World Bank Releases New Report on Croatia:


The World Bank Croatia Office Contact: Marijan Gubic: 3851/38591 235 7226 Email: mgubic@worldbank.org Andreas Galanakis: +322 552 0047 E-mail: agalanakis@worldbank.org www.worldbank.hr	Government of the Republic of Croatia Contact: Ms. Sanja Kos: 3851 456 9239 Email: glasnogovornica@vlada.hr www.vlada.hr

World Bank Releases New Report on Croatia:
Growth through European Integration

Brussels, September 15, 2003—The World Bank officially released today a major new analytical study entitled “A Strategy for Growth through European Integration.” The study analyzes Croatia’s economic achievements thus far and the challenges ahead, and provides reform and economic policy options to promote sustainable growth consistent with the implementation of the Stabilization and Association Agreement (SAA). Both sustainable growth and compliance with the SAA will be essential for Croatia’s European integration. The Croatia Country Economic Memorandum (CEM) examines the structural reforms that need to be undertaken in order to complete the transition to a market economy and tap into Croatia’s growth potential. These reforms cover fiscal policy and public administration, improved property and creditor rights, functioning legal system, agriculture and environment adjustment and education reform.

The Croatia CEM analyzes the opportunity for economic growth through SAA implementation and European integration. The study notes that much of the growth impact will come not only from increased access to EU and integration with markets, but from the improved investment climate that would result from aligning Croatian policies and institutions with EU best practices. This would facilitate the development of low-cost, high-quality integrated infrastructure, harmonization of financial regulatory frameworks, modern social institutions, and more generally private sector development driven by the strengthening of competition from broad-based trade liberalization.

Croatia’s economy has undergone profound transformation since independence. Market laws and institutions have been introduced and the enormous real output decline of the first war-torn years of independence have been virtually recuperated. These achievements have been made despite a highly unstable geopolitical environment. The current government elected in 2000 has accelerated this transformation by opening Croatia to global markets through WTO and CEFTA memberships, cooperation with neighbors in Southeastern Europe, the signing of the Stabilization and Association Agreement (SAA) with the EU, and accelerating the implementation of key economic reforms.

“We hope this study, which examines Croatia’s achievements in introducing market mechanisms and institutions and the challenges ahead, will be useful to all of us devoted to the cause of Croatia. The need is now for Croatia to consolidate the impressive economic and social reform agenda it has embarked on, aimed to promote growth and advance towards the goal of EU integration. The critical challenges the country faces is to deepen the reforms and accelerate the pace of implementation to enhance Croatia’s competitiveness and raise living standards for all,” said Mr. Anand K. Seth, World Bank’s new Country Director for South Central Europe (Bulgaria, Croatia, and Romania). “I am delighted that today’s presentation included such a wide-ranging representation from Government and the European Commission. This can only help deepen the ongoing dialogue amongst leading policy makers. Croatia has made important progress in its process of integrating with the EU, and we hope the policy options canvassed in the study can facilitate in bringing the country closer to this goal,” said Mr. Seth.

“The Government of Croatia has faced considerable challenges since 2000, but from the very onset the government was determined to meet these challenges by planning and creating an entirely new approach to building a better Croatia. Fundamental to these plans is the approach to European Union membership, and the signing of the Stabilization and Association agreement early on demonstrates the will of both the people of Croatia and the government to attain this important goal – 75 percent of the Croatian people are in favor of European Union membership,” said Mr. Slavko Liniæ, Deputy Prime Minister of Croatia, and the Croatian official directly responsible for economic development.

With the government’s development plans in economic, political and social sectors in place in early 2000, and immediate actions taken to quickly implement them, the international community in the form of both the World Bank and the International Monetary Fund, offered their support and assistance in these initiatives. Further support and assistance came from the European Union agencies as well, as first demonstrated by the signing of the Stabilization and Association Agreement with the European Union in 2001. These resources have combined with the government to bring us to this point. The rest of the journey will likewise require dedication and purpose, but it appears headed in the same direction.

“The main objectives of our economic program for 2003 and beyond remain unchanged. There is mounting evidence that our strategy of seeking higher employment and standards of living through fiscal consolidation, price stability, and structural reforms is bearing fruit: per capita income is expected to exceed US$ 6,000 in 2003 compared with US$ 4,371 in 1999, while employment is likely to show growth of some 5 percent over the same period,” said Mr. Liniæ.

The Croatia CEM underscores the importance of the Stabilization and Association process for European integration. It is the process of bringing laws, institutions and policies in line with the EU’s acquis communautaire that exerts the greatest integration impact. Reforms are identified for the completion of Croatia’s transition to a modern market economy and necessary to unlock Croatia’s growth potential. The challenge is to create conditions that will attract investment and produce growth. The Croatia CEM identifies a number of conditions as fundamental to increasing investment and growth, including: (a) stable, progressive and predictable laws and institutions; (b) efficient labor and financial markets; (c) macroeconomic and financial stability; (d) social and environmental sustainability; (e) effective integration into the European infrastructure networks ensuring competitive cost and quality; (f) a dynamic business-oriented environment which facilitates the production of high value added goods and promotes the adoption of efficient processes and innovative technologies.

The study notes that, while Croatia is already making significant progress in many areas, it is important to prioritize and sequence the reform agenda that lies ahead. The study emphasizes the importance of some lengthy but strategically important reforms, such as fiscal and public administration reform, improved property and creditor rights, rule of law, hard budget constraints, labor market rigidities. While the full implementation of such reforms will take time, the report recommends that the process begins right away. In addition, while the study recommends the rapid adoption and implementation of various policies and institutions embodied in the EU acquis, there are two areas, agriculture, and the environment, where a more careful phase-in is proposed.

Senior representatives from the Croatian Government, the European Commission, the European Policy Center, and the World Bank contributed to the launch of the Croatia CEM held in Brussels today. The Croatia Country Economic Memorandum (CEM) has been prepared under guidance of World Bank specialists over the last year, in cooperation with Government officials and the European Commission, with input from many partners and experts from Croatia and abroad.

The World Bank has prepared similar reports focusing on economic growth and EU-accession for other transition economies in Central and Eastern Europe, including Hungary, Poland, Czech Republic, Slovenia and Bulgaria, and a study is currently under preparation for Romania.

Country economic memoranda are intended to promote debate and research, and assist in policy dialogue and formulation. In addition, to the central theme of the economic growth through European integration, the CEM also analyzes the institutional and regulatory issues as well as the macroeconomic and sectoral challenges that Croatia will likely face during the stabilization and association process. As a result, it provides an evaluation of the nature and scope of the changes that would be conducive to eventual EU membership. The main objective of the CEM analysis is to identify key issues to be addressed, and a sequencing of reforms and investments taking into account macroeconomic and social considerations.

The full text of the Croatia CEM is available in Croatian and English by logging on to the World Bank Croatia Country Office web site: www.worldbank.hr