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CROATIA



 
Key Economic Data 
 
  2002 2001 2000 Ranking(2002)
GDP
Millions of US $ 22,421 20,300 19,000 63
         
GNI per capita
 US $ 4,640 4,550 4,600 70
Ranking is given out of 208 nations - (data from the World Bank)

REPUBLICAN REFERENCE

Area (sq.km)
56,400

Population
4,334,142

Capital 
Zagreb

Currency 
Kuna

President 
Stipe Mesic

Private sector
% of GDP 
55%

  

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. 
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, 2003, 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. 
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.
In 1990 Croatia held its first multi-party elections, in which long-time nationalist Franjo Tudjman 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.

Update No: 081 - (01/02/04)

New government forms
The party of Franjo Tudjman, the Croatian Democratic Union (HDZ), ruled throughout the 1990s, but lost power to the Social Democrats in early 2000. It is now back in office with a vengeance, being clearly ahead in the 150-seat parliament. As the largest party represented it has a decisive edge in forming a coalition government.
Elections to parliament were held on November 23rd, which were expected to be very close. In fact they were clear cut.
Ivo Sanader, the leader of the HDZ, said on December 4th that he had negotiated sufficient support in parliament for his future government. The HDZ won 66 seats in the parliamentary elections. Sanader said his party had also secured the backing of another 11 lawmakers from ethnic minorities and small right-wing parties, giving his coalition a majority in the 140-seat chamber. Former Prime Minister Ivica Racan and his previous Social Democrat coalition secured just 66.
With a mere 60 percent of the 4.3 million people eligible to vote actually casting a ballot, voter turnout was at its lowest in a decade. The low turnout was seen as a bonus for the right wing, which has a stronger tradition of motivated and disciplined voting.

The eternal return of the HDZ
The incubus of a retrogressive nationalist regime was removed by the death of Tudjman in December 1999, just in time for a new start in the new millennium. The Social Democrats, under Premier Ivica Racan, ruled for nearly four years, but are now out.
The new leader, Ivo Sanader, has done his utmost to give his party a makeover from the old days. He has moved it forwards on Europe, into which he wants Croatia integrated, and tried to put the cronyism of the Tudjman years behind it. He has expelled nationalist extremists from the party and said that he will pursue moderate policies from a mainstream European conservative perspective. Dissatisfaction with a large national debt, social hardship and high unemployment of officially 22%, but actually, according to the unions, over 30%, led to the triumph of the centre-right party.
Nevertheless there are doubters that the leopard has really changed its spots. Says one resident of Zagreb: "He pretends to have purged the HDZ, but all those who were well-intentioned had quitted the party before he took over the reins. The remainder are canaille." 

Key minority party stays aloof
It is doubtless this common perception that has made minority parties loath to join the coalition. After consultations with Croatian President Stepan Mesic regarding the appointment of the premier-designate, Croatian Party of Rights (HSP) leader, Anto Šapic, told reporters that his party would not support the HDZ-led government.
"At this moment nothing has changed which would make the HSP alter its position," Šapic said, adding that the party would hold a session to discuss the HSP Presidency's decision not to support Sanader's government. 
Šapic stressed that Mesic had clearly told him there were no obstacles for the HSP to become part of the government in Croatia. "President Mesic also said it was inadmissible for anyone to interfere with the forming of the Croatian government. He criticized the inappropriate behaviour of certain EU ambassadors regarding election results in Croatia and post-election agreements," Šapic told reporters.
This behind-the-scenes pressure by the EU has been effective. Only one minority party, the centre-right Democratic Centre, has agreed to form a coalition with the HDZ. Its one and only MP will be justice minister in the Sanader government, a poetic justice for its extremist past. Others, such as the Croatian Peasants' Party and the Party of Pensioners said that they would vote for the new government, but not join a coalition.

The new dispensation
The HDZ“s electoral triumph, indeed, was made even more impressive by the fact the EU and many in the West openly supported Mr. Racan“s leftist coalition.
Yet most Croatian voters rejected the outside meddling for one simple reason: They understood that Mr. Racan“s economic policies had failed. Under his leadership, as we have seen, unemployment remained high at 17 percent, while the public debt soared. Rather than scoring a "brilliant victory," as Mr. Sanader claimed on November 23rd, the HDZ benefited significantly from widespread frustration with Mr. Racan“s stagnant regime. 
The HDZ leader is a pragmatic technocrat, who insists he now leads a revamped, pro-European party committed to Western-style conservatism. The centerpieces of his campaign were a general tax cut and advocacy of Croatia's entry into the EU by 2007.

