Croatia
Background Notes and Statistical Appendix
Author:
International Monetary Fund
Search for other papers by International Monetary Fund in
Current site
Google Scholar
PubMedClose
Publication Date:
15 Mar 1994
eISBN:
9781451817218
ISBN:
9781451817218
Language:
English
Keywords:
ISCR; CR; enterprise; wage; foreign currency; incomes policy; business activity; deutsche mark; book value; wage payment; enterprise asset
Download PDF (3.2 MB)

This Background Notes paper and Statistical Appendix presents a summary of the Croatian Tax System as of August 1994. The paper discusses the experience with incomes policies in Croatia. It highlights that incomes policy has played an important role in the Croatian stabilization program as the government has pursued the twofold objective of limiting costs in the public sector and of curbing the wage-price spiral. The paper briefly reviews developments in incomes policy and recent developments in real wages. It also describes the social safety net in Croatia.

Abstract

This Background Notes paper and Statistical Appendix presents a summary of the Croatian Tax System as of August 1994. The paper discusses the experience with incomes policies in Croatia. It highlights that incomes policy has played an important role in the Croatian stabilization program as the government has pursued the twofold objective of limiting costs in the public sector and of curbing the wage-price spiral. The paper briefly reviews developments in incomes policy and recent developments in real wages. It also describes the social safety net in Croatia.

Croatia: Basic Indicators

article image
Source: Croatian authorities.

Data pertain to 1990

Data pertain to 1991

Data pertain to 1992

I. Summary of the Croatian Tax System as of August, 19941/

article image
article image
article image
article image

Prepared by A. Schlpke.

II. The Recent Experience with Incomes Policies in Croatia 1/

Incomes policy has played an important role in the Croatian stabilization program as the Government has pursued the twofold objective of limiting costs in the public sector and of curbing the wage-price spiral. This note briefly reviews developments in incomes policy and recent developments in real wages (Statistical Appendix Tables 18 and 19).

In October 1993, the authorities decreed that the total wage bill (net of taxes and contributions) including bonuses, special provisions, and overtime payments of each state-controlled enterprise 2/ could not grow by more than 24.9 percent in October compared to the total wage bill effectively paid in September (inflation had been about 30 percent per month in the first nine months of 1993). The same limits applied to government employees. For November and December, monthly wage growth was limited to 4 percent each month, and Christmas bonuses and end-of-year salary advances were eliminated. All forms of backward looking indexation were abolished for pensions and for wages in non-private entities. The definition of the total wage bill took into account changes in the workforce. Specifically, if a firm hired (or laid off) an additional worker, the total wage bill would increase (or decrease) by an amount equal to the average wage in the firm.

The enforcement of the wage growth ceiling was assigned to the central payments agency, the ZAP, through which all wage payments are processed. Presently, at the end of each month the ZAP receives from each enterprise a list of its employees and the amounts of their wages. If the total exceeds the established limits, the ZAP does not execute the wage payments. The payments monopoly of the ZAP is to be eliminated on January 1, 1995 and, for the program period, incomes policy will be enforced by the government’s representatives on enterprises’ Boards of Directors.

Because of the tight payments control of the ZAP, movements in nominal wages have closely corresponded to the authorities’ incomes policy. Official wage statistics, however, report aggregate data which include both state-owned and private firms. Thus reported wage statistics include firms not covered by the wage limits. Given the incomes policy and actual inflation—which was substantially below expectations—average real wages grew by almost 19 percent during the last three months of 1993.

In January 1994, the incomes policy was modified in two ways: instead of the total net wage bill, the Government decided to target the total gross wage bill and this wage bill was to be frozen for the first quarter of the year in all public entities. These provisions did not affect the private sector where wages are determined by individual contractual arrangements. However, this zero growth objective in the public sector was not achieved. The Government decided to cancel a January 6 holiday; however, trade unions successfully requested that the additional work day be paid, which resulted in an increase of 4.5 percent in gross monthly wages. The wage increase (paid in February), which was originally intended only as a one-time compensation for the additional work day in January, became permanent. Therefore, the wage freeze effectively started in February and was extended for two additional months (i.e., until May). Over the first quarter of 1994 average real wages rose by 9 percent as inflation was again below expectations.

In May 1994, the aggregate net wage bill rose for three reasons: a) a local income tax surcharge was lowered from 27 percent to 22 percent in the Zagreb area, which accounts for about 40 percent of the economy; b) employees pressured enterprises to avoid delays in wage payments (which are a chronic problem in financially troubled enterprises) because they expected that the May wage would be taken as a term of reference for future pay increases; 1/ and, c) the tax exempt portion of income was increased from HrK 400 to HrK 500.

In June, a national round of negotiations among the Government, trade unions and the Chamber of Commerce, 2/ resulted in a collective contract (excluding all private firms). The gross monthly average wage bill over the five months ending in October cannot exceed the May 1994 gross monthly wage bill by more than 2 percent. 3/ A government decree extended this limit to non-unionized workers in majority state-owned enterprises and public utilities as well as to all employees in banks, insurance companies, and public institutions with independent budgets. Central government employees were allowed a 5.7 percent total growth in their monthly gross wage over the same five months, while the employees in local governments and extra budgetary institutions had their gross wages frozen until October with the exception of employees in health organizations who obtained a 4.2 percent average increase (again over five months) in their gross monthly wages.

The definition of the total wage bill (both net and gross) did not include allowances (e.g., for food and transportation, paid in cash or in kind). These allowances are calculated as a percentage of the individual wage. In October 1993, the upper limit on this percentage was set at 30 percent. However, for the purpose of computing these allowances, wages were revalued according to a backward indexation scheme based on the last three months for which wage data are available. This backward indexation scheme was deliberately left unchanged in October 1993, in order to alleviate the hardship during the first months of the stabilization program. The amount of these allowances doubled in real terms between October and April. As this was seen as a major fault of the past incomes policy, for the program period, non-wage allowances are to be subject to the same limits as wages.

