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CROATIA





In-depth Business Intelligence 

Key Economic Data 
 
  2003 2002 2001 Ranking(2003)
GDP
Millions of US $ 28,322 22,421 20,300 61
         
GNI per capita
 US $ 5,350 4,640 4,550 70
Ranking is given out of 208 nations - (data from the World Bank)

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REPUBLICAN REFERENCE

Area (sq.km)
56,542

Population
4,496,869

Capital 
Zagreb

Currency 
Kuna

President 
Stipe Mesic

Private sector
% of GDP 
55%


Update No: 094- (24/02/05)


The triumph of Mesic
Croatian President Stipe Mesic won a crushing victory over his ruling conservative party rival in an election runoff on January 16th, securing a second five-year term and promising to lead the former Yugoslav republic into the European Union. Official results gave Mesic 66 per cent of the vote compared to 34 per cent for Deputy Prime Minister Jadranka Kosor of the Croatian Democratic Union (HDZ). Ms Kosor is a close ally of Prime Minister Ivo Sanader, who conceded defeat even before official results were out.
Mesic will oversee the country's EU entry, planned for 2009. His foreign policy adviser Ivica Mastruko said that his victory would be greeted as good news in European capitals. "Mesic guarantees continuity, in terms of relations with Balkan neighbours, with the European Union and with the United Nations war crimes tribunal," he said. 
EU leaders have said that they would open accession talks with Croatia in March, but they warned that progress hinged on the transfer of war crimes indictee, Ante Gotovina, to the UN tribunal at The Hague. Sanader insists that Gotovina, a former general who remains a hero to many Croats, is no longer in the country, and Mesic said during the election campaign that Zagreb merely had to prove to Brussels that it was "doing everything" to find him. 
Mesic, who had the backing of the three main opposition parties, also reminded voters of the autocratic rule of Franjo Tudjman, who died in 1999, and warned against giving too much power to one party. While Kosor is a relative newcomer to Croatian politics, Mesic was able to campaign on his first-term record of democratic reform and improved international relations following the isolation of his hardline nationalist predecessor, HDZ founder, Tudjman. 

The liberal corrective
Western diplomats see Mesic as a useful counterweight to the centre-right HDZ, which controls the cabinet and parliament, and praise him for his courage in denouncing war crimes committed by Croats during conflicts that tore apart socialist Yugoslavia. "In many respects, Mesic has been the moral correction in this country," a senior EU diplomat in Zagreb said. "If Kosor had won, there would have been a change of atmosphere. It would be more limiting with the same party having presidency and cabinet."
Croatia is due to start EU accession talks on March 17 if it cooperates fully with the U.N. war crimes tribunal, particularly in tracking down fugitive general Ante Gotovina. "We now must prepare for the European Union and meet all its standards. I have brought the country close to the EU and believe I can help further," Mesic said on his victory.
Mesic, long a figure in Yugoslav politics, re-emerged as the surprise winner of a landmark ballot in 2000, replacing the late Franjo Tudjman, who led Croatia to independence but was later shunned by the West for his extreme nationalism.

The clemency and chivalry of the victor
"I thank everybody who voted for me as well as all those who cast ballots. I am proud of the maturity of Croatia's democracy," Mesic said in a victory speech, immediately after the official results were announced. "Today Croatia is marching with big steps towards Europe. Now we have to be united and have a national consensus to achieve our goals. We can do it only if we are united." 
Mesic, 70, has pledged to lead the Balkan country of some 4.4 million people into the EU before the end of the decade, a major prize for a country that was ravaged by a brutal inter-ethnic war only 10 years ago after it split from the Yugoslav federation. "We have travelled a long way and Croatia's democracy has been confirmed. The world can see that and that's why we're standing at the doorsteps of Europe," said Mesic, a centrist politician who ran in the election as an independent. 
Kosor, a 51-year-old former radio journalist and the first woman to make the second round of a Croatian presidential race, congratulated Mesic but praised HDZ supporters and her party chief, Prime Minister Ivo Sanader, for his support. "I thank Prime Minister Sanader for having the courage to put forward a woman as a candidate of the biggest and most historic Croatian party," she told supporters at HDZ headquarters. "I'm proud to have maintained a high level of dialogue in my campaign. I have not spoken badly of my rivals. In the runoff I did not accept a dialogue of disqualifications, which was sometimes below any acceptable level." 

