Chapter 4: Croatia: Prolonged Crisis with an Uncertain Ending
Vojmir Franičević INTRODUCTION: 2008–2010 – LEAVING THE PATH OF GROWTH1 1. After a ‘difficult’ 1990s, the period 2000–2008 saw improvements in many economic and social indicators, but a number of important ‘hard realities’ remained (Franičević 2007a). A deep recession had set in by the second half of 2008, with no clear prospect of coming to an end. Underlying these cyclical phenomena are a number of structural issues and institutional deficits, but also the need to meet the conditions for EU accession. The economy overall presented an attractive picture: high growth; increased investment, consumption and FDI; price and exchange rate stability; moderate fiscal consolidation; and increasing international reserves. However, increasing trade and current account deficits, heightening the country’s external vulnerability with growing foreign debt will be major limiting factors. External vulnerability was not limited to the state alone, however: ‘at the end of 2008, around 90 per cent of total corporate debt and about 70 per cent of household debt was external or foreign currency denominated’ (World Bank 2009). Widespread corruption, a weak judiciary and low capacity for reform will be major barriers to timely reforms, but also to speedier EU accession. Table 4.1 illustrates some basic macroeconomic trends of the period. The impact of the global recession in 2008 was stronger and more durable than expected. Throughout South East Europe during the first half of 2008 ‘there was a feeling that SEE would be able to escape the worst of the contagion from the crisis’ (Sanfey 2010:...
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