Croatian voters offered greater or lesser state role

OPATIJA, Croatia (Reuters) – The two main parties in Croatia’s November 25 general election share similar economic policy goals, but neither seems to offer a clear, detailed path to economic prosperity. Analysts attending a three-day annual economic conference last week said the ruling conservative HDZ prefers the free market while the Social Democrats (SDP) want more state involvement in the economy as a way to boost productivity and reduce external risks. «Croatia has severe structural imbalances and it is difficult to address them by mere market forces. The SDP’s approach implies an active role of the state but offers too few practical details,» said Deloitte analyst Zarko Primorac. Croatia wants to join the EU during the next government’s mandate, but it first needs to push through painful structural reforms including cutting state subsidies, a high foreign debt and the trade deficit which make the economy vulnerable to external shocks. The SDP wants to use fiscal policies to help ailing industrial sectors and boost economic activity, while the HDZ favors a balanced budget, no tax reform and a reduced state presence. «The only way to reverse negative trends is to boost production. The state should not refrain from using its tools to help it happen,» the SDP’s top economic expert and prime-ministerial candidate Ljubo Jurcic told the conference. Croatia has enjoyed solid growth in recent years, expected this year at some 6 percent, but driven mainly by state investments and lending-based household consumption. Jurcic said it was not sustainable. «I believe that after two years of different economic policies we can have growth of more than 7 percent, but based on industrial production and exports,» he said. He said an SDP government would not finance spending, but pave the way for higher employment and productivity through lower taxation for businesses and incentives to those who invest in modern technologies. HDZ’s economic strategist Martina Dalic said the HDZ wants to cut state spending, lower foreign debt, accelerate reforms, EU membership talks and privatization and boost the investment climate. The two parties are virtually neck-and-neck in recent opinion polls at some 30 percent and neither is likely to be able to form a government without forming a coalition with smaller parties.