Republic of Croatia: Selected Issues and Statistical Appendix

This Selected Issues paper and Statistical Appendix analyzes developments in Croatia’s banking sector since independence in 1991, focusing on the effects of independence, war, transition, and the bank rehabilitation process. Changes in market structure, concentration, and ownership, as well as financial performance are highlighted. The paper reviews the current legal environment governing banking operations and improvements needed to strengthen the legislative framework. Some forward-looking conclusions are presented. The paper also examines selected aspects of Croatia’s export performance.

Abstract

This Selected Issues paper and Statistical Appendix analyzes developments in Croatia’s banking sector since independence in 1991, focusing on the effects of independence, war, transition, and the bank rehabilitation process. Changes in market structure, concentration, and ownership, as well as financial performance are highlighted. The paper reviews the current legal environment governing banking operations and improvements needed to strengthen the legislative framework. Some forward-looking conclusions are presented. The paper also examines selected aspects of Croatia’s export performance.

IV. Pension Reform in Croatia: Towards a Multi-Pillar System40, 41

A. Introduction

94. The government submitted to parliament a new Pension Insurance Law in September 1997. The law has passed two readings, and a third and final reading is expected to take place in the coming months. The new law aims at ensuring the financial sustainability of the pension system by downsizing and rationalizing the pay-as-you-go (PAYG) public pension system and moving to a multi-pillar system in which the PAYG pillar will be complemented by two privately-managed, fully-funded pillars—one mandatory (the second pillar) and one voluntary (the third pillar).

95. The measures aimed at downsizing the PAYG system are described in detail in the new law and are to come into effect in early 1999. The draft law, however, only enunciates the basic principles of the second and third pillars. For these two new pillars to become operational, it will be necessary to adopt implementing legislation and create the appropriate financial infrastructure, including, in particular, the establishment of private pension funds that will receive and invest a share of the pension contributions. A new law on private pension funds defining a tighter prudential framework for the establishment and operation of these funds is being prepared by the government with the support of independent experts and the World Bank.42

96. This chapter describes the main features of pension reform as contained in the draft law that had its second reading in May 1998. Certain elements of the law, however, may be modified to take into account both the comments made by parliament during the second reading and the recent ruling of the Constitutional Court regarding the system of indexation of pensions (discussed below). The comments by parliament and the difficulties related to the resolution of the Constitutional Court ruling may also result in some delay in the passage, and entry into force, of the new pension legislation.

B. Measures to Rationalize the PAYG Pillar43

97. The draft Pension Law contains the following measures aimed at downsizing and rationalizing the PAYG pillar:

  • An increase in normal retirement ages from 55 to 65 for women and from 60 to 65 for men. This will be done in a gradual way: each year, retirement ages will be raised by six months, implying that it will take 20 and 10 years for women and men, respectively, for the full increase in retirement ages to take place.

  • Consistent with the increase in normal retirement ages, minimum early retirement ages will also be raised by 10 years (from 50 to 60) for women and by 5 years (from 55 to 60) for men. This will done more rapidly than the increase in normal retirement ages: each year, early retirement ages will be increased by 1 year.

  • At the same time, the reduction factor for early retirement will be increased from 1.33 to 3.6 percent per year of early retirement. The new reduction factor will still be relatively low, however, and will continue to encourage early retirement.44

  • The base period used to calculate the pension benefits will be increased from the 10 consecutive years with highest salaries to the full working life of the pensioner. This measure, which will tend to reduce the average pension benefit, will be implemented progressively over a 10-year period, with the computation period increasing by three years for every year elapsed.