The May tripartite agreement established the principle that future incomes policy will be decided in collective negotiations at the industry level covering both privatized and publicly-owned enterprises, which will take place for the first time before the end of October 1994. It was also decided that national conferences will establish the negotiation procedures prior to the collective bargaining. In addition, the conferences will set the criteria for the choice of the delegations and will specify the definition of each industry. The authorities intend to ensure that the growth of wage bills (including non-wage compensations) established by these collective agreements does not exceed the programmed growth of nominal GDP.

III. The Social Safety Net in Croatia 1/

1. Introduction

As part of introducing a market economy it is necessary to address the social consequences of the transition process. In all the economies in transition, equity considerations suggest that the burden of reforms should not be born exclusively by groups which happen to be more vulnerable than others. Furthermore, it is important to maintain a social consensus; otherwise, the reaction to some of the consequences of the reforms could push the process backward. Given limited financial resources, difficult choices are faced by the authorities in these countries regarding, inter alia, the extent of coverage, means testing, the forms of support, eligibility criteria, the duration of support, and what is expected in exchange for government support. This is especially true in Croatia where the typical problems of transition economies have been aggravated by the break-up of the former Socialist Federal Republic of Yugoslavia (SFRY).

This note briefly explains the current state of the social safety net in Croatia. Apart from provisions for refugees and international aid, the social safety net is provided through pensions, disability benefits (Table 1), unemployment benefits and the recently instituted Social Program. In addition, there is an active employment policy to reduce the burden of unemployment and improve labor mobility.

Table 1.

Croatia: Disability and Retirement Insurance

article image
Source: National Workers’ Retirement and Disability Funds.

2. Pensions, disability benefits, and family allowances

A Workers’ Fund, a Self-Employed Persons’ Fund and a Farmers’ Fund administer retirement pensions, disability pensions, family allowances (child allowances are provided only by the Workers Fund), disability insurance and other minor forms of aid and care. All three funds apply the same actuarial scheme, but have separate budgets and administrations. The Workers’ Fund raises 84 percent of its revenues through a 11 percent contribution from wages and an additional contribution from enterprises also equal to 11 percent of wages. The rest is provided by the Government and is intended to cover some additional benefits granted (e.g., to veterans and ex-political prisoners) but not covered by the contributions. The Self-Employed Persons’ Fund and the Farmers’ Fund are also financed through workers’ contributions and government transfers.

The old age pension is calculated according to a formula which uses the average of the ten highest consecutive real yearly wages (on the basis of the consumer price index) as the pension base. For men, the pension base is multiplied by a coefficient of 0.35 plus an additional 0.02 per each year of contribution up to a maximum of 0.85. For women the initial coefficient is 0.45 with a similar adjustment for years of contribution.

The typical retirement age for men is 65 and for women 60, but one can choose to retire after 40 years of contributions (35 years for women). For example, men can retire at 60 (with reduced benefits) after 20 years of contribution or at 65, provided they have paid contributions for 15 years, while women can retire at 55 after 20 years of contribution or at 60 after 15 years of contribution.

The pension base for the disability pension is calculated according to the same scheme as the old age pension, but the rule on the minimum years of contribution does not apply and the initial coefficient is higher for younger disabled people. There are also subsidies granted to handicapped persons who cannot work.

The right to survivor benefits is granted to those without other means of subsistence. The amount is calculated as 70 percent of the pension for a single survivor with an additional 10 percent for each additional survivor up to a maximum of 100 percent of the pension. Surviving children maintain the benefit until they are 15, until they finish high school (provided they are not older than 19), or until they get a university degree (provided they are not older than 27 for males and 26 for females 1/). A woman maintains the right to receive a survivor’s pension if she does not remarry before 45, while the analogous limit for men is 60.

3. Unemployment benefits

The right to an unemployment benefit is guaranteed by Article 57 of the Constitution and the basic legal framework is contained in the Employment Act passed in 1990 and amended in 1991. The Law instituted the Employment Agency as part of the Ministry of Labor with the responsibility of managing the unemployment insurance program and the active employment program. Unemployment benefits are granted to any citizen who has worked for at least 6 successive months or a total of 12 months out of the previous 18 months. Exceptions are permitted for workers laid off as a consequence of liquidation or bankruptcy, or mothers with a child under 12 months. The right to receive compensation is acquired when one registers with the regional unemployment office and is granted whether the employee is released by the employer or quits of his own initiative. Unemployment insurance is funded by a tax on the gross wages and salaries of employees. However, these receipts are used also to finance active employment policies, which in 1993 accounted for 37 percent of the expenditures.

The duration of unemployment benefits varies between 78 and 468 days depending on seniority, and can be extended in case of illness, pregnancy, or vocational training. After the period expires, the unemployed can request to be enrolled in the Social Program (see below). The level of the benefit is 50 percent of the average salary earned in the last three months, provided that it is higher than the minimum wage and does not exceed three times the minimum wage. The minimum wage was HrK 667 per month in mid-1994 (equal to US$114 at end-June 1994 exchange rates). These benefits had been indexed to inflation, but they were linked to minimum wage increases beginning in October 1993. In addition to unemployment benefits, the unemployed are entitled to health benefits, disability insurance, child allowances and their contributions for the old age pension are covered by the Government. The number of beneficiaries, however, is only a small fraction of the total unemployed, typically around 12–13 percent. Reportedly, only few workers have been actually laid off, because workers in bankrupt firms tend to be granted early retirement benefits.

