Croatia: Personal Bankruptcy – A Looming Deluge Threatening The Economy



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)

Croatia: Another One Bites The Dust!

Slavko Linic - now the former Finance Minister  Photo: HINA

Slavko Linic – now the former Finance Minister
Photo: HINA

Croatia’s Prime Minister Zoran Milanovic has Tuesday 6 May sacked the Finance Minister Slavko Linic, saying that “clean hands” were the most important thing in his cabinet. Linic made front-page news on Monday 5 May after daily Jutarnji list revealed that he cost the Croatian taxpayer 27 million kuna (3.5 millon EUR) after he personally wrote off tax debts for the land, which was more than five times over-valued. In March of this year revelations surfaced that the land in question was valued at 6 million kuna (830,000 EUR), not 33.6 million kuna (4.4 million EUR) as the bankruptcy settlement had valued it.

The anti-corruption office USKOK has become involved in the case, asking the Finance Ministry to urgently submit to it all documents regarding the purchase of land.

“Minister Linic bears a political responsibility for the damage the contract has incurred on the state budget,” Milanovic explained.

“It is possible there was no intention. Mistakes happen but then it should be checked who was responsible for a mistake … I was waiting for two months but minister (Linic) took no action and I am not satisfied with his explanation,” Milanovic said.

The scandal around Linic has been gathering momentum since the beginning of this year.

His deputy Branko Segon was given marching orders amidst conflict of interest and allegations that his private company received a loan from the State of over 31.4 million Croatian kuna (cca 4 million Euro) – Linic had defended Segon all the while and held that if Segon was proven to have acted in conflict of interest he would let him go but Prime Minister Milanovic decided to get rid of Segon prior to that. Last week Segon was found to have acted in conflict of interest in some matters, however the matter of the loan from the State Development bank was reported as having been done in accordance with the law.

The scandal reached the office of Finance Minister Linic’s taxation chief, Nada Cavlovic-Smiljanec, against whom criminal allegations were made in relation to failure to impose execution order to pay taxes for OLT Osijek company and hence damaging the state budget by at least 11.8 million kuna ( 1.7 million Euro). Minister Linic had all the while defended his tax chief, but she resigned her position on Thursday 30 April listing among other reasons that she had lately been obstructed in performing her job.


Now, Linic is shifting blame unto his ex-taxation chief!


Since we’re talking about the Social Democrat (SDP) led government we cannot omit the fact that the past couple of months in Croatia had also been marked by a scandal around one of the most powerful women in Croatia’s ruling Social Democratic Party (SDP) Marina Lovric Merzel, the head of Sisak-Moslavina County, who was described by the media as close friend of Linic and was arrested on suspicions of alleged financial irregularities in the County – still remains in remand for investigations. One of her office employees recently accused her when talking to national television and saying she was paying private expenses with the money from the County accounts/ issues of suspect land valuations for purchasing building are also related to this case. Prior to her arrest some five weeks ago Prime Minister Zoran Milanovic had stated several times that he would not allow any disintegration of trust in the taxation administration, spoke of “limits” to what can be tolerated.

One must ask the question: why does Prime Minister Milanovic talk of “lost trust” and “clean hands” instead of “suspected corruption” when it comes to the State paying five time more for land than its value? Certainly, he would like to circumvent the fact that his governing SDP party might have just as many corrupt personalities as the former HDZ – but things are not looking in his favour.

He has been heard last week saying that improper dealings in government administration must be cleared so that his government can begin to do its job properly! One may well conclude from this that Milanovic’s government has been asleep at the wheel for the past two years, have brought the country to its knees and into the gutter of economic impasse, and are now gearing up for a new election campaign where SDP will, instead of tackling suspected corruption in its midst, use their handling of these scandals as some sort of indications of its determination to make things better for Croatian people.

The mood for early general elections in Croatia is gaining popularity on a daily basis; Milanovic rejects any such possibility.

Boris Lalovac, ministry of finance high-ranking employee, has replaced Linic as Finance Minister. Ina Vukic, Prof. (Zgb); B.A., M.A.Ps. (Syd)

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