  • For pensioners remaining entirely under the PAYG system (those aged 40 or more at the time the reform is implemented), benefits will be determined by the higher of:

    • * An individual benefit based on the pensioner’s lifetime net wage history relative to the net average wage for her/his cohort. Under this personal points formula, which is modeled on the scheme introduced in Germany by the 1991 reform, each pensioner is assigned a number of personal points based on her/his relative net wage history. The “value” of each personal point is adjusted annually by changes in average net wages in the economy. The pension base is obtained by multiplying the number of personal points by the value of those points.45 Under this approach, workers with the same years of service receive the same pension/wage replacement rate.46

      * A basic benefit equal to the number of years of service multiplied by the sum of: i) 0.25 percent of the average gross wage in the economy at the time of retirement; and ii) 0.25 percent of the total value of the personal points accumulated by the beneficiary, as determined using the personal points formula. Under this basic benefit formula—which is intended to guarantee a minimum pension for all pensioners—the replacement rate is lower the higher the worker’s lifetime average wage.

  • Regulations and controls on invalidity pensions will be tightened in order to reduce abuses.

  • Certain measures to improve wage reporting and compliance in the payment of contributions will be introduced.

  • The new law also enshrines the principle of ex-post indexation of pensions to inflation.

The Current Pension System in Croatia

Croatia currently has a PAYG pension system operated by the Pension and Disability Insurance Fund (“the Pension Fund”). The Pension Fund consists of three segments: the Workers Fund, which accounts for about 90 percent of all pension contributions and beneficiaries, the Farmers Fund, and the Self-Employed Fund. Each of these three subfunds provides three types of benefits: retirement pensions, disability pensions, and survivor pensions. The Pension Fund collects most of its revenues from a 21.5 percent payroll contribution, paid in equal amounts by workers and employees. It also receives transfers from the central budget, which amounted to HRK 2.7 billion, or 2.2 percent of GDP, in 1997. A third source of revenues are dividends from, and proceeds from the sale of, shares from its portfolio of enterprises (see Table 18).

A worker must have contributed for at least 20 years to qualify for a retirement pension. Pension benefits are calculated based on the 10 best paid consecutive years of the beneficiary’s career. For the calculation of the pension base, earnings are adjusted upward by average net wage growth in the economy in the years up to the one preceding the year in which the entitlement is established. The accrual factor is set in such a way that it aims to produce an 85 percent pension/net wage replacement rate for a full career worker. 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 0.4 plus an additional 0.03 per year of contribution or other qualifying periods, also up to a maximum of 0.85. Normal retirement ages are currently 60 for men and 55 for women, while early retirement ages are 55 for men and 50 for women. Men must have contributed for at least 35 years, and women for at least 30 years, to be able to take early retirement. A 1.33 percent reduction factor is applied for each year of early retirement.

There is a guaranteed minimum pension, provided that neither the retiree nor other members of his/her household have other sources of income sufficient to support them. This means-tested guaranteed threshold was HRK 893 per month in January 1998 (or 35.7 percent of the economy’s average net wage in that month). For full-career workers, a minimum guaranteed pension of HRK 1,212 per month applied in January 1998. In addition, certain groups of people—such as retired parliamentarians, war veterans, war invalids, families of war victims, and refugees from other republics of the former Yugoslavia—receive so-called beneficiary or merit pensions (that is, pensions exceeding the amount that would be justified by the contributions made by the recipient in the past). Merit pensions have grown rapidly in recent years and accounted for 16 percent of total pension payments in 1997. They are financed by transfers from the budget to the Pension Fund.

Table 18.

Croatia: Accounts of the Pension and Disability Insurance Fund, 1991 -98

(In millions of kuna)

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Sources: Ministry of Finance; and Central Bureau of Statistics.

Transfer to pay for health care for pensioners. The contribution to the Health Fund was reduced from 25 percent to 18 percent of pension payments in January 1997 and eliminated altogether in February 1998. To compensate for the elimination of this transfer to the Health Fund, the contribution rate to the Pension Fund was reduced from 25.5 percent to 21.5 percent, and the contribution rate to the Health Fund increased from 14 percent to 18 percent, with both changes also becoming effective in February 1998.

