Croatian economy: Political blame game net – now cast wider

Finance Minister Slavko Linic - Photo: Boris Scitar/PIXSELL

Croatia’s finance minister Slavko Linic had spent a recent week in the USA in the successful bid to sell USD1.5 billion Croatian bonds to private investors. While increasing Croatia’s foreign debt, the government says this was essential in order to create the capability of repaying due foreign debt obligations and to create an atmosphere/conditions for foreign investments in Croatia.

In his interview by journalist Jadranka Jusresko-Kero, Vecernji List, 24 April, Linic stated how domestic analysts are ruining Croatia’s rating with the International Monetary Fund (IMF) and the World Bank (WB).

Linic stated that the result from his recent visit to Washington shows that the IMF and WB have faith in Croatia’s government’s plan to lift the economy and move it forward. “Imagine, Croatian analysts believe in us less than IMF and WB,” he said. The IMF and WB believe that our government has potential to bring on the needed reforms, he added, also stating that the negative attitude of domestic analysts is destructive as it discourages foreign investments.

Linic also said that eight years of HDZ (Croatian Democratic Union) government is to blame for the state of economy and that it is fortunate that Croatia is still able to secure foreign loans.

Reading other sources it would seem that the WB views about the potential of the Croatian government in which Linic is the finance minister have less to do with faith in the government and more with warnings.

On 24 April Croatian news agency HINA reported that in an interview for Al-Jazeera Balkans TV network World Bank Director for Croatia Hongjoo Hahm said “Croatia has had three years of negative growth, a very deep recession, the deepest since it became independent, and the World Bank’s outlook for 2012 is also negative. These are very difficult economic times for Croatia, but it is time for action for Croatia to weather this storm …

The World Bank has warned the countries of Eastern Europe and Central Asia about the negative effects of the spillover of the eurozone crisis, and Croatia, because of its close integration with Europe, can hardly avoid such a scenario. Croatia is very integrated with the rest of Europe, the integration of the Croatian financial market with Italy, Austria and Slovenia is high. The banks in Croatia are to a large extent foreign owned, and there is also great trade integration with Europe, especially with Italy. If the eurozone goes into a deeper and prolonged recession, the spillover of the crisis will have a negative impact on Croatia”.

Hongjoo Hahm has also stressed that the honeymoon period is over for the new government in Croatia and that now is the time for action.

The warnings that can be read between the lines in Hahm’s statements are stern.

Major overhaul and structural economic and fiscal reforms are essential. In particular, growth, genuine privatisation and increasing market competitiveness are faced with enormous challenges. Challenges are even greater in the reality of relatively high dependency on the government, which was deeply entrenched in the former communist Yugoslavia system and still fares strongly at the grassroots in Croatia.

As Hahm said: it is time for action and for Croatia to weather the storm.

A great storm will undoubtedly continue with processes needed to reform scandalously complex and slow bureaucratic red tape, corruption (in form of bribes) and sluggish work attitudes that seem to prevail in many key places processing licensing, approvals, registrations, etc. for any new business or investment.

Judging from what Hahm said there does not seem to be anything any domestic analysts can say that’s not already known to the world.

Linic’s criticism of domestic analysts is highly suspect. One can easily see that he may well be setting up a new culprit if his coalition government fails at needed economic and fiscal reforms. That is, time will come when he can no longer blame the old HDZ government, so he needs to find someone else, as time moves on.

In all honesty, Linic’a Social Democrats have spent many years in opposition since the beginning of Croatian independence shift (1990); between 1990 – 1999 they did nothing to influence economic reform and stamping out corruption, but rather concentrated on their own party’s political survival. When in government, 2000 – 2003, Linic was Deputy Prime Minister – again, not much done on reforms, and foreign debt increased. Again, in opposition from 2004 to 2011 – years wasted as Social Democrats failed miserably in their mandate to keep the HDZ government to serious account and push for changes.

