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)

Croatia: Small business red tape cut in efforts to stimulate self-employment

Although received with a fair amount of skepticism and confusion by many in Croatia the government’s seemingly swift move to cut red tape, simplify small business registration and make it affordable to any entrepreneur or person with a view to entering into a business enterprise is praiseworthy.

As of 18 October people in Croatia are able to form or register a small business (so called simple company with limited liability) with only 10 Kunas (1.33 EURO) of founding capital/ share value. This falls within the new amendments of trading company laws and is aligned with EU standards and tasks imposed upon Croatia for its accession to EU in July 2013.

Under Article 390.a of Croatia’s Trading Companies Act (Zakon o trgovačkim društvima), a simple company with limited liability is a company with a lowest base capital of 10 Kunas, and the lowest nominal share value is 1 Kuna. Such a company cannot have more than three members/shareholders and can only have one member on its management. If the members of management do not have “health and pension insurance” through some other means (e.g. another job elsewhere) then such insurance will need to be paid by the business entity itself.

Dubbed a “simple company”, this limited liability company is required, under the law, to pay into its reserve capital one quarter of its annual profits. Hence, providing the company an avenue (given a thriving business through time) to reach the status of a “normal” or ordinary company where reserve capital is set at 20,000 Kunas (2,659 Euro), equivalent to about 3.7 average monthly wages. Up until now the cost around forming/registering a company had been around 5,000 Kunas and the new 10 Kuna deal makes the mere registration accessible for all.

The simple company registration process is user-friendlyvia a prescribed Form that needs to be filled in by a Public Notary, stating the intention to form a company, the list of members, the list of persons authorised to manage the company’s business and acceptance of a member of the nomination to manage the company. The Form is signed by all members and lodged electronically with the business court registry.

The use of company reserve capital is very strict,” says the Croatian justice minister Orsat Miljenic, adding: “These reserves can only be used to cover losses in previous financial year, but also to increase the company’s capital. This is a simple way of entering into business, designed to prevent the gray and black markets and the legalisation of business trading”.

He further added that this opportunity of starting and working within the frame of a simple company has been inserted into legislation as yet another measure in Croatia’s approach to EU membership. Just like in Germany, Italy and numerous other countries such opportunity is there for those who wish to “test their business entrepreneurship”.

The pleasing outcome of this new “push” to attract self-employment and/or pull in the reins of gray or black economy (that without exception avoids tax paying) is also in the reported fact that the company registration certificates take only 24 hours now, as opposed to the formerly unnerving practice/ red tape that took months and months.

Economist Ljubo Jurcic has been quoted as saying that “this new measure by the government is a damaging measure as it could reflect badly against individuals”. Jurcic added that “stimulating people to become business entrepreneurs is very bad because people who start a business out of desperation find themselves in an even worse situation a year later. The measure of simple companies sounds nice, but it’s more important to come up with a good idea and needed information, and then start a business.”

While Jurcic’s statement reflects those of many others in Croatia it is patronising, nevertheless.

The new measure by the Croatian government must be seen in a positive light.

It is there to offer opportunities that have never existed before in Croatia or in former Yugoslavia. It’s there as a vessel to bring about personal business responsibility and open up a new hopefully busy world of “cottage industries”, service outlets, small-scale manufacturing, open up small business veins throughout the country’s economy without which a healthy economy would struggle. Most Croatian people are well aware that one cannot start a business out of thin air, empty pockets or without a solid business plan projecting viability; they don’t need lectures or grandstanding such as the one offered by Jurcic.

With unemployment in Croatia reaching almost 18% cutting red tape around small business is a positive move. The government should now do more in low-cost and/or free training or educating people in small business via workshops, seminars, brochures etc. Furthermore, assisting people who come up with sound and viable business plans could also develop into small business government grants and loans.

The deeply regretful thing about Croatian business entrepreneurship is that its major development bank ( Croatian Reconstruction and Development Bank/Hrvatska banka za obnovu i razvoj/HBOR) has for years been extending loans to big business that often found itself in dire straits of profitless struggles and unchecked risks. Had there been greater attention to small and medium business, in developing better accountability for loans and grants, perhaps we’d be looking at a much healthier picture of employment and economy. Certainly a sole trader or small business owner feels the immediate effects of nonviable trading and fights harder to stay afloat than what an employee of a larger company does. The horizon for small and medium business in Croatia might be looking healthier as we speak. European Investment Bank has been reported in September for extending 100 Million Euro loan to HBOR for financing small to medium business in Croatia. I trust, though, that strict accountability and monitoring measures will be put in place for these loans and that such moneys will go to the genuine business entrepreneurs and not to  “free-money” larks or become an avenue for corruption or fraud which has not been swept clean yet. Ina Vukic, Prof. (Zgb); B.A., M.A.Ps. (Syd)


Croatia: far from Euro?

Finance Minister Slavko Linic – Photo: Boris Scitar/PIXSELL

At the meeting that put together the new leadership of the Croatian Social Democrats party (currently in government), June 16, minister of finance Slavko Linic said that new rises in prices were not dependent on the ministry of finances and that the prices of food, shoes and clothing did not rise with the increase of PDV (goods and services taxes). He said that it’s to be expected that once Croatia enters the EU the price of energy will be similar to those in Europe.

Social politics that ensure everyone has cheap energy, including the ministers whose income is higher, is unsustainable. The hits created by changes in the prices of energy must in some way be alleviated by social programs,” he said.

The contradictions in this statement by Linic seem to confuse. One the one hand Linic says social politics where energy is cheap can’t be sustained and on the other he says social politics must alleviate the pressure of price rises!

How a social program could alleviate the burden of higher energy prices, and therefore the burdensome pressure on living standards, Linic does not say. It is though reasonable to assume that Linic might be considering some forms of cash assistance to families/individuals, or subsidies to industry. If so this would mean more borrowing by the government, which in turn further  spells disaster “a la Greece”.

During last week Linic said that Croatia is far from adopting the Euro because it will take a while to narrow its budget deficit to less than the European Union’s limit of 3 percent of gross domestic product (GDP).

Linic said that his government’s task in the next for years was to strengthen the economy and undertake reforms of the health and pension systems.

Croatia proposed 4 billion kuna ($700 million) in budget cuts in January to narrow the budget deficit to 3.8 percent of GDP from 5.5 percent in 2011. The government has forecast the economy will grow 0.8 percent this year, while the World Bank predicted a 1 percent decline.

It’s been almost seven months since the Social Democrats (SDP) came into government (leading the Cock-a-doodle-doo/Kukuriku coalition) and no real changes to economic trends that may indicate recovery (however small) can be seen. SDP has launched many “ideas” (programs) for reforms however these ideas remain just that; no results are visible. Even president Ivo Josipovic agrees with this.

It would not be the end of the world if Croatia does not reach the economic standards “required” to contemplate and introduce Euro as its currency; a country can be a member of European Union without adopting the Euro, however inability to improve the economy, inability to increase the buying and earning power of individual citizens amidst rising living costs is dire. It, therefore, remains to be seen whether Linic and Croatian government are actually contemplating “social programs” similar to those former communist Yugoslavia that fostered a false economy based on borrowed money and handouts where actual and adequate GDP in many cases was incidental or often overlooked. Ina Vukic, Prof. (Zgb); B.A., M.A.Ps. (Syd)

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