Croatia: the economy prop up – debt recovery enforcements or getting blood out of a stone

Photo: Vecernji list

Photo: Vecernji list

When it comes to searching for good government initiatives in creating a positive or reassuring mien in effective promulgation of individual citizen’s responsibility in achieving solid economic behavior and behavior expected within a democratic framework, don’t come knocking on Croatian government’s door.

Much of what you’ll get are forceful, almost punitive measures that seem to have been plucked out out of Ivan Pavlov’s Classical conditioning or Burrhus Frederic Skinner’s Operant conditioning laboratory. Experiments galore when it comes to modifying the behavior of citizens who have endured several decades of Communist “parenting”, been kept in darkness when it comes to the workings and the power of civil law. I might sound like a broken record to some, but there just does not seem to be any planned action by the Croatian government that acknowledges the wrongs of the Communist system and introduces planned actions/programs (including education) to effectuate positive changes or empowerment of the people in making democracy work on the needed blanket scale.

Not long ago we saw the publication by the government of the so-called “Pillar of Shame” – the tax debtor list; which of course produced relatively poor results. Then we saw the publication of war-veterans list (true and false veterans alike) to try and “weed out” those on benefits that shouldn’t be receiving benefits. Then, barely a month after that lunacy we have the heavy-hand of debt-collection picking up on steam these days, which clearly indicate that the Croatian government is trying to get blood out of a stone, with little room for negotiations.

Of course, debts must be paid and debt-collection exists in every country and, so too, it should in Croatia. In Croatia, though, it seems that creditors and debtors along with the government live in Lalaland, where important things such as statutes of limitations and wage garnishing by a court of justice (or other independent of government body) fall by the wayside.  Not to mention the fact that most debtors are alarmingly impoverished and live in increasing poverty due to unemployment and the like.

According to Vecernji List every tenth citizen of Croatia cannot pay his/her debts. It states that the enforcement system of debt-recovery is among the biggest problems in Croatia today (confirmed by the monitoring from European Commission, as well). FINA’s (Financial Agency in Croatia which is “a key partner to the government in the pension reform, clearing, collection and supervision of mandatory contributions, taxes and surtaxes, as well as all state treasury affairs”) recent report says that bank accounts of  242,192 have been blocked due to unrecovered debt of 16.31 billion Kunas (cca 2.2 billion Euro) (cca 15% of Annual Budget).

The most alarming fact is that, by the end of 2012, there have been 221,833 protected (special) bank accounts for citizens who cannot pay their debts immediately. I.e., these protected bank accounts will hold parts of wages or pension of the protected account holders so that debts can be gradually paid off.

This “protected” bank account reality reminds one of “wage garnishing” imposed by courts in Western civilised countries, only I doubt that these 221,833 citizens have been afforded the human right and morally decent right of having a court of justice or a similar independent body decide on whether and by how much their wage or pension should be docked. We are left to imagine how those “protected” bank accounts might have come about and whether their owners were at the mercy of some employee of the Government debt collector agency (e.g. FINA) who did his/her duty according to law but without pity, without regard for an individual’s circumstance, without ensuring that the debt in question is actually a current debt. I have not come across any reports, which state that Croatian courts have processed 221,833 “wage garnishing” cases and if someone out there has, please let me know.

Croatian Ministry of Finance defines the “special accounts” as accounts into which wages, income etc. exempt from debt recovery enforcement are paid.

According to Article 2 of Croatian Debt recovery enforcement Act (Zakon o  provedbi ovrhe na novčanim sredstvima) the enforcements are implemented by the Financial Agency, Croatian National Bank and banks! The Ministry of Finance (Slavko Linic, Minister) controls all this and it seems that debt recovery enforcers in Croatia walk a short line: Finance Agency stamps the debt form and orders the bank what to do!

According to this Act only personal items, clothing, household appliances essential to living and your wedding ring are fully protected from debt collector’s paws (garnishing). What about stipulating a maximum percentage of wage or pension that can be docked, and then it’s up to you to go to court and complain, if you lived in a lucky country, which Croatia seemingly isn’t for people who owe money at the moment? No room to negotiate much, it seems, although cases of hardship could perhaps be considered. Given the magnitude of the problem and the government’s zeal to collect, I doubt cases of hardship will pass the green light smoothly – the Minister would otherwise be facing a stampede!

