Government Guarantees and Public Debt in Croatia

FINANCIAL THEORY AND ANTO BAJO, MARKO PRIMORAC: PRACTICE GOVERNMENT GUARANTEES AND PUBLIC DEBT IN CROATIA

253 35 (3) 253-276 (2011) * 1 *

**2

The authors would like to thank two anonymous referees for their useful comments and suggestions. Received: May 27, 2011 and public debt in Croatia debt in public and [email protected]

[email protected] Government guaranteesGovernment doi: 10.3326/fintp.35.3.1 Faculty of Economics and Business, Zagreb Faculty of Economics Accepted: July 18, 2011 Institute of Public Finance, Zagreb Institute of Public Finance, MARKO PRIMORAC, MA MARKO PRIMORAC, JEL: H63, O40 ANTO BAJO, PhD ANTO Article * ** na- cult cant welfare effect. They are most cant welfare effect. uence on Croatian public debt are still unknown. This paper unknown. This still debt are public uence on Croatian scal analyses and thus convey a distorted picture of the public ﬁ ed as contingent implicit liabilities (e.g. deposit insurance). The problem is, The implicit liabilities (e.g. deposit insurance). ed as contingent INTRODUCTION

to monitor and supervise. Potential guarantee issuance costs to the government are to monitor and supervise. Potential guarantee nancial project, its value and positively correlated with the realisation risk of a fi duration (Polackova, 1998). Guarantees may involve many problems, because They can be used as a they are not supervised within regular budget expenditures. scal constraints on borrowing and on the fi means to by-pass the government’s amount of debt of the government and local units, which is why they can produce government guaran- y, scal policy status. Briefl on the fi a hidden and adverse effect nance management, because they are not cient public fi tees can be a threat to effi included in fi 1 but are often clas- belong to contingent explicit liabilities, Government guarantees sifi that very often none of these contingent liability categories are included however, scal policy analyses. in fi the government under- government guarantee is a security instrument by which A The most frequent the guarantee is issued. takes to cover the liabilities for which liabilities incurred by lower levels of go- examples are government guarantees of banks and guarantee agencies, pu- vernment and public enterprises, development forms of cooperation between the go- blic-private partnership projects and other guarantees are often used as a kind of Government vernment and private sector. a signifi aid for projects or activities producing the risk in the cases when the debtor is partly or fully, frequently issued to cover, liability which has been guaranteed, or unable to repay a debt or meet another liabilities within the agreed time limit. when the borrower fails to meet his/her guarantees are not the most appropriate form of support for achieving a However, are guarantees issued by 2005). Particularly controversial desired purpose (IMF, banks), because they are diffi other government institutions (e.g. development analyses the amount and structure of state guarantees, their maturities and the of state guarantees, their maturities and structure analyses the amount the structure compares for their management, and it authority and accountability of the paper is to of economic sectors. The main objective of guarantees in terms public debt growth. of government guarantees on the uence determine the infl management, public debt, Croatia maturity, government guarantees, Keywords: Abstract in Croatia been issued have guarantees performance and nancial fi Government conditions in the favourable borrowing and ensure to support funding since 1996, government However, state ownership. for companies in majority nancial market fi goals of public debt ned strategies and defi been part of have rarely guarantees of active guaran- structure the their steady growth, Despite and risk management. infl tees and their

FINANCIAL THEORY AND ANTO BAJO, MARKO PRIMORAC: PRACTICE GOVERNMENT GUARANTEES AND PUBLIC DEBT IN CROATIA 35 (3) 253-276 (2011) 254 FINANCIAL THEORY AND ANTO BAJO, MARKO PRIMORAC: PRACTICE GOVERNMENT GUARANTEES AND PUBLIC DEBT IN CROATIA

255 35 (3) 253-276 (2011)

The bulk of decision on the amounts

ISSUE

approves guarantees of loans obtained THE

FOR

nance minister. nance GUARANTEES

FRAMEWORK

The Croatian Parliament The Croatian and government guarantees in accordance with the amounts and 1 GOVERNMENT

cial Gazette. cial OF INSTITUTIONAL

State debt is defined as debt of the consolidated state budget, excluding government guarantees. 1 Government guarantees constitute security instruments by which the government constitute security instruments by Government guarantees Act (OG, The Budget liability will be settled. debtor’s warrants that an original the issue of govern- powers and obligations associated with 87/08) governs the guarantees and the annual amount of new government ment guarantees, whereas down in annual acts on the execution of the conditions for their issuance are laid the State Budget of the Republic of Croatia. enacts a At the proposal of the Government, Parliament 2 comprise 1,113 fi performance issued from 1996 to 2010 and 234 nancial guarantees fi comprise 1,113 The main objective of this article is to determine, based on the obtained informa- based on the obtained is to determine, objective of this article The main guarantees of government the evolution and impact characteristics, tion, the key relies on The analysis 2010. from 1996 to public debt in the period on Croatia’s and as well as annual cial Gazette, in the Offi information published up-to-date in databases which on the state budget execution, organised semi-annual reports of state debt nce and constitute an impediment to reliable projections of fi in policy effects scal of fi projections to reliable an impediment constitute nce and the future. purposes determined in the annual Budget and the State Budget Execution Act. and the State Budget Execution purposes determined in the annual Budget and by Parliament. by the Government Guarantees can be approved The Ministry of Finance participates in the negotiations on granting government- The Ministry of Finance participates in decision and on its the Government’s guaranteed loans and, in accordance with The Govern- behalf, approves contracts for the issue of government guarantees. ment may also delegate other state bodies to participate in the negotiations about government-guaranteed loans together with the Ministry of Finance. Subsequent proposals for amendments to a loan contract or a guarantee contract can be made subject to prior approval by the fi guarantees are approved by the Government, but the amount of guarantees appro- guarantees are approved by the Government, are published in the to this effect cant. Decisions ved by Parliament is also signifi Offi nancial institutions (EIB, EBRD and IBRD) and governs them from international fi by Parliament (including The amount of guarantees approved by special laws. to decisions from the previous year) guarantees issued in the current year pursuant nancial guarantees, set issuance of new fi is not covered by the annual limit on the in annual state budget execution acts. guarantees issued in the 1996-2008 period. guarantees issued in cation on cation uence. There , State Aid Re- , State 2 State Aid Act and Decision on Publishing Rules

