ABSTRACT
Croatia, as one of Yugoslavia’s successor states, has been defining its independent transition path since mid-1991. The economic costs of transition in Croatia have been significantly increased by the war. The main macroeconomic indicators by mid-1994 fell to half of its pre-independence and pre-transition values. Macro-economic instability was also substantial, and the tripled inflation rate approached hyperinflationary levels.
Nonetheless, Croatia has made significant progress in its economic transition to a mixed-ownership, market economy. The restructuring of economic institutions is almost complete and most new institutions have already proved their effectiveness. The chosen privatization legislation was revenue-oriented, state-dominated with special incentives for small shareholders. Due to lack of capital (domestic, largely due to concurrent housing privatization and declining living conditions; and foreign, due to war-related uncertainty), the state supported privatization by stepping in as a temporary owner—which has resulted in its being the largest owner 623and employer in the economy. The restructuring of economic sectors lags behind other transition-related changes.
The implementation of a rigorous stabilization policy based on monetary austerity, wage control in the state sector, and internal convertibility started in autumn 1993. This policy has successfully lowered inflation rates for an extended period. The continued success of this policy depends on maintaining restrictive monetary policies, the still-untested fiscal discipline, the cessation of hostilities, and external financial support, which until now has been absent.
