Economy

Present state of the Croatian economy

The principal economic activities in the Republic of Croatia include agriculture, the foodstuff, textile, wood and timber, metalworking, chemical and petroleum industries, the electrical manufacturing industry, shipbuilding, the shipping industry and tourism.

Croatia with its diversified economic structure constituted one of the most flourishing republics of former Yugoslavia. Local per capita GDP being second only to Slovenia was about one third higher than national average.

Before the break-up of the country, Croatia featured among the best known tourist resorts of eastern Mediterranean sea. The conflict with the Yugoslav army and the enduring involvement of Croatia in the Bosnian war obviously had a tremendous impact on the tourist industry. Only in summer 2000 the tourist sector registered a positive season, yet for a complete recovery major investments are still needed. Other crucial sectors of the Croatian economy are represented by the production of ferrous materials and the chemical industry mainly concentrated in the northern urban areas. After the inflection occurred in the war period � mainly due to the disruption of the unitary Yugoslav market � the Croatian industry seems to have undergone a slow but sensible revitalization.

Analysis of a crisis
Until 1996 the Croatian economy � with its 40% of public spending in defence - could be best described as a war-economy. Investments to the military sector were obviously motivated by the participation of Croatia in a five year long-war (1991-1995) that ultimately resulted extremely detrimental to the overall state of the Croatian economy. The nepotism management of the public finances enacted by the nationalist regime � more concerned with the maximisation of personal profits than with the sustainability of its political design � ultimately stroke down the already reeling Croatian economy.

In 1999 national GDP was about 20% of the one registered ten years before. Several industries had been forced to close and the first steps taken in the privatization process, rather than laying the bases for a general recovery, fed the clienteles structure of the Croatian bureaucracy. Half of the remaining officially registered companies were in no position to regularly pay suppliers and employees. Absolute lack of adequate policies had reduced the agricultural sector � once a major source of exports - to produce only for local fruition.
Other alarming data came from unemployment that was estimated to have reached the peak of 22%, but unofficial data placed it at 30%. Hidden unemployment is, in fact, high: many people still go to work but without getting paid.

Future challenges
In February 2005, Croatia implemented the Stabilization and Association Agreement with the EU and is advancing further towards full EU membership. The country expects some major economic impulses and high growth rates in the following next years (currently Croatia suffers most from its high export deficit and considerable debt).
The privatization process was substantially speeded up in order to meet the standards demanded by the International Monetary Fund (IMF). The examination whether Croatia meets the criteria for the standby agreement with the IMF proved successful. As a consequence, the World Bank accorded a further loan to be available in 2002 that should help overcoming the structural problems so far neglected.
Croatia's overall foreign debt at the end of February 2004 totalled 24 billion dollars, while GDP at the end of last year totalled 29 billion dollars, which accounts for 76 percent of GDP. The IMF believes that during 2004 and 2005 the foreign debt should be stabilized to account for 76 percent of GDP expressed in euros.

Useful links:

World Bank Doubles Assistance To Croatia Under New Four Year Strategy

Europe online: The EU's relations with South Eastern Europe - The Stabilisation and Association Agreement with Croatia will enter into force on 1 February 2005
Here

Croatian Labour Bureau - Employment & Unemployment 2003/2002
Croatian Labour Bureau

International Monetary Fund - Republic of Croatia: Selected Issues and Statistical Appendix
http://www.imf.org/external/pubs/ft/scr/2004/cr04251.pdf

International Monetary Fund - Republic of Croatia : Report on Observance of Standards and Codes--Fiscal Transparency Module
IMF Report