4 AID

Government

. 5 STATE

Parliament

GUARANTEES

, Rulebook on the Form and Content and on the Manner of Collecting , Rulebook on the Form and Content and 3 1 0 2 4 6 8 10 12 14 12 10 6 8 4 2 0 GOVERNMENT

2006 2007 2008 2009 2010 RAPH OG, 47/2003; 60/2004 and 140/2005. OG, 121/2003 and 50/2006. OG, 11/2005. OG, 13/2008 and 39/2009. on State Aid in the Form of Guarantees on State 2 3 4 5 Government guarantees constitute an instrument of state aid and their manage- Government guarantees constitute an such as the ment is governed by special regulations, Source: Ministry of Finance, 2011. Source: 2.1 G gulation Guarantees approved according to the Government and Parliament decisions, decisions, Parliament and Government to the according approved Guarantees (in billion kuna) 2006-2010 Government guarantees differ from other state aid instruments, such as non-repay- from Government guarantees differ the government enters into an indi- able funds or tax relief. By issuing guarantees, Guarantees are usually related to loans and rect legal relationship with the lender. the borrower and the lender. nancial obligations agreed between other fi aid (provided in its Notifi nition of state defi The European Commission’s the application of Articles 87 and 88 of the EC Treaty to state aid in the form of to state aid in Treaty EC Articles 87 and 88 of the the application of of guarantees issued, regardless of government guarantees) includes all forms they cover. their legal base and the transaction which According to the or within a programme. Guarantees can be issued individually cation, guarantees can include aid granted by a Notifi European Commission’s Aid can be government gua- funds. member state or extended from government or rantees issued by the central government, a regional or local government unit by companies in which government bodies have the prevailing infl are two types of guarantee aid: (1) aid granted to the borrower; and (2) aid granted to the lender. Data about, and Keeping Records of State Aid of State Data about, and Keeping Records

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257 35 (3) 253-276 (2011) ed ac- ed of loans (the latter can be ﬁ nancial guarantees ﬁ

GUARANTEES

performance guarantees and ﬁ nancial guarantees and ﬁ performance guarantees GOVERNMENT

TYPES

The total amount of fi nancial guarantees called on is included in the public debt, nancial guarantees called on is included in the The total amount of fi in accordance with one of the conver- and the amount of the public debt is limited Act and According to the Budget Treaty. ned in the Maastricht gence criteria defi amount of public debt may not exceed annual state budget execution acts, the total public debt Total for the current year. 60% of the projected gross domestic product to a high of 59% in 2010 (see table in 1995 of Croatia jumped from 19.3% of GDP strong contribution to the total public debt growth came from called-on gua- A 1). rantees of loans extended to public sector institutions. raised in the country and abroad, mainly for development projects in the areas of raised in the country and abroad, mainly projects in local government units, as in- special state concern, for reconstruction plan- for tourist season and technology, centives for new production, employment etc. From 1996 to 2010, the Govern- ning, agricultural and shipbuilding projects, to legal entities in majority state ownership, nancial guarantees ment extended fi funds and the Croatian Bank for Recon- local government units, extra-budgetary struction and Development (CBRD). The Government and the Ministry of Finance issue The Government and the Ministry of Finance divided into domestic and foreign ones). The guarantees are further classifi The guarantees and foreign ones). divided into domestic are guaranteed, and sectors the credit liabilities of which cording to economic The Government and the in which a guarantee is issued. according to the currency movable property that against a pledge of Ministry issue performance guarantees Given such guaran- g. airplanes, ships and other vehicles). is readily cashable (e. or guarantee is rarely required, for it is an tees, early collection of an entire loan lment of a contract to deliver/return goods or action that is guaranteed (the fulfi services). 3 by which the government war- nancial instruments are fi Government guarantees if the debtor is unable to liabilities will be settled debtor’s rants that an original have been in on time. Since 1996, two types of guarantees settle them fully and use in Croatia: Croatia has included all the provisions of the EC’s Notifi cation in its State Aid Act Act Aid in its State cation Notifi EC’s of the provisions all the has included Croatia which cases in individual assess identify and which Regulation, Aid State and the public sector bodies All aid. are considered as state guarantees issued government obliged to of guarantees are state aid in the form to grant or manage authorised the proposals for state Agency Competition approval to the Croatian submit for form of guarantees. aid in the GDP % of potential debt kuna Total direct and direct Total billion BANK

nancial institutions institutions nancial GDP % of CROATIAN

CBRD debt kuna billion THE

GDP % of DEVELOPMENT

guarantees AND Government

kuna LIABILITIES billion

THE

GDP % of OF

Total general Total kuna billion RECONSTRUCTION government debt government

1 GUARANTEES FOR

ABLE 19951996 19.01997 30.8 19.31998 33.9 28.5 01999 36.1 27.3 0.82000 46.8 26.2 1.7 0 0.72001 60.5 28.5 3.7 2.72002 67.2 0.0 34.3 11.9 0 6.82003 72.5 0.8 13.0 35.2 7.2 02004 0 81.2 2.3 14.6 34.8 1.0 7.32005 1.3 92.8 16.1 35.8 31.5 19.0 2.8 7.6 101.22006 2.1 37.1 15.4 37.8 0.8 29.2 19.3 7.7 102.22007 2.8 30.0 45.4 38.3 12.3 1.2 6.8 59.9 104.12008 3.8 33.0 12.5 35.7 1.4 5.0 36.5 75.62009 4.9 14.2 33.1 99.5 1.8 4.7 42.8 84.6 117.92010 5.8 17.4 29.1 2.2 5.0 7.1 44.3 92.4 137.9 35.2 33.8 2.4 5.5 101.6 7.7 44.4 37.5 41.2 2.7 44.7 110.9 9.9 9.7 44.5 2.7 11.2 120.8 45.2 10.8 3.1 13.3 12.4 45.7 124.1 3.2 13.9 43.3 131.1 3.7 41.7 144.0 4.2 167.9 42.1 50.0 196.4 58.7

Public debt (direct and potential), 1999-2010 1999-2010 potential), and debt (direct Public GDP) kuna and as a % of (in billion Source: Ministry of Finance, 2011. Source: 3.1 for projects aimed at the reconstruction Since 1992, the CBRD has granted loans where banks and other ﬁ and promotion of Croatian economy, are unable to provide the necessary funding. Originally, loans with guarantees loans with guarantees Originally, are unable to provide the necessary funding. Since 2006, economy. have been granted for the recovery of the war-damaged nancing small and medium- by ﬁ the CBRD has expanded its activities however, sized enterprises, infrastructure and export, securing Croatian goods and services exports against non-market risks and providing incentives to environmental pro- bank also grants loans and other placements, issues bank and other The tection. and guarantees, enters into insurance and reinsurance contracts and invests in debt through banks and equity instruments. Credits are extended directly or indirectly, other legal entities. T