Benefits are revoked for persons working without proper registration, those eligible for pensions, those who start a business activity, or in cases where the beneficiary fails to appear in the Employment Office for two successive months or refuses to participate in retraining. Since mid-1992, the Employment Agency has also been responsible for providing minimum wage payments to persons who cannot perform their normal working activity due to the conflict.

4. The social program and related measures

The Social Program was started in March 1993 and is designed to support individuals most affected by the war and the economic transition. It is administered by the Republic Social Fund for Social Protection. Decisions on the eligibility for welfare assistance are delegated to Social Councils instituted in each town and municipality. Once a household proves it cannot satisfy its basic living needs, it receives a Social Card which entitles it to receive various forms of financial and material assistance. The Social Program guarantees to every household a minimum living standard. Its level was established as a percentage of a benchmark called the minimum salary (not to be confused with the minimum wage mentioned earlier) (Table 2). The estimated minimum living cost for a family of four is about HrK 1,600 (US$273) per month.

Table 2.

Croatia: Social Program Monthly Benefits

article image

A total of 122,001 Social Cards have been issued, through which 276,419 individuals are covered (about 5.7 percent of the population). Moreover, 375,642 persons (8.5 percent of the population) obtain in-kind benefits, such as food, clothes, and free utilities through the Social Program. Among the Social Card holders, 48.3 percent receive only the assistance established by the Social Program, while the rest also receive other forms of assistance. In addition, 13 public kitchens prepare about 3,150 meals per day for indigent persons.

Direct financial support is integrated with material assistance and humanitarian aid. In particular, grocery parcels and subsidies for bread, milk, utility bills, and heating fuel have been provided in 1994. Other social safety provisions are given in the form of subsidized rent which benefits about 35,000 people (12,000 of which are in the city of Zagreb), parental care for children without parents, and services for the disabled and the elders.

The Social Program is funded with budgetary sources: HrK 464 million was appropriated in 1994, of which HrK 320 million for transfers. The Republic Social Fund has additional income of HrK 72 million from its activities and from the participation of the beneficiaries in defraying the cost of some services.

The health care system is regulated by the Law on Health Insurance and Medical Care. It covers 99 percent of the Croatian population while the remaining 1 percent is covered by local governments. Although the health care system is set up as an insurance system, two thirds of the beneficiaries are exempt from contribution requirements (e.g., refugees and displaced persons, low-income families, and the unemployed). A separate program covers the health expenditures of disabled war veterans and war victims.

5. Active employment policy

The Employment Agency is also in charge of active employment policies and matching the unemployed with job vacancies (employers are legally obliged to report any vacancies to the Agency). In this latter area, the results have so far been modest; there are about 16,000 vacancies, and 250,000 officially unemployed. In the first six months of 1994, slightly more than 10,000 vacancies were filled by the Employment Agency.

The active employment program started in October 1992. It focuses on measures to promote the hiring of university and high school graduates with no previous work experience. In the second half of 1993 the program was expanded through a set of measures aimed at favoring job creation and spatial mobility. The Employment Agency reimburses enterprises for up to 50 percent of the wage paid to interns, trainees, and apprentices. In the first six months of 1994 more than 15,000 internships were arranged. However, only 263 internships were converted into long-term jobs. In addition, the Employment Agency devoted some resources to vocational training and retraining. In the first six months of 1994, 1,600 workers were retrained at a total cost of HrK 3.6 million.

Some other initiatives of the Employment Agency target veterans, the disabled, the elderly, widows, and orphans of war victims, but only 376 workers found a job as a result of these initiatives during the first six months of 1994. An extra 528 invalids were helped to start their own businesses. The Employment Agency also provides resources and equipment for private business activities of disabled persons and war invalids.

IV. The Privatization Process in Croatia 1/

1. Introduction

Since independence the Croatian authorities, as in other economies in transition, have devised a medium-term strategy for economic reform based on the privatization of state-owned assets. However, sales of state property, in particular large enterprises, have encountered a number of problems and proceeded more slowly than was anticipated. The valuation of enterprise assets and liabilities has turned out to be an arduous task, overstaffing is widespread and some of the capital stock is outdated. Moreover, the typical difficulties experienced in other transition economies have been exacerbated by the security situation and the ensuing uncertainty. This note contains a brief exposition of the institutional framework which was prepared for the privatization of state-owned enterprises a review of the progress to date, and a brief discussion of some outstanding issues.

2. The main features of the privatization program

The legal framework for privatization was established by the Law on Transformation of Socially-Owned Enterprises, issued in April 1991, which instituted the Croatian Privatization Fund (henceforth CPF) on the model of the German Treuhand. 2/ This law covered all manufacturing and agricultural enterprises, but excluded the banking system and public companies (e.g., Utilities, railroads, urban and local transport companies and the national oil company). The principles inspiring the Law can be traced back to the experience of self management in the former Yugoslavia which emphasized the role of workers and employees in the governance of the firm. Through the principle of “autonomous transformation” established in the privatization law, the Government ruled that 50 percent of the shares in each firm were to be offered to employees, retired workers, and civil service officers.

Under the law, former socially-owned companies targeted for privatization had to submit an application to the CPF by the end of June 1992. This document had to include a valuation of the firm, a restructuring plan and a proposal to reorganize the main activities of the company. Subsequently, the CPF would review the plan, especially asset valuation, and if found in compliance with the legal and economic criteria established in the law, the CPF would give its approval. Those socially-owned companies which failed to submit an autonomous application were automatically transferred to CPF ownership as of December 31, 1992.

