Statement
by
Irena Zubcevic
Representative of the Republic of Croatia to the Second Committee
General Assembly Fifty-ninth Session
Second Committee
Item 87(e)
1 November 2004
Mr. Chairman,
At the outset, let me say that Croatia aligns itself fully with the statement by the European Union, but as Croatia belongs to the group of the countries with economies in transition, allow me to emphasize some of the specific points regarding this particular issue.
Let me start by welcoming a report of the Secretary-General "Integration of economies in transition into the world economy", which states that the global recovery, which started in the second half of 2003, has helped the economies in transition to strengthen as a whole and to integrate into the world economy mainly through trade and capital flows. Thus, in 2003, aggregate gross domestic product growth accelerated to 5.7 per cent, outpacing the world economy by 3 percentage points largely due to rapid growth in their domestic demand. In addition, continuing progress in restructuring and institutional reform has raised competitiveness and boosted consumer and business confidence. It also states that the most dynamic economic growth was registered in South-eastern Europe, reflecting the first results of the economic reforms undertaken earlier.
Mr. Chairman,
Allow me in this context to point out that Croatia''''''''s economy is one of the strongest and most developed market economies in South-eastern Europe. Croatia has the status of candidate for joining the European Union (negotiations will begin in early 2005) and this will create even better conditions for further economic development. The priority of Croatian economic policy is to continue building a stable and strong market economy, competitive on a global scale. Steps are being undertaken to boost business and reduce government expenditures, to strengthen the role of science and new technologies in the economy resulting in increased production and growth of export and employment. In order to achieve these goals, conditions will be created for maintaining high rates of economic growth, primarily through increased competitiveness and market flexibility.
However, large foreign debt and the deficit in the balance of payment as well as high level of unemployment continue to hamper economic growth and stability. At the end of 2003, the foreign debt of Croatia was about US$ 23.7 billion, or approximately 83% of the GDP. A great part of the increase in debt was caused by the weakening of the US dollar. The share of banks in the foreign debt has grown (31.5%), while the government share actually decreased (from 45.4% in 2001 to 35.6% in 2003). At the end of 2003, the unemployment rate was 18.1%. To this end we are creating measures to establish dynamic labor market and increase in production and exports through new measures of tax and economic policies, such as the stimulation of export activities, restructuring large state-owned companies, and improving competitiveness of Croatian products in the global markets. Furthermore, government expenditure will be reduced by reform and the system of state administration will be downsized in order to reduce foreign loan requirements.
Regarding the macroeconomic indicators, in 2003, the GDP was US$ 28.3 billion or US$ 6,378 per capita, with real growth of 4.3% and an increase in gross added value of 4.9%. The GDP growth was mostly encouraged by great investments in the construction of roads, but compared with preceding years, private consumption dropped. The deficit in the balance of payment in 2003 was US$ 2 billion or 7.2% of the GDP owing to the deficit in foreign commodity exchange (US$ 8 billion). Such a high deficit in foreign- trade balance was mostly due to the declining US$ EUR exchange rate by nearly 20%. However, regarding inflation, Croatia is very successful maintaining price stability and the value of national currency, primarily owing to its firm and restrictive monetary policy and the inflation for 2003 was 1,8 %. From the beginning of 2004, the National Bureau of Statistics has begun to publish a consumer price index as a new measure of inflation, which reflects changes in the level of prices for goods and services between two periods.
The foreign currency reserves of the Republic of Croatia have constantly grown to reach nearly US$ 8.2 billion by the end of 2003, which corresponds to 5.7 months import of goods and services.
Croatia is constantly working to improve its creditworthiness, trade balance, and investment climate. The credit rate of Croatia has improved with all prominent credit agencies from stable to positive.
Last year, Croatia exported US$ 6.2 billion worth of goods or 26.2% more than the year before, while the value of import reached US$ 14.2 billion i.e. 32.5% more than in 2002. However, the deficit in the balance of the commodity exchange still remained relatively high at US$ 8 billion, and the coverage of import by export was only 43.5%.
Foreign investment in Croatia is protected by the decrees of the Croatia''''''''s Constitution and is regulated by the Law on trading companies and other legal regulations. Additionally, Law on incentives for investments allows investors notable incentive measures, tax relief and customs privileges. The total of direct foreign investments for the 1993-first quarter of 2004 period reached US$ 1,16 billion The largest part went to the pharmaceutical industry (58,5%), followed by maritime and coastal transport, and telecommunications. Being aware of the importance of direct foreign investment for the future development of the country and its strong contribution to the restructuring and modernization of the economy, the strengthening of international competition and the creation of new jobs, Croatia is firmly committed to the further development of conditions for the growth of direct foreign investment and reform of the national economy.
Regional integration is also crucial. Croatia in this regard has made significant progress in the area of political stabilization and fostering of economic ties with neighboring countries recognizing that peace and security are essential for sustainable development. A network of free-trade agreements has been completed in South-eastern Europe in line with World Trade Organization provisions, and free movement of capital and labor.
Croatia has also very solid relations with International Financial Institutions using stand-by arrangements with IMF. Under such IMF-supported programs, increased financial market confidence is expected to assist the Croatian authorities to achieve their policies for reform. A number of structural reforms are under way, notably the improvement of fiscal transparency and public debt management, acceleration of restructuring and privatisation of public enterprise and enacting new legislation to enhance the functioning of markets and employment growth, as well as further trade liberalisation.
The World Bank lends about US$282 million for structural adjustment, which includes the highest priority reforms, including fiscal measures, and support of the investment requirements of the pension reform and property rights and cadastre system reforms. These investment operations support long-term fiscal sustainability and help put in place a business friendly environment.
In order to continue these positive trends, further structural changes are necessary at the national level. The process of reform in the privatisation sector, education, health and judicial system is under way. Fiscal consolidation remains a priority in order to enhance stable and sustainable growth. Efforts to create an "enabling environment" for development have included a comprehensive initiative to overcome administrative barriers to foreign investment. A forum on competitiveness has been established aimed at strengthening dialogue between the government and the private sector, as well as develop tools and capacity for monitoring the overall investment environment in Croatia. The privatization process of large state-owned enterprises is continuing.
Mr. Chairman
Let me conclude, that by showing developments in Croatia, as a country with economy in transition, we can see on a practical example the compact necessary on international and national levels in order to achieve further development and sustainable economic growth and integration in the world economy. This compact forged in Monterrey is the most important to be sustained and further strengthened if we are to achieve development goals and sustainable development, therefore attaining a more equitable global system that yields benefits for all.
Thank you, Mr. Chairman!
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