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259 35 (3) 253-276 (2011)

2020

2019

2018

2017

2016

2015

2014

2013

2012

2011

Debt 2010

2009

Potential maturities

2008

2007

2006

rst call, without issuing any special guarantee rst call, without 2005

Issued guarantees

2004

Issued guarantees

2003

2002

2001

2000

1999

1998

1997 2 1996 3 1997 1998 1997 1999 2000 2001 2003 2004 2005 2006 2007 2002 2008 2009 2010 0 5 0 10 15 RAPH RAPH 3.0 2.5 2.0 1.5 1.0 0.5 Source: Authors’ calculation based on the data from the CBRD and Official Gazette, 2010. calculation based on the data from Authors’ Source: G In the period from 1997 to 2010, the CBRD’s annual issue of guarantees averagedof guarantees issue annual CBRD’s to 2010, the 1997 period from In the are by the CBRD issued guarantees Called-on in euro). kuna (mainly 1.3 billion about The CBRD’s guarantees. of called-on government the overall statistics included in graph 2). kuna in 2010 (see in 1999 to 14 billion from kuna 1 billion kuna debt grew Issued guarantees and debt of the CBRD, 1997-2010 (in billion kuna) the CBRD, 1997-2010 and debt of Issued guarantees The government guarantees the liabilities of the CBRD jointly and severally, un- of the CBRD jointly and severally, The government guarantees the liabilities irrevocably and at fi conditionally, G Source: Authors’ calculation based on the CBRD and the Ministry of Finance data, 2011. based on the CBRD and the Ministry of Finance calculation Authors’ Source: from the State Budget (providing credit Apart from direct annual allocations and supporting exports), the Government through the initial capital of the CBRD guarantees. supports the CBRD through government document. The CBRD does not allocate special reserves for claims secured by The CBRD does not allocate special document. contingent losses are made on an annual government guarantees. Provisions for delivered by the CBRD to the Ministry basis in the State Budget, based on the data of Finance. Government fi nancial guarantees issued to the CBRD and their potential maturi- nancial guarantees issued Government fi ties, 1996-2020 (in billion kuna) nancial data scal position, position, scal GUARANTEES

GUARANTEES

GOVERNMENT

REPAYMENT

ISSUING

THE

FOR

. 6 ENSURING

CRITERIA

Act Governing the Rights and Obligations of Shipyards in the Process of Restructuring (OG, 61/11). The CBRD is not subject to regulations on the allocation and maintenance of re- to regulations on the allocation and The CBRD is not subject limits on the volume held with the central bank, or on setting serve requirements on concluding credit neither is it subject to regulations and growth of placements, Act. or to the Insurance between extra-budgetary users, and guarantee transactions to the corporate income tax. The CBRD is not subject From 1996 to 1998, guarantees were only approved based on previously obtained From 1996 to 1998, guarantees were only approved based on previously obtained commercial bank guarantees. From 1999 on, guarantees to legal entities in majority private ownership were only approved upon receipt of blank signed bills with 6 4.1 4 government criteria for approving there were no clear-cut From 1994 to 1999, Government issued of the Ministry of Finance, the guarantees. Independently public sector institutions, but also by the guarantees for loans taken on mainly by conditions for approving government In this period, the criteria and private sector. These acts also budget execution acts. guarantees were laid down in annual state liabilities, as well as the terms regulated the sources of funding for government 1999 on, the approval of government and the manner of their settlement. From opinion of the Ministry of Finance and the guarantees has been subject to the prior to which applicants must submit detailed fi responsible ministry, Government guarantees to the CBRD are mainly intended for shipyards and com- and for shipyards intended are mainly to the CBRD guarantees Government provi- is also of guarantees amount sizeable A state ownership. in majority panies fi pose a risk to the state’s These guarantees tourist sector. ded to the guaran- or through called-on CBRD debt directly assumes the if the Government transferring the enacted a law the Government in May 2011 tees. For example, to direct guarantees, secured by government of four shipyards, credit liabilities public debt positions and data on the development programmes. It was nancial showing their fi guarantee approval criteria (OG, 16/03 only in 2003 that the Government set the to budget users, extra-budgetary users, and 108/03); guarantees are only given The Government does not guarantee the local government units, and the CBRD. losses of companies (salaries, current as- coverage of current costs or operating ciaries who default on their to benefi sets, etc.), neither does it give guarantees positive opinions of the responsible liabilities to the state, and have not obtained years. state or business audit for the last two business ownership (particularly of companies in In the event of a change in company the guarantee is withdrawn and renewed majority or predominant state ownership) guarantees can be decision, under new conditions. Pursuant to a Government’s depending on its business ciary (a legal successor), transferred to another benefi condition, development plans and the interests of the country.

