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Books on Croatia
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Update No: 118 - (29/03/07)
Zagreb rejects criticisms
Croatia has an awful lot going for it, a magnificent coastline and countryside,
splendid old buildings and an excellent location as a natural gateway to the
Balkans. But its reform course has stalled and its terrific potential is not
materialising.
On the long and winding road of post-socialist economic transition, Croatia has
often outpaced other countries in South East Europe. Yet now, just when it
should be roaring ahead as a magnet for investment in the region, Croatia has
reached a crossroads between rhetorical fantasy and economic reality.
Politicians in Zagreb have a habit of describing as a foregone conclusion the
country's future within the European Union and Nato.
But critical observers cannot help noticing that, increasingly, the facts show a
country that, in critically important ways, resists the reforms it needs to go
all the way.
External variables such as the European Union's "enlargement fatigue"
are a factor, but there is trouble within as well. Far more important to
Croatian citizens are realities on the ground, and these, according to a series
of highly influential international indexes and reports, including the EU's own
annual Progress Report, are troubling.
Reforms in Croatia are starting to lag, and the country's leaders are loathe to
admit it.
Still 'unfree' on most counts
The Heritage Foundation and The Wall Street Journal's recent Index of Economic
Freedom rated Croatia 109th out of 157 countries worldwide - a pitiful 37th out
of 41 nations in the region of Europe.
The index, which scores economic freedom according to an exacting set of
objective criteria, described Croatia as 55 per cent economically free, calling
it "mostly unfree."
In matters of property rights, rule of law, corruption and freedom from
government, the index called Croatia "repressed."
Ratings for investment freedom, labour freedom, and business freedom were
"mostly unfree." Financial freedom scored a bit better -
"moderately free" - while trade freedom, monetary freedom and fiscal
freedom were deemed "mostly free."
The index's criticisms confirmed what other recent analyses from the World Bank,
European Union and others also indicate. If Croatia truly intends to scrap its
twin legacies of socialist and authoritarian rule, there is much work to do.
Faced with this flood of concern from genuine advocates of freedom and
prosperity worldwide, one might expect elected policymakers in Zagreb to respond
soberly, with fresh, sincere commitments to make life easier for businesses and
families.
'Croatian spin doctors'
Instead, Croatia's government has thrown itself into advanced spin mode. Ivo
Sanader, the prime minister, went on record rejecting the data published by The
Heritage Foundation and The Wall Street Journal.
Likewise, his government pooh-poohed the results of the World Bank's 2006 Doing
Business report, and spun the EU's annual Progress Report, prompting The Wall
Street Journal to publish a rebuttal titled "Croatian spin doctors."
In February, when The Economist published an online report calling Croatia the
"soggy bottom" of Europe, a place where "nobody wants to upset
the murky and convenient status quo", the government quickly dismissed it
as untrue.
This zeal for manipulating the facts only sets back the stated goal of a
government whose ultimate policy focus is full membership of the Euro-Atlantic
alliance. Indeed, it is reminiscent of how communists in Zagreb once fielded
criticism.
This must stop. A lack of candour inhibits freedom - and freedom is what is at
stake, most critically in the economic sphere. The reports from the EU and
Heritage Foundation elaborate usefully on this point.
The threat to freedom does not end with the economy alone. It begins there.
Milton Friedman, the Nobel Prize-winning free market economist who died late
last year, called economic freedom a prerequisite for political freedom. He was
right, and political leaders forget his teaching at their peril.
Croatia's leaders, however, have learned to insulate themselves institutionally
from criticism. Sanader has invited the Croatian Chamber of Commerce and
National Competitiveness Board to review and respond to the Index of Economic
Freedom. It looks good, but in fact he can rely on these institutions to reject
the index's findings.
Authoritarian and corrupt statism still in place
The Chamber of Commerce is still financed by the government, which mandates
obligatory membership for every company operating in Croatia; the National
Competitiveness Board, founded by USAID, meanwhile, consists of government
officials, trade unions representatives and privileged representatives of
business such as state-owned companies and large private firms holding state
contracts.
By contrast, independent businessmen who speak publicly about corruption face
the risk of open reprimand from figures of political authority including the
prime minister himself. The effect is to discourage transparency and freedom of
speech when Croatia's government needs private individuals, journalists and
civic leaders to highlight areas requiring improvement. Independent voices are
more likely to call a spade a spade.
Responding to the recent flood of criticism, the government boasts that Croatia
receives "high ratings from all international institutions, such as the
European Commission and International Monetary Fund".
