Competitiveness seen as key to Croatia’s economic recovery

ZAGREB (Reuters) – Croatia must speed up privatization and reform its judiciary and administration to attract foreign investments and converge toward European Union standards, a regional World Bank official said yesterday. While praising Croatia’s macroeconomic stability, the bank’s country manager, Indira Konjhodzic, said raising competitiveness was a key challenge in creating a functioning market economy – one of the criteria for EU membership. «Slow privatization discourages new investments, while non-competitive companies limit space for growth of successful business,» she told Reuters in an interview. Except for the $505 million sale of a stake in state oil concern Ina, Croatian privatization has considerably slowed down in 2003, due to squabbles in the ruling coalition over its pace and manner. Some politicians are against what they see as hasty sale of the family silver to foreigners, suggesting instead more IPOs on the local market. In 2002, Croatia had around $1 billion of direct foreign investments. This year’s projection of $1.5 billion puts the country in the middle rank among European countries in transition. Konjhodzic said more efficient public administration and judiciary were just as vital. «To promote conditions for job creation… Croatia needs to attract long-term capital, which it can do by ensuring the rule of law, transparent and efficient institutions and regulations,» she said. Export boost needed Two main macroeconomic concerns, foreign debt and current account deficit, in part resulted from Croatia’s low competitiveness, but were likely to decrease slightly this year. The World Bank forecast end-of-the-year foreign debt at 68 percent of the GDP and a current account gap of 5.9 percent of GDP, both slightly lower than the current figures. Similar forecasts were recently made by the International Monetary Fund. «The figures are not alarming but need careful attention. The government will have to maintain fiscal discipline, promote export of goods as part of competitiveness and find another growth engine in addition to tourism,» Konjhodzic said. Despite local fears that a debt crisis was looming, which were played up in the runup to the November 23 general elections, Konjhodzic said Croatian debt was well structured as short-term loans total just 6 percent of its GDP. Konjhodzic praised the government’s efforts in improving infrastructure and legal adjustment to EU standards, which should improve the business climate, but said they also had to develop faster. She said the government should borrow more on the domestic financial market and make more use of the money managed by local pension funds. The World Bank has so far funded 22 development projects in Croatia totaling more than $1.2 billion, with actual disbursements of $700 million, since Croatia joined in 1993.