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FY 1997 Assistance to Central Europe Request: $9,000,000
Introduction.
From 1943 to 1991 Croatia was one of six constituent republics of the Socialist Federal Republic of Yugoslavia. In June 1991, Croatia declared independence from Yugoslavia, and shortly thereafter hostilities erupted over portions of Croatia with large ethnic Serb populations. During the war, Yugoslavian National Army (JNA) forces attacked large portions of Croatia resulting in 1995, as much as a third of Croatian territory -- including Krajina and Slavonia -- had been incorporated into the self-proclaimed Serbian Republic of Krajina. The course of the war changed dramatically when Croatian armed forces successfully regained control of Western Slavonia and the Krajina in May and August, respectively. In November 1995 the United States assisted in brokering an agreement between Croatia and Yugoslavia whereby, after a 12-24 month period of U.N. Administration, the last remaining piece of occupied Croatian territory in Eastern Slavonia to Croatian sovereignty. The agreement to return Eastern Slavonia to Croatian sovereignty was an essential precursor to successful negotiation of the Dayton Peace Accords to end hostilities in the Balkan region. The Government of Croatia was a signatory to the Dayton accords and remains an essential partner for implementing the peace plan and ensuring long term peace and stability in the region. U.S. assistance to Croatia contributes directly to two important U.S. foreign policy goals: promoting regional peace and stability in the Balkans; and fostering Croatia's transition to a market-oriented democracy.
The Development Challenge.
The development challenge in Croatia is twofold: to assist the country to recover from the effects of war and to undertake a successful transition to a more market-oriented and democratic society. The two goals are closely interrelated, and are critical for promoting long term peace and stability in both Croatia and the region.
From an economic perspective, the former Yugoslavia left a mixed legacy for its successor states. While the economic system was more market-oriented than many of the other planned economies of Central Europe, widespread social ownership of major industries and financial institutions resulted in poor investment decisions and contributed to inflation and chronic wage pressures. The 1980's debt crisis demonstrated the vulnerability of the Yugoslav economy and highlighted the system's major shortcoming: lack of market discipline among financial institutions and generally poor development of the financial sector and particularly the capital markets. The financial sector's inability to attract significant foreign financing resulted in declining levels of overall investment and stagnant economic growth. As the economy declined in the late 1980's, many socially owned enterprises began to generate large losses. These losses were in turn financed by the banks which were owned by the enterprises themselves and monetized by the National Bank of Yugoslavia. The consequences of intertwined socially owned enterprises and financial institutions were the loss of monetary control, spiraling inflation, and declining standards of living. In March 1995, Croatia reached agreement with the Paris Club of official creditors, which provided an estimated $861 million in debt relief. Under the accord consolidated debt will be repaid over 13 ½ years including two years grace. Croatia has also accepted responsibility for allocated debt and a proportional share of the former Yugoslavia's debt. Debt service obligations are likely to be sustainable. In 1994, total debt service amounted to $292 million.
The circumstances following Croatia's independence in 1991 including the war and the dissolution of the former Federal Republic of Yugoslavia further exacerbated the economic decline that had begun under the federation. The war inflicted extensive damage to Croatia's infrastructure and paralyzed the economy. Particularly hard hit were roads and railways, telecommunications, energy, housing and agriculture. The dissolution of the Yugoslav federation and the imposition of sanctions on the warring parties disrupted trade both among the republics and with neighboring states and resulted in a loss of markets and the interruption of key supply flows. During the period 1991 to 1993, Croatia experienced a decline of about 30 percent in GDP and industrial production declined by over 50%.
The war also resulted in large numbers of refugees and displaced persons which further strained the capacity of the economy to generate jobs and growth. Between 700,000 and 800,000 war victims have sought assistance from Croatian communities, the private sector, and the Croatian government and have overwhelmed the capacity of national and local safety nets to provide support to affected populations. During this period, unemployment hasaccelerated to as high as 18 percent. Declining economic prospects and competition for limited employment opportunities have further strained civic tolerance.
