USIA - Text: World Bank Statement on Support for Croatia, 97-05-13

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USIA - Text: World Bank Statement on Support for Croatia, 97-05-13

United States Information Agency: Selected Articles Directory - Previous Article - Next Article

From: The United States Information Agency (USIA) Home Page at <http://www.usia.gov>

TEXT: WORLD BANK 5/13 STATEMENT ON SUPPORT FOR CROATIA

(Strengthens enterprise and financial sector reforms) (740)

Washington -- A $95 million equivalent Enterprise and Financial Sector Adjustment Loan to Croatia will support the government's efforts to restructure and privatize state-owned banks and enterprises, the World Bank announced May 13.

The Bank announcement said the loan also would "further promote Croatia's integration into European financial markets."

Following is the text of the announcement:

(Begin text)

WORLD BANK SUPPORTS ENTERPRISE AND FINANCIAL SECTOR REFORMS IN CROATIA

Washington, May 13, 1997 -- The World Bank today approved a DM160 million ($95 million equivalent) Enterprise and Financial Sector Adjustment Loan to Croatia in support of the government's efforts to restructure and privatize state-owned banks and enterprises. The loan will help to speed up private sector development and further promote Croatia's integration into European financial markets.

In cooperation with the Bank and the International Monetary Fund (IMF), the government of Croatia has placed a high priority on maintaining economic stability and boosting economic recovery. Since October 1993, Croatia has sustained stable exchange rates and prices and has been successful in achieving six percent growth in 1996, led by its tourism and construction sectors. With the aim of helping Croatia to continue in its path toward sustained economic growth, the Bank's loan will help to foster a major breakthrough in reforming Croatia's enterprise and banking sectors.

The main elements of the government's reform program include:

Improving governance and performance of enterprises, and reducing enterprise losses;
Restructuring and privatizing large public utilities and establishing a new utilities regulatory agency;
Privatizing formally socially-owned enterprises; and
Restructuring and privatizing banks, and enhancing the regulatory framework for banking.

The Enterprise and Financial Sector Adjustment Loan will support the government's reform program by:

Promoting an accelerated program of enterprise privatization, including large public utilities which would yield efficiency gains in the economy and spur growth;
Supporting enterprise restructuring, including the rapid reduction of enterprise losses to free resources for projects of much higher returns and bring about lower levels of interest rates;
Supporting a program of banking reform, including bank privatization and the overhaul of the incentive framework which is designed to preserve the financial discipline; and
Ensuring that Croatia's scarce resources are effectively allocated to the most dynamic enterprises.

The loan will be at the standard interest rate for LIBOR-based, single currency loans in Deutsche Marks with a maturity of up to 15 years with a five-year grace period. The loan will be disbursed in two equal tranches of DM80 million.

Since Croatia joined the World Bank in 1993, Bank commitments total approximately $457 million for nine operations.

Croatia's Enterprise and Banking Sector Background

Enterprise Sector

Croatia has been successful in moving away from social ownership and at advancing privatization. The Law on the Transformation of Socially-owned Enterprises of 1991 covered approximately 2,800 enterprises. Virtually all enterprises covered by the Transformation Law have been commercialized (2, 550 out of 2,800). As of February 1997, 2,424 or 95 percent were privatized of which 1,417 were fully privatized.

Nevertheless, the state still owns about one-third of the aggregate share capital of the enterprise sector, including large minority stakes in approximately 1,100 privatized enterprises in part because: 1) A group of 10 very large enterprises operating in the infrastructure and energy sectors was excluded from the initial scope of the privatization policies; and 2) The Transformation Law's emphasis on employee buy-outs facilitated the privatization of smaller, rather than larger, former socially-owned enterprises.

Banking Sector

Croatia does not have any specialized banks and moved to a two-tier commercial banking system in the early '60s, much earlier than other transition countries. Most of the approximately 20 (out of 60 today) commercial banks established before independence have been operating "commercially" for several decades, including in Western countries, and have developed reasonably good banking skills. Despite the large number of banks in operation, however, competition remains limited. The two largest banks with nation-wide networks, Privredna Banka and Zagrebacka Banka, account each for about 23 percent of the banking system's assets. The next four second-tier banks represent another 20 percent. The other banks, including about 30 banks privately-established after independence, are smaller in size. In addition, non-bank intermediation is underdeveloped with only a few small-size insurance companies and an infant stock exchange.

(End text)

From the United States Information Agency (USIA) Home Page at http://www.usia.gov

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