Croatia: Government and Economy

Since 1990, when the one party socialist system was eliminated, Croatia has existed as a parliamentary democracy. A national constitution was approved in December 1990, and independence was proclaimed on June 25, 1991. The country's flag has horizontal bands of red, white, and blue upon which appears the Croatian coat of arms that includes symbols representing each of its historical provinces.

Branches of Government

Croatia's government is divided into three branches, the legislative, executive, and judicial. Each branch has clearly defined responsibilities and, as is true of the U.S. government, this division represents a separation of powers.

Legislative Branch

The legislative branch is organized as a unicameral (one branch) Parliament, or National Assembly. Its official name is Hrvatski Sabor. During the 1990s, the Parliament was bicameral with the House of Representatives (Zastupnicki Dom) and the House of Counties (Zupanijski Dom). The latter was abolished in 2000, leaving the House of Representatives as the only legislative body. By law, Parliament cannot have more than 160 members, or fewer than 100. Currently, 151 members of Parliament represent the Croatian voting body. All members are elected by popular secret vote to four-year terms of office.

In the 1990s, President Tudjman's Croatian Democratic Union had the majority of seats in the Parliament. During this period, a so-called semipresidential system limited legislative powers, thereby giving more control to the country's president. When opposition parties gained control of the government after the 2000 elections, the system was changed. Now, the Parliament has much more control and the president's powers are more limited. The current president of the Hrvatski Sabor, whose term of office expires in 2004, is Zlatko Tomcic, leader of the Croatian Peasant Party.

Executive Branch

The president of Croatia is Stjepan Mesic. He, like many other Croatian politicians, is a former Communist and a member of the Croatian People's Party. Mesic was elected to a five-year term that will expire in 2005. The president is the chief of state and supreme commander of Croatia's armed forces.His duties include the nomination and appointment of the prime minister. The prime minister also appoints the Council of Ministers, or members of the Cabinet. Finally, the Parliament must approve the appointees. If a majority of representatives in the Parliament do not approve candidacy for a particular candidate, then the prime minister must appoint another candidate and the process is repeated. The current prime minister and the head of the government is Ivica Racan, president of the Social Democratic Party.

Judicial Branch

The judicial branch is made up of the Supreme Court and the Constitutional Court. The House of Representatives elects the Judicial Council of the Republic. This council, in turn, then appoints the judges for both courts. Judges are appointed to eight-year terms. The judicial branch has been criticized for its conservatism—many people believe that it is too slow to modernize. Critics believe that some elements of the former Communist “mentality” still prevail, and they want to see the courts work more effectively.

Armed Forces

Prior to 1991, Croatia was a part of Yugoslavia. It did not have its own military force. When Croatia gained its independence in that year, it also became embroiled in widespread armed conflict. In response to these hostilities, the president created the modern Croatian military structure. As many as 150,000 soldiers served in the armed forces during the conflict of the early 1990s. Today, approximately 30,000 military personnel serve in seven “brigades” each of which includes of about 2,500 soldiers each. Branches of the military include ground forces, naval forces, and air and air defense. The president of the country is the supreme commander of the armed forces.

Foreign Affairs

Croatia's primary foreign affairs goal is to normalize its relationships with its neighbors, including joint work on border disputes. It is also working to become integrated into international organizations such as the European Union (EU).

In 1992, Croatia became an official member of the United Nations (UN). Today, its soldiers are serving as peacekeepers in UN missions worldwide. Its first such assignment was in the African country of Sierra Leone. Croatia is also a member of the Partnership for Peace Program that was organized by the North Atlantic Treaty Organization (NATO). This affiliation is an important first step toward full membership in NATO. In 2000, Croatia took another major step toward international cooperation by being accepted as a member of the World Trade Organization (WTO). Finally, in 2001 the EU and Croatia signed the Stabilization and Association Agreement.

This agreement brought Croatia closer to membership in the EU, a goal that the country hopes to achieve during the current decade. At the same time, Croatia is seeking membership in the Central European Free Trade Organization, which would provide another continental economic integration.