Since the outbreak of the war, the Government of Croatia has had to resort to economic crisis management. In October 1993, a comprehensive stabilization program was implemented including introduction of a foreign exchange index supported by tighter fiscal and monetary policies and other efforts to rebuild foreign exchange reserves. In general, stabilization efforts have been effective: foreign exchange rates have stabilized and inflation has been brought under control. While many of the necessary economic conditions for sustainable growth have been established, reconstruction of damaged infrastructure and revitalization of the economy will require substantial levels of new investment. For Croatia to attract investment capital, improvements in the financial sector are crucial. Despite the range of problems facing Croatia over the past several years, in 1995 the economy grew at a rate of approximately one percent, and prospects for future years are considered excellent. War expenditures, estimated at up to 40% of government spending in 1995, should decline dramatically in 1996 following the demobilization of Croatia's armed forces. Tourism, a major source of revenue for Croatia in the past, was hard hit by the war and posted declines of over two-thirds from pre-war levels. If peace and stability can be achieved, prospects are good for a resurgence of tourism in 1996 and beyond.
In the area of democratic transition, the challenge is to promote improved government transparency, responsiveness and accountability and to support development of more effective channels for increased citizens' participation. Additionally, improvements in the areas of protection of minority and human rights are needed. To its credit Croatia has established a solid framework for supporting open democratic electoral processes. While internal politics is currently dominated by the Croatian Democratic Party (HDZ), which holds strong majorities in both the House of Representatives and the House of Counties, opposition parties can and do compete for representation. Nine other parties currently hold elected seats. Under the present governmental structure the President wields considerable power. During the period of the war, there has been a tendency to centralize decision making at the national level at the expense of local and regional governments. There is also some concerns about the level of control exercised by the central government over the press and other media which will need to be addressed Decentralization of decision making, increased autonomy for local governments, and strengthening of the independent media will be critical for fully achieving the democratic transition objective in Croatia.
In the area of individual and human rights, Croatia's constitution provides adequate protection of individual and human rights for all citizens. Despite these constitutional protections, serious concerns remain on the government's performance in protecting minority and human rights and in investigating and prosecuting violations of ethnic minorities' rights in recently liberated areas of Croatia.
Successful transition to a market oriented democracy in Croatia will remain heavily dependent on efforts to establish stable peace in the region and bring a definitive end to the fighting. Full reintegration of the Eastern Slavonia region under the terms of the Erdut agreement is of paramount importance to regional peace and stability. The region remains a real and dangerous flashpoint for a possible return to hostilities between Croats and Serbs. At the same time, the importance of Eastern Slavonia is further magnified by the area's status as a bellwether for the viability of stable multiethnic societies both within Croatia and in the region. Croatia's commitment to peaceful multiethnicism and the rule of law will be put to the test in Eastern Slavonia. Peaceful resolution of major issues including the right of return for displaced persons and refugees, disputes over property rights, and protection of human and minority rights could serve as a model for resolving similar problems in other parts of Croatia and in Bosnia. For the effort to be sustainable, a foundation immediately needs to be laid for revitalizing the economy of the region to generate adequate employment opportunities for returning and resident populations. If successful, the reintegration of Eastern Slavonia can provide an example for reintegration efforts in Bosnia-Herzegovina; if unsuccessful, a spark in Eastern Slavonia could ignite a broader resumption of conflict.
To achieve its goals and objectives in Croatia, the U.S. program of assistance has been developed with a two to four year outlook. New obligations of funds would likely end in FY 1998 followed by a two year phase out period. The strategy is based on a critical assumption that there will be no further outbreaks of hostilities, and that efforts at peacefully reintegrating Eastern Slavonia are successful.
Other Donors.
Other than humanitarian aid, other bilateral donor assistance is very limited, although some technical assistance has become available. Japan provided its first grant funds for technical assistance in mid-1994. Germany, Austria, Britain, Norway, and Italy are also providing advice and technical assistance. Croatia has recently been considered for assistance under the PHARE Program of the European Union. The U.S. has worked with the International Monetary Fund (IMF), and the international funding agencies, International Bank for Reconstruction and Development (IBRD) and the European Bank for Reconstruction and Development (EBRD), to encourage financial support to strengthen the durability of Croatia's economic stabilization plan and to provide resources for economic recovery. In June 1994, the IBRD took a more active stance leading to the first loan for emergency reconstruction and in February 1995 for a Health Project loan. In April 1995, IBRD estimated that tier lending levels to Croatia would be around $200 million during FY 1995-96, and level off to $100-150 million during FY 1997-98 as Croatia reaches a sustainable growth path. Croatia became a member of the European Bank for Reconstruction and Development (EBRD) in April 1994, with projects to upgrade Croatia's air navigation system and to co-financing the Highways Project with the International Bank for Reconstruction and Development.