In percent of gross wages. Includes both employers’ and workers’ contributions.

C. The Establishment of Two Privately-Managed Pillars

98. For workers under 40 (the “cut-off age”) at the time of the introduction of the reform, the new Pension Law foresees the transfer of at least 5 percentage points of pension contributions to the second-pillar pension funds from January 1999. For workers of 40 years of age or more, the full 21.5 percent contribution will continue to be directed to the PAYG pillar. Of course, each year the share of workers contributing to the second pillar would increase as new workers enter the labor force.

99. For workers under 40, the part of pensions based on prior work (that is, work undertaken before the introduction of the reform) will be credited according to the higher of the personal point and basic benefit formulas described above. Future work, however, will be credited using the basic benefit formula only. Since these workers will have accumulated contributions in the second-pillar pension funds, they will also receive complementary pension payments from these funds upon retirement.

100. Although efforts are being made to prepare and pass before end-1998 the legislation needed for the second and third pillars, adhering to this timetable cannot be guaranteed. Furthermore, once these complementary laws have been passed, some time will be required for the private pension funds to be established and begin operations. According to the World Bank, it can take more than one year for the funds to start operating after the needed legal framework is in place.

101. In view of this time lag, there are two options. One is to delay the transfer of pension contributions to the second pillar until the private pension funds are ready. A problem with this option is that delaying the start of the second pillar may postpone its implementation indefinitely (as the recent experience of Latvia suggests). The second option is to transfer the contributions to an institution that will invest and manage these funds until the second-pillar pension funds are operational. This second proposal (the creation of an “interim” second pillar) is based on the scheme used successfully in Sweden. It raises, however, a number of issues, such as which institution would manage the interim pillar, in which assets it would invest its funds, and whether it would have any responsibility for the licencing and supervision of the second-pillar funds. These issues would need to be clarified by the new Pension Law and/or complementary legislation.

102. Regarding the third pillar, little has been decided. One possibility would be to allow the second-pillar funds to offer voluntary pension plans, in which case they would manage both the second (mandatory) pillar and the third (voluntary) pillars. Alternatively, this task could be assigned to other financial institutions regulated separately. This and other issues such as the prudential regulatory framework affecting third-pillar pension schemes are yet to be settled.

D. The Transitory Fiscal Cost of Pension Reform

103. The loss of part of the contributions to the second pillar will in principle have to be covered by a concomitant increase in the transfer from the central budget to the Pension Fund. This cost is estimated at about 1.1 percent of GDP for the first year of reform (1999), assuming that 5 percentage points of the contribution are diverted to the second pillar. The cost, however, will increase as the proportion of workers contributing to the second pillar increases, peaking at about 2¼ percentage points of GDP about 20 years after the introduction of the second pillar, once all workers have moved to the multi-pillar system.

104. It is important to note that the cost due to the diversion of contributions to the second pillar does not imply a fiscal expansion, in the sense that the associated reduction in public saving is offset by an equivalent increase in private saving within the second-pillar funds. It will, however, tend to increase the budget deficit and, therefore, unless offset by other fiscal actions, will have to be financed by an increase in public debt. The cost due to the loss of contributions will be gradually offset by reduced pension payments from the PAYG pillar, as the rationalization measures in that pillar start yielding fruits, and as workers aged below 40 at the time the reform was introduced retire and start drawing pensions from their second-pillar retirement accounts.

105. World Bank projections based on a pension reform simulation model (PROST) suggest that the planned reform could reduce pension payments (relative to a no-reform scenario) by ½ percent of GDP by 2000, by 1¼ percent of GDP by 2015, and by about 3 percent of GDP by 2035. By the year 2030, these savings should be sufficient to approximately offset the loss from the transfer of contributions to the second pillar, thus fully eliminating the transitory cost of the reform. Thereafter, the reform would start yielding net benefits.

