Croatia sees 1.5 pct growth, good tourism season

DUBROVNIK, Croatia Mon Jul 11, 2011 5:04am EDT

Men cook on a barbecue for tourists on their boat along northern Croatia's Adriatic island of Cres June 12, 2010. REUTERS/Nikola Solic

Men cook on a barbecue for tourists on their boat along northern Croatia's Adriatic island of Cres June 12, 2010.

Credit: Reuters/Nikola Solic

DUBROVNIK, Croatia (Reuters) - Croatia's economy may grow as much as 1.5 percent in 2011 after two years of downturn, boosted by an especially strong summer tourist season, the prime minister told Reuters said in an interview on Saturday.

However, Jadranka Kosor's forecast of 1 to 1.5 percent GDP growth for the former Yugoslav republic, which concluded EU membership talks last month, was slightly below the 1.5 to 2 percent estimate she had given in April.

"This year we expect economic growth at long last," she said at the closing of a two-day regional summit she hosted in the walled Adriatic city of Dubrovnik. "These were terribly difficult years. We expect growth of at least one percent."

"We expect that major government investment will impact unemployment, which will lead to economic growth," she said. "I think we can reach 1.5 percent."

The International Monetary Fund has forecast growth of 1 percent.

Croatia's economic recovery has lagged other countries in emerging Europe. It experienced two years of recession as it was completing EU talks and now hopes to become the bloc's 28th member in July 2013.

With tourists flocking to Croatia's pristine coastline and crystal clear waters this summer, Kosor was optimistic about the season, as tourism brings in about a fifth of total GDP.

"We think it will be one of the best, if not the best season ever," she said.

Unlike ex-Yugoslav neighbours Serbia, Macedonia, Bosnia and Kosovo, Croatia needs no loans from the International Monetary Fund and should not fear a credit downgrade, Kosor said.

The government had taken big steps toward fiscal responsibility by cutting spending and freezing wages, she said.

Earlier this month, the country of 4.4 million issued its first Eurobond since the summer of 2009, bringing in 750 million euros with a coupon of 5.875 percent.

FIGHTING CORRUPTION

Kosor said the anti-corruption drive and efforts to curtail red tape will make the country more attractive to investors. She said reforms would not let up before joining the EU in 2013.

"We've already done a lot in the fight against corruption," said Kosor, who took office in July 2009 after Ivo Sanader suddenly stepped down.

"People now see that if someone is corrupt, whatever their name, and whatever position they may hold in society, they will be held accountable."

Prosecutors have launched several graft probes against Sanader, who is in detention in Austria and awaiting extradition on charges of creating slush funds for his conservative HDZ party during his term as prime minister.

"The fight against corruption is giving a big push to improving the investment climate in Croatia," Kosor said. "Those who invest want to know that there is no tolerance for corruption."

Investors still complain that corruption remains endemic as bureaucrats who have the ability to approve construction permits and other key documents seek to enrich themselves.

Kosor acknowledged there was more to do, but also added the anti-corruption campaign may have caused bureaucrats to become overly cautious about issuing permits and approvals.

"Many people in Croatia, in state companies for example, are afraid to take decisions, to avoid the appearance of being involved in past corruption affairs," she said. "But certainly there is a new climate now." (Editing by Zoran Radosavljevic and Alison Birrane)

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