FY 1997 Program.
USAID's strategy for promoting regional peace and fostering democratic and economic transition in Croatia includes three principal elements: support for efforts to expand democratic pluralism, strategically placed interventions to facilitate and ensure the peaceful re-integration of Eastern Slavonia (complementing United Nation, World Bank and European Union efforts), and limited economic restructuring assistance targeted at financial sector development and reform. USAID support for the development of active civic institutions and more responsive and accountable local government will help counter a trend towards centralization of authority. USAID will build on its successful efforts in developing effective relationships with local nongovernmental organizations (NGOs) through support of community development programs aimed at assisting displaced persons and other victims of trauma. As urgent humanitarian needs in the country continue to diminish, USAID is re-orienting its NGO assistance program from a primarily humanitarian focus to an emphasis on promoting more effective citizens' participation in decision making and protection of minority and human rights. In Eastern Slavonia, the United Nations has the mandate to oversee demilitarization of the region and to administer the region for a period of 12 to 24 months prior to its return to GOC control. While the International Bank for Reconstruction and Development (IBRD) and the European Union have expressed an interest in supporting economic revitalization, USAID assistance is needed to continue to catalyze other donor efforts through identification of priority needs and opportunities in the area of economic revitalization as well as to support independent NGO monitoring of population movements and provision of legal and other services to returning and remaining populations. In the area of economic growth and development, the IBRD and the IMF are playing the leading donor role. USAID assistance has been limited to technical assistance in financial sector reform and legal reforms in support of increased investment and private sector growth. An improved legal and regulatory environment is essential for attracting much needed domestic and international private investment into the Croatian economy. While the IBRD and the IMF set the policy framework, USAID provides the GOC with technical expertise to implement financial sector reforms and strengthen institutions.
The funds requested for Croatia are the minimum needed to support the objectives outlined above. If funds are reduced, U.S. support for Eastern Slavonia re-integration, and financial sector activities in support of the IBRD and IMF program would be in jeopardy. Every attempt would be made to ensure a continuation of democracy-related programs, but substantial cuts are likely to affect the success of these efforts as well.
Strategic Goal: Democratic Transition
Regional and local governments have been delegated considerable authority by the Constitution for management of their cities. However, the cities often lack the managerial and financial capability to undertake rehabilitation and reconstruction, economic development, and to deliver cost recovery services (housing, medical services, utilities, etc.) Certain cities, especially those near the former U.N. Protected Areas (UNPAs), have refugees and displaced persons heavily taxing the social services of these cities. At the same time these cities having suffered war damage are in need of infrastructure rehabilitation.
Indigenous non-government organizations are growing in numbers especially in the areas of social services for refugees and displaced populations. Few indigenous NGOs are functioning in the areas of environment, media, and human rights and legal assistance. The NGO community is still struggling to be active members within the politicalarena, with the established government still wary of their programs and questioning citizen empowerment and advocacy.
Strategic Goal: Economic Restructuring
USAID seeks to foster the emergence of a competitive, market-oriented economy in which the majority of economic resources is privately owned and managed.
In the former Federal Republic of Yugoslavia, the private sector played a sizable role alongside the socially-owned enterprises. This private sector presence in the economy was significantly reinforced after Croatia's independence, as the Government made further progress towards the privatization of the socially-owned sector. As a result, the private sector today generates about 45% of GDP. The former Yugoslavia's relatively undistorted incentive framework, inherited by Croatia, has provided a favorable environment compared to other countries in the region. The main distortion to the incentive system derives from the absence of clear owners in socially-owned enterprises, and the singular Yugoslav system of enterprise-owned banks.