Sanader still the man in charge; into the EU
The premiership is still a more important post than the presidency. Sanader has transformed HDZ into a mainstream conservative force since he was elected prime minister in November 2003. "In this election we showed that the HDZ has a permanent, strong and loyal constituency," he said, adding: "Maybe the time has not yet come for Croatia to have a woman president."
He is very much the driving-force of Croatian politics and determined to show as much in the crucial months ahead. 
The key issue is membership of the European Union (EU). The summit meeting of the EU in mid-December 2004 was dominated by the organization's drive toward expansion to embrace all of Europe and beyond. Turkey was naturally given key billing. But Croatia was not far behind.
As the world political configuration moves toward multipolarity, each regional power centre is constrained to push for the greatest reach that it can achieve in its geographical area until a stable configuration emerges. For the E.U., that imperative means a partial transformation from a "community" based on common standards defining a distinctive form of social life to a power bloc united by a confluence of interests. The EU's overriding interest is to absorb as much as possible of its periphery into itself in order to gain maximum economic power and strategic advantage.
The goal of expansion was served at the summit by decisions to open formal accession dialogues with Turkey and Croatia. The prospective addition of Turkey to the E.U. attracted the most interest because its accession would extend the E.U. into the Middle East and the Muslim world, and would pave the way for E.U. expansion into the Transcaucasus and for the creation of a sphere of influence in the Arab world. Croatian accession attracted less attention, but it would also have strategic significance by setting the stage for eventual E.U. incorporation of the successor states of the former Yugoslavia.
Along with Romania and Bulgaria, with which Croatia desires to enter the E.U. in 2007, Croatia lags behind member states in economic and political development. After it declared independence from Yugoslavia in 1991, Croatia was plunged into the ensuing Balkan wars, first losing territory to Serbia and then, in 1995, reclaiming it. The wars severely damaged Croatia's infrastructure and impacted its tourist industry negatively, and allowed nationalist President Franjo Tudjman -- elected in 1991 -- to solidify an authoritarian regime that lasted until he died in 1999, which isolated Croatia from its neighbours and the E.U.
After Tudjman's death, Croatia made a change of direction towards the West similar to those taken by Georgia and Ukraine in 2004. Bridling under their country's isolation and anxious for economic revival, Croatia's electorate unseated the ruling Croatian Democratic Union (H.D.Z.), replacing it in the 1999 parliamentary elections with a left-centre coalition pledged to economic reform and democratisation with the aim of opening Croatia to the West. The transition was sealed in the 2000 presidential election when a member of the left-centre coalition, Stipe Mesic, won the vote and committed himself to vigorous restoration of the rule of law.
Croatia took its last major step of political Europeanization in the 2003 parliamentary elections, when the H.D.Z., which had transformed itself into a European-style centre-right conservative party, narrowly recaptured control of the government, promising to execute the economic and political reforms necessary to move Croatia into the E.U. At least in form -- and in great part in substance -- Croatia had become politically a "European" country with the standard configuration of a centre-right and centre-left competition, and a nationalist right held at bay. The achievement by Croatia of the party structure typical of E.U. states is the basis of the willingness of the E.U. to begin the accession dialogue with the expectation of its speedy and successful conclusion, despite persisting political and economic issues. 