The poisoned chalice
Politicians like being in power; but they can often have a harrowing time of it. The legacy left by the preceding regime is not so munificent. Racan for all his reformist zeal and good intentions, was not able to address the hard issues of the antiquated political structures in the country, the innumerable petty tyrants in its local administration, the revengeful from the days of the war, the racketeers and crooks who abound in the interstices of the only partly private economy, the war profiteers and the postwar profiteers, the stubborn ethnic cleansers and the fierce nationalists, many of whom would certainly have voted for HDZ. Since its independence in 1991, Croatia has failed to confront its communist past. Croatia“s economic life remains rife with Titoist-style bribery and cronyism.
Thus the true test of Mr. Sanader“s conservatism is still to come. If Mr. Sanader is serious about leading a conservative revolution in the Balkans, he must start an immediate, sweeping decommunization. The massive public bureaucracy, dominated by former apparatchiks who oppose economic reform, must be dismantled. A legal framework is needed to protect private property rights and the rule of law, and encourage entrepreneurship and creation of investment capital. 
Most importantly, the HDZ leader must vigorously campaign against corruption. He can start by having the Croatian parliament pass a law and then enforce it, making it a criminal offence for public officials to engage in bribery, kickbacks or have cronies and family members receive government contracts, practices common not only in Croatia but throughout the region.
Yet perhaps the greatest obstacle Mr. Sanader faces is the issue of cooperation with the war crimes tribunal for the former Yugoslavia in The Hague, Netherlands. One fugitive war crimes suspect being sought is General Ante Gotovina. Brussels has made it clear Zagreb“s entry into the EU hinges upon unconditional cooperation with The Hague tribunal, especially regarding the court“s chief request to arrest and extradite Gotovina, who has been in hiding since his 2001 indictment. Mr. Sanader has pledged full cooperation with the tribunal.
Gotivina is not at large in Croatia, according to the government. But the International Criminal Tribunal for the former Yugoslavia ( ITCY) is convinced he is. Like Karadzic and Mladic in Serbia or Serbian Bosnia, he is probably being protected by security forces still loyal to the old regime. One person keen to see a HDZ victory at the polls was undoubtedly General Gotovina. Another would have been General Janko Bibetko, also prominent in the 1991-95 war. 
For any decision to hand over Gotovina would spell the end of his ruling center-right coalition. Gotovina is widely viewed as a hero by most Croats for his role in leading a 1995 military operation that ended the Croat-Serb war. Extradition of the general would spark mass protests and civil unrest.

EU candidacy on the way
Victory for the HDZ undoubtedly sets back Croatia's chances of joining the EU soon, to which it made a formal application for membership in February in 2003 in Athens, when the fellow Balkan state, Greece, held the revolving presidency. Racan said Zagreb would have fewer chances of joining because HDZ would be less keen on co-operating with ICTY. Successful co-operation with the ICTY is the most important condition of EU membership, he added.
The British and others have made the case of handing over Gotovina a precondition of membership. Racan visited London in late September for talks with Tony Blair. He also made an answer to 4,000 questions on the country's legislation, economy and political system to Brussels. The questionnaire had been brought to Zagreb personally by EU President Romano Prodi in July, testifying to the real interest of Brussels in clinching EU adhesion for Croatia. Zagreb has made a strong statement of intent through the first-ever multimedia presentation of an application to the EU, consisting of a document and a CD-ROM, entitled "Re-Member Croatia."

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FINANCIAL NEWS

Croatia's exports and imports rise in first 11 months of 2003

Croatia exported nearly 38bn kuna, or US$5.65bn, in commodities in the first 11 months of last year and imported twice as much - 85.88bn kuna or US$12.77bn, the National Statistics Bureau said in a statement on Friday 2nd January, HINA News Agency reported. The foreign trade deficit reached nearly 48bn kuna or more than US$7bn.
In kuna terms, exports increased 8.7 per cent and imports 11.6 per cent compared to the same period in 2002, while in dollar terms exports went up 27.6 per cent and imports 30.7 per cent. The difference is due to a drop of about 15 per cent in the US dollar exchange rate.

