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Croatia
>> Regional Overview >> Croatia
Development Challenge Summary Tables
Program Summary
Previous Years' Activities
2001, 2000, 1999, 1998, 1997Last updated: 01
Introduction
Croatia's journey to modern democratic nationhood and full participation in the global economy began in earnest in early 2000, after a decade of conflict and political misrule. When President Tudjman died in December 1999, the forces of popular opposition to his policies were already well on the way to electing a reform-minded Parliament and coalition Government in January 2000, followed by the election of Stipe Mesic, leader of a relatively small opposition party, to the Presidency. Mesic's appeal was based on his promise to lead Croatia in an entirely new direction.
The U.S. Government's foreign policy objective for Croatia, set forth in the U.S. Mission Performance Plan (MPP), is to ensure that Croatia continues to take the necessary steps to take its place within the community of democratic nations, and to become a force for stability, peace and cooperation throughout Southeast Europe. The MPP sets four objectives that comprise the approach necessary to achieve this goal: (1) full implementation of the Dayton and Erdut Agreements; (2) transition to a free-market economy; (3) increased domestic and regional stability; and (4) integration into Euro-Atlantic institutions.
Observers within and outside the country believe that Croatia could become a model for the rest of the troubled Balkans and contribute to European security and prosperity on which America's own security and prosperity depend. Stronger institutions that link to transnational needs and issues will further stability in Croatia and the region.
Development Challenge
USAID assistance to Croatia began on a modest level in 1992, focusing initially on humanitarian assistance to the war-affected population. After the Government of Croatia signed the Dayton Peace Accords (December 1995) and the Erdut Agreement (November 1995), USAID undertook a five-year Strategy focusing on: return and reintegration of war-affected populations; financial sector reform; and strengthening of political processes and civil society. Work in financial sector reform was suspended in 1997 following an assessment that showed a lack of political will for reform on the part of the Tudjman Government. Assistance activities from that time until the 2000 elections focused almost exclusively on strengthening democratic political parties, labor unions and non-governmental organizations as well as independent media and local government, and avoided support to the Tudjman Government. During the 1997-99 period, USAID's aims were to strengthen civil society and to support the return and reintegration of war-affected people. Progress was made in these areas, and USAID assistance is credited with promoting free and fair elections in early 2000 through its strong and effective support to political party strengthening, citizen election monitoring and information dissemination through a strengthened independent media.
USAID's Office of Transition Initiatives (OTI) began its program in Croatia in July 1997 with the understanding that progressive change in Bosnia and Herzegovina was partly contingent on the intentions of its powerful neighbors. OTI's efforts in Croatia were designed as elements of a regional peace-building and democratization program, focused on media, NGO advocacy, and reconciliation projects to promote and encourage democratic change.
OTI activities supported two Mission objectives relating to the return and reintegration of war-affected populations and democracy-building (Independent media and civil society development). During FY 2000, most of OTI's support centered around Croatia's parliamentary and presidential elections and was seen as a key mechanism for U.S. Government support to citizen participation in the parliamentary elections through a get-out-the-vote campaign and election monitoring by domestic NGOs. OTI closed its Croatia program in March 2000, handing off its support for civil society to the Mott Foundation, the British Know-How Fund and the USAID Mission.
The coalition Government elected in early 2000 has made substantial progress in reversing the nationalist and authoritarian polices of the previous Croatian Democratic Union (HDZ) Government. In a remarkably decisive step for a six-party coalition, the new Government and the new President moved very quickly to commit Croatia to cooperation with the International Criminal Tribunal for former Yugoslavia (ICTY) and to dramatically reduce costly support for ethnic Croats in Bosnia and Herzegovina (BiH) that had destabilized BiH sovereignty and cost Croatia millions of dollars annually. As a result, bilateral donors and International Financial Institutions have came forward with expanded resources, and Croatia joined the NATO Partnership for Peace and the World Trade Organization in 2000. Soon after the elections, the EU formed a European Union Task Force for integration of Croatia into Europe. A Stabilization and Association Agreement with the EU is expected to be signed in 2001.
USAID's program of assistance to Croatia expanded significantly during calendar year 2000. From programs aimed only at improving political processes, strengthening civil society and reintegrating war-affected populations, USAID broadened its focus and developed a new portfolio of activities that now includes significant economic reform and social transition activities.
USAID's assistance to the Croatian Privatization Fund seeks to build the institutional capacity of the Fund to enable the GOC to carry out plans for an aggressive program to dispose of State-owned enterprises in a transparent and competitive manner. Further assistance to Croatia's Central Bank has led to an improved bank supervision, providing the bank with adequate authority to enforce prudential laws and regulations. Technical assistance to the Ministry of Finance was key to the Ministry's success in the implementation of new automated and integrated financial management system required to meet IMF conditionality for a standby agreement.
The long-term prospects for Croatia's future democratic development are excellent. However, democratization in Croatia is far from complete. The legacy of Titoist communism and autocracy continues to have an impact on the media, judicial and local government sectors and will take many years to reverse. Following the electoral defeat of the former regime, USAID expanded its democracy portfolio. USAID has worked with parliamentarians to develop and improve their effectiveness as policy makers and representatives of their constituents' interests. The independent media struggles to attain financial viability, and USAID's work continues in management training for commercial media and improved journalism standards. The civil society sector continues to address the challenge of redefining legislation and building upon the assistance provided in the past. Political changes in Croatia have also enabled USAID to embark on local government reform activities.
