Croatia: Personal Bankruptcy – A Looming Deluge Threatening The Economy

debt

 

The latest figures released by Croatia’s justice minister Orsat Miljenic say that right now in Croatia there are some 317,000 citizens who have had their bank accounts blocked, preventing them from meeting their financial obligations as well as their everyday needs. Their private/household debt totals some 28 billion Kuna. To put a perspective on that sum it translates into almost 25% of the income/revenue feature of the state budget for 2014/2015! On average, ten families are deprived of their assets — most often their housing — each day as a result of enforcement proceedings.

Croatia has a quite effective legal framework for the enforcement of debt payments, but in six years of deep economic crisis no way has yet been found or asserted to incorporate a social component into the debt collection system. The institutions of personal bankruptcy and debt rescheduling for the over-indebted still do not exist, however public submissions for the draft Consumer Bankruptcy Bill have closed on 24 July 2014 and it is expected that it will make its way to the parliament as a matter of urgency. Scenes of implementing eviction notices on households are quite distressing.

Justice Minister Orsat Miljenic says that the bill would make it possible for people unable to service their debts to make a fresh start and for creditors to settle their claims evenly. It needs to be said that the idea of a personal bankruptcy i.e. insolvency over the property of a consumer is a completely new institute in Croatian legal system and a completely new and seemingly psychologically disturbing concept to the citizens of this former communist country. Croatia’s citizens had thus not had the benefit of “fear of personal bankruptcy” to guide them, or at least many of them, in curbing their personal spending/borrowing so that it doesn’t run beyond their means, leading them into personal bankruptcies about which possibilities they had known all along. Couple this with very high levels of unemployment and, therefore, no means for servicing personal loans it is more than certain that many, many thousand people will be forced into choosing with ill ease the option of personal bankruptcy.

What tricks will come out of Croatia’s government’s hat in trying to sort this mess out for even if it is private household debt, it is nevertheless a debt crisis for the country, for the government to implement and facilitate measures that would alleviate the crisis. Conventional ways governments deal with household debt crises include stimulus policies such as tax cuts and job creation programs, but also moves such as making the debts smaller by say forgiving some of the debt through mortgage principal reduction or eroding the value of the debt by increasing inflation etc., or a combination of all of these. But of course, there is always the risk of increasing public debt in the process of decreasing household debt crisis!

Bankruptcy is habitually perceived as a shocking and scandalous event, tarnishing the reputation, stigmatizing … and if job prospects are not there for one to pick-up life and start over again the future is indeed grim.

It now remains to be seen whether the Croatian Government will upon establishing the institution of personal bankruptcy also facilitate some kind of debt rescheduling and/or debt reduction for indebted citizens so that they might lead a dignified life as they pay off their debts. If any country owes this to its citizens it is Croatia particularly due to the fact that corrupt privatisation undertakings in the past two decades has seen a calamitous drop in jobs and public assets, while its Reconstruction and Development Bank (HBOR) wasted deep rivers of funds on “big business” that failed to create jobs that would replace a good number of those lost instead of stimulating small to medium business ventures spread locally to create local jobs.

Croatia’s Finance Minister Boris Lalovac said Monday 28 July that it was symptomatic that out of the 317,000 people with frozen accounts, 2,000 alone owed half the amount, namely 14 billion kuna. He said that among them were people accused of crime and should not be regarded in the same light as people who ended up with frozen accounts because of the recession. “Freezing of bank accounts and citizens’ debts did not occur accidentally,” he said. “All this happened because of the ‘credit Eldorado’ from 2006 to 2008. The amounts are so large because among debtors there are ‘wolves from Wall Street who gambled with real estate’. When we look into the debt structure we see that some 2,000 citizens owe 14 billion Kuna. We’re talking about the ‘golden boys’ who blew money into dust. There are some 150,000 citizens who cannot pay off debts up to 10,000 Kuna – and we will help these citizens – that is the duty of this Social Democrat government,” he concluded for Croatia TV news.

I truly doubt there are “golden boys” or “Eldorados” to speak of here in the significant way minister Lalovac describes. What is most worrying in this is that the public cannot ascertain from the Minister’s statement regarding “golden boys” – who owe 50% of the national household debt – whether in fact these “golden boys” are able to and have the capacity to manage their debt liabilities. It is to be expected that most people whose accounts have been frozen are ordinary people struggling to exist without employment, unable to service their loans/debts.