In fact, the EU Progress Report issues a jarring verdict that Croatia has
"no overall strategic framework" for reform.
It goes on to describe an environment ripe for corruption. Croatia lacks
"clear and transparent rules and procedures with regard to elections and
the forming of governments at the local level." The country remains
"still some way from enjoying an independent, impartial, transparent and
efficient judicial system," and "allegations of corruption remain
uninvestigated and corrupt practices usually go unpunished." An additional
European Commission report cites "major interference of politics with (the)
judiciary."
In any such atmosphere, risks of corruption loom large.
And yet post-socialist reform need not be murky. Mart Laar, the former prime
minister of Eastern Europe's star performer, Estonia, offers simple advice:
"The first step in fighting corruption is not to be corrupt yourself."
Are Croatia's leaders ready to heed it? To see Estonia's astounding rate of
reform-driven economic growth, they should be.
Croatia appears to be unprepared to clean up its own affairs, and yet a cleanup
is urgently needed, for the state retains an alarming share of overall economic
activity.
Government expenditure is worth 52 per cent of the country's gross domestic
product, and yet, in some cases, it uses its position to crowd out private
initiative. According to a report from the business news web portal business.hr,
a substantial minority of public contracts, worth 146 million kuna (about 20
million euro), has been awarded without public tenders.
The consequent lack of room for private initiative and other hindrances to
economic freedom need challenging, or they will only grow.
Croatia's Adriatic Institute for Public Policy last October co-hosted the
Libertas Debate Series at the European Parliament with Roger Helmer, a British
member of the European Parliament. There, issues of alleged corruption were
raised in the cases of two former and two current government ministers.
In the wake of the meetings, the Adriatic Institute sent enquiries regarding the
cases to Croatia's government, along with follow-up correspondence from Helmer.
The enquiries went unanswered, in violation of Croatia's Freedom of Information
Act. The unspoken message was one of contempt for the dignitaries present at the
meetings, but more importantly for citizens and taxpayers.
Change of Western policy needed
It is time for the EU, World Bank, USAID and others who grant or loan
substantial sums of money to Croatia to re-examine their approach. Too often,
their funds contribute to systemic inertia when a change of course is needed.
Croatia needs an approach more directly emphasising accountability and
transparency.
Greater economic freedom should be a condition of future transfers of
international support, with greatest emphasis on rule of law, protection of
property rights, judicial reform and the complete, transparent privatisation of
state-owned enterprises.
Such measures might rouse the government from its current state of denial, and
eventually help Croatia to establish the foundations of a freer, more prosperous
market economy.
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BANKING
Erste Bank posts a big profit growth for 2006
During 2006, Erste & Steiermarkische Bank Group recorded in Croatia a profit
increase of 18.2 per cent compared to 2005. Bank assets amounted to 35.51
billion crowns at the end of year, which enabled the bank to acquire 11.8 per
cent market share, "Croatia Today" reported on March 7th.
Client deposits amounted to 22.3 billion crowns and increased at the rate of
30.2 per cent during 2006, while the market increased at the rate of 18.1 per
cent.
Net loans approved to clients reached 21.9 billion crowns, which is up by 19.1
per cent on 2005. During 2006 net income from interest reached 879 million
crowns, while net revenues from fees and commissions totalled 217 million
crowns, up by 25.1 per cent. Income from regular operations reached 1.27 billion
crowns, which is up by 11.4 per cent on 1.14 billion crowns recorded in 2005.
HNB reports 311 billion crowns in banking system
In 2006, banks in Croatia made pre-tax profits amounting to 4.2 billion crowns,
while housing loan banks recorded losses amounting to 60 million crowns, the
Croatian National Bank (HNB) Council said, Hina News Agency reported on March
14th.
The Council considered the latest economic and monetary developments, the
situation in the banking sector in the fourth quarter of last year and a report
on the management of foreign exchange reserves in 2006, the central bank said in
a statement. Thirty-three banks and five housing loan banks operated in the
Croatian banking system in the last quarter of last year. Sixteen of those banks
were in domestic private ownership, while two banks and one housing loan bank
were in state ownership. Fifteen banks and four housing loan banks were in
foreign ownership, accounting for 91 percent of the overall bank assets.
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FOREIGN BUSINESS
Kosovo companies are being looked at for business
Croatian Economy Minister, Branko Vukelic, headed a business delegation on a
visit to Kosovo. An economic forum was to be held in Pristina with 80 managers
from Croatia participating, "Croatia Today" reported on March 13th.
