The Republic of Croatia declared independence in 1991 from Yugoslavia and within one month, the nation was at war where upwards of 20,000 Croatians were killed in the following nine months during the Serb-Croat conflict. By 1994, Croatia’s first currency imploded in value as the cost of fighting the war destroyed the currency only after 3 short years in existence. The decade of the 1990’s was a time of great pain for Croatia’s 4.5 million citizens. From 1991 to 1995, Croatia was in the midst of a bloody Independence War with its former country, Yugoslavia (Serbia) against President Milosevic’s forces coupled with an ugly ethnic civil war between Serbs and Croats. The 1995 Dayton Peace Accord ended Croatia’s military conflict with Yugoslavia but Croatia was left with large infrastructure damage and a relatively new currency, the Kuna. From 1989 to 1993, economic output in Croatia collapsed by 40 percent. Later in the 1990’s, the neighboring Kosovo War greatly impacted the Croatian economy as the region was tarnished by foreign investors as a whole and Croatia fell back into recession in 1999 after three consecutive years of economic growth. However, since year 2000 the Kuna has attained relative currency stability.
POLITICS: former President Tudjman died in December 1999 who was the architect of Croatia’s independence and democracy. After strongman ruler Tudjman’s time in power where he has been long accused of corruption, restricting free media and essentially governing with an authoritarian rule and an ideology of anti-West. Tudjman supported a protectionist platform as he mistrusted the European Union and the United States. In February 2000, the sea winds of change came to reality with the election of President Stipe Mesic representing the Social Democrats (SDP), a centre-left vision for Croatia with a leaning towards pro-Europe policies with access to larger markets for both capital and Croatian exports. President Mesic remains in power to this day. The government has launched several economic and political reforms with the intention of moving Croatia closer to the European Union (EU) with a goal of EU accession. Croatia achieved joined NATO in April 2008.
ECONOMY: the economy is industrialized, steady economic growth since year 2000 after a decade of contraction during the 1990’s. Privatization has taken place such as the case with other emerging European economies although Croatia for the most has preferred to keep a higher portion of state control / interference. The Croatian economy has been fueled by a credit binge by the consumer and strong tourist arrivals. Croatia is home to an exquisite mainland coastline along Adriatic Sea results in a significant tourism beneficiary to the national treasury as Croatia is a popular sailing destination for many in Europe. Tourism represents a significant portion of the economy with over 10 million foreigners visiting each year; Croatia has repeatedly ranked as one of the world’s most popular tourist destinations. The real estate market has dramatically increased in price with an increased interest from international investors. The overall cost of living is expensive from coffees to dinners, etc. Major trading partners include Italy and Germany. Key Croatian industries include aluminum, chemicals & plastics, machine tools, metals, electronics, paper, shipbuilding and tourism.
Economic Statistics
GDP as measured by purchasing power parity was measured at 83 billion USD (2008) with corresponding GDP/Capita at 18,300 USD. Total GDP as measured by expenditure market prices have the figure at 70 billion USD (2008). GDP growth rates include year 2009 estimated to decline by 5 percent of GDP, year 2010 forecasted to stabilize at near zero; year 2008 came in at positive 2.4 percent growth, year 2007 at 5.5 percent. Inflation quotes include September 2009 at 1 percent year over year as inflation has fallen significantly in 2009, year 2009 estimated at 3 percent range, May–June 2008 hitting the 8 percent level, years 2007-09 at 4 to 8 percent range, inflation during years 2003-07 in a band from 1 to 4 percent. The Croatian authorities have a goal of keeping inflation below 3.5 percent in order to maintain economic and currency stability although inflation for 2008 for the year came in at 6.1 percent. The current account has been in deficit for years, the year 2008 shortfall was large at 9.4 percent of GDP, year 2009 projected at 6.5 percent deficit. The trade component was deeply in the red at 16 billion USD equivalents (year 2007). However, the overall balance of payments is in surplus due to strong foreign direct investment ‘FDI’ levels (FDI 2008 at 3.35 billion EUR) reflecting in a large surplus in the capital account in thanks to strong tourism numbers. The fiscal account is in deficit at 0.9 percent for 2008, year 2009 deficit estimated to come in at 1.6 percent of GDP. Net external debt stands at 49 percent of GDP (2009) while total debt is much higher at 85 percent of GDP. Croatia has structural unemployment quite high at 14 percent.
POSITIVES: high literacy rates, advanced telecommunication systems, remittances from Croatians living abroad. CONCERN: brain drain - many young well educated have left Croatia for better opportunities abroad, declining population, high foreign debt, weak export sector, rely too heavily on tourism, energy shortfall – electricity, natural gas & oil deficit at 85,000 bpd in year 2007.
BANKING SYSTEM: now mostly foreigner owned. Extensive German investment within Croatian banks which has helped to increase confidence in the banking system. The Central bank is the Croatian National Bank (CNB), they set the discount rate which currently stands at 9 percent (October 2009). Gross official reserves stood at 13.3 billion USD (August 2009), net reserves at 8.2 billion USD (March 2009) representing a healthy 5 months of import coverage.
REGIONAL: Serbia, Bosnia and Herzegovina, European Union ‘EU’, Russia
Croatia is a net energy importer with Russia as a major supplier of oil and natural gas. Please contact BankINTRO.com for further details.
CURRENCY: ISO symbol ‘HRK’, Croatian Kuna. At time of review on October 21, 2009, the Kuna had an exchange value of 4.837 HRK to 1 US-dollar (USD) and/or 7.221 HRK to 1 Euroland euro (EUR). The Kuna follows that of a managed floating exchange rate regime whereby the Croatian Central Bank may intervene in the market from time to time to alleviate too excessive exchange rate fluctuation for the Kuna. Surprisingly, since year 1995 and the end of the war, the Kuna has stabilized with an exchange fluctuation of only plus/minus 6 percent to the German mark and EUR during this time.
CURRENCY HISTORY: the second version of the Kuna (HRK) was introduced in 1994 with the original first Kuna came into circulation in July 1941. Previously to the second Kuna, Croatia’s circulated the Croatian dinar since national independence in 1991. The dinar did not fair too well, it correspondingly imploded in value from hyperinflation in 1993-94 hitting 1,500 percent directly attributed to the regional war.
Historical valuations for the Kuna (HRK) include: September 2009 at 5.01 HRK to 1 USD, January 2009 at 5.55, January 2008 at 4.97, July 2007 at 5.31, August 2006 at 5.69, April 2005 at 5.70, January 2004 at 6.09, March 2003 at 7.10, January 2002 at 8.45 HRK, year 2001 at 8.34, year 2000 at 8.27, 1999 at 7.11, 1998 at 6.36, 1997 at 6.1, 1996 at 5.43, 1995 at 5.23 and year 1994 at 5.99.
CURRENCY FORECAST: By year 2012-13, there is a very good chance that Croatia will be admitted to the European Union (EU) and the EUR will then replace the Kuna as new national currency for Croatia. In order for this to happen, Croatia has to meet a specific set of financial macro-economic targets of which it has had difficulty in achieving hence EU accession has been delayed. Major credit rating agencies have a ‘BBB’ general credit score range for Croatia hereby BankINTRO.com attributing a moderate risk currency safeness ranking.
