Another Year Gone With the Wind

AIM Zagreb, December 27, 2000

The latest haggling about the situation in Croatian economy was initiated by president Stjepan Mesic who assessed in the Christmas interview that the government had achieved good results in politics, but not in the economy. His main argument was the further growth of unemployment. The very next day, prime minister Ivica Racan replied claiming that the government had taken measures which cannot yield immediate results, so the employment rate would begin rising in the middle of next year. This conflict of the two highest state officials has, however, remained in the shadow of everyday public controversies of politicians of the ruling coalition on cooperation with the Hague Tribunal. Cynics say that the new coalition government, same as the Croat Democratic Community (HDZ) before it, welcomes the intensification of the feeling that the nation is imperilled because it conceals economic, more precisely existential threat to a large part of the population.

In November, the month when the polemic was at its height about the Hague Tribunal which unjustifiably demands extradition of Croatian generals and in this way indicts the whole homeland war, the list in the employment bureau increased by 236 names every day. This is the difference between those who got jobs and those who lost them; the growing army of misfortunate people. During that month, the unemployment rate amounted to the record 22 per cent (the share of the unemployment in the working-age population). This is certainly already an outdated and exceeded record. While politicians were wishing the nation merry Christmas and New Year via television, instead of greeting cards many have received notice that they were discharged.

In the end of February, the month in which the government of prime minister Ivica Racan entered the office, new minister of the economy Goranko Fizulic declared that another 20 thousand people would lose their jobs before the economy started to recover. This was assesssed by Croatian public as unpermissible defeatism of a minister, even specific insolence. Have we not elected them to stop economic dilapidation and change the practice of the HDZ to cut jobs and sack people? The government replied that it needed time for its actions to yield results and that employment rate would start to rise in autumn.

What happened instead is that by November, the last month the data exist for, the number of persons registered by Croatian employment offices has increased by almost 29 thousand and not just 20 thousand as minister Fizulic had announced. The government responded by a new announcement that the crucial moment when employment would begin to rise again would be next summer which means that the country would finally begin to come out of the crisis. "In the year 2001, our key priority will be employment; in order to achieve that we are preparing a comprehensive project", declared the main economic ideologist of the government, minister of finance Dr. Mato Crkvenac. The previous, HDZ government, also had a programme for the increase of employment which was even adopted by the assembly. Nevertheless, unemployment constantly grew. Speaking on the eve of the holidays, Dr. Crkvenac, a decent and reserved man, bluntly accused "some politicians, even those from the ruling coalition, some scientists who are for 20 years repeating the same thing, and the media" of having all together "launched shallow and unprofessional information that the government had no economic platform, that the salaries were low and that apathy prevailed".

Good politicians consider their critics as persons advising them free of charge. The fact that the critics from the parties of the ruling coalition have become for the Croatian government "rascals from our own ranks", and independent economists and journalists enemies with whom accounts should be settled by insults and discrediting, leads to but one conclusion. That it is panic-stricken because time is passing and its policy is yielding no results. "The government has significantly changed its economic policy, and the shift in economic trends is obvious", claims Crkvenac. Something else is quite obvious, though: that these economic trends are unfavourable with unemployment being the most painful and the most visible indicator.

Production is stagnating, and the growth of only two to three per cent which the government is bragging about is the same as when fever of a seriously ill patient drops from 40 to "only" 39.8 degrees. At this rate Croatia would need a quarter of a century to reach the production level it had in 1989. With the money made by export it can pay just 56 per cent of its import, so the foreign trade deficit reached the amount of 2.8 billion dollars in ten months. Inflation is accelerating primarily because of the big price increase of electric power and oil derivatives, so that at the end of November retail prices were by about 8 per cent higher than a year ago, and the prices paid by manufacturers by over 11 per cent. In relation to the average prices last year, this rise is even greater: 9.3 and 15.1 per cent. That is why the average salary is nowadays worth 3 per cent less than in August or last summer.

The worst of all is, however, that there are no investments. The fact that speaks of the depth of the crisis is that their share in the Croatian social product is barely 10 per cent. This is on the level of depreciation, or mere maintenance of the existing machinery and other installations. Such and even worse situation (there were periods when investments were even lower) has lasted for ten years already, so the question is where all these people the government and prime minister Ivica Racan are promising jobs will actually find employment? In what investment projects, and in what factories and plants?

The most frequent answer to that is the announcement of foreign investments which the government will attract to Croatia with its policy. “Every obstacle should be removed for foreign investors”, says Ivica Racan. But while there is the wish to attract foreign capital, the domestic capital is flowing out of the country. In the course of this year Croatian banks have taken almost 1.5 billion dollars abroad where they are keeping them at average interest of only one per cent. This is more than 13 billion kunas or the same amount of money that is in circulation. And Croatian banks do not lend the rest of the capital to investors, but it is invested into state securities which are used to cover the budgetary debts. The bankers are still keen on purchasing securities with which the state covers losses of health insurance although their market price is much higher than the nominal one. But this money will surely be paid back with an interest which is much higher than the one paid by foreign banks.

Why don't Croatian banks finance local investors? The bankers have a short answer to that question: because there are none! And there are none, as claimed by independent economists and other critics of Ivica Racan's government, because it has just continued with the same economic policy the HDZ had pursued for years. The new government is working honestly. It does not squander money, for the first time it even managed to reduce budgetary expenditures; not much, but it is a success knowing that it had to deal with big conflicts with strong consumers' lobbies established at the time of HDZ. It has also managed to reduce the state debt and started the hunt against widespread corruption. Briefly, it has changed the climate in which people live and work. But all that is too little to even begin to overcome the crisis.

It has partly been created through criminal privatisation and other forms of corruption, but at the same time a wrong economic policy was pursued. Independent economists almost with no exception agree that the former regime committed the Eastern sin by determining the unrealistically high exchange rate for the kuna. That is why local manufacturers are too expensive on foreign markets and on the local they have a too cheap competition. The result is that it is not profitable for them to work, so they are sacking workers and not making any investments. The foreigners are coming to Croatia but just to sell imported goods. But cheap import is hindering the rise of prices, so the government does not dare change the foreign currency exchange rate. It does not want to risk being accused of re-starting inflation. That is why the government cannot make up its mind what to do, so it states that the problem of the foreign currency exchange rate will be resolved gradually. That is how both the manufacturers and the unemployed are in the same unenviable position: told to wait for an indefinite period of time.

Milan Gavrovic

(AIM)