Privatization in Croatia

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Privatization in Croatia refers to political and economic reforms which included the privatization of state-owned assets in Croatia after the breakup of Yugoslavia. Privatization mostly took place in the 1990s, during the presidency of Franjo Tuđman and the rule of his party Croatian Democratic Union (HDZ). Many aspects of the privatization process are still seen as controversial as the political and economic turmoil, coupled with the events of the simultaneous 1991–95 independence war, are thought to have led to a degree of criminal activity, which plunged the country into an economic depression.[citation needed]

Early privatization[edit]

The privatization process in the former Yugoslavia was initiated during the government of Yugoslav Prime Minister Ante Marković.[1] In 1990 he introduced a privatization program, with newly passed federal laws on privatization allowing company management boards to initiate privatization, mainly through internal share-holding schemes, initially not tradeable in the stock exchange.[2] This meant that the law put an emphasis on "insider" privatization to company workers and managers, to whom the shares could be offered at a discount. Yugoslav authorities used the term "property transformation" when referring to the process of transforming public ownership into private hands.[1]

Separate privatization laws in individual republics soon replaced the federal law.[1][when?] SR Croatia replaced the federal law on privatization with its own privatization law in April 1991. The new law stipulated compulsory privatization and the elimination of public ownership, while publicly owned enterprises were to be transformed into joint-stock or limited liability companies.[3] These new laws in Croatia and Slovenia were interpreted as tacit nationalization, a tendency of both governments to first re-nationalize public property in order to later proceed with privatization.[4]

At the time Croatia gained independence, its economy, as well as the whole Yugoslav economy, was in the middle of recession. As a result of the 1991–95 war, infrastructure sustained massive damage, especially the revenue-rich tourism industry. Privatization and transformation from a planned economy to a market economy was thus slow and unsteady.[5]

Main events[edit]

During the rule of the Croatian Democratic Union (HDZ), Croatia initiated its privatization program in 1992 when companies began arranging sales of shares to their employees. Privatization revenues and two thirds of unsold shares were then transferred to the Development Fund, while the remainder of unsold shares was transferred to the Pension Fund and the Disability Insurance Fund, both controlled by the state.[6] Privatization often involved appointing new managers close to HDZ, or even the party's leading members,[7] a trend which discouraged foreign investors.[6] The state also took full ownership of over 100 important large companies and appointed new managers there, who were also often members of the ruling party.[3]

With the end of the war in 1995, Croatia's economy recovered moderately, but corruption, cronyism, and a general lack of transparency stymied economic reforms and foreign investment, accompanied by public distrust when many state-owned companies were sold to politically well-connected people at below-market prices,[5][8] all of which were common to reforms that took place in most post-communist transition economies.[9]

Primary method of privatization in Croatia was management employee buyouts, while the secondary method used was voucher privatization. In 1991 the private sector's share of GDP was 25 percent, and its share of employed workforce was 22 percent.[10] The method of privatization contributed to the increase of state ownership because unsold shares were transferred to state funds. In 1999 the private sector's share in GDP reached 60 percent, which was significantly lower compared to other former socialist countries.[11] The government retained 1-30% shareholdings in privatised firms in 33,4% of firms, and above 30% in 7,6% firms, much higher than other countries.[12]

In 1995 a Ministry of Privatization was established with Ivan Penić as its first minister.[3] The privatization program was criticized by Croatian economists who characterized it as crony capitalism. The ruling party was particularly criticised for transferring enterprises to a group of privileged owners connected to the party.[13] Croatian president Franjo Tuđman was also a target of critics and allegations of nepotism and the likelihood that he personally profited. An alleged statement about 200 wealthy families that would manage Croatian economy is at times attributed to him, although others note that there is no evidence that Tuđman ever said that.[14] There were accusations that the daughter of Franjo Tuđman, Nevenka Tuđman, participated in an illegal mediation in 1996. In 2002 charges were raised against her,[15] but in 2007 she was freed of charges that she used her social position, arranged business and received commission for it.[16] In the second half of the 1990s (Franjo Tuđman's second tenure), his grandchild, Dejan Košutić, became the owner of Kaptol Bank and emigrated from Croatia to Serbia after his grandfather's death. He returned only in 2005 to launch the information security consulting company Kvadra Savjetovanje.[17]

