Economy

Economy History

Before the dissolution of Yugoslavia, the Republic of Croatia, after Slovenia, was the most prosperous and industrialized area, with a per capita output perhaps one-third above the Yugoslav average. Croatia faces considerable economic problems stemming from: the legacy of longtime communist mismanagement of the economy; damage during the internecine fighting to bridges, factories, power lines, buildings, and houses; the large refugee and displaced population, both Croatian and Bosnian; and the disruption of economic ties. Western aid and investment, especially in the tourist and oil industries, would help restore the economy. The government has been successful in some reform efforts - partially macroeconomics stabilization policies - and it has normalized relations with its creditors. Yet it still is struggling with privatization of large state enterprises and with bank reform. The recession that began at the end of 1998 continued through most of 1999, and GDP growth for the year was flat. Inflation remained in check and the kuna was stable. The death of President TUDJMAN in December 1999, and the defeat of his ruling Coatian Democratic Union or HDZ party in parliamentary and presidential elections in January 2000 has ushered in a new government committed to economic reform but faced with the challenge of halting the economic decline.

Resources

The country's most important natural resources are: a sea coast suitable for tourism, maritime activities, ports, and shipbuilding; agricultural and forest areas, which provide the basis for food production and wood processing; oil and gas fields; and reserves of nonmetal raw materials. Croatia's main exports include textiles products, mineral fuels and lubricants, footwear, electrical machines and equipment, wood and timber products, plastics, and shipbuilding. The country's main agricultural crops are corn, wheat, potatoes, sugar beet, grape and barley. Croatia's main imports are boilers and machines parts, miner fuels and lubricants, cotton, footwear, electrical machines and equipment, iron and steel, and paper and plastic products.

National Currency Information

In May 1994, Croatia replaced its interim currency, the Croatian Dinar, with its permanent currency, the Croatian Kuna.
Under the new foreign exchange legislation, which came into force at the end of 1993, the exchange rate is, in principle, freely determined in an interbank market. The currency is convertible for current transactions, however, capital transactions are still subject to restrictions. The exchange rate was approximately 12 Kuna per 1 U.S. dollar, and has remained relatively stable throughout the years.

Nowadays exchange rate is approximately 7 Kuna per 1 U.S. $. And remains stable .

Structural Policies

Croatia's stabilization program is aimed at curbing inflation, maintaining the value the Kuna, restoring and maintaining price stability, maintaining positive real interest rates, and providing greater discipline on credit allocation and project selection. Tight monetary, fiscal, and income policies successfully reduced monthly inflation from a rate of close to 40 percent in October 1993, to a current monthly rate of close to zero percent, one of the lowest in the region. The unemployment
rate is about 20 percent.

Croatia's privatization process is proceeding more slowly than originally anticipated. This is largely due to the uncertain political situation, the unsatisfactory financial shape of many large enterprises, insufficient private financial wealth in Croatia. Sales of state property, especially large enterprises, have encountered a number of problems such as overvaluation of shares, weak property rights, and an inefficient secondary market. The valuation of enterprise assets and liabilities is an arduous task, overstaffing is widespread, and some of the capital stock is outdated.

The state-banking system is highly centralized, and close ties between banks and enterprises have meant easy credit for money-losing enterprises. Financial markets are shallow; the money market and stock exchange are small, and no secondary market exists for securities.

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