Once a privatization plan is approved, 50 percent of company shares are offered to employees and managers at a 20 percent discount, plus an additional 1 percent discount per each year of service (provided that the total discount in the sale of a firm does not exceed 60 percent). Alternatively, the shares can be purchased in installments of 5 percent at the outset and monthly payments over 5 years at zero percent real interest. In any case, each employee or former employee cannot invest more than the equivalent of DM 20,000. Originally, the installments were indexed only once a year, and due to the high inflation, the total discount amounted to roughly 70 percent. The discount for employees and managers is now given up front (after the 5 percent down payment) rather than as a percentage of each payment. However, dividends which used to be distributed only for the paid portion of the shares, now accrue on all subscribed shares.

Shares of enterprises not subscribed by employees and former employees are auctioned to private investors at face value, or reserved for special purposes, like restitution or distribution to veterans and invalids. Once this phase has been completed, one third of the unsold shares are distributed to two Pension Funds and the remaining two thirds to the CPF. The restitution issue in Croatia has not yet received much attention, but in some cases 25 percent of the shares are reserved for potential restitution claims.

The CPF has thus far used six methods to sell the shares in its portfolio:

a) Auctions on the Zagreb Stock Exchange

In this case, the asking price is the nominal value of the firm and a 15 percent discount is granted for cash payments settled within seven days from the bid. Since March 28, 1994, the CPF has allowed swaps between shares and frozen foreign account deposits in 44 selected companies and other firms are being added to the list. Both domestic and foreign Investors can place offers through a registered member of the Zagreb Stock Exchange and the stocks are fully negotiable.

b) Public bids announced in the newspapers

This method requires investors to present an offer indicating the bidding price, the terms of payments, and a strategic plan for firm development. All offers are evaluated by the CPF and the selection criteria focus mainly on the employment levels which the plan guarantees, the payment schedule, and the additional investment proposed.

c) Sales via agents

This has taken place only in few cases because the number of brokers is small and the security situation has discouraged a more aggressive marketing strategy. A large international consulting firm has presented a plan to promote the acquisition of Croatian Companies.

d) Direct settlements with individual investors

This is used in cases where the unsold portion is small and the contract guarantees a swift conclusion of the sale.

e) Debt-equity swaps

As many enterprises are heavily exposed to commercial banks (in addition, some enterprises actually own a controlling share of the creditor banks’ capital) the CPF has allowed debt-equity swaps to reduce the enterprises’ financial burden. In general these swaps are considered only a temporary solution as most banks face liquidity problems.

f) Bond-equity swap

The Ministry of Finance issues Reconstruction Bonds denominated in foreign currency, mostly bought by Croatians abroad, which can be swapped with equities at a 30 percent discount.

3. The results of the privatization program

The CPF received 2,877 applications for autonomous privatization and transformation. As of the end of August 1994, 2,552 (88.7 percent) applications had been accepted. The firms whose plans have not been approved are mostly small firms not required by the law to be privatized, local public utilities or sport clubs. However, the 2,877 firms include some which have gone out of business and some with double names for which an application was filed twice. Once all these cases are taken into account, the CPF staff estimates that in addition to the 2,552 firms whose applications have been accepted, only 70 other firms, mostly located in war-torn areas would be eligible for privatization under the current law.

Among the 2,291 companies which had completed the registration process with the commercial courts by July 1994, 1,087 (47.4 percent) are owned 100 percent by private agents (Table 3). The CPF and the Pension Funds hold a minority stake in 846 Companies (36.9 percent). In the remaining 358 Companies (15.6 percent), the CPF and the Pension Funds have a majority stake. The latter tend to be larger Companies where the restructuring problems are deeper and ownership transfer raises politically sensitive issues. The 2,291 Companies have a book value of DM 21.5 billion; the CPF still holds shares totaling DM 7.1 billion and the two Pension Funds another DM 3.6 billion. The shares in private hands are worth DM 8.5 billion, roughly 39 percent of the total. The total number of shareholders is estimated to be about 470,000, some of which hold shares in more than one Company. The average book value of the fully privatized enterprises is DM 1.7 million, while the average book value is DM 12.5 million for majority private enterprises and DM 25 million for minority private enterprises. The revenues collected by the CPF as of July 8, 1994 (excluding the unpaid installments) amounted to DM 1,143 million, of which DM 824 million (73 percent) was from frozen foreign currency deposits swaps, DM 165 million (14 percent) was in cash and DM 153.6 million was from swaps with Bonds for Reconstruction (13 percent) (Table 4).

Table 3.

Croatia: Results of the Privatization Program

article image
Source: Croatian Privatization Fund.
Table 4.

Croatia: Receipts from Privatization

article image
Source: Croatian Privatization Fund.

High-yield bonds in hard currency issued by the Ministry of Finance which can be swapped for shares at 30 percent discount.

First week only.

There has been substantial interest in swapping frozen foreign exchange deposits on the Zagreb Stock Exchange (ZSE) for shares as shown by the rising prices of frozen foreign exchange deposits. In May 1993, these deposits were traded at about two thirds of their nominal value, while two months later the discount had shrunk to about one fourth. Swaps have involved not only single investors but also large financial institutions. Commercial banks have completed debt-equity swaps worth about DM 1 billion (DM 826 million in Companies where private agents have a majority share and DM 71 million in the fully-privatized Companies) (Table 3).

4. Issues in the privatization process

The privatization process in Croatia has been relatively successful regarding small enterprises; however, additional efforts are needed to accelerate sales of the larger enterprises. The sale of larger enterprises has proceeded slowly in part because the security situation has tended to exacerbate the usual difficulties that exist in privatizing large enterprises. In addition, however, there have reportedly been other problems including that many shares are overvalued, property rights are weak and difficult to enforce against the possible abuse of insiders, and an efficient secondary market is not completely in place. In fact, although shares have been tradable in an over-the-counter market since October 1993, little trading has so far been recorded.