106. The transition cost of pension reform could basically be covered by issuing government securities (which could be acquired by the second-pillar funds or transitory institution with their surplus savings), by privatization revenues, or by a combination of both. Regarding the use of privatization revenues to pay for pension reform, the Pension Fund has an important portfolio of shares in some 750 formerly socially-owned enterprises, received in the context of the privatization process.47 The book value of this portfolio is about DM 3.5 billion (about HRK 12.6 billion), although the market value of these assets is thought to be roughly half of this amount (or about 5.3 percent of 1997 GDP). Assuming that the market value is half of the book value, the divestiture of these assets could therefore finance the transitory cost of pension reform during approximately the first five years. Furthermore, according to the Privatization Law of 1995, about 30 percent of the receipts from the sale of the public enterprises (which include the petroleum conglomerate INA and the big utilities) is to be set aside for “pension funds” in the context of pension reform. Also, privatization receipts accruing to the budget could be used to finance the higher state transfers to the Pension Fund required by the establishment of the second pillar.

E. Amendments Proposed by Parliament in the Second Reading of the New Pension Law

107. Among the remarks made by parliament during the second reading of the proposed Pension Law, the following seemed of particular significance:

  • Most members of parliament argued that retirement ages for women should not be increased so much. They favored an increase in women’s normal and early retirement ages to 60 and 55 years, respectively, rather than to the 65 and 60 years envisaged in the draft law.

  • Parliament debated strongly against the indexation of prices to wages, although many parliamentarians seemed open to consider a mixed variant (such as the so-called Swiss formula) in which pension growth would be indexed to a weighted average of price and wage inflation.

  • Parliament said that it could not approve the new Pension Law before having a more precise idea of what the second and third pillars will look like. This may require the government to accelerate the preparation of the second- and third-pillar legislation so as to be able to submit it hand-in-hand with the new Pension Law.

  • Finally, a majority of parliamentarians questioned January 1999 as the starting date for the reform.

F. The Constitutional Court Ruling of May 1998

108. As part of the stabilization program of October 1993, the government suspended the automatic indexation of pensions to wages. This was done through regular government decrees until a new law was passed in February 1997, establishing the principle of price indexation of pensions.48 This law indicated that, beginning on January 1, 1997, pensions would be adjusted every six months to take account of changes in the COLI during the six previous months, or at shorter intervals if the COLI increased by more than 3 percent.49 With real wages increasing very rapidly since 1994, the suspension in 1993 of the indexation of pensions to wages resulted in a sharp deterioration of the pension/net wage replacement rate, which fell from about 71 percent in 1993 to about 49 percent in 1997 (see Table 19). The end of the war in 1995 and the economy recovery led to increasing pressures by pensioner associations for a reestablishment of past replacement rates.

Table 19.

Croatia: Key Indicators of the Pension System, 1990–97

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Sources: Central Bureau of Statistics; Croatian Pension and Disability Fund; and the World Bank.

Insured persons of the Workers’ Fund only.

Population between 20 and 59 years old over population aged 60 or more.

Average monthly old-age pension over average monthly net wage.

109. In addition to laying down the principle of price indexation, the law of February 1997 compensated pensioners for the deviation of pension growth from wage growth between February 1995 and December 1996. These “compensation pensions” amounted to a total of about HRK 500 million (0.4 percent of 1998 GDP) and are being paid in 18 monthly installments, the first of which took place in May 1997.

110. Following an appeal by pensioners, the Constitutional Court ruled in May 1998 that the decrees and 1997 law suspending the indexation of pensions to wages were invalid.50 In particular, the Court argued that they were incompatible with articles 1, 3, 5, and 14.2 of the Constitution, which define Croatia as a social state that should protect the standard of living, and guarantee the equality of treatment, of its citizens. The Court ruling may oblige the government to compensate pensioners not just for the difference between wage and pension growth in 1995–96, as foreseen in the law of February 1997, but for the full deviation experienced since the indexation of pensions to wages was terminated.

