% of GDP
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: 077 - (01/10/03)
Troubles with neighbours
The Balkan peoples historically do not get on with each other, especially neighbours. Neighbours often don't, of course. But it is rather remarkable that Croatia, with which Slovenia was not at war in the break-up of the former Yugoslavia, is regarded with marked hostility by Slovenians.
More than 50% of them in a recent opinion poll said that they did not want Croatia as their neighbour. The poll indicated that Macedonia or Bosnia would be quite acceptable as neighbours to the Slovenes, although 24% would not want Serbia either.
Slovenia borders only Croatia in the former Yugoslavia and has unresolved border disputes with Zagreb, such as concerning the maritime border on the Adriatic. The poll found that 43% of Slovenes avoid Croatia in case relations worsen between
Ljubjana and Zagreb.
If relations with Slovenes are poor, those with the Serbs are viscuous. The Croats and Serbs killed each other by the hundreds of thousands in the course of the twentieth century, in the Balkan wars in the early1910s, in the Second World War and in the early 1990s in the break-up of the former Yugoslavia, both across their common border and in Bosnia. The need for truth and reconciliation here is massive.
President Stipe Mesic understands this full well. He was curiously the last occupant of the rotating presidency of Yugoslavia in 1991, to whom Milosevic took strong objection in the role. A truly historic figure.
Reconciliation with Milosevic would never have been on, for the truth was he was a ghastly war-monger. He has gone, ousted in October 2000, and the truth is all coming out in the Hague. But reconciliation is now on with the new Serb leadership and the entire nation, less the other war criminals, today.
On September 10th Mesic went to Belgrade and met the Serb leaders. It was not the commonplaces that were uttered that mattered, but that the event was taking place at all. It is now possible to believe that the Croats and the Serbs will never go to war with each other ever again.
For that to happen, however, they need to develop wider horizons and achieve economic growth. They are both now well aware of that.
EU and NATO membership is the answer
The government, like so many regimes in Croatian history, sees the salvation of the country in an integration into larger structures outside. The two most important are of course the EU and NATO. Croatia formally requested to join the EU on February 25th, despite being warned by various Brussels officials that its bid was too early. It is now agreed on all sides that entry into the EU is realistic after all for 2007.
Croatia was cold-shouldered from being even a Partner for Peace of NATO in the 1990s with Tudjman in charge and Croatian war criminals at large. Many of these have now been handed over with the full cooperation of the government with the Hague authorities. NATO entry within a few years is on the cards. Croatia is at last coming in from the cold.
An integrationist past
The Croats are a people with a long past, that is profoundly marking their present and future. But of abiding significance is their mountainous and hilly geography, which has, moreover, changed, albeit slowly, during the centuries. In particular it underwent a long process of deforestation, which left many uplands bare.
They are situated in a vulnerable location, on the threshold of the Balkans, yet betwixt central and eastern Europe. They have consequently had to accommodate themselves to a whole series of more powerful peoples for a while, often lasting centuries. This can help explain their eagerness to surrender sovereignty today.
Yet their location gave them great opportunities as well, notably for sea-faring across the Adriatic and into the Mediterranean. But for this they needed timber to build boats. Hence the deforestation and the longer run tribulations of the countryside.
After peacefully migrating from Ukraine and settling in modern Croatia in the sixth century, the Croats enjoyed a period of self-rule. But the incursion of Magyars in the ninth century in central Europe changed everything. In 1091 the Croats agreed to submit themselves to Hungarian authority under the Pacta Conventa. By the mid-1400s fear of Ottoman encroachment led the Croatian Assembly to invite the Hapsburgs, under Archduke Ferdinand, in to assume control and responsibility for Croatia. After various vicissitudes Croatia became largely free of Turkish rule by the 18th century. In 1868 Croatia regained domestic autonomy, but significantly under Hungarian authority.
It became absorbed into Yugoslavia after the First World War, but broke away in the Second World War under the Ustase who collaborated with Germans, the most discreditable episode in Croatian history. But the Partisan leader himself was a Croat, Marshall Tito, who proceeded to found the Federal Socialist Republic of Yugoslavia after the war. Croatia became a relatively successful part of the federation, the one communist polity that allowed its citizens to leave freely and could thus be justly called a socialist country, rather than a socialist prison.
Independence at last
In 1990 Croatia held its first multi-party elections, in which long-time nationalist Franjo Tudjmann was elected president. Independence was declared next year, which triggered off a four-year war with Belgrade. In December 1995 Croatia signed the Dayton Accord and agreed to the return of all refugees.
The death of Tudjman in December 1999 was a blessing, allowing Croatia to enter the new decade, century and millennium with a clean slate. A new president and coalition government, under a new premier, have been able to pursue national reconciliation, democratization, regional cooperation and refugee returns.
The economy slowly turns around
The government of Premier Ivica Racan has a huge task on its plate. Reform was stalled throughout the 1990s bar some very shady privatisation deals. Unemployment climbed to 22% officially, but was almost certainly over 30% for a while, as the new employers divested themselves of surplus labour.