Auctions on the ZSE have also had limited success in attracting investors, in part, because payments must be in cash or frozen foreign exchange deposits and little delay is conceded, while if a firm is put on sale through a public offer, the CPF is ready to negotiate the schedule of cash payments. Of course a bid can be opposed by the Board of the Company, while a purchase of shares in the ZSE is final, but Investors often prefer to negotiate the terms of a bid with the management and the authorities to avoid future hostility. In addition, a bid must detail a complete restructuring proposal which encourages buyers to evaluate the prospects of the firm more carefully.

Another issue regards the size of private financial wealth in Croatia. The CPF has estimated the total value of the enterprises whose privatization plans had been approved as of January 1994 at DM 21 billion. However, data from the central bank show that the stock of private financial savings, in domestic and foreign currency, is about DM 5.6 billion, 1/ with frozen foreign currency deposits accounting for an additional DM 4.2 billion. Considering that other state assets—mainly houses and land—are for sale, the stock of domestic private savings might be insufficient to finance the entire privatization plan. This underscores the importance of attracting foreign interest.

The scarcity of private resources cannot be overcome by providing bank credit. Financial institutions, mostly still state-owned, are seriously strained by non-performing loans and through debt-equity swaps have already increased their portfolio of shares in ailing Companies. Since the relationships between some banks and large loss-making enterprises are at the root of the financial problems in Croatia, the authorities’ policies are aimed more at reducing these links than reinforcing them.

In advance of privatization much more remains to be done to improve enterprise governance. The CPF and the agency responsible for public enterprises have very small staffs which are not adequate to supervise a large number of enterprises. The roles of these agencies need to be strengthened further. In the meantime, the authorities are relying on restrictions on bank credit to force enterprises to adjust.

Finally, it may be noted that the objective of privatization is not merely a change in the ownership structure, but the introduction of market discipline in the economy. Ownership (i.e., risk bearing) and management should be separated. Employee buy-outs can sometimes have job security as their main motive. The reliance on management and employee buy-outs must not diminish market discipline.

V. The Exchange and Trade System 2/

1. Exchange rate arrangement

The currency of Croatia is the Croatian kuna 3/, the external value of which is determined in an interbank market. Exchange rates in the interbank market are determined by authorized banks and authorized banks can transact with each other at freely negotiated rates. The National Bank of Croatia (NBC) may intervene in the interbank market for purposes of smoothing undue fluctuations in the exchange rate. On June 30, 1994, the average interbank market rate was HrK 5.8656 per US$1.

There are no taxes or subsidies on purchases or sales of foreign exchange. There are no arrangements for forward cover against exchange rate risk operating in the official banking sector.

2. Administration and control

Foreign exchange transactions are governed by the Law on the Foreign Exchange System, Foreign Exchange Operations and Gold Transactions, which was enacted on October 7, 1993. The NBC formulates and administers rate policy and may issue foreign exchange regulations under this law. A foreign trade law (coordinated with domestic trade legislation) is under preparation. Companies wishing to engage in foreign trade must register with the commercial courts. Foreign direct Investment and the representative offices of foreign companies must be registered with the Ministry of Economy.

Foreign exchange transactions must be conducted through authorized banks; currently 40 commercial banks in Croatia are licensed to conduct foreign exchange transactions. Restricted licenses are given to banks that may open accounts for resident natural persons and may buy and sell bank notes and checks (currently 4 banks).

Arrears are maintained with respect to external payments.

3. Resident and nonresident accounts

Resident natural persons may, in principle, open and operate foreign exchange accounts only in Croatia. However, the NBC has the authority to allow domestic legal persons to keep foreign exchange in accounts with foreign banks in order to cover the costs of business operations and meet the requirements of regular foreign trade activities abroad. The law also makes specific provisions for domestic persons engaged in capital project construction abroad to maintain accounts with foreign banks, under a case-by-case license by the NBC.

Under a bilateral payments agreement, residents of Croatia and Slovenia are free to open and operate accounts in domestic currency in the other country but must report them to the NBC for monitoring purposes. These accounts may be credited only with proceeds from exports. Exercising its right based on Article 8 of this agreement, Croatia unilaterally canceled the payments agreement with Slovenia, with effect from June 30, 1994.

Nonresidents may open foreign exchange accounts with fully licensed banks in Croatia. These accounts may be credited freely with foreign exchange and debited for payments abroad for conversion into domestic currency; reconversion of domestic currency into a foreign currency is permitted. Juridical persons may not credit these accounts with foreign bank notes without special permission from the NBC.

Nonresident natural and juridical persons may open accounts in domestic currency with the proceeds from sales of goods and services or with foreign exchange transferred from abroad. They may purchase foreign exchange with funds held in these accounts without restriction.

4. Imports and import payments

Imports from the Federal Republic of Yugoslavia (Serbia and Montenegro) are prohibited. Pending the introduction of a new import regime, the product classification of the import regime of the former Socialist Federal Republic of Yugoslavia is maintained in general, with some changes, with a free list (LB), a list of items subject to quotas and a list of items subject to ad hoc licensing (D).

Items on the free list (just under 6,000 out of a total of about 6,600) comprise about 90 percent of the value of imports. Of the restricted items, only 0.1 percent of imports are subject to licensing and 10.2 percent to quotas. The Ministry of Economy, in consultation with the Chamber of Commerce, administers the quotas and licensing. List D includes those items whose importation is controlled by international agreement for noneconomic reasons (e.g., arms, gold, illegal drugs and narcotics, and artistic and historic work). The importation of these items is allowed on a case-by-case basis and for specific purposes. Imports from Slovenia are free of quantitative restrictions.

