Croatia - Economy

Before the dissolution of the Yugoslav SFR, Croatia was its second-most prosperous and industrialized area (after Slovenia). Per capita output in Croatia was comparable to that of Portugal and about 33% above the Yugoslav average. Croatia's economic problems were largely inherited from a legacy of Communist mismanagement and a bloated foreign debt. More recently, fighting caused massive infrastructure and industrial damage to bridges, power lines, factories, buildings, and houses. Croatia's economy also had to grapple with a large population of refugees and internally displaced persons. As a result of the war and loss in output capacity, GDP fell by more than 40%.

Yet while the economy has stabilized in recent years, Croatia continues to suffer from structural problems. Under the late President Franjo Tudjman, the Croatian government regularly bailed out failing banks and businesses, regardless of their survivability. This practice needs to be stopped and industry restructured if Croatia is to progress on the path of market reforms. Although unemployment remains high and the country has a growing trade deficit, Croatia in the early 2000s experienced a growth in tourism and an increase in remittances and investment from expatriate Croats. Many small and medium-sized businesses have been privatized, and even larger state-owned industries were in the process of being restructured in 2002, such as shipbuilding. In October 2001, the government signed a Stabilization and Association Agreement with the EU, which moves the country in the direction of integration with the EU. Croatia joined the WTO in 2000. Major growth sectors are energy, tourism, construction, transportation, and telecommunications.

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