Croatia's GDP growth rate slows down in third quarter of 2003

Croatia's Gross Domestic Product in the third quarter of 2003 saw a real increase of only 3.9 per cent compared to the same period in 2002. This is a significant slow-down in relation to the first two quarters of 2003, the State Statistics Bureau reported on 30th December. In the first quarter of 2003, GDP grew by 4.9 per cent in real terms and in the second quarter it increased by five per cent. The 3.9 per cent growth rate in the third quarter is the lowest in the last seven quarters, HINA News Agency reported.
This slow-down is faster than expected by some analysts. Data on the calculation of the quarterly GDP according to consumption categories show that the slow-down was caused to a great extent by a continued decrease of the personal consumption growth rate, which in the third quarter of 2003 rose by 3.4 per cent compared to the same period in 2002. The real increase of personal consumption in the first quarter of 2003 was 4.9 per cent, and in the second quarter it was 4.7 per cent. The 3.4 per cent growth of personal consumption in the third quarter was the lowest in the last eight quarters.
The highest growth rates were recorded in capital investments, which rose by 17.6 per cent in the third quarter.
The trend of falling government spending continued, with a real drop of 0.7 per cent in the third quarter.
The export of goods and services grew by 8.3 per cent, while imports grew by 11.1 per cent, exports being higher than imports in the third quarter, thanks to good tourism results.
Quarterly data on gross added value according to areas of activity show high growth rates in the construction industry (21.1 per cent) and the hotel and catering sector (10.5 per cent).
Analysts say that the early indicators of stagnating personal consumption have affected the final calculation of GDP more than expected.
Analysts with Raiffeisenbank warn that the slowing down of personal consumption growth shows that the effects of opening big chains of stores have worn off and expect it to continue.
Since capital investments were mostly made by the state and were directed into road construction and financed with foreign loans, the analysts doubt that they will continue to grow, particularly not at the 2003 rate of 17.3 per cent.
They warn about the need to bear in mind that the slowing down of the growth of GDP will affect a number of other indicators, such as the share of the balance of payments deficit in GDP or the share of the budgetary deficit in GDP or, which is very worrying, the share of the foreign debt in GDP. The analysts believe that GDP in the third quarter clearly shows that the new government has taken over a receding economy.

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FOOD & DRINK

Croatian government to introduce export duty on flour

The recent increase in the prices of bread, which have gone up 10 per cent on average, will make retail prices go up 0.3 and the costs of living 0.5 per cent, Economy Minister Branko Vukelic, said on 5th January at a government session which analysed the causes of the higher prices of bread. Agriculture Minister, Petar Cobankovic, said 56,000 tonnes of wheat, an amount sufficient for six weeks, would be processed soon in order to appease the wheat and flour market, HINA News Agency reported.
The prices of wheat and flour have increased due to the lower wheat yield, which last year was 40 per cent lower than in 2002. Although quantities are insufficient, last year 130,000 tonnes of wheat was exported and about 7-8,000 tonnes was imported.
Cobankovic said the former government should have reacted in time and introduced the export price of wheat sooner than it did.
Of the aforementioned 56,000 tonnes, 30,000 is wheat Croatia imported free of tax, with the approval of the World Trade Organization, due to last year's disastrous droughts.
Cobankovic said the European Commission had been requested for a quota for the import of another 50,000 tonnes of wheat.
The new government has announced it will introduce an export duty for flour. The export duty for wheat was introduced by the previous.
Members of the government also pointed to the problem of the grey market. Prime Minister, Ivo Sanader, said some analyses showed the prices of bread had gone up without reason. He called on traders to reconsider and return the prices to those of December and to reduce margins.

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FOREIGN ECONOMIC RELATIONS

Russia interested in joint shipbuilding, power industry projects with Croatia

Russian Assistant Foreign Minister, Sergey Razov, is due to pay an official visit to Croatia as part of regular political consultations between the foreign ministries of Croatia and the Russian Federation, the Croatian ministry said, HINA news agency.
The host of the Russian official is Hido Biscevic, the foreign ministry's state secretary in charge of political issues. Razov has been received by President, Stepan Mesic, Prime Minister, Ivo Sanader, Sabor [Assembly] President, Vladimir Seks, and the president of the managing board of the JANAF (Adriatic Oil Pipeline) company, Vesna Trnokop Tanta. 
As there are no outstanding political issue between Croatia and Russia, the improvement of economic relations is the focus of the visit. The Russian side is interested in the position of the new Croatian government on Druzba Adriaproject, possibilities of investments in Croatia's tourist sector, joint projects in the shipbuilding and power industries, and clearance scheme payments through mine removal projects and cooperation in the agricultural and pharmaceutical sectors. Razov and Croatian officials also discussed political topics, including relations with neighbouring countries, the situation in the region, priorities of Croatia's foreign policy, and the Russian-Croatian cooperation in multilateral organizations.

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