Before 1990, Croatia was the most industrialized of Yugoslavia's former republics. Yugoslavia, itself, ranked among the best-developed Communist governed countries with a centrally planned economy. During this period, Croatia's future seemed bright. At the time, no one expected that the last decade of the 20th century would bring so many changes and such harsh struggles.When armed conflict broke out in 1991, the economy suffered a quick downturn. Today, although peace was restored to the land in the mid-1990s, the economy remains at a pre-1990s level.During the half decade of conflict, trade with its traditional partners in other former Yugoslav republics dropped tremendously. Additionally, significant parts of the communication and transportation networks were under the control of rebel forces. A number of major highways and railroads that were essential to the Croatian economy were under control of Serb forces or within the range of their artillery.

In the period of 1991–1995,Croatia experienced many severe economic problems. These problems included inflation, low wages, and the need to accommodate hundreds of thousands of refugees. The need to pour financial resources into its military further limited the country's potential for economic development. However, the government managed to implement an inflation control program. It was also successful in gradually increasing wages.

Many obstacles to economic development in Croatia are leftovers from the Communist era. One obstacle is the irresponsibility of many high-ranking officials. Often they are not held accountable for past actions. Single party political dominance was interrupted after parliamentary and presidential elections in 2000, when a coalition of opposition parties achieved victory. This event was seen as an important milestone toward economic development and the fight against corruption. The new government seems to be trying to introduce a new approach to economic policy. Yet a low level of achievement and efficiency has left many Croatians unsatisfied. Another major economic hardship results from monopolies controlling some branches of the economy. The oil industry and production of electricity, for example, are each totally controlled by single corporations. A single company also owns the telecommunications network. In the absence of competition, consumers end up paying unreasonably high prices.


Croatia, like other former Communist states, is in a sometimes painful economic transition. Under socialist governments, nearly all economic planning was centrally controlled. Now these countries face the challenge of privatizing their economy. If they want to achieve prosperity, they must form a free market (capitalist) economy in which private ownership replaces government control. The market, not the government, also must set prices and wages.

Each country in Eastern Europe has worked on this transition in its own way. And with few exceptions, each of them experienced major problems during this process. In Croatia, critics have accused the former government of having approved poorly written constitutional laws regarding privatization. They also question the government's decision to begin privatization during wartime when legal institutions were unable to monitor and control irregularities. Today most of Croatia's biggest companies are privatized, and the Parliament is working to produce new laws that will encourage economic development. It is also taking necessary steps to ensure Croatia's eventual membership in the European Union.


As a country's economy grows, so, too, does its consumption of energy. Croatia is not an energy-rich country; it must rely on imports to satisfy its demands for fuel. Domestic oil production is limited to several fields. Oil fields are found in eastern Croatia and in the Adriatic Sea. In the Adriatic, drilling platforms already exist and more are being built and placed into operation. In the northern part of the country, along the border with Hungary, additional petroleum resources have been discovered. During the war years, Croatia was unable to look for oil or to develop oil from the fields in the eastern part of the country. This area was under rebel control until 1995. Natural gas production, as well as oil yield, is limited.

Croatia imports a significant amount of oil to satisfy its increasing domestic demands. In recent years, many towns have been connected to the network of natural gas pipelines. Providing adequate gas for home and industrial use is one of the major projects in the country's attempt to modernize. The government believes that this is the least expensive way to improve the living conditions of its citizens.

The state-owned oil company, Industrija Nafte (INA), holds a monopoly on oil exploration in Croatia. However, in its attempt to expand petroleum production from the Adriatic Sea fields, it has entered into cooperative agreements with foreign companies. One of the areas where exploration is intensive is in the Ivana sector in the northern Adriatic. INA also invests in foreign countries such as Russia, Angola, and Egypt, where it owns some smaller fields.