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cally, cally, the ows (fees . 7 ows (payments for protested guarantees) and infl ciary and is paid into the state budget. In the case of called-on govern- the state budget. In the case of called-on ciary and is paid into Guarantee reserves Act on the Execution of the State Budget of the Republic of Croatia for 1999 (OG, 167/98). 7 risk charge should be calculated for each individual guarantee. One of the methods should be calculated for each individual risk charge 4.1.1 each applicant for a guarantee a charged Since 2000, the Ministry of Finance has The commission is paid into guarantee. commission of 0.5% on the value of the source of funds for the repayment of due the guarantee reserves, being a potential the Government and the Mi- Apart from the commission, (protested) guarantees. budgetary funds in the reserves for gua- nistry of Finance provide for additional funds earmarked in the guarantee reserves The rantees that have been protested. guarantees from the previous year are used for covering the costs of called-on After well as for new protested guarantees. (carried forward to the current year) as from the guarantee reserves, and at a guarantee is protested, the costs are debited called on in that year are assessed in the total guarantees scal year, the end of a fi This provides to meet their liabilities. order to determine the capacities of debtors for current protested guarantees as the cost a basis for classifying the expenditures the guarantee reserves for the next year. of the public debt repayment or cost of instead of a uniform commission of 0.5% on the value of a guarantee, a Ideally, a bill of exchange statement in favour of the Republic of Croatia and authenticated and authenticated of Croatia Republic of the in favour statement of exchange a bill that the boards supervisory and management of the the members of declarations or guarantee risk, to sharing the credit a view With be repaid properly. loan would coun- give super-guarantees, legal entities may banks and other the Government, mutual risk sharing or guarantees with ter-guarantees for this would be to calculate the so-called subsidy cost (Polackova Brixi and for this would be to calculate the so-called the ned as loan is defi The subsidy cost in terms of a guaranteed Schick, 2002). estimated long-term cost calculated on the basis of a net current value, minus The net current value is calculated by discounting the antici- operating expenses. pated future cash outfl be and refunds associated with protested guarantees), where the discount rate can The the interest rate paid by the Government on a loan with the same maturity. subsidy cost thus calculated can be used for the assessment of guarantee reserves. The state budget execution acts for the period from 2000 to 2011 introduced some introduced 2000 to 2011 for the period from execution acts The state budget Specifi to securing the collection of guarantees. novelties with regard approval of guarantees was conditioned by ensuring the repayment by pledging was conditioned by ensuring the repayment approval of guarantees The Gover- for credit or by other security instruments. the property of an applicant nancial guarantees at a rate of 0.5% on commission on issued fi a nment charges guarantee document on commission is payable before serving the The their value. the benefi Agency to free- Ministry of Finance may order the Financial ment guarantees, the from due guarantees, In order to collect the debt arising account. ze the debtor’s on debt repay- and the debtor may conclude an agreement the Ministry of Finance over a maximum period of one year. ment by instalments ciary

ISSUED

GUARANTEES

cially issued (see table 2). GUARANTEES

nancial and performance guarantees, and since GOVERNMENT

GOVERNMENT

DUE

nancial statements, but the Ministry of Finance keeps them sepa- ANALYSIS OF

PAYMENT

from the loans granted against the guarantees paid; from the loans granted against the guarantees and interest), defer the repayment, request (and given the appropriate security by instalments, or change the pre- agree with the debtor on the debt repayment cantly improve the debtor’s signiﬁ dictable payment dynamics, if this would debtors from whom the entire debt ari- ability to repay the debt (this refers to could not otherwise be collected). sing from given government guarantees FINANCIAL

5 the balance sheet, which means that they are not Records on guarantees are kept off included in the fi nancial guarantees have been offi 2006, only fi rately under the “contingent debt” category. From 1995 to 2006, the Government rately under the “contingent debt” category. and the Ministry of Finance issued fi 4.2 in the cases when: its due liabilities arising from guarantees The government pays the loan in accordance to pay the entire amount, or a part of (a) the debtor fails takes the measures and loan agreement; and (b) the creditor with the terms of the the collection of due the agreement concerning the loan and actions laid down in set out in the agreement on Where such terms are not liabilities from the borrower. nance minister and the creditor deter- the fi the issuance of government guarantees, government guarantees fall due and the mine the measures to be taken when the should settle the due liabilities. time limits within which the Government ciary a guarantee benefi Debt collection from of Finance can take the following measu- Where a guarantee call on, the Ministry res (on behalf of the state): the claims arising acquire equity in the companies for the state by offsetting 1) nance minister can, at the debtor’s approval, the fi subject to the Government’s 2) the claims through regular channels, Should the Ministry of Finance fail to collect ce for further action. Offi Attorney’s the matter is referred to the State The subsidy cost must be revised annually during the life cycle of the guaranteed of the guaranteed life cycle the during revised annually must be cost The subsidy loan. benefi and the guarantee the guarantor of risk sharing between The extent the issuance of a include: risk sharing instruments The usual larger. should be and the of risk premiums potential loss, collection only for a part of the guarantee ideal situa- moral hazard. In an in case of a of a guarantee agreement revocation ciary (a bank), as this would be taken by the guarantee benefi tion, part of the risk exposure. (In Cana- for a more critical assessment of its own would be the motive from a default on bear at least 15% of the net loss arising da, for example, banks (Polackova Brixi and Schick, 2002). guaranteed loan repayment

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263 35 (3) 253-276 (2011) Active nancial 7.9 44.7 Total (1+2) 2

mance Perfor- B Foreign A Domestic Issued nancial 1 (A+B) fi nancial Planned fi 2 ABLE 1996 2.5 0.8 0.1 0.7 1.4 2.2 0.8 1996 19970.8 0.1 0.7 1.4 2.2 2.5 0.8 19983.2 1.4 1.8 3.0 6.2 3.0 3.2 199910.2 1.3 3.8 3.4 8.5 1.0 5.1 15.7 200010.4 5.0 0.4 4.3 9.7 5.4 1.2 4.8 1.8 7.7 3.0 5.9 18.1 2001 13.7 3.0 4.7 6.0 7.7 20.1 2002 11.2 5.7 2.7 2.9 8.4 2003 20.5 2004 11.7 2.7 5.9 9.0 5.0 4.0 18.3 200510.6 4.8 4.9 5.8 2.9 2.9 200619.7 27.1 3.5 7.2 4.0 3.7 2.7 0.9 22.0 13.6 200710.9 1.5 4.0 9.4 4.8 4.6 2008 13.6 4.5 9.1 4.9 7.4 7.9 3.4 4.5 2009 4.9 9.4 4.5 4.9 9.4 50.7 2009 9.4 2010 4.9 9.4 4.5 4.9 2011* 4.9 9.6 4.9 5.0 4.6 9.6 58.8 58.9 Issued and active (fi nancial and performance) guarantees, 1996-2010 1996-2010 guarantees, and performance) nancial (fi and active Issued kuna) (in billion guarantees considerably exceeded the limits laid down in the annual state budget guarantees considerably exceeded the limits laid down in the annual state budget execution acts. Applications for guarantees grew markedly after 2003, with the bulk of guaran- Applications for guarantees grew markedly in the last three years, gua- However, tees being issued for domestic borrowing. for domestic borrowing. It is worth rantees for borrowing abroad outdid those approved performance guarantees noting that from 1996 to 2007, the Government mainly for loans taken on by shipyards, whereas from 2007 on, performance gua- This substitution led to an increase in nancial ones. rantees were substituted by fi nancial guarantees as contingent liabilities of the govern- the amount of active fi rose from 0.8 billion kuna in 1996 to 58.8 billion kuna in Active guarantees ment. the exception of 2005, in all the years, the amounts of issued fi With 2010. * For 2011 as at 31 January. * For 2011 Ministry of Finance and CNB, 2011. Source: T nal restruc- nal nancial institutions nancial guarantees issued. guarantees nancial From 2000 on, guarantees de- Domestic

