Republic of Croatia
Real GDP growth (2010): -1.2%.
Inflation rate (2010): 1.9%.
Unemployment rate (average for 2010): 17.6%.
Natural resources: Oil, bauxite, low-grade iron ore, calcium, natural asphalt, mica, clays, salt, and hydropower.
Following World War II, rapid industrialization and diversification occurred within Croatia. Decentralization came in 1965, allowing growth of certain sectors, particularly the tourist industry. Profits from Croatian industry were used to develop poorer regions in the former Yugoslavia. This, coupled with austerity programs and hyperinflation in the 1980s, contributed to discontent in Croatia.
Privatization and the drive toward a market economy had barely begun under the new Croatian Government when war broke out in 1991. As a result of the war, the economic infrastructure sustained massive damage, particularly the revenue-rich tourism industry. From 1989 to 1993, GDP fell 40.5%. With the end of the war in 1995, tourism and Croatia’s economy recovered moderately. However, corruption, cronyism, and a general lack of transparency stymied meaningful economic reform, as well as much-needed foreign investment.
Croatia’s economy grew strongly in the 2000s, stimulated by a credit boom led by newly privatized and foreign-capitalized banks, some capital investment (most importantly road construction), further growth in tourism, and gains by small- and medium-sized private enterprises. One downside to these steadily improving trends was a strong growth in Croatia’s stock of foreign debt, which by 2010 had reached almost 100% of GDP.
Despite the gains, substantial challenges remain. Croatia’s economy was hit hard by the global financial crisis, and has recovered more slowly than many of its neighbors. The country experienced a drop from 2.4% GDP growth in 2008 to a 5.8% contraction in 2009. GDP fell a further 1.2% in 2010 (about $62.25 billion), while estimates for growth in 2011 range from around 1.3% to 1.8%. Official unemployment is 17.6%. Croatia’s external imbalances and high foreign debt present long-term risks to its economic well-being, as continued access to foreign credit may be severely limited. An inefficient bureaucracy, relatively high labor costs, and lack of transparency in taxes, fees, and the public tender process have all led to a generally unfavorable climate for foreign investment. To address this, the government has begun to eliminate certain non-tax fees on business, consolidate overlapping government agencies, and identify administrative barriers to foreign investment, but progress is slow. Improvements to Croatia’s judicial system are not yet fully achieved, another hindrance to economic development.
The privatization process, begun in the 1990s, has been unsteady, largely as a result of public mistrust engendered when many state-owned companies were sold to the politically well-connected at below-market prices. The government sold three large metals plants in early 2007, but the Croatian state still controls a significant part of the economy, with government spending accounting for as much as 50% of GDP. Some large, state-owned industries continue to rely on government subsidies, crowding out investment in education and technology needed to ensure the economy’s long-term competitiveness. The government is trying to privatize several state-owned shipyards as part of its European Union accession bid. As of April 2011, there were signs of progress in this area, but the process has not yet been finalized.
CROATIA -GOVERNMENT AND POLITICAL CONDITIONS
Type: Parliamentary democracy.
Constitution: Adopted December 22, 1990.
Independence (from Yugoslavia): June 25, 1991.
Branches: Executive–president (chief of state), prime minister (head of government), cabinet of ministers. Legislative–unicameral Parliament or Sabor. Judicial–three-tiered system.
Political parties (represented in Parliament): Croatian Democratic Union (HDZ), Social Democratic Party of Croatia (SDP), Croatian People’s Party-Liberal Democrats (HNS), Croatian Peasant Party (HSS), Croatian Party of Rights (HSP), Istrian Democratic Assembly (IDS), Croatian Social Liberal Party (HSLS), Independent Democratic Serb Party (SDSS), Croatian Party of Pensioners (HSU), Croatian Democratic Alliance of Slavonia and Baranja (HDSSB), Party of Democratic Action of Croatia (SDAH), Croatian Labor (HL), and Croatian Social Democrats (HSD).
The Croatian Parliament, also known as the Sabor, became a unicameral body after its upper house (Chamber of Counties) was eliminated by constitutional amendment in March 2001. The remaining body, the Chamber of Representatives, consists of 153 members who serve 4-year terms elected by direct vote. The Sabor includes 140 members from 10 geographic districts within Croatia (each district holds 14 seats), as well as eight seats guaranteed to representatives of national minorities (three for the Serb minority, and five for other smaller groups), and seats for Croatians abroad without fixed residence in Croatia, the large majority of whom reside in Bosnia-Herzegovina. As of the November 2007 parliamentary elections, the diaspora representatives held five Sabor seats. Following changes to the constitution in 2010, diaspora representatives would be guaranteed three seats in the Sabor. The Sabor meets twice a year–from January 15 to July 15 and from September 15 to December 15.
