External Deficit, Exchange Rate, and Competitiveness in Croatia: Is There a Problem?
Looking at the performance indicators of the Croatian economy for 1996—its first postwar year—one cannot help but feel quite satisfied: GDP growth rate at 6 percent, inflation rate at 3.5 percent, balanced budget deficit, and unemployment rate at 10 percent. For a country that has gone through the turmoil of war during the critical initial phase of the transition process, these figures look better than one would expect. The same stable and high-growth environment prevailed in the first eight months of 1997. However, one important indicator of economic performance sheds some doubt on the sustainability of the current economic situation. The current-account deficit accounted for 7.3 percent of the GDP in 1996. Although this was down from almost 10 percent a year earlier, the first eight months of the 1997 again indicate a rapidly rising trade and current-account deficit. Recent experience of the Czech and Asian currency crises warrants increased sensitivity to the large external deficit problems. This chapter aims at analyzing the issue and at providing some insights for the economic policy.
KeywordsExchange Rate Foreign Direct Investment Real Exchange Rate Export Performance Transition Country
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