Winning the Peace: Seizing Economic Opportunities
A Croatia is one of the leading Central European emerging markets. Under the overall aim of winning the peace for Croatia in the world, the primary goal remains to increase Croatia's economic prosperity through trade and foreign investment. In a relatively short time since the collapse of communism and the establishment of our independence, we have learned that successful international business and trade depends decisively on a stable international political order. As a new state, Croatia has quickly arrived at the understanding that international economics is a crucial foreign policy challenge.
As a result of the collapse of communism, the economic map of Central and Eastern Europe has changed as rapidly as its political map. Croatia, larger than the Netherlands, Denmark, Belgium or Switzerland, is a strategically located gateway to Europe. Croatia's achievements in the economic field and toward building a stable, pluralistic democracy provides a model for other emerging market economies. The war is over and the country shows clear signs that it has regained its historical position as an efficient and successful Central European country and its economy is back on track and moving forward.
USA Today recently said that Croatia was valued as a democratic power by the United States. It said: "this small nation has succeeded in putting its economic affairs in order. Strict observance of the 1993 stabilization plan has brought macroeconomic stability . . . Croatia has been able to build up a diversified economy which has more similarities with those of Western countries than with its neighbors to the east. In the past extensive trade was conducted with the West and the country has been able to compete internationally in the electrical engineering, pharmaceutical and shipbuilding industries. Now that its position has been consolidated as an independent, democratic state, Croatia is speeding up the process of privatization and welcoming foreign investment in development. The private sector, accounting for more than 50 percent of GDP, has been growing in strength since independence in 1991."
The Wall Street Journal has also affirmed the success of Croatia's economy. It was written in February 1996: "Zagreb stores brim with goods and shoppers, and people have seen small but steady increases in salaries . . . Croatia has surpassed all of its IMF targets and has made impressive progress in getting inflation down to under 4 percent in 1995 . . . Reconstruction and the return of tourists could make Croatia Europe's best-performing economy in 1996, Union Bank of Switzerland said in a paper last month."
Croatia's economic achievements have been manifold. At the end of 1996, annual inflation was around 3.5 percent, the lowest among the Central European economies in transition. Croatia's foreign currency reserves have surpassed US $4.4 billion, and its real GDP is rising, exceeding 6 percent in real terms. Total foreign debt accounts for 23 percent of GDP and stands at a very comfortable servicing ratio of no more than 10 percent in the foreseeable future.
These achievements have been recognized by leading international banks and financial institutions such as the World Bank, International Monetary Fund and the European Bank for Reconstruction and Development. They have praised Croatia as one of the most successful Central European countries in terms of macroeconomic stability. The major sovereign risk credit agencies such as Standard and Poor's, Moody's and IBCA, have also included Croatia among the most stable economies, ahead of Slovakia, Greece and Hungary. In another example, Institutional Investor, in its latest ranking of sovereign creditworthiness last September, Croatia registered one of three biggest rating gains, earning an increase of 4.6, ahead of Slovenia and Poland.
The U.S. Department of Commerce recently
declared that "Croatia is becoming an increasingly attractive
market for U.S. exports and investments, due to recent Croatian
government policy measures aimed at speeding up a highly successful
stabilization program and further improvements in the bilateral
commercial relationship between the U.S. and Croatia."
In Croatia, there is increasing evidence of a burgeoning
export culture which is spreading to middle-size and smaller
companies. Croatian exports to the U.S. are on the rise. In 1996
they increased by 7 percent to reach 89 million USD. These exports
included mostly chemicals, pharmaceuticals, textiles, steel products
and furniture. U.S. exports to Croatia for the same period grew
by 6.5 percent, reaching 213 million usd in the fields of machinery
and equipment, electronics and agricultural products. Croatian
exports to the U.S. represent approximately 1.8 percent of total
exports, while imports from the U.S. accounts for 2.8 percent
of total imports.
Croatia is an attractive partner for foreign investments. The framework for U.S. business investments is in place: Most Favored Nation and GSP status, a Bilateral Investment Treaty that was signed in 1996, and treaties on the avoidance of double taxation and protection of intellectual property rights are currently being negotiated. Furthermore, the U.S. Export-Import Bank is open to short and medium-term financing and the Overseas Private Investment Corporation (OPIC) and TDA are open to review Croatian project proposals.
The United States Trade and Development Agency has funded training of Croatian air traffic controllers in the U.S. and a feasibility study to up-grade a gas-fueled power generation plant in Zagreb. Croatia has imported $10 million of U.S. cotton and $5 million of U.S. soybeans under the PL 480 program. The U.S. has agreed to reschedule Croatia's official debt according to terms negotiated in the Paris Club. In addition, a Coca-Cola affiliate which already owns a bottling plant in Zagreb broke ground for a new $20 million factory in Split. McDonald's opened its first restaurant in Zagreb in February 1996 and the Barrington Group of Miami has formed a joint venture to manage 60 hotels along the Croatian coast.
It is important to note that by 1996, numerous other U.S. companies were present in Croatia, with direct investments, branches, joint ventures, license production agreements or otherwise. These include P&G, Mars, Philip Morris, RJR-Nabisco, Merrill Lynch, KPMG Peat Marwick, Arthur Andersen & Co, Dow Chemical, IBM, American Express, Inter-Continental Hotels, ITT Sheraton, Pepsi Co., BBDO, McCann-Erickson, Coopers & Lybrand, Price Waterhouse, Deloitte & Touche and scores of others.
The American Embassy in Zagreb cites
a new principal growth area for Croatia in 1997: transportation,
noting that Croatia sits astride the major road, rail and river
routes linking Northwestern Europe with the Southeast and Asia.
