the Bank's countries of operations.
For further details contact: Ben Atkins, Tel: +44 207 338 7236, E-mail: Atkins@ebrd.com.

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FINANCIAL NEWS

Croatia's foreign debt over US$12bn 

Croatia's external debt for the first time exceeded US$12bn, and at the end of May it came to US$12.354bn, HINA News Agency has reported. 
The foreign debt rose by US$550m (4.6 per cent) in May as against April, reported the Croatian National Bank.
Recent trends in the figures reflect also changes in the rate of exchange of the dollar against the euro, given that about 66 per cent of the entire Croatian foreign debt is in euros, but the figures, as rule, are expressed in the dollar, the central bank's analysts noted. That's why the appreciation of the euro helped increase the amount of the debt.
According to the same source, the biggest contribution to the rise in the debt was made by debt incurred by the banking sector. Banks' debt rose by US$316m from April to May.
The debt of other sectors rose by US$81m, while the debt of the government increased by US$73m.
The government's share in the entire external debt fell from 44.5 to 43.1 per cent, totalling US$5.331bn at the end of May.

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FOREIGN LOANS

EBRD lends support to Croatian small enterprises


The European Bank for Reconstruction and Development has thrown its support behind Croatia's SME sector, unveiling on 22nd July a €20m credit line to Erste & Steiermarkische bank d.d. Zagreb (EBS) that will expand the bank's medium-term lending capacity to small and medium-sized enterprises.
Noreen Doyle, the EBRD's First Vice President, said small businesses in Croatia need finance if they are to succeed, which is why it is important to strengthen the lending capacity of local banks. She described the enterprise sector as an essential engine for long-term growth.
Erste & Steiermarkishe Bank was formed in September 2000 through the merger of three highly successful regional banks with a long track record and experience in the local market: Bjelovarska, Trgovacka and Cakovecka banka. The bank has already established itself as one of the leading foreign banks on the market and has ambitious growth plans.
Strategic shareholders of ESB are two of the leading banks in Austria and Central Europe: Erste Bank der Oesterreichischen Sparkassen AG and die Steiermarkische Bank und Sprakassen AG, who jointly hold 83% of the share capital ofErste & Steiermarkische bank.
ESB is the eighth largest bank in Croatia with approximately €667m in assets and €67m in shareholders equity at the end of 2001.

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