The Republic of Croatia, situated along the eastern coastline of the Adriatic Sea, is an independent nation formerly a constituent republic of Yugoslavia. In May of 1990, it held its first multi-party elections, phasing out the communist regime after 45 years, and constituting the new Parliament the Sabor. Official independence from Yugoslavia was declared on June 25, 1991. Following was an inter-ethnic civil war in 1991, that left Croatia with about one-third of its territory controlled by local Serbs.
Although the Republic of Croatia was recognized by European Union (EU) member states in January 1992, as well admitted to the UN in April of that year, the conflict continued through 1995 in order to bring the Serbian controlled territories (parts of western and eastern Slavonia) back under Croatian control. On August 24, 1996, the Former Republic of Yugoslavia (FRY) (consisting of Serbia-Montenegro), and Croatia signed an agreement on mutual recognition, formally ending the five years of hostility.
UN peacekeeping forces today remain in Croatia, and national boundaries and final political arrangements still remain to be settled. Future Prospects 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 was especially strong in tourism, with its Dalmatian coast representing the most important Yugoslav attraction for foreign visitors.
Currently, should Croatia remain at peace, its future political and economic prospects are relatively good. However, a number of problems and potential dangers remain. Externally, by far the most serious of these pertain to nearby Bosnia, where the worst possible scenario would be the collapse of the Croat-Muslim Federation, another war with the Bosnian Muslims and a return to international isolation for Croatia, a scenario that cannot as yet be ruled out definitively. The danger of another war with Serbia also persists.
Internationally, Croatia’s future policies will largely determine whether its ongoing recovery will be completed. The greatest potential danger domestically is that the Croatian President, Franco Tudjman, and the ruling party the HDZ, may persist with authoritarian solutions to Croatia’s problems, thereby virtually guaranteeing worsening social and political conflict and instability. Croatia’s already questionable democratic credentials and poor human rights record have come between it and the international community, most notably in the EU.
Croatia’s increasing political isolation is also harming its prospect for integration into international structure–its key foreign policy goal, and has caused deterioration in relations with multilateral agencies such as IMF and the World Bank. The United States has recently moved to block Croatia’s access to multilateral loans, which led the World Bank to delay consideration of a US$30 million loans to support Croatia’s banking sector and promote private investment.
The IMF announced in July that it was delaying the next tranche of Croatia’s three-year Extended Fund Facility (EFF), which had been approved in March 1997. Economic Overview Croatia currently faces social and economic challenges stemming from the legacy of longtime Communist mismanagement of the economy; large foreign debt; damage during the fighting to bridges, factories, power lines, buildings, and houses; the large refugee population, both Croatian and Bosnian; and the disruption of economic ties to Serbia and the other former Yugoslav republics, as well as within its own territory.
In 1995, however, the Croatian economy appeared to have turned the corner after several years of negative growth following the war. Gross Domestic Product (GDP) for 1995 was $20. 1 billion (est. ), is still about 30% below 1990 pre-war levels. In 1995 GDP per capita was $4,976 compared to $11,000 in Slovenia, $300 in neighboring Bosnia, and $6,070 in 1994 in Slovakia. Croatia has enjoyed 3 years of low, single digit inflation since the introduction of the stabilization program of October 1993. Retail price inflation in 1995 was 2%, and 3. 5% in 1996.
This price stability was achieved by means of tight monetary, fiscal and incomes policies. However, there is a disturbing trend of growing indebtedness between Croatian enterprises. By October 1995, 10,000 Croatian enterprises were insolvent (there are now 60K businesses in Croatia), with total overdue debt of $1. 5 billion (about 10% of GDP). If these enterprises are forced to close under the forthcoming Bankruptcy Law, 150,000 employees would join the current 240,000 unemployed and would greatly increase the already high unemployment rate of 18. 1 in 1996.