Justice Minister Orsat Miljanic has dubbed the new Consumer Bankruptcy bill “ a new life” while some citizens from the list of those threatened by personal bankruptcy call it “creating ghettos” – ghettos where one’s life will be controlled by others! Certainly, it seems that the citizens, as opposed to the government, are not wearing rosy glasses. They are well aware of the restrictive and significant impact upon their lives that personal bankruptcy brings and in no way see it as a welcome ‘new life’. Many have been forced into poverty through corruption and theft found in the privatisation of public companies and assets process and they are the ones to use this opportunity not only to seek alleviation of their crisis but also to seek more rigorous actions against the corrupt many and for payment of fines as well as for return to the state of all ill-gotten personal wealth amassed through corruption.

 

 

Having in mind that a significant slice of Croatia’s GDP is derived from consumer spending and the latter has significant effect on the health of the economy and that manufacturing or production is not likely to increase to an adequate job-creation level any time soon, the government has a task ahead of it that needs to ensure that the number of declared personal bankruptcies will not be so large that it significantly affects or decreases avenues of consumer spending purchase power accumulation. It would seem from Minister Lalovac’s statement that the Croatian government is looking at helping those with less than 10,000 kuna debts (which is equivalent to less than 2 months of average wage), and this suggests that there is a determination to avoid a large number of personal bankruptcies. How many though will end up personally bankrupt and how such personal bankruptcies may give rise to new citizens’ actions in fighting the corruption that has led to their personal financial demise through loss of job opportunities is a question that must await its answer for many months to come. Ina Vukic, Prof. (Zgb); B.A., M.A.Ps. (Syd)

Comments

  1. I do enjoy your post, an education with each read. Check out my new paperbacks at Amazon.com http://www.amazon.com/s/ref=nb_sb_ss_c_0_11?url=search-alias%3Dstripbooks&field-keywords=ann%20johnson-murphree&sprefix=ann+johnson%2Caps%2C238

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  2. yeseventhistoowillpass says:

    Before I checked out your blog I
    Couldn’t even find Croatia on a map.. Now I educated somewhat

    Like

  3. Reblogged this on idealisticrebel and commented:
    Is any of this due to the 2008 recession that effected most countries? It is such a sad story. To be blunt they just can’t catch a break. Americanism. You are a heroine and a really good person. Hugs, Barbara

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    • Thank you, Barbara. Yes the GFC affected Croatia too but a lot of unemployment has been the result of so many companies being fleeced through corrupt privatisation, leaving many without income and the ability to service private loans due to lack of steady income. So I do hope that the government does reign in some help to avoid banruptcies.

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      • Loss of jobs effected us here. So many lost their homes. They played it down but it was real. Congress here has spent more time acting like petulant children than as elected officials. This is a problem here now because would destroy the country rather than help the 98%. There are some really good people in congress. Many are just trying to get Obama. It is pathetic. Hugs, Barbara

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      • Pathetic, indeed. Hugs, Ina

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  4. What’s doubly frightening, Ina, is that we could experience the same in the U.S. as more and more people find themselves economically distressed. It’s the banks that rule here; not the state and Federal governments.

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    • Yes, Eric, and I believe it’s up to the governments to ensure that people are left with the ability to borrow and pay off loans otherwise the banks will not be able to lend as much and the vicious circle reaps victims everywhere. The difference here is that the concept of personal bankruptcy is foreign to Croatian people and it will take some adjusting of consumer behaviour in order to avoid bankruptcies.

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  5. Računovodstvo says:

    You forgot to add that the economy is also propped up by tourism, which by all accounts has had a very lackluster season. I suspect the 2013 “bump” was due to the EU accession, however, according to radio reports, the blame is being placed upon bad weather. Bad weather or not, most people book their vacations in advance, so the likelihood of bad weather being the cause is disingenuous to say the least.

    Personally, if Croatia wants tourism to truly flourish, their must be a complete infrastructure overhaul. As it stands now, Croatia needs to court American/Western European brands, introduce franchising as a business and employment concept, and properly tourists. The days of Communism are over, and a low-cost jaunt financed by the state will not make a healthy tourism industry with so much competition worldwide to contend with.

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    • Well put, Racunovodstvo. I follow the news on this year’s tourism also and it does not look as good as the last, that’s for sure. A rude shock in Autumn perhaps when figures are summed up that might see a revisit of the budget 😦

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  6. This is the story in every Western country.

    Coincidence?

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    • It’s how the countries got to this point that is somewhat different, Richard. Some countries are coming up with models to prop up job-creation in a comparatively better way, I think, and their unemployment levels are lower, in Croatia it’s hovering over 20% and in places 45% +; the youth is particularly affected.

