DEVELOPMENT STRATEGY FOR CROATIA 2014 - 2020

This paper is an attempt to derive broad, strategic lessons from the diverse experience with economic growth of Croatia during the years of transition and economic convergence to the EU. The paper revolves around two key arguments One is that modern development economics is a macroeconomic framework for unstable economy that is in the process of nominal and real convergence to the EU, and the other is that heterodox economic approach is better for sustainable development policy in Croatia. In particular, modern development economics has sound economic principles for sustainable growth of national economy: market-based competition, appropriate incentives, unconventional monetary policy and fiscal stimulus, i.e. reflationary policies focused on “full employment”, new industrial policy, and so on. Reformers have substantial room for creatively packaging these principles into policy framework and institutional designs – while Croatia is not the full member of European monetary union – that are sensitive to Croatian opportunities and constraints. Successful countries are those that have used this room wisely. The second argument is that economic growth with complex set of structural reforms and sustaining it are to be based on a new system of medium and long term economic programming for 2014-2020, in accordance with EU methodology and guidelines, which currently lacks in Croatia. The former generally requires a wide range of (often unconventional) reforms that need reflationary policies, as a counter-cyclical macroeconomic policy. The latter challenge is in many ways also hard, as it requires constructing over the medium and longer term a sound institutional and legal underpinning to support the economy with resilience to external asymmetric shocks and maintain productive dynamism. Ignoring the distinction between these two tasks leaves reformers saddled with impossible and incoherent reform policy agendas.