The government’s heavy-handedness in debt recovery could lie in the fact that while not all debts are necessarily owed to the government institutions (e.g. traffic fines) or companies, the government is calculated to reap a fairly large “windfall” from administrative costs and mostly enormous interest accrued on the debts.

It’s impermissible that Public Notaries, lawyers and FINA live on account of hardships of an ever increasing number of citizens. The experiences of people who had arrived to the enforcement of debt-recovery stage shows that their actual debt is ten times less than what they must pay. Consumer organisations are inundated with examples where, e.g., citizens with a debt of 80 Kunas ended up paying 1,000 Kunas once all administrative charges, mounting of which the government allowed, are added to the primary debt amount,” says Vecernji List.

Given that there are many “old” debts (older than 6 years/some dating back to 2001 or 2006) these should come under the concept of “Statute of Limitations” for debts – i.e. time has elapsed for the debt to be actionable or recovery process put in motion. But while Croatia does have a similar legislation in its “Compulsory relations Act” (Zakon o obveznim odnosima), it would seem that this is kept as some secret. I.e. it’s up to the citizen who is pressed to repay a debt to say that the debt isn’t a debt any more, calling upon Statute of Limitations. The problem is that he/she needs to know that but many, many do not – kept in darkness that the old saying: “debt for life” doesn’t hold water in democracy, in rule of law. So, just imagine – it costs him/her what he/her cannot afford to find out about that important detail. You’d think that with such a big hoohah by the government to press on with debt collection it might have had the decency to put a brief notice about that on its website and save some money for many people. Surely, it (the government) knows that many of its citizens are not legally savvy, having not so long ago come of of Communist darkness where knowing laws was the privilege of the ruling few, that is.

The whole personal debt recovery enforcement procedure in Croatia seems just too dry, inflexible and pen-pushing affair. While taking and repaying (or not) personal debts are often matters that touch upon honesty of the borrower, the legal processes available when the question of unpaid personal debts arise must surely be well regulated, cater for the rights of creditors as well as debtors, but above all, take into consideration a debtor’s life circumstance and whether wage or pension garnishing would throw him/her into brinks of despair. Definitely, regulating publicly through law the maximum percentage of wage garnishment is a must for any decent society.

It seems that most debtors complain about the administrative charges imposed against their debts.

It’s beyond me to understand why the Croatian government hasn’t introduced some kind of “amnesty from paying debt-recovery administrative charges” period, which would surely benefit many people. And then get on with the business of enforcing legislation; the amnesty period would also serve as a period of education and awareness of law building among the public. If any nation of people deserves such a consideration then it’s the nations that have or are still coming out of Communist or other totalitarian systems under which personal responsibility and awareness of personal obligations towards the rule of law had never been pursued – because that would give power to the people, of course (!) – and Croatia is one of those countries. Ina Vukic, Prof. (Zgb); B.A., M.A.Ps. (Syd)


  1. Računovodstvo says:

    Glad you’re back Ina and Happy New Year!!

    Recently, I’ve been speaking to my cousin at length. He is 29 years old and married with one child. My cousin works in the IT sector and has numerous designations that would make eligible for a 6 figure salary in certain parts of the US, however, he only makes approximately $14,500 dollars a year. It he were to be paid merely 1.5 times that amount, that would put his salary at a little under $22,000. With low salaries for skilled workers, the question that I have in my mind: why are large American IT companies not investing in areas such as Croatia? There is a large market of young people in the IT sector and many could be paid above the average wage of $14,000 dollars (according to government statistics), and the company would still be doing well in terms of its profitability.

    As the conversation went on, I asked my cousin pointed questions about economic conditions and a serious lack of foreign direct investment (FDI). He felt that the onerous tax system was to blame for a lack of FDI. I researched this and came to the conclusion that the government gave adequate incentives for potential investors. After our conversation ended, I did further research of my own while putting myself into the mind of potential investor. And what would frighten me the most would be the rampant corruption and a legal system clogged of family members fighting over land inheritances.

    As for corruption, I believe that all governments are inherently corrupt. Governments emerging from communism are a very special case whereas they tend to be extremely polarized when it comes down to which politicians are running it and whether they are intent on protecting old interests or interested in creating opportunities for new interests. Judging from what I see, I don’t get the impression Croatia is polarized and political parties just want things to be like they have always been: plundering from the people for their personal game.

