Despite continued jitters among foreign investors because of the political and military situation in this part of the world, the Croatian economy has seen substantial improvements since 1991. An austerity plan introduced in 1993 reduced inflation from 2,000 per cent to zero in 1994 and the National Bank's foreign currency reserves have grown from zero to US$ 2.9 billion (June 1995). The new currency, the kuna (1 HRK = US$ 0.18), introduced as part of the austerity program, has been stable against major foreign currencies and has appreciated against some, including the German Mark.

Interest rates and taxes continue to be high largely due to the political situation and the cost of defence and of supporting refugees. The IMF, of which Croatia is a full member, has recently forecast 3% inflation and 5% growth in GDP for 1995.

In addition to being a member of the IMF, Croatia has also recently become a full member of the International Bank for Reconstruction and Development and the European Bank for Reconstruction and Development.

RECENT DEVELOPMENTS

New Legislation

The Croatian parliament has recently adopted a new law on the Administration of the Tax System which aims towards a system comparable with that in western countries. The reform of the tax system will be completed with the expected introduction of VAT early in 1996.

EXPECTED DEVELOPMENTS

Privatisation

Privatisation has been patchy so far, with estimates of exactly what proportion of state assets have been sold-off ranging between 20 - 50 per cent. The IMF has recently highlighted the need for accelerated structural reforms and a new law on Privatisation aimed at speeding-up the privatisation process is expected in the Autumn of 1995.

There has been an indication from the World Bank that Croatia will receive loans worth between US$ 80 - 100 million in November for the purposes of privatisation and enterprise restructuring.

Other new legislation

Laws on Bankruptcy and Liquidation and on the Protection of Market Competition are currently being drafted.

Taxation Trends

As part of its overall strategy of economic stabilisation, the government has adopted a tight fiscal policy,with the aim of reducing the level of tax, but broadening the tax base. In addition, there are plans to tighten laws on tax avoidance.

This Article has been written with the assistance of Inzenjerski Biro Revizija, Zagreb.

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