Croatian Economic Woes

[Ivo Skoric]

Further disincentives to development of Croatian economy: 
On top of previously mentioned sky-high sales tax, and large consumer 
debt - are high rents, and the decision of Croatia's National Bank 
not to approve loans for venture capital and business investment.

Real and artificial shortage of rental space is endemic to post-
communist societies. This drives rents high. Or the rent is set high 
an the space is kept empty until somebody is willing to pay. 
Particularly hurt are seasonal businesses that are forced to sign 
year-long leases, while actually profiting from the space rental only 
for a couple of months. Not yet fully explored alternative is moving 
the business on-line as a mail-order business.

Maybe, because, the UPS and Fedex, moved to Croatian market, charge 
criminally high rates. International rates are even worse rip-off. To 
send 5 kg of books to the US from Zagreb, Fedex would charge me $140. 
UPS would do it for $220. Per kg of weight this is more expensive 
than passenger air-fare: I am 70 kg, plus 40 kg luggage, and I paid 
about $700 for Zagreb-New York: if I am a Fedex package I would cost 
$3080, and as a UPS package I would cost $4840. That would make sense 
only if I am sending opium.

The decision of banks not to give loans to small businesses, while 
giving loans for consumer spending, does not compute. Croatian 
importers are damned to extinction by no credit, high rents, high 
shipping costs, and high taxes environment. Ultimately, foreigners 
only lend spending money to Croats to buy foreign goods, at foreign 
prices, imported and shipped by foreigners. God forbid they make 
something of their own. And the only entity that makes profit of that 
in Croatia is the government, through the 22% sales tax, which is 
then spent to keep social peace.

This makes perfect sense - for foreigners - because money comes back 
into their hands, yet Croats still owe them that same money. But 
Croats are not developing their own economy. They are buying at 
European prices, with 3 times lower wages, and the gap is covered by 
the consumer debt financed by the foreign banks. Eventually, they 
won't be able to pay the debt, and banks will do what?!

All possible scenarios lead to social unrest in a couple of years: 
devaluation of currency, making people work for even less real money; 
foreign banks acquiring more premium real-estate when people and 
businesses default on their debts; foreign banks picking up their 
toys and leaving Croatian financial system with no liquidity (95% of 
Croatian financial system is owned by foreign banks at the moment)... 


Ivo
ps - Institute Francais in the center of Zagreb displays a large 
picture of Mostar's Old Bridge.

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Ivo Skoric
19 Baxter Street
Rutland VT 05701
802.775.7257
ivo at balkansnet.org
balkansnet.org