Thank you, Madam Chairperson!
Madam Chairperson,
At the outset, let me say that Croatia aligns itself with the statement by the European Union on globalization and interdependence. However, 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 “a favorable international environment, including robust world economic growth, buoyant trade, high commodity prices and low cost of international financing, has supported a strong economic performance of the economies in transition during 2004 and 2005”. The economic growth with aggregate gross domestic product expanded rapidly by 6.6 per cent in 2004 was not only the highest since the start of the transition, but was unusually widespread and balanced: throughout countries with economies in transition.
However, despite strong economic growth performance, high unemployment rates and low labor force participation rates persist in many of these countries and are reasons for uneven overall development and prosperity. This clearly shows that economic growth, if it is not supported by structural and institutional reforms, is not sufficient. An insufficient level of education with inadequate use of innovations and scientific results in the development of the economy, an insufficiently flexible labor market, an unevenly developed and insufficiently used economic infrastructure, with insufficient macroeconomic environment and liberalization of capital flows with not integrated enough financial services, are all impediments to complete a transition process and better integrate into the world economy.
Madam Chairperson,
Allow me in this context to point out that Croatia is undergoing the same process as is outlined by its main development strategy paper “Strategic Development Framework for 2006–2013”. It has already achieved macroeconomic stability in the form of low inflation (around 3 per cent), a relatively stable domestic currency exchange rate (5.94 to a dollar) and the lack of major oscillations in GDP growth (US$8,667 per capita in 2005) with steady growth rate of 4.1 per cent in the first 8months of 2006. However, export is only gradually rising to reach around US$20 billion in 2005, which is 7.4 more than in 2004m while the unemployment dropped to 15.7 per cent in the first 8 months of 2006 from 17.9 in 2005. The state budget deficit (including local government) fell from 6.3 per cent of GDP in 2003 to 4.1% of GDP in 2005, with a tendency to fall further to 3% in 2006.
Additionally, 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.
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 and we are constantly working to improve environment for foreign investment and remove administrative barriers 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.
In the fiscal policy challenges still remain. Fiscal policy needs to become more flexible and more open to the occasional changes needed to adjust the fiscal deficit to the business cycle, and in the field of relations with foreign countries where the growth of external debt must be kept within sustainable limits. Such conditions will favor maintaining the existing pace of financial growth and faster diversification of the financial system. The financial system has, due to its stability and large inflow of capital through the bank system, contributed significantly to the existing developmental cycle in Croatia. However, a capital market needs to be developed, particularly segments that ensure capital for expanding, innovative companies.
Croatia has also very solid relations with International Financial Institutions and uses stand-by arrangements with IMF to increase financial market confidence and continue with its policies for reform. The World Bank is supporting Croatia's European integration through various institutional and policy reform projects as well as with infrastructure projects. 31 projects for a total amount of $1.7 billion have been approved by the World Bank's Board of Directors.
In order to continue these positive trends, further structural changes are necessary at the national level. The process of reform in the privatization sector, education, health and judicial system is under way.
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 stands today at 54% of the EU average. Provided that the goals and activities set in our development strategy paper are realized successfully during the following seven years, Croatia might be able to attain an average growth rate of 6% in the period between 2006 and 2013. With such a growth rate, Croatia may at the end of that period achieve three quarters (75%) of the average EU-25 income per capita, provided that the EU continues to grow at an average rate of 2% per annum. This will enable Croatia to become from a recipient of foreign aid to a donor, where Croatia needs to position itself commensurate to its abilities.
Madam Chairperson,
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. Croatia will also continue to advocate for a stronger voice and participation of the countries with economies in transition in IFIs.
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