Guarantees for borrowing in the coun- Guarantees for borrowing Foreign

nancial guarantees. nancial guarantees. nancial 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Average 2009 2010 2008 2003 2004 2005 2006 2007 2002 2001 2000 00-10 4 0 80 60 40 20 100 RAPH Dominant in the structure of fi nancial guarantees issued are guarantees for bor- nancial guarantees issued Dominant in the structure of fi commercial banks, fi rowing from domestic and foreign Source: Ministry of Finance, 2011. Source: (mainly EBRD, EIB, etc.) and the CBRD. of issued fi structure Currency In the annual state budget execution execution budget annual state In the guarantees. nancial of fi on the issue Limits a parti- issued in to be of guarantees amount down the lays the Government acts, acts for the state budget execution was laid down in As no such amount cular year. left to the (with no limit set) was of guarantees 2000-2003, the issuance the period for most Finance. Regretfully, and the Ministry of of the Government discretion the prescri- guarantees exceeded nancial of fi period, the amount of the reference Parliament’s also approved by of guarantees was sizeable amount A bed limit. the annual limits set by the Government. decisions, disregarding fi Domestic and foreign for borrowing total guarantees (53%), whereas guarantees try make the bulk of is no pattern in the distri- There of the total (see graph 4). abroad account for 47% from year to year. and foreign guarantees, which differs bution of domestic G Domestic and foreign fi nancial guarantees as a % of total guarantees issued, guarantees as a % of total guarantees nancial fi Domestic and foreign 2000-2010 nominated in euro predominated in the structure of loans with government gua- nominated in euro predominated in the rantees (see graph 5). Guarantees of the liabilities of public tran- nancial guarantees by sector. Issued fi share in total fi sport companies account for the largest nancial guarantees for the borrowing of business category are fi The second largest Rol- Tube sector enterprises, mainly “big loss-makers” like Split Ironworks, Sisak TLM Šibenik, which are planned to be issued until their fi ling Mill and recon- This group also includes guarantees for organised turing and privatisation.

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265 35 (3) 253-276 (2011) USD

Transport

Agriculture

Other currencies (DEM, FRF, CHF) Other currencies (DEM, FRF,

Bussiness

EUR

Tourism Tourism

HRK

2000 2003 2004 2005 2007 2008 2006 2001 2002 2010 2009 6 5 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Average 2000 2003 2004 2005 2007 2008 2001 2002 2006 2010 2009 00-10 0 90 80 70 60 50 40 30 20 10 100 8 6 4 2 0 RAPH RAPH 14 12 10 Source: Ministry of Finance, 2011. Ministry Source: ning a new po- During 2000, the Government adopted a package of measures defi sition and terms of operation of shipyards pending their privatisation. From 2000 a on, the issuance of performance guarantees increased, and from 2006 to 2011, G Source: Ministry of Finance, 2011. Source: G struction programmes and for the fi nancing of loans to small and medium-sized and medium-sized to small of loans nancing fi for the and programmes struction gua- Numerous CBRD). (through the to 2002 from 2001 period in the enterprises loans which took on short-term Croatian Railways, also given to the rantees were 6). and 2003) (see graph during 2002 maintenance (particularly for liquidity Structure and value of issued fi nancial guarantees by sector, 2000-2010 by sector, nancial guarantees and value of issued fi Structure (in billion kuna) Currency structure of issued fi nancial guarantees, 2000-2010 (%) 2000-2010 nancial guarantees, issued fi of structure Currency nan- nancial in- Foreign commercial banks

nancial institutions nancial ), as well as other international ﬁ ), as well as other international International ﬁ

Domestic commercial banks

CBRD

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2009 2008 2007 2005 2006 2003 2004 2001 2002 2000 7 0 80 60 40 20 100 RAPH stitutions (EBRD, EIB, etc.), extending loans for infrastructure projects (roads, etc.), extending loans for infrastructure stitutions (EBRD, EIB, transportation systems air transport facilities, ports, gas motor roads, railways, among the creditors increased over time. Since 2009, and electric power industry) 7). suppliers and ship buyers (see graph have also been foreign G Source: Ministry of Finance, 2011. Source: portion of government-guaranteed loans fall due annu- guarantees. A Protested The guarantees are protested and included in the direct public debt. In the ally. of guarantees fell due, imposing an addi- period from 1999 to 2004, the majority issued to agriculture (for the fi tional burden to the state budget. Guarantees cing of special programmes, rescheduling of previously granted loans and procu- cing of special programmes, rescheduling sector (for the reconstruction of hotel rement of agricultural machinery), tourist (as facilities and preparation of facilities for the tourist season) and business sector xed working capital) nancing of fi culties, and for the fi aid to enterprises in diffi minor portion of protested guarantees was seen in the transport A were called on. to shipyards were protested in sizeable portion of guarantees extended A sector. the 2009, and it is expected to grow further until their desired privatisation. In 1998-2010 period, protested guarantees amounted to 9 billion kuna, and were shipbuilding, agriculture and tourism (see mainly extended to the business sector, graph 8). considerable amount of guarantees was issued in the form of state aid for shipyard aid for of state in the form was issued of guarantees amount considerable shipyards to guarantees privatisation, and the restructuring After restructuring. aid alloca- EU rules for state in accordance with reduced and granted should be tion. the reference period, Early in the creditor. by type of nancial guarantees Issued fi the banks and, particularly, commercial included domestic lending activities investment credit rating As the country’s mission. CBRD, given its development banks (e.g. of foreign commercial and development improved, the participation KfW für Wiederaufbau, Kreditanstalt Structure of issued fi nancial guarantees by type of creditor, 2000-2010 (%) guarantees by type of creditor, nancial of issued fi Structure

FINANCIAL THEORY AND ANTO BAJO, MARKO PRIMORAC: PRACTICE GOVERNMENT GUARANTEES AND PUBLIC DEBT IN CROATIA 35 (3) 253-276 (2011) 266 FINANCIAL THEORY AND ANTO BAJO, MARKO PRIMORAC: PRACTICE GOVERNMENT GUARANTEES AND PUBLIC DEBT IN CROATIA