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  7. What a mess! I recently read that 60% of Croatia’s GDP is debt. In a country with only 4 million people it’s clear that most of this debt is not from the average person who lives here and maybe buys a car on credit, but from the kind of gross negligence that you have so often pointed out by the very people elected and appointed to manage the national wealth. The inability for our government to manage the finances of a country with so much talent and potential never ceases to amaze me. There just seems to be no vision, just a drumbeat of excuses, like blaming small business people who “abuse the system”. I guess they mean the small ice cream shop here in Split that was closed a few weeks back because it failed to give a receipt and was fined 5,000kn because “inspectors” also found 30kunas more in the cash register than should have been there! Had they just been given a warning, the taxes they would have paid to the government during the time they were closed would have been more than the fine! I’m just amazed so many people put up with such nonsense when there are so many ready solutions to help solve our unemployment and our financial crisis. All that is lacking is the political will and courage to simply say what needs to be done so every Croatian can have a future they deserve.

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    • Oh, viewfromtherive, I so agree – most of those that work in government departments think and behave as though they know everything and if they don’t deliver then they’d rather see everything fall, instead of seeking the knowledge and know how outside the departments. It is indeed so stupid to shut a business rather than help it comply with legislation and thereby secure future tax and levies’ revenue.

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  8. Ina you are so intelligent and have so much value for the Croat people I hope I can get a Bosniak version of you as my future wife 🙂

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  9. Ante Saric says:

    I don’t know who are worse? The idiots who borrowed the money despite having no means of paying it back. Or the idiots who lent them the money in the first place knowing the money will never come back.
    Croatians got things ass backwards. First you build a productive, internationally competitive economy so consumers and business people have a good chance of paying the money back.
    But our “know it all” compatriots decided to borrow money and party first.
    I guess that is what happens when you have 45 years of Tito’s “Third Way”. You have absolutely no clue on how to manage your own finances because you know the state will always bail you out. Whether your a shipyard or a hapless consumer Croatia’s nanny state is always there for you.
    Your essay reminds me of another group of people in Croatia who decided to take out mortgages in Swiss francs because of lower interest rates. What these idiots forgot is that the franc is a safe haven currency that rises a lot in times of crisis.
    Once again who will accept responsibility for these shenanigans?
    The best solution to the above dilemma is to let them all go bankrupt. They absolutely all deserve it. Even better the Croatia government should declare bankruptcy and senior bond holders take massive hair cuts.

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    • There’s much in your words regarding how it was under Tito’s way of no personal responsibility because the “Party” secured loans for wages while not bothering about productivity to earn the wage, Ante Saric. True, many borrowed to live a life beyond their means but many to survive after losing jobs etc. It’s a difficult problem. But if one goes bankrupt, the bankruptcy brings about limitations as to what positions one can hold in business for example for some years, like being a director of a company etc, even when it’s one’s own company… It’s all a mixture of tragic historic socioeconomic circumstances and personal inability to set limits to one’s lifestyle.

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    • Ante – I would gladly lend you $25,000 and you sign your $250,000 house as collateral and so when you do not pay – I get to collect your house ( a real asset ) for the pieces of paper that I lent you.

      To be honest – I would hope that you could not pay back your debt to me.

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    • therealamericro says:

      The idiots were the ones who put in for the loans.

      Those who gave the loans did so with short term and long-term domination goals.

      Instead of passing a law that would mandate there would be no double-taxation for Croatian Diaspora and or returnees who have pensions or partial pensions abroad (the reason they didn’t do it is that they would be a voting block that could disrupt the musical chairs status quo), which would bring hard currency and investment in significant numbers (even if the retirees spent only three months in their city, town or village, that cash would flow in the local economies) and lowering the tax rate for key sectors – heavy and high tech manufacturing in particular – and introducing decade to decade and a half tax abatement programs to encourage FDI and job creation, the idiots raised the taxes (and targeted Croatia’s only growing industry, medium sized business boat and sailboat building) and took on credits like a bunch of Phoenix Online University Ph.D. in interpretive dance graduates with their first no-limit credit cards.

      Every government since 2000 has been operating in the interests of the Ango-American geopolitical and debt-driven empire, where they pump propaganda through NGOs to brainwash people, and put direct pressure on governments (Croatia – delayed EU entry) to take out massive credits of the Anglo-American fiat, print as you wish currency creating de facto serf states in debt up to their eyeballs and totally entrapped with no means to have a foreign policy under the threats of raised interest rates as punishment.

      The reason it was so easy – there was no calls for Lustration by ANY foreign embassy in Zagreb save Germany.

      Croatia is a pawn in the silent Anglo-American versus Germany and the Continent geopolitical game.