Imports are subject to a customs tariffs of up to 18 percent (compared with up to 25 percent in the former Socialist Federal republic of Yugoslavia) plus a surcharge of up to 10 percent, and a customs administration fee of 1 percent. Imports from the Republic of Slovenia and the former Yugoslav Republic of Macedonia are exempt from the basic import tariff, provided that the goods are completely produced in these countries or the domestic value added through local processing is at least 51 percent. Imports from these countries are, however, not exempt from the import surcharge and the customs administration fee. The exemption for duty-free imports by travelers is US$100. Goods imported by travelers and postal shipments up to value of US$500 are subject to a simplified customs procedure with a unified tariff rate of 8 percent. For imports exceeding that value, the regular import tariffs and taxes are applied. Returning citizens may bring into the country household effects duty-free up to the equivalent of US$45,000 for household effects and US$100,000 for private business purposes. Under certain conditions, goods imported by non-residents for investment purposes are exempt from import duties. Also, raw materials and intermediate products used in the production of exports are exempt from all import duties and taxes, except the 1 percent customs fee, provided that the value added of the export product is at least 30 percent of the value of the imported items and that export proceeds are received in convertible currency.

Payments for authorized Imports by juridical persons are not restricted. Advance payments for Imports are not permitted, except where down payments are required by suppliers in accordance with customary international practices and in accordance with the NBC’s regulations. Resident natural persons may also make import payments which Chair foreign currency account balances.

5. Payment for invisibles

Payments for invisibles related to authorized imports by juridical persons may be made freely; payment of leasing fees is permitted provided that temporary imports have been registered with the Customs Office. Natural persons may also purchase foreign exchange in the interbank market for the payment of goods and services abroad and for deposit in a foreign exchange account for the purpose of future payments. Legal persons can purchase foreign exchange only for due payments aboard, which means that foreign exchange cannot be purchased for deposit in a foreign exchange account. The only exceptions are purchases related to scientific, humanitarian, cultural and sports activities. Payments of royalties, insurance and legal obligations and contracting of life and casualty insurance policies with foreign Companies are also permitted.

Resident natural persons may take out of the country foreign currency equivalent to DM 1,000. An additional amount equivalent to up to DM 2,000 may be taken out, provided that it is withdrawn from foreign currency accounts or purchased from the bank for travel expenses. In both cases the NBC may allow higher amounts to be taken out on a case-by-case basis. The exportation of Croatian currency by both residents and nonresidents is limited to HrK 2,000 a person.

6. Exports and export proceeds

Exports to the Federal Republic of Yugoslavia (Serbia and Montenegro) are prohibited. In principle, exports are free of restrictions except for certain products for which permits must be obtained (list D products: e.g., weapons, drugs, art supplies, and high-quality wood.)

Export proceeds must be collected and repatriated in full to Croatia within 60 days of the date of exportation. The NBC may extend the normal 60-day period on a case-by-case basis. If payment terms in excess of 60 days have been agreed with foreign importers, the credit arrangement must be registered with the NBC.

7. Proceeds from invisibles

Proceeds from services are, in principle, subject to the same regulations as those applying to merchandise exports. The importation of Croatian currency by both residents and nonresidents is limited Co HrK 2,000 a person.

8. Capital

Resident juridical persons, including commercial banks, may borrow abroad. They are required to register the loans contracted, including commercial credits, with the NBC. Financial credits may be extended to nonresidents only if they are financed from profits or credit obtained from abroad. The NBC imposes limits on the foreign exchange positions of commercial banks.

Foreign direct investment by nonresidents may take the form of joint ventures or full ownership, except in the financial sector. Repatriation of capital and transfers abroad of profits are not restricted. In principle, domestic and foreign investments are treated equally, but in practice nonresident investors enjoy certain tax benefits. Foreign direct investment abroad by residents must be registered with the Ministry of Economy. Such investment must generally be undertaken through loans abroad or through reinvestment of profits. Inward portfolio investment is not restricted, but outward portfolio investment is.

Nonresident natural persons may acquire real estate in Croatia through inheritance as long as their country of residence extends reciprocal treatment to residents of Croatia. Nonresident natural persons not engaged in economic activities in Croatia may purchase real estate only under the same conditions. Juridical persons engaged in economic activities in Croatia may also purchase real estate under these conditions and may sell it to resident or nonresident juridical persons. In principle, residents may acquire real estate abroad on the basis of reciprocity of treatment, but in practice, they are not permitted to purchase foreign exchange in the exchange market for this purpose; the use of balances in foreign exchange accounts for this purpose is also prohibited.

9. Gold

The exportation or importation of gold, except unprocessed gold by producers of gold and gold coins or by authorized commercial banks, is subject to the approval of the NBC.

Table 1.

Croatia: Gross Domestic Product at Current prices

(In millions of dinars)

article image
Source: State Institute for Macroeconomic Analysis and Forecasting
Table 2.

Croatia: Gross Domestic Product at Constant 1992 Prices

(In millions of dinars)

article image
Source: State Institute for Macroeconomic Analysis and Forecasting
Table 3.

Croatia: GSP and Aggregate Demand at Current Prices

(In thousands of kunas)

article image
Sources: Central Bureau of Statistics and State Institute for Macroeconomic Analysis and Forecasting

From 1992 onwards, trade with other former SFRY republics is included in regular trade.

Table 4.

Croatia: GSP and Aggregate Demand at Constant 1990 Prices

(In thousands of kunas)

article image
Sources: Central Bureau of Statistics and State Institute for Macroeconomic Analysis and Forecasting

From 1992 onwards, trade with other former SFRY republics is included to regular trade.

At average market exchange rates.

Table 5.