Perhaps the most important element related to the oil industry is Jadranski Naftovod (JANAF), an oil pipeline. JANAF was built during the era of the former Yugoslavia. It connects the Croatian port of Omisalj on the island of Krk with the country's interior, and extends on to Hungary, Yugoslavia, Slovenia, and Slovakia. The pipeline, which was shut down for years because of war, is in an operative state again. Today, this vital lifeline is becoming increasingly attractive to foreign investors because of its strategic position. JANAF has a capacity of 400,000 barrels per day. If it is connected with the Russian pipeline (Druzba), Russian petroleum from the Caspian area and elsewhere can be exported through the Omisalj port facility. If this plan were realized, it would provide Croatia's economy with a muchneeded financial stimulus from pipeline royalties.

Coal and electricity are also essential to economic development and human well-being. Domestic production of coal does not fill the country's needs, and oil must be imported. Croatia does have some reserves of low-grade lignite that are being exploited. Potential for greater production of electricity exists, especially in the form of hydroelectric development. Today, hydroelectric plants generate approximately one-third of all electricity produced in Croatia.Most of these plants are located near the northern city of Varazdin or on the northern coastal region. In the capital and largest city, Zagreb, a substantial portion of its electricity is supplied from three oil-powered plants.

A major setback in Croatian energy development occurred with the 2002 bankruptcy of the American energy company Enron. The company was building a gas-powered electrical plant in Jertovec, which was scheduled to be finished by the end of 2002. Enron was the owner of the power plant and main investor in this project. Therefore, the Croatian government faces a serious problem in filling this void as it works to meet the nation's demand for electricity.

Croatia has finally resolved yet another of its political problems, one pertaining to the former Yugoslavia's only nuclear power plant. The plant, in Krsko, Slovenia, was a joint project between Croatia and Slovenia—but during the time when both were republics of Yugoslavia.When both countries became independent in 1991, the question of ownership was raised. The problem was recently resolved, however, and now Croatia once again receives much-needed electricity from the Krsko nuclear plant. Most of that power is used in Zagreb, which uses nearly a quarter of the country's total energy.


Croatia has a transportation network, but needs to expand its mileage of modern expressways. So far only about 570 miles (917 kilometers) of a total 38,070 miles (61,266 kilometers) of paved roads are qualified as highways. The greatest existing need is for a better connection between Zagreb and southern parts of the country, including the coastal cities of Split and Dubrovnik.

War delayed construction of these routes for almost a decade. But recently, the American company Bechtel received concessions to build an expressway that will connect the populated north with the remote southern areas of the country. Most local and regional roads also need reconstruction. Of particular importance is the need to improve the main coastal highway. For many years, this was the only route on which tourists could travel along one of the world's most beautiful seashores. Today, however, extremely heavy traffic has far exceeded the highway's capacity, thereby creating a demand for additional routes. As a country that relies heavily on tourism, it is extremely important that Croatia upgrade its highway network.

The railroad network received extensive damage during the war. Although more than one-third of the railroads are electrified, an extensive upgrade is needed. This is particularly true of rail linkages connecting smaller communities.

Croatia must also provide transportation links between its various islands, 66 of which are inhabited. Among European countries, only Greece has a more complicated problem of connecting its many islands with its mainland. Hundreds of islands provide beautiful scenery for tourists, but the only way to visit them is by ferry. All inhabited Croatian islands are linked to the mainland by boat, and ferries also connect Croatia with neighboring Italy. Over 20 airports with paved runaways connect major towns. Zagreb's international airport, Pleso, is the home of Croatia Airways, the national air carrier that connects Zagreb with major European cities. There has been a recent emphasis on tourist charter flights. This activity has stimulated construction of smaller airfields that can accommodate charter flights carrying tourists from Western Europe to island destinations in the Adriatic Sea.


In terms of communications, Croatia is a very “wellconnected” country. It has more than 1.5 million telephone lines and a rapidly increasing number of cellular phone users. The main telecommunications company, Croatian Telecommunications (Hrvatske Telekomunikacije), was privatized in 1999. The money received from the sale was used to modernize the network. Today, a modern digital network is being developed to replace the increasingly obsolete analog network currently in use. Cellular phone users can choose among different companies and services. Almost a dozen Internet service providers serve some 150,000 users.