The Embassy team also estimates that the Croatian private sector
today contributes over 50 percent of the GDP, and the government
is dedicated to continuing the process of privatization toward
completion in the next two years.
U.S. Presidential Trade and Business Missions to Croatia
In 1996, the special economic relationship
between Croatia and the U.S. yielded significant results, with
the two trade and business missions to Croatia by U.S. Commerce
Secretary Ron Brown and his successor Mickey Kantor.
In preparation of the Brown mission, the firm belief that
long term stability and security could not be achieved without
economic progress became a driving force. Secretary Brown immediately
understood that advancement in the economic sphere would be the
best counter argument to those who still had doubts and reservations
as to the progress accomplished in the peace process. He was
a true patriot, realizing that the U.S. had been playing an invaluable
and crucial role. He had a vision and, like his country, was
willing to take the risks involved to promote and achieve peace
in Croatia and Bosnia and Herzegovina.
It is important to put Secretary Brown's mission in context of the overall importance of American engagement in Croatia and Bosnia and Herzegovina. His decisiveness, openness, and responsiveness was astonishing. He was clearly a man of action and vision. Secretary Brown realized that a visit to Croatia with top U.S. business leaders to meet with their Croatian counterparts was the right way to directly discuss the very crucial role private investment could play in establishing a lasting peace, built on genuine economic progress in Croatia.
In the wake of the Dubrovnik tragedy, Croatia received strong assurances from the Clinton administration that it would "proceed with the same policy" of seeking to participate in Croatia's reconstruction. To that end, a trade mission, on the initiative of Presidents Tudjman and Clinton, was organized to take place in July 1996. U.S. Secretary of Commerce Mickey Kantor headed a successful U.S. commerce and business development mission, including senior officials of 18 large American companies, to Croatia and Bosnia and Herzegovina. President Clinton had said that he can see "no better tribute to Secretary Brown and all the Americans whose lives were lost seeking peace and economic security in the region."
President Tudjman met with Secretary Kantor during his visit in Croatia, welcoming greater presence of American capital and investment in Croatia and the Federation of Bosnia and Herzegovina as a contribution to stability. The culmination of talks was the signing of several agreements: a Bilateral Investment Treaty between Croatia and the U.S., signed by Croatian Minister of Economy Davor Stern and Secretary Kantor, and two memoranda of understanding regarding electrical power development projects worth approximately one billion dollars. Secretary Kantor also met with the Prime Ministers of Croatia and Bosnia and Herzegovina, Zlatko Matesa and Hasan Muratovic respectively, in which they signed a trilateral Memorandum of Understanding on Economic Reconstruction and Development of Infrastructure in Croatia and Bosnia and Herzegovina. The agreement provides for the construction of a road between Zagreb and Dubrovnik and the reconstruction of the road between the Sava River and the Croatian Adriatic port of Ploce. A Memorandum of Understanding for Investment in the Reconstruction and Development of the Port of Ploce, in the amount of $500,000, was also signed with the U.S. Trade Development Agency.
Secretary Kantor and the Croatian Minister of Tourism Niko Bulic, signed the Tourist comminique, of which the primary aim was to put travel to Croatia back on the American tourist agenda as a destination point. Croatia desires to once again become one of the most popular destinations in Europe and become the leading tourist country in the Mediterranean.
Secretary Brown's mission was inextricably linked to the overall effort of the United States to build on Croatia's economic achievements and bring peace and stability to Bosnia and Herzegovina. Indeed, without American perseverance and leadership, today Croatia would not be looking forward to new prospects for prosperity and well-being, and its economic achievements and statistics would not look as healthy. According to impartial international observers, since the first trade mission, Croatia has achieved impressive results in liberalizing its economy and creating a legal framework encouraging foreign investment. Due to this, foreign capital, especially American capital, is finding fertile ground for investments in Croatia.
Croatia is proud that the result of our mutual efforts and signed treaties in broadening economic relations is today bringing concrete results. A memorandum of understanding for the construction of a major highway between the capital of Zagreb and the port city of Split, headed south to the city of Dubrovnik was recently awarded to Bechtel, a San Francisco-based construction company. It is only part of a highway which will continue through the neighboring Federation of Bosnia and Herzegovina and thus act as an additional support for the Washington and Dayton Agreements, as well as strengthen the Federation. Enron and Ensearch, two large-Texas-based companies, are major bidders in considerable reconstruction and construction projects of thermal power plants in the vicinity of Zagreb and along the Croatian coastline. There is also expected to be in the near future, American private interests to be present in the field of environment and telecommunication projects.
The country's fundamentals are in
increasingly good shape. Croatia expects to join the World Trade
Organization in 1997 and negotiations on membership in the Central
European Free Trade Association are in progress. Negotiations
on a Cooperation and Trade Agreement with the European Union
are expected to begin soon. In addition, the government expects
the rate of economic growth this year to be around 7 percent,
extraordinary for an economy in transition. Growth in domestic
investment will continue to expand throughout 1997 as well as
the continuing expansion of the tourism industry, earnings of
which doubled last year. In 1997, Croatia will continue to move
forward, working together with the U.S., and committed to free
market policies and democracy.
Dedication
The Government of Croatia commemorates the life of U.S. Commerce Secretary Ronald H. Brown, his delegation of U.S. government officials and businessmen, and the Croatians, who perished in an airplane crash while advancing the ideals of freedom and economic vitality in Croatia. Our friends did not die in vain; their vision, support and leadership have been mirrored through the continued cooperation and partnership between Croatia and the United States. Their legacy will be remembered by generations of Croatians to come.
