Croatia’s poor privatization record

ZAGREB – Lack of transparency in Croatia’s privatization process is a bigger problem for foreign investors than the slow pace of selloffs in the past few years, analysts said yesterday. The government sacked the head of the state privatization fund (HFP), Damir Ostovic, last week over procedural irregularities in the sale of a hotel company after protests by the local community that the sale was not legal. Last weekend, hauliers in southern Croatia staged a road protest urging state-owned aluminium plant TLM to reconsider the sale of its transport unit to a Slovenian investor, also citing irregularities. «Quite often in the past a decision on the sale of some state asset was taken and later withdrawn. Such an attitude creates lack of confidence among foreign investors,» said Hrvoje Dolenec, an analyst of Raiffeisenbank. Few assets sold The only big state asset sold in the last few years was a 25 percent stake in oil concern INA for $505 million to Hungary’s MOL. Some smaller hotels, agrifirms and industrial plants were also sold, but those were on a minor scale. «The privatization process often doesn’t depend solely on logic based on economics, but becomes politically, socially and even sometimes legally sensitive at both national and local levels,» Dolenec said. «Hence the sale of an asset isn’t certain even when there is an agreement within the government.» The conservative government that took office in late 2003 promised to speed up the pace of privatization, making it part of an ongoing standby deal with the International Monetary Fund (IMF). The aim was to ease pressure on the budget from the many loss-making state firms, but also to fill state coffers. This year the government penciled in 4.5 billion kuna ($746.1 million) from privatization receipts, which should help it reach a budget deficit of 4.2 percent of gross domestic product. But it is becoming ever more likely that short-term debt will be needed to bridge the gap. «It is unlikely that the planned sale of another 15 percent stake of INA will be completed by the end of the year, so borrowing may well be needed,» said Hrvoje Stojic, an analyst at Hypo Alpe-Adria-Bank. Goran Saravanja of CAIB investment bank said the Croatian public often opposed selloffs because of past experience. «Besides a socialist legacy of public property guaranteeing jobs, there’s a bad memory of privatization in the 1990s being plagued by corruption and mishandling of sold assets,» he said. Analysts said the government’s need for funds to cover its budget plans may speed up the pace of privatization in the coming months. The state also needs some 14 billion kuna in the next few years to pay off debt owed to pensioners since the mid-1990s. «The government wants to bring public and foreign debt under control. That being so, at the moment the only way to raise funds for such huge expenditure seems to be privatisation,» Saravanja said. «What also matters is for the government to explain the advantages of selling state-owned firms by pointing out several examples of successful privatizations. Otherwise, there is an impression that the main reason for sale is the government’s need for money.»

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