267 35 (3) 253-276 (2011) Shipyards

Tourism

Transport Transport

Agriculture

Business

Local government units

18 134 113 136 57 35 33 34 19 6 648 755 695 622 411 463 326 447 2,113 1,099 2.78 17.75 16.26 21.86 13.87 7.56 10.12 7.61 0.90 0.55 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2008 2009 2007 2006 2005 2004 2002 2003 2000 2001 1998 1999 8 3 RAPH ABLE 0.0 0.5 1.0 1.5 2.0 2.5 nancial % of refunds to the Budget guarantees Refunds to the Budget Total Total protested fi Refunds to the State Budget from original debtors, 2001-2010 (in billion kuna original debtors, Refunds to the State Budget from nancial guarantees) fi and as a % of protested Source: Authors’ calculation based on the data from the Ministry of Finance, 2010. calculation based on the data from Authors’ Source: T . After guarantees have been original debtors. Refunds to the State Budget from of Finance try to collect the debt in- protested, the Government and the Ministry the Budget are low, refunds to curred from the relevant companies. Regrettably, to settle culties and are unable still in diffi suggesting that the original debtors are State Budget (see table 3). their credit liabilities guaranteed by the Source: Ministry of Finance, 2011. Source: G Sectoral distribution of protested fi nancial guarantees, 1998-2010 1998-2010 guarantees, nancial fi of protested distribution Sectoral kuna) (in billion mature as a % of Protested Protested potentially guarantees guarantees protested guarantees as a % of mature mature potentially guarantees mature Guarantees (in kuna) Guarantee reserves reserves protested potentially 4 ABLE 20002001 0,2122002 0,1502003 0,749 0,4002004 0,496 0,550 1,0752005 0,730 0,314 0,6702006 0,690 0,400 0,9502007 0,620 20 0,290 4,7122008 0,400 22 0,400 7,0742009 0,463 42 0,267 28 2,7902010 0,326 12 0,267 30 1,5262011 0,447 1,000 4 55 2,911 2,113 14 70 1,000 80 7,257 1,099 19 74 3,811 51 14 77 100 3,085 15 4 63 7 123 9 32 14 7,442 60 30 13 11 100 13 6 55 36

Guarantee reserves and protested fi nancial guarantees, 2000-2010 fi and protested Guarantee reserves %) (in million kuna and Source: Authors’ calculation based on the data from the Ministry of Finance, 2011. from calculation based on the data Authors’ Source: cient to cover the entire Only in 2005, 2007 and 2010, were guarantee reserves suffi amount of protested guarantees. In 2007, there was even a surplus in the guarantee reserves after protested guarantees had been covered. In other years, the reserves ofwere not enough to cover the protested guarantees, which required the provision additional funds in the State Budget. More than 70% of due guarantees were prote- This percentage was falling till 2010, so that sted in the period from 2000 to 2002. 55% of potentially due liabilities became payable in 2009 and 36% in 2010. In the 2001-2010 period, original debtors repaid as little as about 12% of the amount of the as about 12% as little repaid original debtors period, 2001-2010 In the and to year, year varied from percentage This the Budget. to guarantees of protested fell due. guarantees when shipyards’ low in 2010 (0.55%), was particularly funds for of Finance provide and Ministry The Government reserves. Guarantee the After protesting (see table 4). guarantee reserves guarantees from the protested the debt measures to collect and the Ministry take the Government guarantees, debtors are the problem is that the original However, from the original debtor. government Therefore, to meet their liabilities to the state. insolvent and unable industrial sectors pen- represent a classic form of state aid to guarantees actually or privatisation. ding their restructuring T

FINANCIAL THEORY AND ANTO BAJO, MARKO PRIMORAC: PRACTICE GOVERNMENT GUARANTEES AND PUBLIC DEBT IN CROATIA 35 (3) 253-276 (2011) 268 FINANCIAL THEORY AND ANTO BAJO, MARKO PRIMORAC: PRACTICE GOVERNMENT GUARANTEES AND PUBLIC DEBT IN CROATIA

269 35 (3) 253-276 (2011)

10/10 8

05/10

12/09

2037 07/09

2036

02/09 2035

2034

09/08

2033

2032 04/08

2031

12/07

nancial guarantees. nancial 2030

2029

07/07

2028

2027 02/07

2026

Total

09/06 2025

2024

04/06

2023

Public sector institutions, the lia-

2022 11/05

2021

06/05 2020

Foreign

2019

01/05

2018

2017 08/04

2016

03/04 2015

2014

10/03

Domestic 2013

2012 05/03

2011

12/02

2010

2009

07/02 2008

represent potential government debt, as the original debtor original debtor as the debt, government potential represent 02/02 2007

2006

09/01

2005

2004

04/01

2003

11/00 2002

2001

06/00

2000

1999

01/00

10 1998 9

1997 1998 0 RAPH RAPH 8 7 6 5 4 3 2 1 0 70 60 50 40 30 20 10 nancial liabilities differ from year to year. In the period from 2010-2012, the from year to year. nancial liabilities differ Due to a lack of information on the terms of borrowing and repayment (annual or semi-annual) of the prin- 8 the assumption that the calculation was based on cipal and interest on the borrowing of the original debtor, the entire amount of the principal falls due on the fixed maturity date. Source: Authors’ calculation based on the data from the Ministry of Finance. calculation based on the data from Authors’ Source: G 1996 to 2037 (in billion kuna) issued from Amounts of potential maturities of guarantees bilities of which are guaranteed by the government (State Budget), incurred liabi- bilities of which are guaranteed by the interest on the borrowing guaranteed by lities till 2037, to repay the principal and amounts and potential maturity dates for the The the State Budget (see graph 10). fi strong pressure from potential calls government is likely to come under relatively into the direct public debt. on extended guarantees and their conversion Potential maturities of government guarantees. Potential maturities of government guarantees. A marked increase in called-on guarantees since 2007 has been due to the substitution marked increase in called-on guarantees since 2007 has A to shipyards) by fi of performance guarantees (mainly extended Source: CNB, 2011. Source: G has still not met the guaranteed liabilities. Called-on guarantees grew from about grew from guarantees Called-on liabilities. the guaranteed not met has still (see graph 9). billion kuna in 2010 kuna in 1998 to 59 10 billion Called-on guarantees guarantees Called-on Called-on fi nancial guarantees, 1998-2010 (in billion kuna) 1998-2010 (in billion nancial guarantees, fi Called-on DEBT

