Sanader’s Government Set Record in Borrowing, Račan’s Carried Out Most Reforms

Total Croatia News

ZAGREB, December 31, 2019 – In the last 20 years Croatia’s debt has increased sixfold, HRK 50 billion kuna to nearly 300 billion, the Večernji List daily says in its Tuesday edition, citing figures that show that the HDZ government of Ivo Sanader set the record in borrowing while the most reforms were carried out by the government led by Social Democrat Ivica Račan.

The political rise of Zoran Milanović has refuelled debates about his government having been the most spendthrift. The statistics, however, show a different thing.

The leader in terms of borrowing was the HDZ government led by Ivo Sanader and his successor Jadranka Kosor, during whose four-year term (2008-2011) public debt rose by 95 billion kuna, more than doubling in the two terms, says Večernji List.

Milanović’s government increased the debt by around 73 billion kuna, Račan’s by around 40 billion and Plenković’s by around 15 billion.

Economists, however, warn that adding up public debt is like comparing apples and oranges.

“Macroeconomically, we are talking about different environments. It would be more sensible to judge reforms and their impact on long-term growth,” says Željko Lovrinčević of the Institute of Economics.

“The term of the Ivo Sanader government was a period when loans were sought for infrastructure projects that were financed by the Croatian state, and there were both rational and irrational investments,” said Lovrinčević.

Milanović’s government led the country during the period of a very deep financial crisis, when deficits were a way to maintain the country’s financial system and prevent complete chaos.

“It was a period of record-high interest rates, unlike the current situation, with artificially created low interest rates. The two periods are almost incomparable, in terms of both sources of financing and capital prices,” said Lovrinčević.

Sanader and Milanović did not have at their disposal EU funds available to the incumbent government, which is macroeconomically the most successful one, if the short term of PM Tihomir Orešković is disregarded, as public debt has been falling as measured by its share in GDP, however, neither Sanader nor Milanović performed well in terms of structural reforms.

“Running the country was most difficult during the term of the Ivica Račan government, it was a heterogeneous coalition that led the country in a transition from a semi-military model of state functioning to a civilian economy. That is when most progress was made in structural reforms,” Lovrinčević believes.

Lovrinčević previously compared growth rates in Croatia with rates in other transition countries behind which Croatia lagged by 30%.

Paradoxically, but Croatia lagged the most behind during the term of the first Ivo Sanader government, from 2004 to 2007, when economic growth was 14% lower than in other transition countries, unlike the most successful, Ivica Račan government, during whose term the national economy lagged behind by 2%.

Račan’s government raised GDP by around 18% during its term and at the time Croatia’s economy grew faster than the economies of the Czech Republic, Slovakia, Hungary and Slovenia, which from today’s perspective looks like science fiction, says Večernji List.

More economic news can be found in the Business section.


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