111. While the Court did not specify how the situation should be redressed, the fiscal implications of this ruling are potentially enormous. Given the sharp increase in real wages since end-1993, the total compensation for the past divergence between pensions and wages would be very sizeable. Depending on how it is calculated, the corresponding new pension debt has been estimated at between HRK 7 billion and HRK 30 billion (or between 5 percent and 22½ percent of projected 1998 GDP) for the period up to end-1997. Furthermore, the ruling also affects two of the main parameters of the envisaged pension reform. First, it implies a higher starting level for pensions and the replacement rate. Second, it puts into question the indexation to prices foreseen in the new Pension Law. Since parliament has also objected to the price indexation of pensions (with some parliamentarians expressing a preference for a formula indexing pensions to a weighted average of wage and price growth), it now seems difficult for the government to stick to this key component of its reform plans.51

112. Based on the PROST pension model, and assuming that real wages grow on average by about 4 percent a year, the World Bank estimates that a shift from full price indexation to full wage indexation would require an increase in social security contributions to the Pension Fund of about 4 percentage points in order to keep the financial position of the Pension Fund unchanged. Such an increase in contributions would run against the government’s declared objective of reducing payroll taxes over the medium term in order to reduce the indirect cost of labor and thus reduce Croatia’s relatively high rate of unemployment.

G. Summary and Concluding Remarks

113. A rapid increase in early retirement, disability and merit pensions, population aging, as well the recent increase in the number of pensioners related to the reintegration of war-affected regions into the Croatian territory, have put the Croatian pension system in a difficult financial position, posing a threat to the overall fiscal position of the government. Moreover, demographic trends are expected to put further pressure on the system in the next three decades.

114. In this context, the government has presented a pension reform proposal that aims at putting the pension system on a sound footing and ensuring its medium-term sustainability. The expenditure measures envisaged in the reform plan will take some time to mature, and a significant transitory fiscal cost is expected from the transfer of part of the payroll contributions to the second-pillar pension funds. Also, the shape and scope of the second and third pillars need to be better defined, the corresponding legislation adopted, and the financial infrastructure necessary for their operation developed. But the overall pension reform project, designed in collaboration with the World Bank, seems well conceived.

115. The recent ruling of the Constitutional Court on pensions has, however, complicated the government’s task, both by potentially increasing the obligations of the pension system in the short term and by putting into question some of the basic elements of the pension reform program (in particular, the indexation of pensions to prices). While the Court did not specify how pensioners should be compensated for the past divergence between pension and wage growth—the amount of compensation is to be determined by the political process—the Court’s ruling may have large fiscal implications and may result in a delay in the implementation of the pension reform plan. Resolving this issue promptly and in a way that does not weaken the reform program is one of the major challenges confronting Croatian policymakers in the near future.

APPENDIX I: Summary of the Croatian Exchange and Trade System51

(Position as of December 31, 1997)

A. Exchange Arrangements

116. Croatia accepted the obligations of Article VIII, Sections 2, 3, and 4 of the Articles of Agreement on May 29, 1995. The currency of Croatia is the kuna, the external value of which is determined in the interbank market. The exchange rates in the interbank market are determined by authorized banks that transact with each other at freely negotiated rates. The Croatian National Bank (CNB) may set intervention exchange rates at which it will transact with banks outside the interbank market for purposes of smoothing undue fluctuations in the exchange rate. On December 31, 1997, the average interbank market rate for the U.S. dollar was HRK 6.303 per US$1. There are no taxes or subsidies on purchases or sales of foreign exchange. Settlements between residents and nonresidents may be effected in any convertible currency. Croatia does not maintain any bilateral payments agreements.

