March 27, 2020 - TCN's Aco Momcilovic discusses the economic crisis and lukewarm Croatian government help for the private sector in an interview with Davor Huic, President of LIPA.  

The Government has proposed measures that seemed inadequate for most of the entrepreneurs. What could they expect and hope at the moment?

It seems that the government has grossly underestimated the gravity of the economic crisis that may hit Croatia following the coronavirus epidemic. They apparently put a vast amount of resources, energy and time into planning and carrying out the fight against the virus, but have not addressed the issue of the economy with a commensurable vigour and commitment. That is why the reaction of the public at large to the way the government is handling the crisis has been overwhelmingly positive. On the other hand, the reaction of stakeholders (businesses) to the government’s economic package was met with resistance and opposition. Now, they have realised this, and I expect them to put more effort into managing the economic part of the crisis – form an expert team to advise them on the subject, and propose the second round of measures, that will be more aggressive.

Unlike the new Health Minister Vili Beros, the general opinion about Minister of the Economy, Darko Horvat, is that he is doing a terrible job and that he is not equipped for the task at hand. What are the chances that he will be relieved of his duty, or what kind of even bigger mistakes does he need to do before he gets fired?

I think calls for resignation are a part of the strategy to put more pressure on the government to improve on its relief package, so I will not comment on its merit. But it is obvious that Minister Horvat will come under increased pressure to take a more business-friendly stance within the government and to refrain from some of the rhetoric that has plagued his latest public appearances.

The Government is acting like jobs in the private and public sectors are not connected and dependant. Could they maintain the status quo in the public sector long enough to reach the election?

The government has sent conflicting signals about its position on cuts in the public sector. But it is more or less clear to anyone who follows the situation that these cuts are inevitable. The size of the relief package put against our fiscal capacity is such that the operation of “saving private Ryan”, that is the Croatian private sector, will demand a reshuffling of the central budget, with public sector wages as the most obvious area with great potential reserves.

What percentage of Croatian entrepreneurs, and in general employees, are underestimating the current situation or the length of this crisis? What could we do to educate them and warn them about the hard times that are in front of us? How could The Voice of the Entrepreneur Initiative contribute?

I do not think that many Croatian entrepreneurs underestimate the crisis. I think many other people did but not entrepreneurs. Unlike many people whose salaries “arrive” on time every month with reassuring regularity, notably public servants and politicians, business people understand the concept of cashflow, and know all too well the sinking feeling of liabilities mounting while income comes to an abrupt halt. As for the length of the crisis, and its impact on the economy, there are still no good forecasts. It all depends on the length of the lock-down, but even in the best-case scenario, the losses to the economy could be enormous. Some conservative estimates predict a drop in output comparable, or bigger, to that in 2009.

Countries in the region are openly stating that they will channel all of their efforts in the saving of the private sector. Only in Croatia it seems that politicians are concerned (at least according to their measures) only about the public sector. What is the reason for that? Are we the biggest, old school socialist country on the Balkans?

The jury is still out on this one. We are still waiting to see the second part of the relief package, which the government has promised to propose soon (perhaps as early as next week), to determine which route they choose – saving the public sector and letting the private go down the drain, or a more balanced approach, with more aggressive measures aimed at saving jobs in the private sector but risking some cuts in the public sector as well. The problem, of course, lies in the fact that this is traditionally very difficult to pull off, especially for a government facing elections in six months. But the depth and the size of the crisis opens a clear space for the government to do the right thing.

What is the role of organizes associations of employers, state connected (HGK) or voluntary (HUP)? Is this the time for them to prove their value, and what should be the consequences if they fail in doing so?

Well, they also came under some pressure from entrepreneurs to prove their value. You pay contributions for years, and then when a crisis comes from nowhere and the government offers a lukewarm reaction, they side with the government. Both HGK and HUP have not been aggressive enough in protecting the private sector the free market principles and liberal values. This has to change, and if they do not clean their act and become a more vociferous advocate of the private sector, the will lose all their legitimacy. I think they have understood this, since they have changed their tone and became more aggressive under the pressure from their “base”.

You can connect with Davor Huic via LinkedIn.

You can connect with Aco Momcilovic via LinkedIn.

For the latest on the coronavirus crisis in Croatia, follow the dedicated TCN section.