The powers of the legislature include enactment and amendment of the constitution, passage of laws, adoption of the state budget, declarations of war and peace, alteration of the boundaries of the republic, and carrying out elections and appointments to office.
Following the death of President Tudjman, the powers of the presidency were curtailed and greater responsibility was vested in Parliament. The president is the head of state and is elected by direct popular vote for a term of 5 years. The president is limited to serving no more than two terms. In addition to being the commander in chief, the president nominates the prime minister-designate based on election results.
The prime minister, who is nominated by the president, assumes office following a parliamentary vote of confidence in the new government. The prime minister and government are responsible for proposing legislation and a budget, executing the laws, and guiding the foreign and internal policies of the republic. The HDZ-led government that assumed office in January 2008 represented a coalition agreement between the HDZ (66 seats), the Croatian Peasant Party (HSS) (6 seats), the Independent Democratic Serbian Party (SDSS) (3 seats), and other minority representatives. The Croatian Social Liberal Party (HSLS), which had two seats in the Sabor, decided to leave the coalition in June 2010 but the two HSLS deputies split with their party and reached an agreement to cooperate with the ruling coalition. The lone representative of the Croatian Party of Pensioners (HSU) previously left the coalition government in July 2009. The current government has, in addition to Prime Minister Kosor, 18 ministers, which includes six deputy prime ministers. Minor coalition partners hold three cabinet seats: tourism and two deputy prime minister seats, including one responsible for regional development and returns held by a representative of the Croatian Serb SDSS party. This is the highest-ranking government position held by a Croatian Serb since Croatia’s independence in 1991.
Croatia has a three-tiered judicial system, consisting of the Supreme Court, county courts, and municipal courts. Croatia’s Supreme Court is the highest court in the republic. The Supreme Court assures the uniform application of laws. Members of the high court are appointed by the National Judicial Council, a body of 11 members, and justices on the Supreme Court are appointed for life. The court’s hearings are generally open to the public.
The Constitutional Court is a body of 13 judges appointed by Parliament for an 8-year term. The Constitutional Court works to assure the conformity of all laws to the constitution.
The Republic of Croatia has a unified tax rate of 5% for all types of real estate and respective transactions. The tax is defined based on the price of the real estate in the sales contract and the value estimate by the authorized tax authority in charge for the area in which the real estate is located. According to the Law, tax on purchase of real estate is paid by the customer or the seller on behalf of the customer, if the parties agree upon this.
Croatia has made great strides on the road to Euro-Atlantic integration. NATO and EU membership have been strategic goals, as Croatia seeks to forge stronger ties with the west. Croatia received an invitation to join NATO at the NATO Summit in Bucharest, Romania in April 2008; it became a full member of the Alliance in April 2009. Croatia is now in the final stage of its EU accession negotiations, which it hopes to conclude by June 2011,
One of the EU accession requirements is for Croatia to demonstrate full cooperation with the International Criminal Tribunal for the former Yugoslavia (ICTY). One of the central cases associated with this requirement involves former General Ante Gotovina, currently standing trial for war crimes in The Hague. A fugitive from justice since 2002, Gotovina was arrested in December 2005 by Spanish authorities in the Canary Islands, partially as a result of intelligence information provided by the Croatian Government. More recently, Croatia’s ICTY cooperation has been assessed, in part, based on its ability to track down missing documents requested by the ICTY for use in the prosecution of Gotovina. The ICTY is scheduled to announce a verdict in the case, which includes two other Croatian generals, on April 15, 2011.
In May 2003, the United States joined Croatia, Albania, and Macedonia to sign the Adriatic Charter, in which the three NATO aspirants pledged their commitment to NATO values and their cooperative efforts to further their collective NATO aspirations. In 2008, the Adriatic Charter expanded to include two new countries, Bosnia and Herzegovina and Montenegro.
Croatia has been a member of the United Nations since 1992, and contributes troops to a number of UN operations, including those in the Golan Heights, Cyprus, Sudan, Liberia, Lebanon, Western Sahara, and Kashmir. In December 2009, Croatia ended a 2-year term as a non-permanent member of the UN Security Council. Croatia also contributes troops to support NATO-led Kosovo Force (KFOR) and since 2003 has participated in the International Stabilization Assistance Force (ISAF) in Afghanistan. The Croatian Parliament in December 2010 approved raising the ceiling on the number of soldiers in Afghanistan to 350. Croatia is a member of the World Trade Organization and the Central European Free Trade Organization.
Croatia is also active in the region, particularly in supporting its neighbors’ Euro-Atlantic aspirations. Croatia has made progress on dealing with a number of post-conflict issues. Some of these, such as the status of refugees displaced during the 1991-95 war and determining the fate of missing persons from the war, remain key issues influencing Croatia’s relations with its neighbors.