I. Post-Independence Recovery and Privatization
After Croatia declared independence in 1991, it would have to begin to deal with the burgeoning economic troubles at hand. The war which broke out as a result of Croatia declaring independence took its toll on the economy, which was in dire straits when Franjo Tuđman was elected president. Tuđman’s presidency would serve as the herald for economic views which now play a large role in the modern Croatian government; privatization and globalization. However, the maladministration of privatization would join a long list of causes of economic problems including damage to infrastructure caused by the war, the refugee population, and disturbance of macroeconomic relationships. Croatia had to overcome two major Yugoslavian legacies in order to properly de-nationalize the country’s economy. Self-management and social ownership were the foundations of Yugoslavian socialism [Franičević 6]. Although dismantling the socialist state was not a popular opinion in the late 1980s, early legislation arose, outlining privatization measures with the goal of benefitting Croatian workers. These initial premises of privatization legitimized the institution in terms of popular opinion. As far as the workers were concerned, “they were the real ‘owners’ of the firm[s]… the obtaining of widespread support for privatization among the working class was regarded as an essential element in its successful implementation” [Franičević 7]. What most Croatians failed to realize, however, was that President Tuđman’s Croatian Democratic Union was the single-party entity which made the system possible. In order to begin to renovate the economy, the Law on the Transformation of Socially Owned Enterprises was enacted. There were two stages to this approach; the first was the transformation of social ownership into private or state ownership, the second was the complete privatization of said state ownership [Franičević 9].
Several of the procedures of the first stage proved to be relatively successful, by the end of 1996 the public debt had been reduced by over 1.8 billion Deutsche Marks [Franičević 12]. However, major difficulties arose with the privatization process, which drew criticism since the process was nontransparent, power was concentrated in a single ruling party, nepotism was prevalent, and blatant corruption plagued the system. The privatization model was constructed in anticipation of foreign capital. This would have been the ultimate goal of the two-phase process; initially, previously nationalized industry would be sold to the private sector and the state, and if all had gone as planned, international corporations would buy into Croatia’s industries. Unfortunately, the corruption of Tuđman’s government made Croatia’s economy extremely volatile, and not one which foreign investors would so readily invest in. Nevertheless, privatization continued throughout the 1990’s until Tuđman’s death in 1999. Its institution wreaked havoc on the Croatian economy, and it was a testament to the dangerous power of uncontrolled state capitalism. Croatian privatization contrasted similar processes in other European nations at the time. A majority of Croatia’s capital was due to the hotel industry, however, throughout the 1990’s, the tourism industry shrunk as a result of violence in the early part of the decade, and economic decline in the latter half. Another difference was due to Tuđman’s strict nationalist control. Because of Croatia’s strong nationalist sentiments, they began to distance themselves from the Balkan states and became ambitious in wanting to be seen as a “Western State”. Tuđman was able to take advantage of this cultural Westernization and apply it to the economic policies of his administration. Whereas privatization by definition should result in less state control, Tuđman’s presidency virtually resulted in quite the opposite. He relied on the state, rather than the private sector of the economy, in order to globalize the country’s economy; however, it was an exercise in futility due to corruption, scandals, and the buying out of Croatia’s capital and industries.
II. Growth in the New Millennium
In spite of the tragedy and controversy that surrounded Tuđman and the Croatian Democratic Union’s privatization scheme, the economy began to take a turn for the better in 2000. With the Croatian Democratic Union defeated in the 2000 elections, structural reforms under Prime Minister Ivica Račan were finally possible. For the three years he was in power, he continued privatization by opening up the economy to the West, which helped to restart Croatia’s GDP growth. Račan also began programs to improve infrastructure, which was essential in assisting the rejuvenation of tourism. After nearly being destroyed in the 1990’s, the industry has steadily increased since 2000, with the inflow of capital further funding infrastructure. Inflation remained stable as well, with the Croatian Kuna maintaining stability with the Euro. Overall, the expansion of the economy was due to said infrastructure programs, Westernization of the markets and tourism, as well as the growth of smaller private corporations. In the nine years from 1999 to 2008, GDP increased by around 4.25% per year.
Croatia’s growth in GDP in the 2000’s was an excellent sign of improvement for the country’s economy; however it failed to match the growth in Yugoslavia in the 50’s, 60’s, and early 70’s. Although Croatia remains one of the wealthiest of the former Yugoslav republics, the damage caused by the economic collapse of the 1990’s and subsequent economic policies have left impacts on Croatia on both micro and macroeconomic levels. The unemployment rate in 2011 was 17.9%, with a comparable 18% of Croatians living below the poverty line as of 2009. Even during the dusk of Socialist Yugoslavia, the unemployment rate was lower, at 15%. Although life expectancy and literacy rate have risen to 76 and over 99% respectively, provinces like Krajina are particularly devastated by unemployment. In addition, Croatia’s domestic economy is in need of repair, as it relies far too much on imports and its export sector is minimal.
During a meeting with the U.S. Ambassador to Croatia in February of 2010, Minister of Economy Duro Popijac summarized the major issues which the nation faces. First is the privatization of shipyards. During Yugoslav socialism, shipbuilding was one of the largest economic sectors, and the Croatian government is currently having difficulty selling the shipyards. Until they are bought, the government must continue to pay to keep them open, which is something the European Union does not permit. Croatia’s candidacy for the EU affects its economy in a big way, as it is doing almost all that it can to meet the Union’s requirements. Minister Popijac highlighted a three-part economic bailout fund, which would include a subsidized loan scheme, government guarantee fund, and the creation of a private equity fund. A majority of Croatia’s microeconomic problems stem from the ineffectualness of government intervention in the private sector, as well as ongoing corruption. All of these, in turn create macroeconomic issues, as they make Croatia an increasingly unstable investment opportunity.
III. The Current Dilemma & What the Future Holds
The transformation from Yugoslav socialism to modern Croatian capitalism has stretched over half a century. There were a myriad of changes from one extreme to another; the hasty implementation of privatization is perhaps to blame for Croatia’s current economic troubles. This increased Croatia’s interdependence with other European nations after the Yugoslav Civil Wars, rather than fostering its own industrial-based economy. Furthermore, additional privatization has essentially become the only way out of Croatia’s economic dilemma in their eyes, despite it being what caused the economy to become so unstable. The ultimate root of Croatia’s economic problems, however, is cultural. The current policies are not working, yet there is hardly any opposition. Croatia yearns to further westernize themselves and their economy, to the point where their extreme nationalism is beginning to hinder progress and harm them. The nation is taken by the allure of pure capitalism, further fueled by their desire to join the EU, and there is no tolerance or consideration for any other economic viewpoints. Although Croatia’s economy appears to be relatively growing, successful measures need to be taken to address their high foreign debt, weak industrial export sector, crumbling bureaucracy, and large reliance on tourism. Until those issues are addressed in a more open minded way, Croatia will never be free of its economic dependency on stronger powers.
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-Ballinger, Pamela. "Selling Croatia or Selling Out Croatia?" Bowdoin College, 24 Oct. 2003. Web.
-Franičević, Vojmir. "Privatization in Croatia: Legacies and Context". Eastern European Economics, Vol. 37, No. 2 (Mar.-Apr., 1999), pp 5-54
-Government of the Republic of Croatia - Information on Croatian Economy
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