Industrial Production

During the 1990s, industrial production suffered tremendously. As a result, Croatia's unemployment rate is quite high when compared with developed countries. Before the war (1991-1995), most Croatians were employed in the industrial sector. A small number of major companies were able to survive through the troubled times and become serious competitors in the world market. Many smaller businesses, however, still experience problems. Critics place much of the blame on high taxes and a rigid bureaucracy. The country must develop more effective ways to encourage the creation and development of small businesses.

Pliva and Podravka are among the leading Croatian companies and can qualify as multinational corporations. Pliva is one of the main European pharmaceutical companies. Its stocks are being traded on the major international financial markets. The Podravka food company is recognized worldwide for producing high-quality products, including the popular seasoning mix, Vegeta.

Shipbuilding, which has a long history in Croatia, was well developed during the Yugoslav era. But during the past two decades, it has experienced a decline, resulting from an inability to compete with cheaper builders in South Korea and elsewhere. Recently, however, foreign buyers have once again recognized the quality of Croatian shipbuilding and the number of orders is steadily increasing.


Agriculture in Croatia has tremendous potential. The country's physical environment makes it possible to grow a great number of different crops. Adequate moisture and relatively warm temperatures also help to ensure high yields. Dairy and meat production, centered mainly in interior Croatia, has been practiced for a long time. But it is still not developed to the level of Western standards. In the Mediterranean climate region of the Dalmatian Coast and on the Adriatic islands, excellent olive oil and some splendid wines are produced. Although little known beyond the country itself, Croatian wine is among the world's best.

Excellent Chardonnays and Rieslings come from the interior. Other grapes, mainly local or Italian, thrive in the seaside environment. Farmers are eager to achieve higher levels of production, sales, and income. But they face many obstacles that ultimately lead to lower production, stagnant sales, and relatively low revenue for their efforts. Low government subsidies and high taxes combine to limit income. Imported foods are often less expensive than those domestically grown. Also, there is very little international advertising of Croatian food products and wines. Therefore, there is little demand in foreign markets.


In terms of balance of trade, Croatia imports nearly twice as much as it exports. This creates a huge deficit of more than three billion dollars each year. The major export commodities are food, textiles, and chemicals. Imports include electronic equipment, vehicles, food, machinery, oil, and lubricants. Germany is Croatia's main trade partner; it is responsible for almost 16 percent of exports and about 18 percent of imports. Other important trade partners are Italy, Slovenia, Russia, Austria, and Bosnia and Herzegovina. The United States imports some $85 million per year—primarily food and textiles. The United States also exports an average $250 million in goods to Croatia each year.


Currently, tourism is the most profitable economic activity in Croatia. In 2001 it generated nearly $3.7 billion in national income. The country has excellent potential to become a primary world tourist destination during both the summer and winter months. The climate is pleasant year-round. Many tourist destinations enjoy some of Europe's highest number of hours with sunny skies. With the dry summers characteristic of the Mediterranean climate, weeks may pass without rain. But in the winter, as well, the sky remains quite cloud-free much of the time.

Unfortunately, Croatia is still suffering from the turbulence of the 1990s and has yet to return to a pre-1990 level of tourism. There are fewer tourist resorts in the country today than there were during the pre-1991 socialist era. In 2000 the total number of tourist visits (including Croatians visiting tourist sites and facilities) was 6.5 million. This figure represents about two million fewer tourists than visited a decade earlier. Most of the foreign tourists come from Germany, the Czech Republic, Poland, and Austria.

Nautical tourism (people arriving by boat, often their own) has developed rapidly. By the year 2002, nearly 50 marinas were available for tourist use. Additionally, tourism based on hunting wild game, such as deer and pheasant, has increased greatly during recent years.With around 770 hunting districts, Croatia offers ample opportunity to hunt both big and small game. The country also attracts tourists to health resorts and spas, which are based on mineral springs. Again, this type of tourism also declined sharply during the 1990s.With a rebuilding of the infrastructure, it should once again attract tourists.