Democracy and Governance in Croatia
The Development Challenge: Croatia has made significant progress toward macroeconomic stability, growth, and strengthening of democratic institutions. However, it has yet to reach key reform targets achieved by Northern Tier East European nations (Poland, the Czech Republic, Hungary, Slovakia) that signaled their readiness to successfully graduate from U.S. assistance. As the AEEB assistance graduation date approaches (no new funding is planned after FY 2006), Croatia will be intensifying its attention to complete its economic and social transition and to bring its systems in line with European Union (EU) and NATO requirements. USAID's graduation strategy will support Croatia in these efforts.
The current Croatian Government came to power in January 2004, and is led by the Croatian Democratic Union (HDZ), the same political party which voters rejected in elections in January 2000 for their corrupt and nationalist policies. The HDZ has demonstrated that the internal reform the party underwent during four years in opposition was genuine. During its first year in power, the HDZ has surprised critics with its unwavering pro-integration and pro-reform policies. The government achieved EU candidacy status in June 2004 and has been a leader in regional cooperation and reconciliation. Some hardliners, however, remain within HDZ leadership circles. While their views are becoming less relevant within the party, international engagement remains a key element in keeping this government on track.
Since 2000 Croatia has been one of the fastest growing economies in Central Europe with gross domestic product growth averaging 4%. Tight monetary policy and increased competition have helped keep inflation below 3% for the last two years. Unemployment decreased to 13.8% (International Labor Organization methodology) for the first half of 2004, down from 14.1% for the first half of 2003, and 14.4% at the end of 2002. Economic growth has been driven by a recovery of the tourist sector from the travails of the war years; strong government investment -- especially in roads; and a boom in consumer spending. The latter understandably was fueled by the injection of foreign capital into the almost completely privatized banking sector and low tariffs.
In 2004 the Government of Croatia (GoC) made progress toward reintegrating the ethnic Serb minority displaced by the war. The signing of an agreement between the GoC and Serb representatives in the Parliament to resolve refugee return issues, including property reconstruction and repossession assistance, symbolized a new era of inter-ethnic cooperation and a move toward decreasing discrimination against minorities. Despite the slow implementation of that agreement, the GoC's success in encouraging local authorities to establish Minority Councils throughout Croatia at the local level demonstrated their commitment to ensuring that minorities have equitable representation. Increased dialogue between local government officials, minority representatives, and civil society organizations has created a welcomed atmosphere of tolerance and cooperation in most return communities.
Croatia's continued progress toward integration into regional and Euro-Atlantic security institutions and developing positive relations with other states in Southeast Europe is essential to achieving U.S foreign policy goals of improving regional security in the Balkans and managing transnational threats. In 2004 Croatia made important progress in building stronger relationships with its neighbors in the region. Relations with Serbia and Montenegro are moving toward normalization as clearly demonstrated by President Mesic's and Prime Minister Sanader's symbolically important, first-ever official visits to Belgrade in 2004. Likewise Croatia's relations with Bosnia became more transparent as the Croatian Government continued to support international community efforts to build and strengthen state institutions in Bosnia and Herzegovina.
(Excerpted from the 2006 Congressional Budget Justification for Croatia)
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