The Accession Agreement
The E.U. took the step of opening up the accession dialogue with Croatia with full awareness of the country's shortcomings and problems. The most important of those are hangovers from the human rights violations perpetrated in the Balkan wars of the 1990s. In its wars with Serbia, Croatia regained its territories at the expense of ethnically cleansing at least 200,000 ethnic Serb-Croatians. The post-Tudjman governments in Zagreb have been committed to repatriating ethnic Serb-Croatians, most of whom remain refugees in Serbia, and restoring their property to them, and to sending accused Croatian human rights violators to the International Criminal Tribunal for the Former Yugoslavia in The Hague, Netherlands. Zagreb has made progress towards those goals, but it has been halting and imperfect.
Although Zagreb had promised to return all Serb property by the end of 2004, only 40 percent of private property used for temporary accommodation and only 20 percent of forcibly occupied property has been retrieved by its owners. In addition, Croatian state prosecutor Mladen Bajic has opened an investigation of a criminal conspiracy between officials in Croatia's state Real Estate Agency and a Serb real estate agency, in which forged powers of attorney were reportedly used to sell more than 10,000 houses in Croatia without the knowledge of their Serb owners.
More important to the E.U. than the refugee question is the failure of Zagreb to capture former Army General Ante Gotovina, regarded by many Croats as a war hero, and extradite him to The Hague. Indicted in 2001 for planning the massacre of 150 Serbs and the ethnic cleansing of 150,000 Serbs during Croatia's successful 1995 offensive, Gotovina went underground and has evaded arrest. Zagreb insists that Gotovina has fled Croatia, whereas United Nations war crimes prosecutor Carla Del Ponte has complained to the Security Council about Zagreb's "lack of cooperation" in the case.
The decision to open the accession negotiations was clouded by initial E.U. insistence that Zagreb hand Gotovina over to The Hague tribunal before the dialogue could begin. Zagreb resisted "conditionality" and a compromise was reached that Croatia would have to give "full cooperation" to the tribunal, without specifying criteria that would confirm it. The accession dialogue is scheduled to begin on March 17, 2005.
Croatia's economy also does not come up to E.U. standards. Under its Country Assistance Strategy, the World Bank approved a $1.5 billion lending program to Zagreb on December 22 in order to "support the government's growth and reform strategy for successful E.U. accession and integration." The loan came with the directive that Zagreb shift "the sources of growth from public sector expenditures and consumption to private sector investment and productivity."
The bank's reservations are an acknowledgment that Croatia's economic growth since 1999 has been based in great part on post-war infrastructure renewal and expansion, and domestic consumption, both financed by debt. The chief economist at Croatia's Zagrebacka Bank, Zarko Miljenovic, has noted that those stimuli have played themselves out: "Now the country does not invest so much in roads and there is no more room for growth of personal consumption."
Having gone through a growth spurt since 1999, in which G.D.P. per capita increased from US$4,371 to US$6,484 in 2003, Croatia still has a high unemployment rate of 18.1 percent and now has a foreign debt of US$25.45 billion, which exceeds 80 per cent of G.D.P. and is double what it was in 2000. In December, the International Monetary Fund called on Zagreb to take "difficult measures" to hold its budget deficit at 3.7 per cent of G.D.P., including dampening wage increases in the public sector, paring down the bureaucracy, scaling back indexation of pensions, restraining social welfare expenditures, stepping up privatisation -- especially of inefficient shipyards and steel companies -- and curbing soaring health care costs.
Under pressure from the World Bank and the I.M.F., Croatia is now in the familiar position of lagging European states that face demands from extra-national organizations to execute market reforms and exercise fiscal discipline, and from the domestic public to maintain the social safety net, whether in the form of entitlements, welfare benefits, public employment or subsidies to non-competitive industries. To Zagreb's advantage, economic growth has not stalled and hovers at around 4 percent per year, and exports -- dominated by machinery and transportation equipment -- have been increasing relative to imports. Nonetheless, at $15 billion in 2004, exports are only one-half the total of imports.
With a balance of agricultural, industrial and service sectors, Croatia's economy is not inherently weak, yet its future growth depends on its ability to attract private investment and on the general health of the major European powers. It is not clear that Zagreb will be able to execute successfully the reforms demanded by international organizations and come up to EU economic standards. Although Croatia's economic problems were not a major issue at the EU summit, they are likely to become one during accession negotiations if reform continues to falter and Zagreb proves incapable of maintaining fiscal discipline. In that case, Brussels will have to choose between its geostrategic objectives and its standards.