Prior to the year 2000, USAID's efforts to provide resources for returnees from all ethnic groups were slowed significantly by the previous Government's obstruction of the minority return process. The new Government has repeatedly voiced its support for a fair return process. These political changes, together with deterioration of living standards in places of ethnic Serbian refuge, such as the Federal Republic of Yugoslavia (FRY), caused an upsurge in minority returns in 2000.
USAID activities contribute significantly to supporting the return of refugees. A total of twenty-six infrastructure reconstruction projects were completed including eleven electrical projects, nine water and sewage projects and six building rehabilitation projects. In the area of economic revitalization, thirty-eight agricultural associations and cooperatives representing more than 12,000 farmers in war-affected areas received technical assistance. USAID continues to be the primary international donor for reconstruction of infrastructure, particularly power and water. In 2000 seven USAID-supported legal aid NGOs, through their thirty legal offices, provided pro-bono legal services to 48,435 clients and worked on 58,724 legal cases.
After a very difficult year in 1999, the Croatian economy expanded modestly in 2000 with real GDP growth of 3.7%, compared with -0.4% a year earlier. Industrial production, retail trade and a healthy recovery in the tourism sector all contributed to GDP growth in 2000. Retail price inflation increased from 4.2% in 1999 to 6.2% in 2000, influenced by the rise in world oil prices. The Government's fiscal deficit continued to be a major concern at 7% of GDP, but the Government made significant commitments to reduce public expenditure in 2001 and succeeded in negotiating a $255 million IMF Standby Agreement on the strength of this commitment. Although the Government's stated intention is not to draw down the IMF credit line, the Standby Agreement should significantly boost investor confidence and the country's overall financial standing. A $200 million World Bank Structural Adjustment Loan is also in the early stages of negotiation, with a number of preconditions to be met during 2001.
Foreign direct investment continues to lag, with delays in the privatization of strategic industries and a near-total absence of greenfield investment. Impediments to business development are also constraining domestic investment. Unemployment and a low rate of job creation are Croatia's most serious economic problems at present, with the official jobless rate exceeding 22% at the end of 2000. Even accounting for the hidden employment of the gray economy, Croatia's biggest challenge is to generate jobs at a rate that will absorb new labor force entrants and stem the brain drain of skilled youth, while also absorbing workers made redundant by restructuring and privatization.
Other Donors
USAID/Croatia works closely with other donors in the development and implementation of activities. The World Bank, UNHCR and the European Union are the Mission's most active collaborators. USAID is implementing a technical assistance project closely linked to a World Bank automation project on Commercial Law Reform that aims to improve the efficiency of the commercial court system, which is consistently cited by the private sector as a significant impediment to doing business. Pension reform is another area of USAID-World Bank cooperation. USAID coordinates democracy and refugee reintegration assistance with the European Union, the Council of Europe, OSCE, and other bilateral donors, including British, Norwegian, Dutch, German, Swedish and Canadian governments as well as with the State Department's Bureau for Population, Refugees and Migration. USAID-EU coordination on refugee return programs extends to the local level, where EU-funded housing reconstruction and USAID-financed infrastructure serve the same communities. Major private donors include the Open Society Institute and the C.S. Mott Foundation.
FY 2002 Program
Despite the recent policy changes and initial successes, enormous development problems confront Croatia. USAID continues to play a pivotal role in Croatia's development into a fully democratic society and productive market economy that together could serve as a cornerstone for prosperity and stability in the region and contribute to Croatia's integration into Europe. USAID's recently approved five-year Strategy focuses on four Strategic Objectives aimed at growth of a dynamic, competitive private sector; more effective citizen participation and improved governance; accelerated return and sustainable reintegration of war-affected populations; and mitigation of adverse social conditions and trends.
The economic reform activities in Croatia during FY 2000 and 2001 will accelerate as new initiatives addressing privatization, enterprise development, international competitiveness, energy restructuring, banking supervision and commercial law reform are launched.
USAID's democratization efforts will continue to support civil society organizations, independent media, political parties, fiscal and administrative decentralization, local government capacity building and judicial reform.
USAID/Croatia will continue its return and reintegration program through the reconstruction of war-damaged infrastructure, economic revitalization, community reintegration, support for cross-border returns, legal assistance to returnees and the facilitation of private-sector solutions to housing repair and reconstruction.
A new social transition program will address pension reform, strengthening democratic labor organizations, improving "tripartite" dialogue on social issues among labor, business and government, community-based health care, and targeted safety nets for vulnerable groups not currently served by Government social services.
Activity Data Sheets
- 160-013 Growth of a Dynamic and Competitive Private Sector
- 160-021 More Effective Citizen Participation and Improved Governance
- 160-031 Accelerated Return and Sustainable Reintegration of War-Affected Populations
- 160-034 Mitigation of Adverse Social Conditions and Trends
- 160-042 Cross-Cutting Programs
Country Background Information Resources CIA Factbook
Library of CongressNational Geographic Country Maps
State Dept. Country Information
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Last Updated on: May 29, 2002 |