B. Administration of Control

117. The Law on the Foreign Exchange System, Foreign Exchange Operations, and Gold Transactions, which was enacted on October 7, 1993, governs foreign exchange transactions. The CNB formulates and administers exchange rate policy. The CNB and the Ministry of Finance may issue foreign exchange regulations under this law. A Trade Law (codifying domestic trade and foreign trade legislation in a comprehensive law) was passed on January 31, 1996, and came into force on February 17, 1996. Companies wishing to engage in foreign trade must register with the commercial courts. The representative offices of foreign companies must be registered with the Ministry of Economy.

118. Foreign exchange transactions must be conducted through authorized banks 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 banknotes and checks.

C. Resident and Nonresident Accounts

119. Resident natural and juridical persons may, in principle, open and operate foreign exchange accounts only in Croatia. However, the CNB has the authority to allow resident juridical persons to keep foreign exchange in accounts with foreign banks in order to cover the costs of business operations and meet the requirement of regular foreign trade activities abroad. The law also makes specific provisions for resident juridical persons engaged in capital project construction abroad to maintain accounts with foreign banks, subject to a license issued by the CNB.

120. 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 or conversion into domestic currency; reconversion of domestic currency into a foreign currency is permitted. Juridical persons may credit these accounts with foreign banknotes up to a limit of US$20,000 without special permission from the CNB.

121. 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.

D. Imports and Import Payments

122. Croatia does not maintain any import quotas—the existing quotas were abolished by decree of July 12, 1996, although such quotas are in principle allowed for under the Trade Law under conditions similar to WTO rules. All imports except a list of products whose importation is controlled by international agreement for noneconomic reasons (such as arms, gold, illegal drugs and narcotics, and artistic and historic works) are free from licensing requirements, and a small number of other products (notably iron tubes and bars). The importation of these items is allowed on a case-by-case basis.

123. Imports are subject to customs tariffs of up to 25 percent, with a few exceptions. The exemption for duty-free imports by travelers was US$100 until December 31, 1997; since January 1, 1998 this exemption has been changed to HRK 300. Goods imported by travelers and postal shipments up to the 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 in an amount related to the period spent abroad for household effects and for private business purposes without restrictions, but on a case-by-case basis, under the approval of Ministry of Finance. Under certain conditions, goods imported by nonresidents 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, 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 legal imports are not restricted. Advance payments and down payments for imports are permitted.

E. Payments for Invisibles

124. Payments for invisibles related to legal imports by juridical persons may be made freely. 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. Payments of royalties, insurance, and legal obligations and contracting of life and casualty insurance policies with foreign companies are also permitted.

125. Resident natural persons may take out of the country—including on short cross-border trips—foreign currency equivalent to DM 1,000. There exist no restrictions on the frequency with which such amounts can be taken out. An additional amount equivalent up to DM 2,000 may be taken out, provided that it is withdrawn from foreign currency accounts or purchased from banks for travel expenses. In both cases the CNB 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, but larger amounts may be exported with special permission from the CNB.

F. Exports and Export Proceeds

126. Exports are free of restrictions except for certain products for which permits must be obtained (List D products; e.g., weapons, drugs, and art objects); several basic foodstuffs to ensure adequate domestic supplies; unrenewable resources (oil and natural gas); hides and wood. Export proceeds must be collected and repatriated in full to Croatia within 90 days of the date of exportation; this period may be extended with the permission of the CNB up to 150 days. If payment terms in excess of 90 days have been agreed with foreign importers, the credit arrangement must be registered with the CNB.

G. Proceeds from Invisibles

127. 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 to HRK 2,000 a person, but larger amounts may be imported with special permission from the CNB.

H. Capital Account

128. Resident juridical persons, including commercial banks, may borrow abroad. They are required to register the loans contracted, including commercial credits, with the CNB. Financial credits may be extended to nonresidents by resident juridical persons, only in accordance with the provisions of the Law on Foreign Trade Credit Operations. Natural persons are permitted to obtain loans from nonresidents in domestic or foreign currency. The foreign exchange positions of commercial banks are subject to a limit (maximum up to 30 percent of the bank’s capital).