Croatia: Percentage Changes of GSP and Aggregate Demand in Constant 1990 prices

article image
Sources: Central Bureau of Statistics and State Institute for Macroeconomic Analysis and Forecasting

From 1992 onwards, trade with other former SFRY republics is included to regular trade.

Table 6.

Croatia: Components of Aggregate Demand in Percent of GSP

article image
Sources: Central Bureau of Statistics and State Institute for Macroeconomic Analysis and Forecasting

From 1992 onwards, trade with other former SFRY republics is included in regular trade.

Table 7.

Croatia: GSP by Sector at Current Prices

(In thousands of kunas)

article image
Sources: Central Bureau of Statistics and State Institute for Macroeconomic Analysis and Forecasting
Table 8.

Croatia: GSP by Sector at Constant 1990 Prices

(In thousands of kunas)

article image
Sources: Central Bureau of Statistics and State Institute for Macroeconomic Analysis and Forecasting.
Table 9.

Croatia: GSP by Sector as a Percent of Total

article image
Sources: Central Bureau of Statistics and State Institute for Macroeconomic Analysis and Forecasting
Table 10.

Croatia: Percentage Change of GSP by Sector in Constant 1990 Prices

article image
Sources: Central Bureau of Statistics and State Institute for Macroeconomic Analysis and Forecasting
Table 11.

Croatia: Trends in industrial Production 1/

article image
Source: Croatian Economic Trends

Seasonally unadjusted indices unless otherwise indicated; average 1990=100

Table 12.

Croatia: Agricultural Production 1/

article image
Source: Central Bureau of Statistics

Index numbers, year–over–year.

Table 13.

Croatia: Tourism industry—Overnight Stays

article image
Source: Croatian Economic Treads
Table 14.

Croatia: Energy Balance Sheet

(In millions of tons coal equivalent)

article image
Source: Electricity Institute Zagreb

Hydro=hydro-generated electricity/0.35

Nuclear fuel=nuclear generated electricity/0.336

Table 15.

Croatia: Electro-Energy Balance sheet

(In millions of Kwh)

article image
Source: Electricity Institute Zagreb

Including hydro- and nuclear-generated electricity.

Table 16.

Croatia: Composition of Employment 1/

article image
Source: Monthly Statistical Report

According to UCEA. Table comprises the former socially-owned enterprise as well as privatized and partially privatized enterprise general government sector. Annual data are the average of March and September.

Table 17.

Croatia: Trends in Employment and Unemployment 1/

article image
Source: Croatian Economic Trends

Original data; number of persons; socialized sector comprises formerly socially-owned enterprise sector as well as government sector; private sector excludes private smallhold farming. The methodology for the collection of data on private sector employment has changed in January 1994

Table 18.

Croatia: Trends in Household Revenues

article image
Source: Croatian Economic Trends
Table 19.

Croatia: Trends in Average Monthly Net Wages and Salaries 1/

article image
Source: Croatian Economic Trends; and staff estimates

Comprises the formerly socially-owned industrial sector (“economy”) and the general government sector (“non-economy”).

Table 20.

Croatia: Price Developments

article image
Source: Central Bureau of Statistics
Table 21.

Croatia: Government Employment

article image
Source: Croatian Ministry of Finance.
Table 22.

Croatia: Budgetary Central Government Revenues

article image
Source: Ministry of Finance

Revised budget to be approved.

Table 23.

Croatia: Budgetary Central Government Expenditure and Net Lending

article image
Source: Ministry of Finance

Revised budget to be approved.

Table 24.

Croatia: Budgetary Central Government Expenditure by Function

article image
Source: Ministry of Finance
Table 25.

Croatia: Consolidated Fiscal Accounts 1/

article image
Source: Ministry of Finance; and staff estimates.

Preliminary, as further work is underway in the classification of inter-governmental transfers.

Transfers to other levels of government have been netted out.

Composed of the health, pension, child benefit, rent compensation, and employment funds and, for 1994 only, the Croatian road and water companies. The rent compensation fund ceased to exist in 1994.

Table 26.

Croatia: Monetary Survey 1/

(In millions of Croatian kuna)

article image
Source: National Bank of Croatia

Data are taken from the Modified Reclassified Balance Sheet reporting, an Interim reporting system Implemented prior to the Introduction of a new plan of accounts for commercial banks. Claims on, and liabilities to, the former SFRY are classified foreign assets and liabilities.

Table 27.

Croatia: Monetary Authorities Accounts

(In millions of Croatian kuna)

article image
Source: National Bank of Croatia
Table 28.

Croatia: Deposit Money Banks Accounts, Assets

(In millions of Croatian kuna)

article image
Source: National Bank of Croatia
Table 29.

Croatia: Deposit Money Banks Accounts, liabilities

(In millions of Croatian kuna)

article image
Source: National Bank of Croatia.
Table 30.

Croatia: Composition of Money Growth 1/

article image
Sources: National Bank of Croatia

National definitions of monetary aggregates which include deposits of central government.

Includes foreign currency deposits of banks based in other republics of the former Yugoslavia.

Croatia introduced a new currency, the Croatian kuna, on May 30,1994, at the rate of one kuna per 1,000 Croatian dinars.

Table 31.

Croatia: National Bank of Croatia Interest Rates

article image
Source: National Bank of Croatia

Retail price inflation is a centered, three-month average at an annual rate.

Table 32.

Croatia: Deposit Money Bank Interest Rates

article image
Source: National Bank of Croatia

Retail price inflation is a centered, three-month average at an annual rate.

Table 33.

Croatia: Balance of Payments

(In millions of U.S. dollars)

article image
Source: National Bank of Croatia.

