Croatian Economy: The Gangrene Must Out

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“The beginning of 2013 was marked by stagnating movements in economic activities. Significant drop in exports came as well, coupled, though, with concurrent strengthening of domestic demand under the influence of increased government’s investment activities,” said the Croatian National Bank’s (HNB) analysis of the economic movements in Croatia on 8 May. “In such conditions, the administrative rate of unemployment stayed at high levels, which had already been reached. The fiscal politics were expressly expansive during the first three and a half months, however, sustaining such a trend for the remained of the year will only be possible if there is significant review of the fiscal goals for the whole of the year”, the HNB analysis continued.

In this clearly dark prognosis HNB emphasised that there had been significant fall in exports – up to 14.4 % in comparison to the same quarter of 2012, the industrial production had stagnated and so did small trade. Small movements in the building industry have been noted, as well as in job markets due to the temporary reduction in the number of unemployed associated with seasonal employment.

Consolidated central government expenditure has increased by 7.5% between January and February 2013, while government income had decreased by 1.2% in comparison with the same period last year.

“Total deficit in the consolidated central government for January and February was 60% of the planned amount for 2013. Central government debt in that period had increased by 3.9 billion Kuna, thus reaching 179.4 billion Kuna by the end of February…”

To remind oneself in the Budget for 2013-2015 the Croatian government had stated that Government Budget deficit for 2013 would be 10.9 billion Kuna or 3.1% of GDP. It forecasted revenue or income of 113.65 billion Kuna and expenditure of 124.52 billion Kuna.

The Croatian National Bank’s analysis talks about the need for the government to undertake a significant review of fiscal goals for 2013 if anything worthwhile is to happen in the economy. This could mean that the Croatian government must change its budget mid-year and that perhaps they did not know what they were doing when they picked up power in 2012.

Certainly, the Social Democrat led government seems to be floundering clumsily and helplessly through the economic nightmare that Croatia has been in for years. Successive governments (since the early nineteen nineties – secession from Yugoslavia) have done likewise, dragging their feet on administrative and legislative reforms that were and are absolutely essential for economic survival with the milieu of free and economically competitive nations.

Evidently none have made a point of fully taking up dr Franjo Tudjman’s advice and forecast that if Croatia was to become a truly prosperous democracy then it must learn from those who have succeeded in it, bring in the knowledge and the expertise from abroad, etc. But to do that, corruption and personal enrichment through privatisation of public companies would not have been entirely possible – the die-hard Communist political elite made sure that advancement of widespread entrepreneurship made only cosmetic appearances.

There is no doubt in my mind that the over-sized state is the culprit for the desperate situation Croatia is in economically. Too many people live off the state budget. It’s like a gangrene that must be cut out. All governments in Croatia – HDZ and SDP led ones equally – have done very little in cutting the public administration and in assisting the development of private enterprise. Indeed if the wealth of privatised public assets and companies did not go into the pockets of many individuals, either in hard currency or political favours, Croatia would now be in a much better place economically. It had and it has ample natural resources, it had and it has a nation of people among whom most are hard working in pursuits of a better life.
A serious and urgent reform is needed. Indeed, a reform that would see deep cuts in the public sector employment, but I fear no major political party will dare to bring this on in fear of losing votes.

The reality is that someone needs to cut out the gangrene (the huge surplus of public servants), otherwise all will fall.

The above mentioned analysis by the Croatian National Bank tells in no uncertain terms that the government is spending more and more, that the state revenue is less and less and that state debts are greater and greater.

It’s like the government politicians (and the opposition, for that matter) have fastened their seat-belts, shut their eyes, charging in a frenzy towards the “saviour” EU, hoping to wear the turbulent journey unscathed. Nope, that isn’t likely to happen, as majority have not made any serious progress away from the communist mind frame even though many almost swear they have.

Once in EU (from 1 July) Croatia will enter into a market of 500 million people, majority of which have established economically and political assertive practices while the Croatian lot still fail to assert their own political, professional and historical values on the international scene. They’ve kept tight with the markets within borders of former Yugoslavia – Serbia, Bosnia and Herzegovina, Macedonia, Montenegro … and come July 1 they will lose the freedom of trade they’ve had with these countries – they’ve done little if anything that truly counts to plug into the EU countries’ markets in preparation for entry into the EU.

And, at the end of the day, all we seem to hear from the Croatian government and the opposition is how they want foreign investments in Croatia, how they want domestic investments, how they want investments from the Croatian diaspora … but they’re doing almost nothing that would significantly make the state administration and red tape conductive to a strong investment climate. While acknowledging the fact that investments generally are on a slump worldwide, the Croatian government and the opposition nevertheless seem full of air and bubbles and someone needs to pop that balloon of political elitism before it takes the people into the dungeons of and economic gutter from which there is no return. Yep, the time has come when hitting the fist on the table, when determined measures regardless of the EU must be brought forward by Croatian, for Croatians. Ina Vukic, Prof. (Zgb); B.A., M.A.Ps. (Syd)