Croatian authorities intend to build upon the dynamism of the private sector to foster growth, calling for accelerating privatization in the enterprise sector, strengthening banks, and promoting a conductive environment for private sector growth.
The objective of private sector-led growth requires well-functioning financial institutions. A large part of Croatia's banking system problems lies in the losses incurred by its main borrowers. Thus addressing the capital adequacy and incentive issues in the banking sector jointly with the problems in the enterprise sector is critical. The Croatian government is preparing a comprehensive reform of the banking system which would address both its incentive and ownership structure and its financial soundness. USAID, the British, IBRD and others have been asked to assist in this reform.
Also, in collaboration with the IBRD, the Croatian authorities have asked USAID to provide technical assistance to develop the capital market infrastructure, promoting financial deepening and reinforcing competition within the financial system. USAID assistance has been sought to help set up a modern regulatory framework for capital markets and to modernize the stock market, both needed to facilitate and accelerate the privatization program and the entry of institutional investors.
The growth potential of an expanded private sector will not materialize unless a supporting market economy environment is established. Further reforms are still needed in the legal framework, tax structure, and the financial system.
Cross-cutting and Special Initiatives
As a special initiative USAID seeks to promote peace and stability in the Balkan region through the peaceful reintegration of Eastern Slavonia. Eastern Slavonia had been the scene of some of the worst fighting of the war between Serbia and Croatia in 1991-1992. The return of Eastern Slavonia to Croatia was, as recently as mid-1995, the impetus for a mobilization of the Croatian Army as a precursor to a return to hostilities between Serbia and Croatia. Renewed animosity was prevented through negotiations in the U.S. brokered Dayton Accords. Nevertheless, this peace is a fragile one. It is also a bellwether for the rest of the region from Bosnia-Herzegovina, to Macedonia, to Kosovo.
It is expected that this new special initiative for peaceful reintegration will work with local NGOs to help increase the tolerance for diversity, the legal rights enjoyed and enforced for all people, and to monitor the human rights situation in this vulnerable area. In addition, a strategy of economic revitalization hopes to help draw and anchor a diverse population to this affected region.
Finally, as a cross-cutting initiative, the Participant Training Project in Europe (PTPE) provides short term trainingopportunities in the U.S. for Croats working in organizations which contribute to the development of democracy and financial sector reform in Croatia.
|
Strategic Objectives |
Economic Restructuring |
Democratic Transition |
Social Stabilization | Cross-cutting / Special Initiatives | Total |
| Privatization | |||||
| Fiscal Reform | |||||
| Private Enterprise | |||||
| Financial Reform | 3,250,000 | 3,250,000 | |||
| Energy | |||||
| Citizens' Participation | |||||
| Legal Systems | |||||
| Local Government | 2,750,000 | 2,750,000 | |||
| Crises | |||||
| Social Benefits | |||||
| Environmental Health | |||||
| Cross-cutting / Special Initiatives | 3,000,000 | 3,000,000 | |||
| TOTAL | 3,250,000 | 2,750,000 | 3,000,000 | 9,000,000 |
USAID Representative: Charles R. Aanenson
Purpose: More Accountable and Responsive Local Governance.
Background: The United States assists Croatia to promote respect for minority and human rights and to strengthen pluralistic democracy. To achieve these goals, the SEED program managed by USAID strengthens democratic institutions by promoting an accessible electoral system and develops political parties and unions which represent constituents, and by launching programs in legal training and continuing legal education programs. In addition, USAID seeks solutions to the problems of local governance in Croatian cities by working with local governments to reform the local housing sector, mortgage financing, and privatizing city services. USAID expects to accomplish these goals through the active involvement of a broad array of civil and ethnic groups in local and national government by financing and training numerous indigenous NGOs, support for representation by a spectrum of political parties, and through the development of independent media. Because local level governance is more accessible to citizens and deals with immediate issues of services, property, and shelter, it can play a significant role in promoting integration of ethnic populations. Because municipalities are responsible for similar activities, a common ground exists for shared experience--across east and west Croatia--
enabling greater geographic integration.