    The legal system needs serious reform and, as I mentioned, is full of relatives fighting over inheritances. People didn’t have much and families only had valuable land, a commodity in Europe, that has become increasing valuable in years. Take for example, Ikea. They are ready to start building a store near Zagreb with an investment of $100 million. It took them 3 years to go through the courts to get a permit for this construction. THREE YEARS!!! I’m glad they stuck it out but I don’t think other companies would have been as forgiving. Ideally, something like this should take six months to a year at the most and even that is too long.

    Here is what bothers me the most. My cousin’s situation is not an anomaly in Croatia. There are large numbers of highly educated young people in his same exact boat subsisting on a small salary with a family to feed (and they gripe at the low birth rate without enacting real solutions to fix this). What a terrible message the government is sending to its youth where honest hard working people are barely surviving and criminals are viewed as the only successful ones. I just sincerely hope something changes for Croatia and its people–soon.

    • Thanks Racunovodstvo. No one suspected for one moment in 1990/91 that transition from Communism was going to be an easy one, but in Croatia attention has been snatched by politics instead of real progress. For example, lost at least ten years in anti-Tudjman politics by “Antifascists” or those who didn’t want democracy, then mingled with that were issues of attempts to criminalise the Homeland war then you have the selfish careerists and corrupt mob whom not much could shift, even now there seems to be an air among politicians as to what “conflict of interests” might mean – well it’s clear to most of the world what it is and how to deal with it swiftly. Conflict of interests often breeds corruption and not many in Croatia have been made to answer for it. The fact that a handful “big guns” like former Prime Minister Ivo Sanader are in court for corruption will not do anything in the rooting out of corruption where it’s needed: at the grassroots, behind gov dept counters, etc.

  2. Wilkinson says:

    I think the government should offer amnesty for all household debts as a once off deal, not to rich households of course. That way people would have more cash to spend and give a good injection to economy, instead of painfully paying off credit card debts bit by bit. Oh year, credit card companies would lose, but hey, they’ve been charging very high interest rates for too long, it’s time someone snips their a tail a bit.
    Credit card companies, burned from their losses, wouldn’t give the people new credit cards, or would change the payment arrangements to make sure they got their money back faster, or new credit card companies with better deals would muscle in on opportunities to earn profit and perhaps give more reasonable interest rate conditions than the previous one.
    If people still can’t get new credit cards, they’ll have to learn to cash budget for a while – that’s a good thing for those who like to live beyond their means. Eventually they’ll gain good credit rating and be able to get new cards but by then they’ll know how hard it can get if you don’t pay your bills on time.

    • Wilkinson, your thoughts remind one of situations when in history banks crashed: no more debts, no more money on your account either. Perhaps a radical move is on the cards for many countries?

  3. The pathway into the EU will be opened shortly, there goes the future of our nationality.

  4. Računovodstvo says:

    Corruption exists everywhere, even in established free market democracies. I can think of a few stories off the top of my head that is rife with conflicts of interest and increasing a politician’s net wealth, never mind if it’s before, during, or after leaving office.

    • So true, Racunovodstvo, the difference is how it’s deal with and safety measures there are to minimise it e.h. in staff recruitment, in building or business registration applications etc. What checks & balances there are on a regular (at least annual) basis to ensure compliance with legislation, regulations and checks and balances.

  5. There has been some serious commotion and rattling of for-profit minds in the lending business in South Africa during the past year where people are drowning in debt. This is causing alarm bells to go off and of course, media coverage not very wide. Got forbid one puts a thought in the mind of some government along that line :)!

  6. Miso Sorbel says:

    What really pi…s me off is that the Cro TV (gov controlled of course) is putting on news how many Croats go for skiing holidays after New Year’s day etc giving the impression of a good life, they show long, long car queues at the border with Austria, Italy…, the problem is that majority of the cars in the queues are workers returning from East Europe etc to their jobs in Central or West Europe after a brief holiday home… the Croats who are in these queues and going for skiing are not the unemployed or the army drowning in debt.

