Advancing Economic Freedom: The Way Forward for Croatia

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Croatia is an increasingly important economic and security partner of the United States in the Balkan region, and a focal point for evolving geopolitical issues, including energy independence and infrastructure development.

The young free market democracy has made great strides since gaining independence in 1991. According to the annual report of the Heritage Foundation Index of economic freedom which measures the degrees of free market capitalism in countries around the world, Croatia has made significant progress. In the 2020 index, the country recorded its highest score ever, with an economic freedom score of 62.2 out of 100, above the world average, which earned it the title of “”moderately free“Economy.

Competitive tax reforms and post-independence trade liberalization have contributed to the modernization of the economy and the emergence of a vibrant private sector, and Croatia has carried out a number of regulatory reforms to streamline creation and operation of businesses. On the other hand, significant state control or involvement lingers in a number of industries.

In the future, the key to economic competitiveness and prosperity will be an environment that supports entrepreneurial dynamism and increased investment. This requires Croatia’s commitment to political reforms that will advance its economic freedom.

While the United States remains Croatia’s most important ally outside the EU, Russia and China have sought to expand their foray there. Chinese and Russian investments in Croatia are much lower than those in neighboring countries of the Western Balkans, but are not negligible.

On this geostrategic point, deep structural reform efforts will be essential to ensure Croatia’s economic resilience, as its overall progress lags behind other major emerging markets around the world. Strengthening the rule of law and strengthening the investment framework, while improving the quality and transparency of public services and preserving the independence of key institutions, would help foster both economic freedom and democracy. .

Facilitating such institutional and economic progress, where pragmatically possible, should be a centerpiece of the United States’ engagement with Croatia. To this end, the Three Seas Initiative provides a strategic opportunity to strengthen and modernize the Croatian economy with greater reform momentum and regional connectivity with other key US allies in Central and Eastern Europe.

Launched in 2015 by Croatian President Kolinda Grabar-Kitarović and Polish President Andrzej Duda, the Three Seas Initiative has established a regional cooperation platform to promote connectivity between Central and Eastern European countries by supporting infrastructure, energy and digital projects.

The United States has been a strong supporter of the initiative. President Donald Trump attended a group summit in 2017, and Secretary of State Mike Pompeo announced a US $ 1 billion US commitment to the Three Seas Initiative Investment Fund at the conference Munich on security earlier this year.

Needless to say, Washington cannot provide Zagreb with the political will it needs to transform its economy along free market principles. However, by engaging in critical and timely policy dialogues, especially with a new government led by a conservative party that won parliamentary elections in early July, Washington can help. The United States can also engage technically and practically in a way that enables Croatia to advance its economic freedom and development. Now is the time to act on this.

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