Investors to Orešković: Do Not Follow Examples of Hungary and Poland

By 18 January 2016

A little advice from Croatia's creditors to the PM-in-waiting.

A report prepared by Eric F. Nielsen, the chief economist at UniCredit, which was sent to world's leading investors, includes a reference to the recent informal gathering in Kitzbuhel, where Croatian Prime Minister-designate Tihomir Orešković received high marks. "We had an honour to welcome him as our guest", says the report which describes him as a man of great experience in the world of international business, reports Vecernji List on January 18, 2016.

According to Nielsen, Orešković came to the gathering of about a hundred investors from Europe primarily to hear their message and views on developments in Croatia. Nielsen did not want to quote Orešković's views, but has conveyed his own recommendations, which are said to be similar to the opinion of other people who were present in Kitzbuhel.

Nielsen cites three key recommendations which he offered to the incoming Croatian Prime Minister. First, the growth of public debt must be stopped, since it has more than doubled since the economic crisis began. Orešković apparently agreed with this recommendation since it was the focus of his speech after he returned to Zagreb.

Another important recommendation was to ensure the continuation of the independent monetary policy, since monetary policy and exchange rate policy were what saved Croatia during the last few turbulent years. Nielsen writes that he told Orešković that all suggestions about monetary reform must be rejected.

The third suggestion was somewhat political. The organizer of the gathering in Kitzbühel believes that Croatia should demonstrate its unwavering commitment to the European Union and must not follow populist and nationalist policies being carried out in Poland and Hungary. The European Union should be a place of competition, and not of closing within one's own borders. Nielsen states that European and American business communities are increasingly concerned with decisions being made in these countries and with their nationalist policies. "Croatia will do a very good thing for itself if it continues the pro-European policies based on common values."

When it comes to stopping the growth of public debt, Nielsen proposed to Orešković to start with fiscal adjustments measured by the share in the Croatian GDP of 1.5 percent (which would be 4.5-5 billion kuna), in order to achieve a primary surplus of 1 percent of GDP. According to Nielsen, that should be carried out primarily on the spending side of the budget, rather than through tax increases. With a credible plan and a good start, the fiscal adjustment on this basis could take place within two years. Furthermore, privatization could also play a certain role, but the focus should be on controlling spending. He also mentioned institutional reforms in the public and the judicial sector, as well as broader measures to improve competitiveness.