  7. Richard Moran says:

    Hey Ina, you’re too kind to Croatia’s government… not only should there be amnesty on administrative charges for debt recovery but all debts too. You definitely have a clear head and think well, look at what I have found on the net:

    Debt Amnesty

    Responsible department: Her Majesty’s Treasury

    Creditors & Banks should write-off all their customers’ debts up to the value of £15,000 & reclaim the costs from the Government. It was the banks & creditors that offered the loans, credit cards & increased overdraft facilities to people without considering if they were treating them fairly or looking at the affordability of the individual. The banks & creditors charge extortionate charges for missed or late payments as well as high interest rates on the money borrowed, so not allowing the individual to get out of debt & sending them into a downward spiral of debt plus charges. The Government is bailing out the banks. The banks are not passing the money on to the people. If the Government bailed out the people with debts up to the value of £15,000, this will enable people to rebalance their books & start off with a clean slate, lessening anxiety, stress & improving general well-being & the health of the nation, as well as freeing up more money to start to spend & re-start the economy.

    “Keep pumping, Ina. Things might look up. Lots of us want the beautiful Croatian people to have a real chance of a good life, they deserve it.”

  8. Know what you mean when you talk of educating the public about awareness of laws and personal responsibility. It’s easy and fair to say in countries where rule of law has been implemented for a hundred years…democracy — easy to say and be right: “Not knowing the law does not excuse nor mitigate any breaches of law.”

    We know that and take it seriously but it doesn’t make it right to say that in Croatia where public awareness of rule of law seems to very lacking. Governments are responsible to ensure awareness measures and campaigns are in place. What have they been doing over there!

  9. @racunovodstvo regarding the American IT sector keep in mind that there are a lot of unemployed IT people in the USA and now companies can afford to hire people that they could not afford before the economy stalled. So lots of skilled and unemployed people and few jobs. Many American IT and tech companies are falling into the hands of foreigners, I am speaking from experience as someone in the tech industry here in the states. I work for a European based company and the company I used to work for got bought out by the Japanese. Not to mention that the one place that Croatia would have to compete with is India and until we get someone more pro-business in place you will not even have that foundation to even think about trying to get companies to look at Croatia over India.

    I saw something interesting this week regarding the French proposal for their “super tax” where income after 1 million Euros would be taxed at 75%. Talk about punishing success.

    For those not following famous French actor Gerard Depardieu just got Russian citizenship because he feels that the above said super tax is too much. You can read some more here:

    Depardieu chose Russia because it has a 13% flat tax. Vladimir Putin for his part granted Depardieu immediate citizenship. So the question is how much did it “cost” Russia to get that paperwork pushed through? I would argue not much and that should Depardieu move in Russia, the 13% that he would pay in Russian taxes is a pretty good return on investment for the Russians.

    So a precedent has been set. Can Russia woo more of the rich and famous to call Russia home?

    It would seem to me one thing Croatia could do (once we get someone who sees success as a good thing and not punish them by taxing them so high) would be to introduce a flat tax.I think Croatia would be a better destination for the rich and famous wanting to flee their countries because of stifling tax rates.

    • Totally agree with you Marko P re taxing success, that is punishing success – it just should not be. Why on earth would someone work towards earning big bucks for the government wallets. I can understand Depardieu. Governments have for years privatised government assets and services and cut off cash supplies from profits of these companies, so now they think they should tax the rich for it. Morally corrupt at percentages of high taxes there, I think.

  10. Croatian Government spends more time and priority pandering to Serbs and “protecting” their rights and privileges than governing Croatia out of the crisis. Unless you are Serb who committed crimes against Croatians you will not get amnesty.

    • So true Sunman. Croatian Serbs should be the same as any ethnic group in Croatia, including Croats, of course with a bit of extra attention as minority but that in Croatia is verging on crazy.

  11. Računovodstvo says:

    Regarding the American IT sector, I disagree with your analysis of the sector. The IT sector will post the biggest job growth job growth this year, however, this may not affect job seekers as they will have to be in the right place at the right time in terms of fulfilling ascertain set if job skills in a certain location. Although, isn’t life usually about being at the right place at the right time? For corroboration, please check this article out:

    As for the super tax debacle of President François Hollande, that tax would only hit 5,000 taxpayers in France. The main problem with the tax, besides the punitive nature of it, is taxing only 5,000 people at that rate will NEVER even make a remote dent in France’s national debt. France’s problem are the healthy social benefits that it doles out to its citizens that strains the budget year after year.

    My bigger problem with France is that the country imposes a wealth tax. Wealth should never be taxed as this ad been taxed in previous years. Wealth taxes basically amounts to seizure of property as taxes should only be applied to nome, from whatever source derived. A good example is if a person has $10 million estate and earns interest of $500K off that estate. Only the $500K of interest should be taxed and the principal should never be subjected to taxes.

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