The privatization of large government-owned companies was practically halted during the war and in the years immediately following the conclusion of peace. As of 2000, roughly 70 percent of Croatia's major companies were still state-owned, including water, electricity, oil, transportation, telecommunications, and tourism.[18]

Year GDP Growth[19] Deficit/Surplus* Debt to GDP Privatization revenues*
1994 5,9% 1,8% 22,20%
1995 6,8% -0,7% 19,30% 0,9%
1996 5,9% -0,4% 28,50% 1,4%
1997 6,6% -1,2% 27,30% 2,0%
1998 1,9% 0,5% 26,20% 3,6%
1999 -0,9% -2,2% 28,50% 8,2%
2000 3,8% -5,0% 34,30% 10,2%
2001 3,4% -3,2% 35,20% 13,5%
2002 5,2% -2,6% 34,80% 15,8%
*Including capital revenues
*cumulative, in % of GDP

See also[edit]

References[edit]

  1. ^ a b c Patrick Heenan, Monique Lamontagne: Central and Eastern Europe Handbook, Routledge, 2014, p. 96
  2. ^ Milica Uvalic: Investment and Property Rights in Yugoslavia: The Long Transition to a Market Economy, Cambridge University Press, 2009, p. 185
  3. ^ a b c William Bartlett: Europe's Troubled Region: Economic Development, Institutional Reform, and Social Welfare in the Western Balkans, Routledge, 2007, p. 65
  4. ^ Milica Uvalic: Investment and Property Rights in Yugoslavia: The Long Transition to a Market Economy, Cambridge University Press, 2009, p. 190
  5. ^ a b International Business Publications: Croatia Investment and Trade Laws and Regulations Handbook, p. 22
  6. ^ a b Patrick Heenan, Monique Lamontagne: Central and Eastern Europe Handbook, Routledge, 2014, p. 110
  7. ^ William Bartlett: Europe's Troubled Region: Economic Development, Institutional Reform, and Social Welfare in the Western Balkans, Routledge, 2007, p. 18
  8. ^ Istvan Benczes:Deficit and Debt in Transition: The Political Economy of Public Finances in Central and Eastern Europe, Central European University Press, 2014, p. 203
  9. ^ Saul Estrin: The Impact of Privatization in Transition Economies, London School of Economics and Political Science, 2007, p. 14-15
  10. ^ Saul Estrin: The Impact of Privatization in Transition Economies, London School of Economics and Political Science, 2007, p. 18-19
  11. ^ Istvan Benczes:Deficit and Debt in Transition: The Political Economy of Public Finances in Central and Eastern Europe, Central European University Press, 2014, p. 205-206
  12. ^ Saul Estrin: The Impact of Privatization in Transition Economies, London School of Economics and Political Science, 2007, p. 20
  13. ^ William Bartlett: Europe's Troubled Region: Economic Development, Institutional Reform, and Social Welfare in the Western Balkans, Routledge, 2007, p. 66
  14. ^ Roman Domović: Autentičnost sintagme „200 obitelji“
  15. ^ "Charges Raised Against Nevenka Tudman". HRT. 13 October 2002. Retrieved 26 September 2007. 
  16. ^ Zeković, Martina (8 February 2007). "Nevenka Tuđman oslobođena optužbi" [Nevenka Tuđman cleared of charges]. Nacional (in Croatian). Archived from the original on 9 July 2012. Retrieved 15 June 2011. 
  17. ^ http://www.index.hr/vijesti/clanak/tudjmanov-unuk-bit-ce-nagradjen-sa-120000-kuna-jer-je-upropastio-banku/292482.aspx
  18. ^ Eastern Europe: An Introduction to the People, Land, and Culture, p. 473
  19. ^ National Accounts Main Aggregates Database

Further reading[edit]