cantly jeopardising the cantly jeopardising PUBLIC

Potential maturities of guarantees by Potential maturities GUARANTEES

GOVERNMENT

11 cit. 1996 1997 1998 1999 2000 2001 2002 2004 2005 2006 2008 2009 2010 2007 1996 1997 1998 1999 2000 2001 2003 8 6 4 2 0 RAPH IMPACT 20 18 16 14 12 10

and bud- growth of public debt speeding up the of the state and nancial position 6 Issued and still outstanding guarantees pose a potential threat to the public debt for growth. In 2010, general government debt, excluding guarantees, accounted for 41% of GDP; with called-on guarantees included, total public debt accounted Given the marked growth in guarantees issued since 2007, the analy- 59% of GDP. sis of their impact on public debt has become increasingly important. In 2010, It is very likely outstanding guarantees accounted for as much as 18% of GDP. that that part of these guarantees will be converted into the direct public debt. The average maturity of guarantees was about 3.6 years in the 1996-1998 period, The average maturity of guarantees was Thus, the average maturities for the and was extended in the following years. the maturities of guaran- years. However, guarantees issued in 1999 were about 18 again, falling to about 4 years. tees issued from 2007 to 2010 shortened Source: Authors’ calculation based on the data from the Ministry of Finance, 2011. from calculation based on the data Authors’ Source: In only three reference years, the Government might be faced with claims for with claims be faced might Government years, the three reference In only in and 4 billion in 2011 6 billion in 2010, billion kuna kuna (3 13 billion about the ability of original will depend on risks of guarantees The maturity 2012). The manner. loans in a timely arising from agreed settle their liabilities debtors to out ne and carry have to defi Finance will certainly and Ministry of Government signifi the guarantees from in order to prevent measures fi get defi by year of issue. Maturities of guarantees on direct effect information for estimating their potential year represent useful calculation is based on the The maturity (see graph 11). government liabilities and Parlia- from 1996 to 2010, the Government y, data. Briefl Ministry of Finance with average guarantees worth 105 billion kuna, government ment issued 1,113 maturity of 7.4 years. G Average maturities of guarantees by year of issue Average

FINANCIAL THEORY AND ANTO BAJO, MARKO PRIMORAC: PRACTICE GOVERNMENT GUARANTEES AND PUBLIC DEBT IN CROATIA 35 (3) 253-276 (2011) 270 FINANCIAL THEORY AND ANTO BAJO, MARKO PRIMORAC: PRACTICE GOVERNMENT GUARANTEES AND PUBLIC DEBT IN CROATIA

271 35 (3) 253-276 (2011) ability, given the suspicion ability, Public debt

uence the general government’s direct uence the general government’s General government debt

12 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2005 2007 2008 2009 2006 2003 2004 1997 1998 2000 2001 2002 1995 1996 1999 cit and public debt growth. With the view to estimating the impact of guaran- to estimating the impact the view With growth. cit and public debt RAPH 0 60 50 40 30 20 10 It is obvious that guarantees have a direct impact on public debt at the time of their It is obvious that guarantees have a direct if guarantees do infl being protested. Now, model Simple linear regression In order to test the hypothesis about the impact of issued guarantees on the amount of state debt, an analysis was carried out based on a simple linear regression mo- debt growth, then the question is raised of their justifi debt growth, then the question is raised nanced through borrowing. On the other hand, this that protested guarantees are fi because the protested cient, policy is ineffi would mean that the guarantee issuing level of public the guarantee reserves. Finally, nanced from guarantees should be fi debt, as the sum of direct and indirect liabilities, would also be thrown into doubt, where it is also possible that the potential debt (guarantees) create a need for bor- in rowing, so that liabilities arising from the same source would be twice included the public debt – as direct and indirect liabilities. Note: General government debt comprises the direct debts of the state budget, extra-budgetary direct Note: General government debt comprises the includes called-on guarantees and the CBRD users and local government units. Public debt debt. The Ministry of Finance and CNB, 2011. Source: G tees on public debt, the Ministry of Finance (i.e. its Bureau for Macroeconomic its Bureau for Macroeconomic of Finance (i.e. debt, the Ministry tees on public to changes in debt sensitivity up tests of public has, since 2007, made Analysis) rates and changes foreign exchange maturities of guarantees, growth rates, GDP also shown Public debt has cit. budget defi general government in the primary which would changes in contingent liabilities (guarantees), great sensitivity to The test in 2010. GDP in direct public debt to about 54% of result in an increase guarantees. for moderating the issuance of government results point to a need restructuring of growth of contingent liabilities, the in order to curb the Moreover, must be continued. certain economic sectors The Government and Ministry of Finance have been aware of the risk of potential risk of potential of the been aware have of Finance and Ministry The Government the budget impact on of their particularly and guarantees, nancial of fi maturity defi Public and general government debts, 1995-2010 (as a % of GDP) government debts, 1995-2010 (as a % Public and general - n, n, (1) (2) t. rst dif- rst . 2 is a quart- σ t,n None 0.0000 0.0000 0.9993 0.9984 is the constant is the constant ∆x n α n, t, t with an annual lag is the regression coeffi is the regression n β n, 0.0000 0.0000 0.5464 0.9964 , n = 0, 1, ... 7 n is the value of issued guarantees in a is the value of issued , n = 0, 1,..., 7 , n = 0, 1,..., n t,n x + ε t,n + ε n, t,n represents independent and equally distribu- represents independent n x ∆x n n + β + β n n , and ε t, n years ago on the value of the dependent variable in a quarter 9 n 0.0000 0.0000 0.6624 0.9843 = α = α t t y is the constant member of the regression model with a lag n α t, represents the quarterly change in the value of the central government t with an annual lag is the value of the central government debt in a quarter debt in a quarter of the central government is the value t t ∆y y 5 is the regression coeffi cient of the model with an annual lag is the regression coeffi ABLE n ΔDebt ΔGuarantees Debt VariablesGuarantees and trend Intercept Intercept variables in the testing the functional dependence of rst quarter of 2010. Before The regression model with an annual lag in the independent variable is used to establish the impact of the valueThe regression model with an annual lag in the independent variable is used to establish the ted, normal random variables with zero expectancy and a variance of variables with zero expectancy and a variance ted, normal random erly change in the value of issued guarantees in a quarter of an independent variable in a quarter Augmented Dickey Fuller test results in levels Augmented Dickey Fuller test results cient of the model with an annual lag cient of the model with 9 Source: Authors’ calculation. Authors’ Source: cance level of 5% in levels at a signifi The null hypothesis for data series expressed fi When taking are non-stationary. can be accepted, i.e. the observed series ferences, the series become stationary (the null hypothesis of the existence of a ferences, the series become stationary cance level of 5%, so that the model assumes a new unit root is rejected at a signifi form: ∆ del, with the independent variable being the value of issued guarantees and the issued guarantees value of being the variable the independent del, with debt: government the central amount of – the variable dependent y where quarter β where member of the regression model with an annual lag with an annual the regression model member of The analysis was based on a sample of quarterly data on the balance of called-on on a sample of quarterly data on the The analysis was based 2000 to the rst quarter of central government debt from the fi guarantees and of the fi series. One of the to test the statonarity of the observed model, it was necessary table (Augmented Dickey Fuller) test (see ADF to apply the ways to do this was 5). T debt in a quarter