USAID has been concerned about the political polarization which is increasing in the wake of the civil conflict. The role of opposition parties has been circumscribed, media access is difficult, and the rights of minorities are tenuous. The situation was sharpened by the two Croatian offensives, in Spring of 1995, to take the Krajina and western Slavonia areas which had been occupied by rebel Serbs since 1991. Elections for the national legislature (the Sabor) were announced suddenly in August 1995, to be held two months later. Despite the very short time which was accorded to them to prepare their campaigns, the opposition parties gained 39% of the national seats in the Sabor (the ruling HDZ gained the rest of the national seats and all 12 expatriate seats), as well as the mayors of Zagreb and Rijeka. In addition to formal political parties, sustainable local NGOs and labor unions are useful for monitoring social and economic issues and helping to devise equitable solutions.
USAID Role and Achievements to Date: The legislative elections in October 1995 occurred before most significant training could be accomplished, although 11 women political leaders returned from U.S. training in time to participate in their respective campaigns. USAID-financed monitoring pointed up legal and regulatory abuses related to electoral law and campaign access. The next elections will be for municipal councils in Spring 1996 and for the national presidency in 1997. USAID financed a post-election roundtable for the October 1995 legislative election to point up reforms needed in the next round. More assistance will be directed at the municipal level, to strengthen the local parties which will participate in the municipal election.
In FY 1995, USAID sought to open the political process through the development of opposition parties. Training and advice was provided in party organization and goal setting, design and management of a political campaign, and overall election campaign and electoral monitoring. For labor unions, USAID financed the training of 25 persons as shop stewards; another 25 were trained in the processes of privatization.
In FY 1995, USAID opened its activities in judicial reform, launching improvements in legal training and introducing the Ministry of Justice and the Croatian legal system to modern judicial administration. Progress was slow due to the extended vacancy of the Minister of Justice and the reorganization of the higher courts, resulting in the Supreme Judicial Council. The sweeping changes in criminal and civil law as a result of Croatian independence and economic reform have rendered the original university training of many lawyers and judges obsolete. Legal education assistance achieved the inclusion of practical training in the law curriculum at the Universities of Osijek and Split.
The major cities in Croatia (Zagreb, Split, Rijeka, and Osijek) are seeking solutions to problems resulting from the 1991 housing privatization. Public utility service and housing management are two of the most serious difficulties for which municipal leadership has no solution. Access to housing for first-time home buyers is also a priority. In 1995, USAID opened a public administration activity which assisted the city governments of Zagreb, Rijeka and Split to assess the supply and condition of housing in the cities as well as the problems with utilities and building management. Eight municipal officials visited US cities to learn of U.S. solutions to these problems.
Vibrant, durable democracy requires the active involvement of a broad array of civil and ethnic groups in local and national government. In FY 1995, USAID financed the training of 14 Croatian NGO leaders in program management. We financed and trained numerous indigenous NGOs which are providing psychosocial assistance to displaced persons and refugees; 13 indigenous NGOs which provide legal and human rights assistance to Croatians, especially minorities; and several indigenous environmental NGOs. Our focus has been not only on the delivery of services, but on the financial and administrative sustainability of the NGOs.
As clearly demonstrated in the 1995 election campaign, free access to television and radio is arbitrarily limited. In some cases, even paid political advertising did not appear. In 1995, USAID financed the training of journalists through USIA and placed a short-term professional-in-residence in the state-run television system. The University of Zagreb improved its journalism curriculum. In FY 1996, USIA plans to use our funds to continue to promote an independent electronic and print media.
Description:
-- Provide technical analysis and policy advice to local and central governments on legislation related
to local government responsibility and authority.
-- Provide opportunities for municipalities to convene and share experiences and learning exercises
through a series of technical workshops and dissemination of written materials.
-- Sponsor a series of technical workshops, with follow on technical assistance to specific cities, to
provide models and best practices of delivery of housing and infrastructure services.
-- Develop demonstration projects in each city relevant to key municipal issues (e.g. condominium
management; private/public partnerships in housing development; financial packaging of
sewage infrastructure investment).
-- Assist in transmitting project-based experience to policy and institutional level.
-- Technical assistance from expatriate and local legal, administrative, and "integration" specialists to
provide basic information on systems and standards, and assist in adapting them to specific
localities.
-- Participate in technical workshops and information dissemination from Components 1 and 2 above,
with follow on technical assistance for implementation.