Some progress has been made subsequently. GDP grew by 2.9% in 2000, by 3.8% in 2001, by 5.2% in 2002 and by a prospective 5.2% in 2003. Inflation, after being in high double figures for most of the 1990s, is now running at 2.3%. Unemployment is down to 14.8%, at least officially. Things are slowly on the mend.
Croatian National Bank increases banks' required foreign currency reserves
At the 28th August session presided over by governor, Zeljko Rohatinski, the Croatian National Bank Council passed a decision under which banks' required foreign exchange reserves are to be increased from the current 25 to 35 per cent, HINA News Agency has reported.
The decision is part of amendments to a previous decision on banks' required reserves, the central bank said in a statement after the session.
The decision is the first of several steps which the central bank will take if warranted, in line with item 14 of the Supplementary Memorandum of Economic and Financial Policies, which the government and the national bank forwarded to the International Monetary Fund on 4th July.
Item 14 of the document reads: "The measure introduced in early 2003 to slow down credit expansion is temporary. The CNB (Croatian National Bank) intends to replace it by prudential and more price-based measures at the end of 2003. In the meantime, the CNB will not hesitate to enhance the effects of the current measure by tightening banking sector liquidity through an increase in minimum reserve requirements if warranted by developments in domestic inflation, credit growth and the external current account balance.
"To this end, the second review under the programme will focus on any monetary and other measures that may be needed to keep external developments in line with programme targets," the central bank said in its statement.
The increase of the compulsory foreign currency reserves would secure the immobilization of some 2.1bn kunas (approx. 281m Euros) in banks, in an attempt to curb the increase in monetary aggregates.
Rohatinski has already announced new monetary policy measures should the latest decision not yield expected results. In that case, the central bank would increase the rate of banks' required reserves from 19 to 22 per cent, and if this should also prove to be insufficient, there will be restrictions in capital transactions, such as the introduction of interest-free deposits for loans taken by banks abroad in the amount of 30 per cent of the loan.
According to the central bank's data, Croatia's overall foreign debt reached US$18.56bn on 30th June, an increase of US$3.22bn in comparison with the beginning of the year. The state accounted for US$7.37bn, or 37.8 per cent, of the debt, almost US$1bn more compared to 31st December 2002.
Banks' share in the debt also increased by US$1bn, to US$5bn, while other sectors accounted for US$4.7bn of the total foreign debt.
The central bank's data indicate that the deficit of the balance of payments current transactions was US$2.45bn in this year's first six months, a 49.3 per cent increase in relation to the same period last year.
Croatian government redirects budgetary funds to stimulate exports
Before distributing this year's budgetary funds the government has decided, at an extraordinary session, to redirect some funds to stimulate exports. This was the first step in increasing exports and simultaneously reducing external debts, Lidija Kiseljak reported for Croatian Radio.
This year's budgetary revenue and expenditure is not changing, but funds will be reallocated within and between certain ministries, amounting to about 2.45bn kuna [Croatian currency].
Finance Minister, Mato Crkvenac, said at an extraordinary government session, that it had been decided to redirect a further 100m kuna to increase exports, along with the previously announced distribution.
Crkvenac added: "This will stimulate export production and subsidize interest payments."
This is the first step by the government to stimulate exports, improve balance of payments, thus reducing the external debt, Crkvenac said, and announced a wide-ranging discussion on this at the regular session on 4th September.
Along with exports, the government has approved that revenue from those ministries in credit be redirected to the Defence Ministry, which has a deficit of about half a billion kuna due to reforms in the army. The same amount will be set aside for natural disasters. About 80m kuna will be allocated for elections, as well as welfare entitlements, pensions, stimulating employment and litigation compensation for those who lost their jobs in the 1990s.
Croatian, European Bank presidents hold talks
After talks with Croatian President Stjepan Mesic on 8th September, European Bank for Reconstruction and Development (EBRD) president, Jean Lemierre, said cooperation with Croatia was excellent and announced that the bank would invest 150-200m Euros in the country this year, HINA News Agency has reported.
The talks focused on what needs to be done to continue Croatia's drawing closer to the European Union, how to modernize the country, as well as on investments in the infrastructure, the private sector and tourism, and how to improve cooperation with neighbouring countries, Lemierre said.
Also discussed was a concrete project for funding the development of smaller municipalities in which the EBRD would participate. The bank drew up the project after a request forwarded by Mesic several months ago.
Lemierre applauded the request, saying Mesic was right in thinking the funding of small municipalities would encourage development outside cities.
Koncar company signs deal with Serbian company to modernize locomotives
Croatia's Koncar Electric Locomotives has signed a 25m-Euro agreement with Serbia's Public Railway Transport Company Belgrade to modernize 38 electric locomotives, the Croatian company reported on 9th September, HINA News Agency has reported.
The deal was won at an international tender and will be financed by a loan which the Belgrade company has received from the European Bank for Reconstruction and Development.
Koncar is to complete the job within 30 months in cooperation with two Serbian companies, MIN from Nis and Minel from Belgrade.
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