Country Overview – Croatia

Report by : Bozhena Ryshchak and Hannah Lidicker
July, 2013

Economic Performance

Croatia experienced steadily high GDP growth rates prior to the economic crisis, rising from 4.28% in 2005 to 5.06% in 2007.  Unemployment saw a stable rate of decline, with a record low of 8.4% in 2008.[1] These promising economic successes were largely due to Croatia’s booming tourism industry and heavily credit-driven consumer spending, although its external debt had begun reaching problematic levels even before the global crisis hit. Overall, Croatia seemed to be on a successful track to its future accession to the European Union.

However, the economic crisis brought about a declining growth rate of 2.08% in 2008 and a subsequent drastic decline in 2009 (to -6.95%).[2] Croatia’s impending accession to the European Union in July 2013 caused the EU to take a direct interest in Croatia’s economic recovery. This resulted in active support from the International Bank for Reconstruction and Development (IBRD), partnered with the European Commission, the European Bank for Reconstruction and Development (EBRD), United Nations (UN) agencies, and bilateral donors. The above bodies not only injected Croatia’s receding economy with substantial loans, but also invested in its trading routes, promoted research and development, provided a steady flow of credit to private businesses, and assisted Croatian authorities with budget support.

The economy seemed to be on a path to recovery in 2010, as growth rates reached -2.27%, but experienced another recession in 2011, and growth rates continued to be negative in 2012 at -1.98% of GDP, as the government imposed more stringent tax collection and raised the value-added tax, only to be counteracted with another hint of recovery in 2013 (-0.2%). Along with these unstable growth rates, Croatia’s unemployment rate in 2013 is predicted to be 15.2%, the highest since 1992. However, The IMF predicts positive growth for the future, boosted by Croatia’s new status as a member of the EU, which will allow it to attain more financial aid to soften the recession, with predicted 2014 GDP real growth starting with 1.5% and increasing over the subsequent years. [3]

Democratic Performance

Croatia’s Freedom House Democracy rating, in the category of overall democracy, peaked at 3.64 directly before the onset of the economic crisis, paralleled by record low unemployment and economic prosperity. Although the scores worsened slightly due to the economic crisis to 3.71 in both 2009 and 2010, they soon bounced back to pre-crisis levels in 2011 and have been improving slowly since then (3.61 in 2013), illustrating that Croatia’s level of democracy was not heavily affected by the economic crisis and shedding a hopeful light on the country’s possible future transition from semi-consolidated to consolidated democracy.[4] Croatia’s democratic resilience is powered by its civil society’s growing support for and membership in NGOs, which have already made significant impact in areas relating to human rights, gender issues, labor rights, the environment, the Church, war veterans, and ethnically divided cultural groups.

The center-left Social Democratic Party (SDP), led by Prime Minister Zoran Milanovic, is the most popular political party in Croatia. It is also the former party of current independent and unaffiliated President Ivo Josipovic (elected in 2010 with 60% of the popular vote). The Kukuriku coalition, championed by the SDP, saw a parliamentary victory in 2011 and holds 81 out of 151 seats.[5] Scandals involving government members and tax-delinquent companies and individuals have angered the public and caused rifts within the SDP itself.The party was also publically criticized for its attempts to bolster Croatia’s relationship with Serbia and for its slow response to issues regarding discrimination against the Roma population in Croatia.[6] Second in popularity is the center-right Croatian Democratic Union (HDZ), with 47 seats in parliament.[7] The more conservative platform of the HDZ has repeatedly undermined SDP’s parliamentary support for key liberal reforms.

Upon its accession to the EU, Croatia is still plagued by a lack of quality in the media, insufficient decentralization, a weak judicial system, and widespread corruption. Croatia’s national broadcasting network is infamous for its self-censorship and controversial methods of funding; print media is of low quality and dominated by sensationalism and partisanship. Croatia’s small population is inefficiently divided into many municipalities and counties, which serves to consolidate the President’s power; poor performance of mayors has been a chronic weakness, although decentralization plans were prepared in 2012 to counteract this in the future. The court system remains the weakest of Croatia’s institutions; it fails to demonstrate independence and initiative in handling sensitive cases, is very prone to bias, corruption, and political patronage, and does not address the aftermath of the controversial privatizations of the 1990s.[8] Croatia’s corruption levels are one of the EU’s main points of concern; existing prosecution methods have proven to be sluggish and flawed, the State Prosecutor’s Office is plagued by an insufficient number of educated personnel, and the Chief Prosecutor Bajic himself has been accused of turning a blind eye to certain cases. However, a notable recent anti-corruption success has been the sentencing of former Prime Minister, Ivo Sanader, for accepting bribery regarding oil rights.

Croatia’s recent accession to the European Union has raised numerous concerns among those who have observed the overall democratic weakness and failure exhibited by the EU’s earlier additions, Romania and Bulgaria, in 2007. Will Croatia follow the same path of democratic regression, corruption, and crime as its predecessors? Although many express pessimism on the matter, significant evidence exists to illustrate that the EU has learned from its earlier mistakes with Romania and Bulgaria and has taken steps to avoid these with Croatia. Contrary to Romania and Bulgaria’s post-accession reform process, the EU required Croatia to carry out its reform commitments before accession. In its report assessing Croatia’s progress in March of 2013, the European Commission provided Croatia with a final list of reforms that were expected of it prior to accession, which Croatia largely succeeded in implementing. These included the privatization of shipyards, improvement of the court system, establishment of a Conflict of Interest Commission, increase of freedom of information, translation of EU law, adoption of new laws, and the strengthening of border police.[9] In addition to the EU’s altered approach with regard to Croatia, it is also worthy to note that in contrast to the drastically suffering economies of Romania and Bulgaria, Croatia’s economy is among the most prosperous in the region, and its income levels are almost double those of Bulgaria.[10]

Conclusion

Many consider Croatia’s accession to the European Union to be a critical test for the future of the other former Yugoslav states and countries in the region. Observers have shown concern regarding Croatia’s ability to maintain the EU’s economic and democratic standards; the nation’s economy, despite its booming tourism industry, is still struggling to recover from the shock of the economic crisis, and its 2013 Freedom House Democracy ratings are the lowest of all EU member states. Despite these worrisome indicators, the most recent EU Progress Report on Croatia was fairly positive, although some areas of concern include market competition, justice, and fundamental rights.

Assuming that the Croatian people and government take advantage of the opportunities now available to them through membership in the EU, and thus improve economically and democratically, the door to accession could well open somewhat sooner to Croatia’s neighbors in the former Yugoslavia. Should the experiment fail, however, and Croatia’s early accession prove to have been a mistake, it could quite possibly become one of the EU’s last member states for some time to come.[11]