-- Leverage local and donor resources to attract investment that promotes economic growth.
-- Develop Croatia's political parties by providing training and technical assistance to help
them mature their capacity to plan programs and carry them to the electorate.
-- Work with the local NGO community to strengthen their capacity and to lay the
groundwork for legal changes which would encourage private donations.
-- Promote the use of NGOs by local governments as cost-effective and efficient service providers.
Host Country and Other Donors: Soros Foundation, Westminster Committee
Beneficiaries: 2.5 million Croatians, primarily city dwellers
Principal Contractors, Grantees, or Agencies: Urban Institute Consortium, National Democratic Institute (NDI), Free Trade Union Institute (FTUI), eight US NGOs, and numerous local NGOs.
Major Results Indicators*:
Implementation of a legislative framework clarifying and strengthening the role of local government.
Establishment of a network of local governments.
Strengthened local government voice in public policy-making
More effective citizen participation in local government decision-making
Improved technical and managerial capacity within local governments
Increased local government access to financial resources
Sector East cities adopt Croatian systems and standards
*These are illustrative indicators. ENI missions are in the midst of the complex process of developing meaningful, measurable country-
specific indicators and targets, which will be completed by June 1996.
Purpose: The peaceful reintegration of Eastern Slavonia and re-settlement of 70,000 displaced persons.
Background: In November 1995, the U.S. brokered an agreement between Croatia and Yugoslavia to peacefully return the portion of Croatia known as U.N. Sector East to Croatian sovereignty. Implementation of this portion of the Balkan peace negotiations and the resolution of the situation of the displaced persons in Sector East is a bell wether for Croatia and more broadly, for the Balkans. As much as any event in neighboring Bosnia, setbacks in the transfer of power in Sector East could strike the spark that re-ignites violence. The principals of the regional conflict are in direct contact in Sector East, with the U.N. Transition Authority for Eastern Slavonia (UNTAES) mediating each dispute. Most importantly, implementation of the Erdut agreement will demonstrate that solutions that work in Sector East may work in Bosnia.
The river ports of Vukovar on the Danube and Osijek, 30 km up the Drava from the Danube, are the economic gates to Slavonia and northern Bosnia. The rich agricultural areas surrounding the ports exported grain by barge and imported all manner of manufactured goods and bulk commodities from central and northern Europe. Northern Bosnia was dependent upon them as its major supply line.
Before the war, all the important productive assets and employment sources were owned by the Yugoslav state. Many Serbs were removed from their jobs at Croat independence, and the fear remains that employment in a reviving Sector East will be preferential based on ethnicity. Croatia itself cannot intervene in the companies or provide assistance to them until after the transition period is completed. In the meantime, there is a risk that these assets might be destroyed in the wake of some virulent disagreement. There are numerous such examples in Bosnia. Therefore catalyzing donor efforts in employment generation in the region is vital to reducing tensions between ethnic groups.
USAID Role and Achievements to Date: Bilaterally, GOC policies and attitudes on human rights, pluralistic democracy, and economic liberalization now come to the forefront. The transition in Eastern Slavonia is a watershed, where Croatia must choose to be ethnically and politically tolerant and economically open, or succumb to extremism and monopoly. The transition presents the United States with an unsurpassed opportunity to significantly engage the GOC on human rights issues, both in eastern Croatia and as returning populations go home to the Krajina. USAID can prepare local government structures which would transcend entrenched political interests. USAID can press strongly in the economic arena, where past Croatian policy has made employment an important equity issue for Croatian Serbs. USAID can complement the United Nations activities and influence other bilateral donors and leverage funds, as they see USAID's continued commitment to reintegration and human rights.
Description:
-- Catalyze other donor efforts in economic revitalization
-- Seek to foster investment in the multiethnic future of local governments in Sector East by both
Croatian Croats and Serbs through technical assistance to ensure the provision of essential
services and direct the emergence of the new management structures.
-- Help resolve obstacles to a timely, peaceful transfer of population and authority, operate a legal clinic to advise and assist the remaining and returning populations on such matters as identity papers, voter registration, and property rights.