The treatment of in-bond export processing activities was changed from 1990. The series for the period before 1990 included only the domestic value-added in such processing activities, as is receipt under exports of services. For data from 1990 onwards, both the import of components and the exports of the final products are included under merchandise trade. In terms of the odd presentation, 1990 imports were estimated to be US$2,455 millions and 1990 imports US$3,876 million, with a trade deficit of US$ 1,421 million.

Figures for years before 1992 do not include trade with the countries of the former Yugoslavia.

With former socialist economies. Integrated with convertible currency beginning in 1991. Small amounts of transactions in nonconvertible currency for 1991 are also included in the 1991 total for convertible currency.

Prior to 1991, the figures are relative to Social Product, which excludes certain elements of GDP such as health and education.

Table 34.

Croatia: Merchandise Exports and Imports, 1991–19941/

(In millions of U.S. dollars)

article image
Source: Statistical Office of Croatia.

Calculated at current market exchange rate.

Table 35.

Croatia: Composition of Exports (SITC)

(In millions of U.S. dollars)

article image
Source: Central Bureau of Statistics

Data for 1992 and 1993 include trade with the countries of the former Yugoslavia.

Table 36.

Croatia: Composition of Imports (SITC)

(In millions of U.S. dollars)

article image
Source: Central Bureau of Statistics

Data for 1992 and 1993 include trade with the countries of the former Yugoslavia.

Table 37.

Croatia: Exports by Destination

(In millions of U.S. dollars)

article image
Source: Central Bureau of Statistics

Trade with countries of the former Yugoslavia included in 1992 and 1993 data.

Albania, China, and Mongolia.

Table 38.

Croatia: Imports by Origin

(In millions of U.S. dollars)

article image
Source: Central Bureau of Statistics

Trade with countries of the former Yugoslavia included in 1992 and 1993 data.

Albania, China, and Mongolia.

Table 39.

Croatia: Exchange Rates and International Reserves

article image
Sources: National Bank of Croatia and Economic Institute of Zagreb

Croatia introduced a new currency, the Croatian kuna, on May 30, 1994, at the rate of one kuna per 1,000 Croatian dinars. Exchange rates prior to May 1994 are foreign currency units per 1,000 Croatian dinars.

Real effective exchange rates are calculated relative to seven currencies using retail or consumer prices.

Table 40.

Croatia: External Debt 1/

(In millions of U.S. dollars)

article image
Source: National Bank of Croatia.

Excluding Croatia’s share of the nonallocated debt of the former Yugoslavia and to Paris Club creditors.

Interest in arrears is included in short-term debt in the figures for 1990–92.

Table 41.

Croatia: External Debt Service Projection 1/

(In millions of U.S. dollars)

article image
Source: NBC data base as of Dec, 31, 1993.

Calculated at exchange rate on Dec, 31, 1993. Covers payments due on debt outstanding at this time only. Excludes debt not recognized by the Croatian obligors and non-allocated debt of the former Yugoslavia to Paris Club creditors.

Including arrears.

Excluding interest on arrears.

Table 42.

Croatia: Comparison with Other Republics of the Former Socialist Federal Republic of Yugoslavia 1/

article image
Source: Yugoslav Federal Statistical Office.

The former Socialist Federal Republic of Yugoslavia (SFRY) comprised six republics: Bosnia - Hercegovina (BOS); Montenegro (MON); Croatia (CRO); Macedonia (MAC); Slovenia (SLO); and Serbia (SER); the latter was divided in Serbia proper (SER/P), and the autonomous provinces of Kosovo (KOS) and Vojvodina (VOJ).

In thousands of square kilometres.

In thousands; census of 1990.

In millions of US dollars; 1990.

In millions of US dollars; 1990.

Unemployment in 1989; in percent.

Live births per 1,000 inhabitants; 1985–89.

Illiteracy rate population of 10 years and over; 1990.
1/

Prepared by Mr. F. Scacciavillani.

2/

The decree excluded service enterprises controlled by the Ministry of Finance, where the wage limits were enforced directly by the government.

1/

The introduction of the kuna on May 28, 1994 distorted the data on aggregate wage bill. Salaries were paid in dinars on the 28th, while the other two working days in May were paid in kunas and added to the June salary.

2/

The Chamber of Commerce is an organization in which membership is compulsory for all enterprises. In the tripartite negotiation it plays the role of the employers’ association although its leaders are not elected by the members, but appointed by the Government.

3/

The tripartite negotiation will resume in October to define the incomes policy for 1995.

1/

Prepared by Mr. F. Scacciavillani.

1/

The difference of one year between males and females is justified by the period men have to serve in the Armed Forces.

1/

Prepared by Mr. F. Scacciavillani.

2/

The Law was amended several times to adapt the legal framework to new circumstances. The major modifications took place: in July 1992 to postpone the autonomous transformation of firms located in war tom areas; in December 1992 to establish that firms not submitting the required restructuring plan would be transformed into 100 percent state owned joint stock companies and would be put under the control of the CPF; in February 1993 to allow the CPF to auction on the Zagreb Stock Exchange unsold shares; and, in January 1994 to allow swaps between stock and frozen foreign currency deposits.

1/

At an exchange rate of HrK 3.6 = DM 1.

2/

Prepared by Mr. C. Jarvis.

3/

The Croatian dinar was an interim currency, and the authorities replaced it with the Croatian Kuna as permanent currency as of end of May 1994.

Same Series

Other Publishers

  • Collapse
  • Expand
Cover IMF Staff Country Reports
Croatia: Background Notes and Statistical Appendix
Author:
International Monetary Fund
Volume/Issue:
Volume 1994: Issue 008
Publisher:
International Monetary Fund
ISBN:
9781451817218
ISSN:
1934-7685
Pages:
71
DOI:
https://doi.org/10.5089/9781451817218.002