Cablegate: Croatia Top Reformer, but Still Regional Laggard

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RUEHLN RUEHLZ RUEHPOD RUEHROV RUEHSR RUEHVK RUEHYG
DE RUEHVB #0937 2880822
ZNR UUUUU ZZH
R 150822Z OCT 07
FM AMEMBASSY ZAGREB
TO RUEHC/SECSTATE WASHDC 8228
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE

UNCLAS ZAGREB 000937

SIPDIS

SIPDIS

E.O. 12958: N/A
TAGS: ECON EINV ELAB HR
SUBJECT: Croatia Top Reformer, but Still Regional Laggard

1. SUMMARY: The World Bank's "Doing Business 2008" report lists
Croatia as the top reformer in the region and second worldwide for
improving the ease of doing business during 2006-07. Croatia
reformed in four of the ten areas covered in the study, and moved
from 124th to 97th place in the overall ranking. Despite
improvements, however, Croatia's overall ranking remains below all
other Central and Eastern European countries except Bosnia and
Herzegovina. END SUMMARY.

2. According to the World Bank's "Doing Business 2008" Croatia has
become a reform leader, simplifying procedures for starting a
business, registering property, getting credit and closing a
business. The report ranks Croatia first in the region and second in
the world for number and impact of reforms. The driver behind these
measures was the creation of the so-called "one-stop-shop" for
business information, HITRO.HR (which has actually been in existence
for several years).

3. Sanja Madzarevic-Sujster, senior country economist at the World
Bank Croatia Country Office, told ECON OFF that the WB's assessment
was based partially on investor reaction to HITRO.HR, which has been
positive. She also said Croatia is now seeing the results of
property registration reforms begun in 2000. Two years ago,
registering property in Zagreb took nearly three years; it now takes
about six months. Madzarevic-Sujster said that property can be
registered in a week in some areas of the country, but a backlog
continues to slow the process in Zagreb. The GOC established a
unified registry to record all claims against movable property in
one place and changed the process for enforcing contracts to allow
notaries to handle non-contestable cases rather than requiring a
judge's involvement. The establishment of a private credit bureau
(HROK) has also made credit more widely available. In the final area
of reform, the GOC amended its insolvency law to introduce
professional requirements for bankruptcy trustees and shortened the
timeline for bankruptcy procedures.

4. With these reforms, Croatia moved from 124th to 97th in the
overall ranking for ease of doing business. Despite this rise,
however, Croatia remains behind all other countries in the region
except Bosnia and Herzegovina. Madzarevic-Sujster explained that
one reason Croatia ranks behind some countries that may seem less
amenable to businesses is that the Doing Business study looks only
at administrative burden and fees in a country's capital city. It
does not consider political or macro-economic stability. She also
listed several areas for further reform in Croatia, including
licensing procedures, protection of investors, corporate governance,
public administration and the judiciary, and flexibility of the
labor market. She said particularly in this pre-election period she
fears the government will slow or reverse its pursuit of reforms,
for example, by maintaining or increasing social benefits or
propping up loss makers like the railways and shipyards. High public
spending threatens hard-won stability, and slow pace of
administrative and judicial reforms has already hurt private
investment in the country. She added a slowdown in growth is likely,
demanding all the more cushion in labor flexibility.

5. COMMENT: Despite Croatia's low overall ranking in the report,
being labeled a top reformer was generally welcome news for the
current government only two months before a general election.
Critics maintain that HITRO.HR and other measures are more image
than substance; nevertheless, the business community here is in
agreement that things are going in the right direction, albeit not
as quickly as most would like.
BRADTKE

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