-- Actively monitor human rights issues and to assist Croatians returning home to Western Slavonia and the Krajina.
-- Assist returning populations with microloans to start their businesses over again.
-- Provide technical assistance to the rehabilitation of two river ports to a level which permits unimpeded flowof commerce.
-- Provide technical assistance to the management of these companies and to the Port Authorities of Vukovar and Osijek.
Host Country and Other Donors: UNTAES, Norwegians, British Know How Fund
Beneficiaries: 170,000 residents of Sector East
Principal Contractors, Grantees, or Agencies: TBD
Major Results Indicators*:
Number of resettled displaced persons
Availability of essential city services throughout the transition period
Absence of labor strife due to ethic tension
Amount of commercial traffic through the ports
*These are illustrative indicators. ENI missions are in the midst of the complex process of developing meaningful, measurable country- specific indicators and targets, which will be completed by June 1996.
Purpose: A more competitive and market-responsive private financial sector.
Background: Concurrent with the Balkan regional peace negotiations, the United States assists Croatia in restructuring its economy along a marked oriented model. Croatia has aligned itself with Europe, aspiring to commercial integration and eventual recognition and membership in regional economic organizations. Although still affected by the heavy cost of maintaining a large military capacity, the Croatian economy has rebounded from its 1992 low. The benefits of economic growth are accruing to all segments of the population. However, privatization of state-owned enterprises and military demobilization are expected to create pressure in the labor market. The USAID economic restructuring program coordinates closely with the World bank and the IMF and supports of their macroeconomic goals.
USAID Role and Achievements to Date: Technical advisors are assisting on revising modern finance laws and uniform procedures for contracts. In FY 1995, USAID helped draft and enact a company law (governing incorporation) and revisions to the comprehensive labor code. USAID trained judges in four commercial courts concerning the new laws, as well as to attorneys in the Croatian Bar Association. In FY 1995, USAID financed training for 25 business executives in accounting and finance, and for another 25 in executive management through the University of Rijeka. The training was the pilot for establishment of in-country training for businessmen.
USAID's assistance to develop a transparent, well-regulated banking system works with the GOC to strengthen bank supervision, clean up portfolios and improve the internal procedures of the six state-owned banks now in privatization (there are nearly 50 private banks also functioning), and providing for the eventual establishment of a government securities market. USAID is also assisting the GOC to improve the investment procedures, management, and controls for the pension funds which it holds. In FY 1995, USAID assisted the GOC in drafting a bank supervision manual and began training 28 bank supervisory staff. USAID also provided advice to the Bank Rehabilitation Office as it explored options for sanitizing the six bank portfolios.
The GOC desires to incorporate accepted open-market techniques to fund the government budget deficit. In 1995, USAID assisted in GOC debt administration office to structure the conversion of large bonds and frozen accounts, as well as in the pricing of the securities to be issued in 1996.
Description:
-- The GOC plans to enact USAID-supported reforms such as a securities and investment fund law, collateral and bankruptcy laws, and a commercial code in FY 1996.
-- Through continued bank supervision training to the staff of the Central Bank and to the banking industry, minimal levels of supervision can be exercised by the end of 1996.
-- In coordination with the World Bank, we will implement the design of a central securities registry and provide a long-term advisor to its steering committee.
-- USAID will continue its assistance in rationalizing policy for asset management to the Croatian bank rehabilitation agency with the aim of preparing three of the six portfolios for privatization.
-- USAID will provide short-term technical assistance in cash and debt management, investment funds, and pension fund management to the Ministry of Finance.
Host Country and Other Donors: World Bank, Ministry of Finance, Central Bank.
Beneficiaries: All Croatians will benefit from the economic growth which will be spurred by a private, market-
oriented financial sector.
Principal Contractors, Grantees, or Agencies: Treasury, KPMG/Barents Group, Financial Services Volunteer Corps
Major Results Indicators*:
Amount of investment, both from domestic and foreign sources
Numbers of licensed viable private commercial banks
Amount of funds for equity/credit provided to small and medium-sized businesses from private commercial banks
*These are illustrative indicators. ENI missions are in the midst of the complex process of developing meaningful, measurable country-
specific indicators and targets, which will be completed by June 1996.