In the interview with journalist Jadranka Juresko-Kero, Linic referred to Guste Santini, economist and analyst, when he expressed his objections to the negative views of analysts (private consultants) on problems facing the critically plunging Croatian economy. True analysts must tell the truth and work with the truth. As recent as 21 April Santini expressed his assessment of the situation as follows:

“… Local elections are before us and the Kukuriku (Cock-a-doodle-doo) coalition wants to win in local elections too.

Tax reform is not even in sight, yet. Changes in the tax system are only mild ironing out in relation to the changes that are needed and, therefore, appropriate to the Croatian economy…

What must concern us is the continued rise in unemployment. The investment cycle is just a mental construction. It is not certain that this year’s start of the investment cycle will have an effect on reducing the number of unemployed…

There’s nothing wrong with this “domestic analysis”, as far as I can see.

And, given the complex nature of the economic environment Croatia is in, it just may be that domestic analysts and economists, private operators, will be the ones (not the government rhetoric) who will, with their creativity, critique and knowhow, galvanise the nation into true economic and fiscal reform. Ina Vukic, Prof. (Zgb); B.A., M.A.Ps. (Syd)

Comments

  1. Michael Silovic says:

    Ina thank you for posting this article. One of the things that croat need to understand is the economic and monetray problems of croatia and it’s policicies wheter we agree with them or not in order to demand what changes we as a people want for our country and not be intimidated or misled by any political party.

    I recently read an article about raisng the pension age to 65 to keep up with the EU. I strongly disagree with this because we are not the EU. I personably believe that we should leave the age limit for pensions at 55 years old and allow people to continue to work if they so choose to do so to make a limited amount of income to supplement thier pensions. I stongly believe that if we leave the age at 55 years old we can strongly encourage our children to repopulate our country a lot easier as croatian grandparents would be able to help raise the grand children while thier sons and daughter work. Croatians always puts Croatian Family First and we as a nation must do everything we can to help our familes and at the same time repopulate our country.This also will allow independence of our people on a pension system to save for the future as well as pension monies will be respent back into the local economies by the retirees.
    I am saddened to see our goverment trying to copy what is going on in the Eu rather then create a policy that puts Croatia First. We are going down the wrong path in our new democracy.

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    • Thanks Michael, it seems there are differences of opinion as to pension age among Croatia’s government. Some say it should be raised and some say not. The ones who say it should be raised say that would save money in government spending/budget and the ones who say should not be raised say this creates job vacancies earlier. In any case people should be allowed to work after retiring, as you say, to supplement income, just as it happens in many countries.

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  2. Michael silovic says:

    The ones who say it should be raised say that would save money in government spending/budget . This is a lie. No government ever saved money. Look at the social security in america. They are almost broke. They constantly raised the age limit to no prevail. who is going to work until they are 70 years old in america. most people are dead by then or to sick top do anything to enjoy the rest of their lives.If the government never spent the pension monies there would be monies there to support the people with proper investment..Government will always look for a reason to spend money and will take it from where ever they can get it and continue to take from the people.We need not to follow the path of the EU as we see the EU is a failure in the making but need to have our own policy that puts Croatians first.

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  3. Michael silovic says:

    Imtok, the reason countries are constantly raising the age limit is because they are spending more money then what they have and use monies from pension funds that belong to the people. What do you think someone at 65-70 years old will do for work?If the government budgets properly I believe it can be achieved at 55 years of age. This was the age limit in america for many years until the government started using pension money for other purposes such as false wars and social programs. It should be left up to individuals to work longer if they so chose to increase their pension later in life.If the government allocates peoples money into an account and leaves it solely for their use and nothing else 55 is attainable. To follow the EU is to follow failure as we see what is happening now.Every worker should have a private pension account that they invest in every pay check from the day they work with companies matching it such as a 401K which should be held in the central bank until its time for pension at 55. No government touching these monies and they will accumulate interest.

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  4. Excellent post. I was checking continuously this blog and I’m impressed! Extremely useful information specially the last part egfdefedgfeg

    Like

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