Croatia can increase its competitiveness in the globalised economy by changing the growth model, as the current one has made the country highly indebted abroad, President Stjepan Mesic said at a British-Croatian Business Network round-table debate on Monday. He cited the latest assessments of the European Bank for Reconstruction and Development as well as earlier assessments by other institutions, including the International Monetary Fund, which say the global financial crisis has shown errors in the development model of central and east European countries, a model based on external financing and borrowing which has made them highly vulnerable abroad.
President Mesic said the central bank, too, was responsible for Croatia's high external debt, which is the main hurdle to economic growth as foreign loans mostly were not directed into production. He said the central bank had not been effective in regulating the country's external liquidity. Furthermore, the government's export offensive was fruitless and macroeconomic policy-makers did not accept the measures proposed by the National Competitiveness Council and the Croatian Employers Association, said President Mesic.
Architects of fiscal and monetary polices must realise that those policies must serve development, production and exports, most of all sectors with the highest growth potential, such as tourism, energy, ecology and infrastructure, President Mesic said, adding that "otherwise, we will stay where we are." Speaking of the fundamental problems of the Croatian economy, he mentioned a pronounced corruption, frequent legislative changes, and an ineffective administration and judiciary.
He said the non-taxation of re-invested profit and the revocation of the tax on all incomes and pensions were measures which could help the country's competitiveness and fight against the recession. The head of the Trade and Investment Department at the British Embassy in Croatia, Helen Tanner, said Britons doing business in Croatia mainly complained about red tape, lack of coordination in the work of city, county and state authorities with regard to land use, physical planning and building permits, and unannounced tax changes.
The dean of VERN college, Goran Radman, said Croatia's competitiveness was limited by insufficient investing in education, innovations, and research and development. The president of the Croatian Society of Economists, Ljubo Jurcic, said Croatia had been developing backwards over the past 20 years, from industry to manufacture, with a resulting decline in the export of complex products.