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  10. Does anyone have any statistics on how much people owe before they lose their homes?

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    • I think Zeljko that would be on individual cases, whether people can service loans etc and if their property needs to be sold whether they can raise enough money before the home they own goes for sale…that’s the way it goes in the “West” so I assume it would not be different in Croatia

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  11. …FIRST OF ALL get rid of those stupid communists and chetniks in Croatia! Then, as Dr.Tudjman once quipped… “we should encourage more of the Croatian diaspora to come back to Croatia and set up businesses!”
    The (NEW) Croatian government should encourage all people of Croatian decent to come back and build the country! In South America and North America you have Croatians and their descendents who have been here over 150 years! Maybe pay their journey to Croatia (and B&H), as some may come from poorer countries such as Bolivia, Colombia, etc.! Even other potential immigrants (they don’t have to be Croatian decent, as long as they want to make good citizens, learn the language and set up shop…that’s fine!) can come! Strength lies in numbers!

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  12. Reblogged this on By the Mighty Mumford and commented:
    UNFORTUNATELY…THIS IS SOUNDING ALL TOO FAMILIAR…IN THE U.S. 🙂

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  13. Michael Silovic says:

    This is not an easy topic or problem to solve.The history of our country put a lot of people in debt for various reasons. I personally do not support any businesses that had government loan guarantees to be able to file for bankruptcy as in most cases they are the biggest debtor.Why I disagree is because most time bigger company owners or partners take a large chunk of the loans to pay their salaries. On the other hand I believe that the government should make debt payment for widows of the homeland war and more so if they had to raise children because they have sacrificed in so many ways not only losing a loved one but for the most part the main bread winner that supported their family and of course our elderly. The government is also responsible because they failed to rebuild our country after the war to develop the infrastructure needed in any country to survive and employ their people as in farming , manufacturing,forestry etc. While tourism is something that we have it does not bring in enough money and as we see now the diaspora brings back 10 billion a year in investment into Croatia. Now add 3 generations of Croats to that mix by QUICKLY giving citizenship to those that have Croatian heritage and that can easily triple investments.Croatia is not a poor country by any means in the long run. Our indebtedness is due to poor management and a lack of vision for our future other then to rush into the EU which has no great benefit as we are importing a lot of goods that we could have produced ourselves. In the long term our wealth is staggering if we do not allow foreigners to rob us blind. We have massive amounts of oil, natural gas, gold ( Drava River is a small example of the gold under the ground ) and forestry that will bring Croatia to prosperity . If there was enough room here I am sure I can fill a 100 page declaration of what needs to be done and how to do it but perhaps I should wait until we get new leadership and attempt to guide them. Great article Ina!

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    • Thanks, Michael – and I do agree with much you have to say here. I would love to see personal wealth amassed through corruption and theft of public assets returned to the people, creating a solid backdrop for any losses to economy that might come due to sorting out this terrible household debt crisis.

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  14. Michael Silovic says:

    Corruption is a serious problem all around the world with government officials.This is why I always advocated that we need to have far right radicals that are not afraid to challenge government when no one else will. I think that a declaration should be made when they are elected or appointed to office showing the amount of wealth they have before hand and it should be publicly identified on a yearly basis any increases or decreases in wealth so it can be justified and we have transparency.This should include so called blind trusts that many politicians hide behind which is another way of saying I didn’t take the money someone else did for me and I didn’t know anything about it but non the less it is still corruption.The constitution should ban all lobbyists as well.Corruption and lobbyists are what have destroyed many countries and this is why you have a gap between rich and poor. I believe that any public official found guilty of corruption or fraud should be hung in public and all of their wealth and family wealth should be seized. I believe there is no greater crime then stealing the trust of the people.

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  15. in America, the dollar was a certificate (silver or gold) and under Article I, Section 8 of the Constitution, it could only be coined (made) by Congress…money is merely a legal contract offered in exchange for goods and services; then, in 1913,the monetary system was given to private bankers to own and became a note, an instrument of debt…every dollar printed represents, not gold or silver but debt owed to these private bankers…the American people have bought the illusion that they owe trillions of dollars which can never be repaid…the only way out is war or printing your own money, via government takeover, by the people…peace

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  16. What a fantastic job here showing all of the aspects of bankruptcy. What’s important to understand is that consumers need to make sure that they are properly represented when they go about bankruptcy. Never try and go at something like this alone. Make sure you are protected and prepared….Always!

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  1. […] Bankruptcy Bill is making its way through parliament, and while it is being greeted with the not unusual scepticism that such legislation invariably brings, being able to declare bankruptcy often provides the only […]

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