The total exchange of goods between Croatia and Kosovo is around 33.4 million
Euro per year, with Croatia's exports covering 32.2 million Euro. The greatest
Croatian exporters to Kosovo are TDR, Podravka, Saponia, Kvasac, Ina, Koncar,
Pliva, Dukat, Kras, Ledo, Petrokov and Belupo. There are 15 Croatian companies
in Kosovo, while 30 companies are present via dealers and distribution
companies. Croatian companies' business is facilitated by the temporary
agreement on free trade signed by the Croatian government and the UN Interim
Administration Mission in Kosovo. In line with the agreement dated November 1,
2006, customs tariffs have been rescinded for industrial products, except for
three groups of products from Croatia on which 60 per cent of customs tariffs
are paid.
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FOREIGN RELATIONS
Croatia is Poland's most important regional partner
Polish Foreign Minister, Anna Fotyge, recently met with her Croatian counterpart
Kolinda Grabar-Kitarovic and stressed that Varsava supports Croatia's entry into
the European Union and NATO, Croatia Post reported.
"Croatia is Poland's most important partner in the region and Poland was
willing to share with Croatia its experience from the process of accession to
the EU," said Fotyge.
Fotyge was on her first official visit to Croatia in the year in which the two
countries were celebrating 15 years of diplomatic relations. During the meeting,
the two ministers said that political and economic relations between Poland and
Croatia was good and that there were no outstanding issues between them.
Both ministers agreed that they have room to improve their economic
co-operation, and the subjects of global security and co-operation of the two
countries in the context of NATO and the NATO-lead ISAF mission in Afghanistan.
The economic cooperation between Croatia and Poland is growing. Trade increased
33 percent in the 2005-2006 period and the number of Polish tourists vacationing
on the Croatian Adriatic coast rose 14 percent last year, Grabar-Kitarovic said.
Croatia is interested in Poland's experience in the process of integration with
the European Union, particularly in the use and implementation of EU
pre-accession aid and in the use of cohesion and structural funds, she added.
The Polish minister also met Parliament Speaker Vladimir Seks, and Croatian
President Stjepan Mesic.
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FOREIGN TRADE
Trade between Croatia-Montenegro doubled
According to the preliminary information, in the first six months of 2006,
the commodity exchange between Croatia and Montenegro doubled to 28.5 million
Euro and 25 million Euro goes to Croatian exports to Montenegro.
This was announced at the Croatian-Montenegrin forum in the Croatian Chamber of
Commerce, Mnnews reported.
Around 33 companies from Croatian and Montenegro participate in the Forum, from
tourism, energy industry, building, food industry and financial industry. It was
reported that Croatia is the seventh biggest trade partner with Montenegro, and
third biggest when it comes to the region.
While delivering the inaugural address at the forum, Croatia's Economy minister
urged that the administrative obstacles which blocked big interests of Croatian
and Montenegrin businessmen should be removed to create greater co-operation
with joint moves. He added that co-operation was necessary for strengthening of
mutual relations between the two countries. For his part, Montenegrin colleague
Branimir Gvozdenovic said that their closer co-operation is necessary for
strengthening of mutual ties. Gvozdenovic also added that in the last couple of
years, a noticeable influx of foreign investment in Montenegro has been present,
which strengthened their companies that are now interested to invest abroad and
that includes Croatia as well.
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SHIPPING
Government to sell stake of "Viktor Lenac" shipyard
The Croatian government is going to sell its claims from the ailing shipyard
"Viktor Lenac" to the Pula-based shipyard "Uljanik" and the
Zadar-based "Tankerska Plovidba," a shipping company operating cargo
vessels, it was reported on March 2nd, New Europe reported.
By selling its claims at the price of 10 million crowns, the government will put
an end to its role in "the story of Lenac," Deputy Prime Minister,
Damir Polancec, said. Tankerska Plovidba and Uljanik will take over state claims
amounting to 326 million crowns, with the obligation to invest an additional 58
million crowns in the shipyard's capital stock, Polancec explained. Finance
Ministry State Secretary, Ante Zigman, said that this move would enable the
Rijeka-based company to continue operating, retaining all 650 workers on the
payroll. In addition, Lenac will have commissioned jobs for at least five to 10
years. The two government officials added that trade unions of employees in the
Lenac Company had supported the government's plan for the shipyard from the very
start.
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