129. Foreign direct investment by nonresidents may take the form of joint ventures or full ownership and must be registered with the commercial courts. Repatriation of capital and transfers abroad of profits are not restricted. In principle, domestic and foreign investment is treated equally (e.g., “national treatment”). If the foreign equity capital participation exceeds 20 percent, inputs used in the project are exempt from import duties. The profit tax rate is uniform and amounts to 35 percent. Foreign direct investment abroad by residents must be registered with the Ministry of Economy within a 30-day period from the signing of the contract. Such investment must generally be undertaken through loans abroad or through reinvestment of profits. Inward portfolio investment is not restricted, except in central bank short-term securities in the primary market. In general, outward portfolio investment is restricted.

130. A new law governing the foreign ownership of real estate came into effect on January 1, 1997. Foreign natural and juridical persons can legally purchase real estate subject to the approval of both the Ministries of Foreign Affairs and Justice. However, the law grants the right of ownership only to those foreign nationals in whose countries Croatian citizens are given reciprocal rights of property ownership

I. Gold

131. The CNB may export gold and gold coins without any restrictions. Unprocessed gold may be exported under the approval of the CNB. Gold coins may be exported by authorized commercial banks, under the approval of the CNB. Importation of gold is subject to the approval of Ministry of Economy.

Changes from July 1, 1995 through December 31, 1997

December 14, 1995: The Law on Issuance and Sale of Securities was passed and came into force on January 1, 1996.

December 14, 1995: The Law on Investment Funds was passed and came into force on January 3, 1996.

February 17,1996: The Trade Law became effective.

June 8, 1996: The Law on Foreign Credit Operations became effective.

July 1, 1996: The Law on Customs Tariffs (including unification of various tariffs into a single tariff structure) became effective.

July 12, 1996: A Law on Export Quotas (including abolition of import quotas) became effective.

July 31, 1996: An exchange of bonds in the context of an agreement with London Club creditors was effected.

January 1, 1997: The Law on Real Estate Ownership became effective.

APPENDIX II: SUMMARY OF THE CROATIAN TAX SYSTEM

(Position as of April 30, 1998)

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STATISTICAL APPENDIX

Table 20.

Croatia: Quarterly GDP at Constant 1990 Prices 1/

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Source: Central Bureau of Statistics.

Series rebased using new annual GDP series published in April 1998.

Table 21.

Croatia: Gross Domestic Product at Current Prices 1/

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Source: Central Bureau of Statistics

Revised series published in April 1998. Based on the uniform classification of economic activities.

Preliminary estimates.

Table 22.

Croatia: Gross Domestic Product at Constant (1990) prices 1/

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Source: Central Bureau of Statistics

Revised series published in April 1998. Based on the uniform classification of economic activities.

Preliminary estimates.

Table 23.

Croatia: Trends in Industrial Production

(Industrial production by main industrial groupings, 1992=100)

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Source: Central Bureau of Statistics.
Table 24.

Croatia: Agricultural Production

(1988=100)

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Source: Central Bureau of Statistics.
Table 25.

Croatia: Tourism—Overnight Stays

(In thousands)

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Source: Central Bureau of Statistics.
Table 26.

Croatia: Nights Spent by Tourists According to Type of Accommodation

(In thousands)

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Source: Central Bureau of Statistics.
Table 27.

Croatia: Nights Spent by Tourists According to Country of Origin

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Source: Central Bureau of Statistics.
Table 28.

Croatia: Composition of Employment 1/

(In thousands)

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Source: Central Bureau of Statistics, Monthly Statistical Report.

The data cover the former socially-owned enterprises, private and partially privatized enterprises, as well as the general government sector. Annual data are the average of March and September. Data for 1996 and 1997 are calculated on the basis of 12 monthly observations. Data do not include those employed at crafts and trades and freelances, employed at the Ministry of Internal Affairs, Ministry of Defense and private farmers.

Preliminary data.