According to the 2003 Budget law103, government debt is defined as the debt of the consolidated government budget without government guarantees. With government guarantees added, government debt is defined as public debt. Table 2.7 illustrates the trend of the public debt of Croatia in the period 1999-2006.104
In the early 1990s, a significant part of the public debt of Croatia emerged by taking over a part of the former SFRY debts (towards the London and the Paris Club, namely to the official creditors), or as a consequence of the disintegration of the former SRFY (frozen foreign currency deposits, JDA, JDB bonds). Until 1998, only a minor part of the total public debt was an original debt of Croatia.105 The structure of the internal debt and the stock of dept are presented in Table 2.8.
103 “Budget Law,“Official Gazette, no. 96 (2003), http://www.nn.hr/clanci/sluzbeno/2003/1216.htm.
104 The reports of the Ministry of Finance until 1999 did not present government guarantees.
105Ministry of Finances, “Annual Reports of the Ministry of Finances, 1994-2006,” http://www.mfin.hr/str/73/.
General government balance (% of the GDP)
-8.0 -7.0 -6.0 -5.0 -4.0 -3.0 -2.0 -1.0 0.0 1.0 2.0 1994199519961997199819992000200120022003200420052006
General government balance (% of the GDP)
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Table 2.7 The development of public debt, 1999-2006, % of the GDP
Year Public debt, % of the GDP
1999 42.3 2000 48.9 2001 50.3 2002 50.7 2003 51.1 2004 52.1 2005 52.8 2006 49.7
Source: Ministry of finance, Annual Reports, 1994-2006
Table 2.8 Stock of internal debt, 1991-96, end of the year, DM million
1991 1992 1993 1994 1995 1996 1. Frozen foreign exchange deposits 5033.90 4653.61 3989.68 3245.91 2796.28 2382.75 2. Big Bonds 1055.09 1597.28 1420.03 1360.72 1301.42 1087.37 3. Bonds 93 107.37 89.48 53.69 17.90 4. Bonds 94-1 41.76 5. Bonds 94-2 9.66 6. Bonds JDA 153.70 128.08 7. Bonds JDB 147.10 8. Reconstruction Bonds 16.25 10.87 7.96 7.32 9. CNB I Loan 31.31 4.08 4.27 3.78 3.48 10 CNB III Land 100.33 54.44 11. Banks Rehabilitation Agency’s Bonds 736.59 I Total
Long term internal debt
6583.99 6282.2 5537.41 4758.86 4426.82 4565.03
II Treasury Bills 76.39
III Long term and
short term debt 6583.99 6282.20 5537.41 4758.86 4426.82 4641.42
Source: Ministry of Finance, Annual Report 1994-1996, 62.
Frozen foreign exchange deposits were a major component of the internal debt in the period until 1997. Croatia ceased to be a part of the monetary system of the former SFRY in June 1991 by a decision of the former National bank of Yugoslavia. All business relations between the Croatian commercial banks and the former Central Bank were broken off. The
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commercial banks could not realize their claims towards the National Bank of Yugoslavia related to the foreign exchange deposits of the citizens. Namely, the commercial banks in SFRY were liable to deposit foreign exchange funds in the National Bank of Yugoslavia and obtained in return the equivalent value in the former domestic currency (Dinar).
At the end of 1991, the government of Croatia issued a Decree on the Conversion of the Citizens’ Foreign Exchange Deposits with Banks into the Public Debt of the Republic of Croatia.106 Croatia issued its bonds to commercial banks, denominated in Deutsche Marks. With respect to the repayment of the first out of the 20 annuities of the principle of the frozen foreign exchange deposits, Croatia issued so-called JDA bonds. In the same manner, the payment of the second annuity for the principle of frozen foreign exchange deposits in 1995 was replaced by the issuance of JDB Bonds. The so-called “Big Bonds” issued in 1991 represent another major component of the internal debt. The bonds were issued to enterprises dealing with the economic infrastructure, exporting capital goods, performing investment works abroad, as well as to the manufacturers of basic agricultural products. Reconstruction bonds were issued during 1992 and 1993. The loans from the Croatian National Bank granted in 1991 and 1995 were repaid in total at the end of 1997, regardless of their longer maturities. Treasury bills are short-term securities by which the Ministry of Finance collected funds on the domestic money market.
As regards external public debt, in 1995 and 1996 Croatia finalised the negotiations with the member governments of the Paris Club and the commercial banks of the London Club. In accordance with the Agreement on the Consolidation of the Debt of the Republic of Croatia, the government took over the allocated debts107 and 28.49% of the non-allocated debts of the former SFRY. By reaching an agreement with the members of the Paris and London Clubs, the basis for emerging on the international capital market was accomplished.
After negotiations held with a number of international banks, the Dresdner Bank Luxembourg was appointed as the Leading Bank of the International Syndicate Banks. Another 28 banks from 12 countries joined the syndicate, which provided DEM 200 million in 1996. In 1997, Croatia issued bonds denominated in Kunas in the amount of HRK 300 million, out of which HRK 150 million was issued on the domestic, and HRK 150 million on
106 Decree on the Conversion of the Citizens’ Foreign Exchange Deposits into the Public Debt of the Republic of
Croatia,Official Gazetteno. 71 (1991), no. 3 (1992), no. 12 (1992), no. 71 (1992), no. 58 (1993). In November
1993 Law on the Conversion of the Citizens Foreign Exchange Deposits into the Public Debt entered into force
Official Gazette, no. 103 (1993).
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the international market. The Inaugural Eurobond denominated in USD in the amount of USD 300 million was also issued in 1997.
Croatia joined the IMF in 1992, and the IBRD and its affiliations (IFC, IDA; MIGA) in 1993. It took over 29.38% of the former SFRY share in the capital of the World Bank group and 7.6% of the debts towards the IBRD, according to the territorial principle. The total inherited debt of Croatia incurred by inherited loans amounted to USD 160 million and in the period 1993-97, the IBRD approved USD 312 million for 10 projects.
In 1993, Croatia became a full member of the EBRD, and by 1997, the EBRD approved 17 loans in total for Croatia in the amount of DEM 498 million and USD 40 million. The EIB, by the end of 1997, approved ECU 148.922 million for six projects. Croatia also inherited 23 million of the debt to the Council of Europe Social Development Fund, while the formal application to CEF was submitted in 1996.