Conclusions
Having gone through a period of economic growth based on debt-driven, post-war rebuilding and private consumption, and a genuine, though imperfect, democratisation, Croatia is poised to enter the E.U. burdened with structural economic weaknesses and the possibility of a strengthened nationalist opposition, no longer completely at bay. The country is now in a new phase of post-Tudjman politics, in which the centre-right and centre-left establishment can no longer claim enthusiastic support, and faces scepticism about its ability to engineer broadly distributed economic growth, and resentment against E.U. demands for cooperation with The Hague tribunal.
The pro-European political forces in Zagreb have responded with half measures to the calls of international financial organizations for reform, and with partial compliance to demands for action on war criminals. 
Given the hard choices posed by outside powers, the established Croatian political class will face increasing stress because it can no longer count as confidently as it had on popular support. It will be difficult for any government to overcome domestic resistance to economic reform and resistance to vigorous compliance with The Hague tribunal. The "engine" of the former Yugoslavia is sputtering.

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ENERGY

First Croatian wind power plant put into service


Croatia's first commercial wind power plant "Ravne 1", installed on the northern Adriatic island of Pag, was put into service on February 4th, HINA News Agency reported.
The 5.6-megawatt plant was formally opened by the Minister of the Economy, Labour and Entrepreneurship, Branko Vukelic, who said that the project would have a positive impact on the entire economy.
The power plant was built by the Croatian-German company Adria Wind Power d.o.o. [shareholding company], which has invested 6.5 million euros in it.
However, there is a government decree that bans the construction of facilities using wind power for the production of electricity on the islands.
Asked to comment on the decree, Vukelic said he had seen for himself that the wind power plant had no adverse effects on the environment. "Economic development must be sustainable, without negative effects on tourism and the environment, so it is necessary to seek a compromise in this regard," the minister said.
Vukelic said that the government decree encouraged investment along the coast and that it also provided for the development of wind power plants on the islands.

Pipeline to Adriatic through Croatia safe for transport of oil, says company

The results of tests that have been performed on pipelines of the Adriatic Oil Pipeline (JANAF) company show that the oil pipelines are a closed technical system, safe for the transportation of oil, JANAF said in a statement recently, HINA news agency reported.
According to the statement, there are no leakages from the system. JANAF thus responded to claims by environmental associations that the pipeline was damaged and that JANAF did not want to make the findings of the tests public.

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INFORMATION TECHNOLOGY

Vodatel and SES Astra introduce net, video services

SES Astra, an SES Global company, and Vodatel, a company based in Zagreb, Croatia, announced the conclusion of an agreement for satellite Internet services via Astra 23.5 degrees East and new interactive entertainment services for Croatian households under the brand name eTV, spacedaily.com reported recently. 
ETV provides a variety of multimedia services comprising Video On-Demand with a choice of 100 movies every month. Users will also have access to more than 100 international and local TV channels. The services are available via the eTV Media Centre box connected to a TV set and a satellite dish pointed at Astra 23.5 degrees East. In addition, Vodatel will introduce the Sat ADSL service for the Croatian residential market offering broadband access via satellite to the Internet with speeds of up to 1,024 Kbps. Sebastian Popovic, chairman of Vodatel, said: "Our eTV media centre box enables interactive home entertainment with very attractive services such as Video-On Demand, TV & Radio, music Jukebox, email and many others. Thanks to our agreement with the leading satellite operator in Europe, SES Astra, we are able to provide reliable and high-quality broadband and multimedia services to the residential market in Croatia." Commenting on the agreement, Philippe Glaesener, VP and general manager Sales Broadband and IP of SES Astra, said: "We are pleased that through this agreement with Vodatel, Croatian households can now enjoy new broadband and interactive multimedia services via the Astra Satellite System. This agreement further underlines SES Astra'' commitment to the region."

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RETAIL

Lidl chain to open shops in Croatia

Germany's Lidl supermarket chain is to open shops in 17 Croatian towns this November, the daily Jutarnji list reported on January 24th, Deutsche Presse-Agentur (dpa) reported. 
Lidl is expected to invest around 440m Euro (US$52m) in the first wave of expansion into the Croatian market. Stores will be located in towns mostly in central and eastern Croatia and also in towns on the Adriatic coast. Economic analysts estimate that Lidl, owing to its low prices, may soon take a large share of the market in Croatia and may jeopardise Konzum, currently the biggest such chain in the country.

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