FINANCIAL THEORY AND ANTO BAJO, MARKO PRIMORAC: PRACTICE GOVERNMENT GUARANTEES AND PUBLIC DEBT IN CROATIA 35 (3) 253-276 (2011) 272 FINANCIAL THEORY AND ANTO BAJO, MARKO PRIMORAC: PRACTICE GOVERNMENT GUARANTEES AND PUBLIC DEBT IN CROATIA

273 35 (3) 253-276 (2011)

40 36 32 28 24 20 16 12 No. of observations 0.4658 0.3481 1.2281 0.5466 β -0.7629 -0.3413 -0.4759 -0.0466 (0.6311) (0.1458) (0.6606) (0.5638) (0.9757) *(0.0719) **(0.0368) *** (0.0001) is signifi cant by n=0 where the is signifi (0.2097) (0.2236) (0.6170) (0.5433) 962.2783 738.1009 *(0.0999) *(0.0709) *(0.0723) 2531.4260 1004.5000 1251.0550 1706.1560 1294.3200 1303.7920 ***(0.0000) . 2 σ 4.7239 2.2304 3.5196 0.1981 0.3458 0.2409 0.0010 18.1423 (0.6311) (0.1458) (0.6606) (0.5638) (0.9757) F-ratio α *(0.0719) **(0.0368) ***(0.0001) 2 R 6 01 0.3231 2 0.1220 3 0.0692 4 0.1192 5 0.0089 6 0.0188 0.0169 7 0.0001 represents independent, equally distributed, normal random variables with with variables normal random equally distributed, independent, represents (n) n ε the change in the level of state debt of changes in issued guarantees on uence ABLE Annual lag zero expectancy and a variance of of and a variance expectancy zero Regression analysis of the infl uence of issued guarantees on the central govern- uence of issued guarantees on the infl analysis of the Regression ment debt The regression analysis results reveal considerably high p-values (hence the mo- the del is not representative) for series with annual lags (n>0), and (in such cases) The variable cient is relatively low (except for n=1 and n=3). determination coeffi quarterly change in the value of issued guarantees Note: p-values are put in parentheses, with *, ** and *** standing for statistical significance with *, ** and *** standing for statistical significance put in parentheses, Note: p-values are levels of 10%, 5% and 1%, respectively. calculation. Authors’ Source: and T Intuitively, it can be assumed that guarantees issued in a particular year do not a particular year issued in be assumed that guarantees it can Intuitively, in that direct borrowing central government’s uence on the an infl have too strong prote- guarantees would be that a portion of there is a possibility However, year. direct nance its take loans to fi must even time, so that the government sted over to test this hypothesis, the protested guarantees. In order liabilities arising from to establishing the analyses were carried out with a view eight separate regression infl The results of the regres- years from issuing the guarantees. over a period of seven in table 6. sion analyses are shown nancial uence on the growth of direct government debt. cant infl cant nding that only one variable describes over 32% of deviations is variable describes over 32% of deviations nding that only one CONCLUSION debt and the possible infl uence of issued guarantees on annual government bor- debt and the possible infl rowing, and sectors (agriculture, tourism and shipbuilding).

of the public debt and risk management. Each protested ned strategies and goals for state debt uence the public debt growth in the same period, there is evidence 7 nancial and per- fi has increased the issuance of government Since 1996, Croatia at ensuring favourable as an instrument of state aid aimed formance guarantees institutions, mainly companies in majority borrowing conditions for public sector of de- government guarantees have rarely been part state ownership. Regrettably, fi 95 methodology, and, according to ESA the public debt growth guarantee affects the actual fi cit. However, defi it is automatically included in the budget deviation coeffi the of [β=-0.7629] parameter An estimated at 32.31%. cient stands coeffi deviation [Δx=1 amount of in the guarantees by issuing shows that models regression stated decreases by government debt quarter), the central (in a particular million kuna] the same quarter). thousand kuna] (in [Δy=762.9 complex phenomenon describes a relatively that the model into account Taking of different depends on a series borrowing (which government like the central factors), the fi of the results is limited, the economic interpretation quite interesting. However, guarantees upon their n=0, it cannot be concluded that issued because, given that value of the re- to the public debt, but, due to the negative maturity pose a threat borrowing possible that direct central government cient, it is rather gression coeffi guarantees. is substituted by issuing near future, as Croatia joins the EU. It is impact of guarantees will be seen in the of guarantees in the public debt pursuant to inclusion worth noting that the largest in the Process of Re- Act Governing the Rights and Obligations of Shipyards the paper. structuring has not been dealt with in this that government guarantees do not The regression analysis results demonstrate have a statistically signifi debt is gradually substituted by It is beyond dispute that the central government that government guarantees in- While there is no indication issued guarantees. fl collection rate of protested guarantees. growth in the long run, due to a very low with caution. Nevertheless, they provi- The research results should be interpreted guaran- uence of issued analysis of the infl de a reliable basis for a comprehensive liabilities. Future research should be fo- tees on the growth of direct government cused on the analyses of: • potential maturities of guarantees based on quarterly data; in government guarantees on changes in the level of public the impact of changes • guarantees according to main economic the risks of potential maturities of issued •

FINANCIAL THEORY AND ANTO BAJO, MARKO PRIMORAC: PRACTICE GOVERNMENT GUARANTEES AND PUBLIC DEBT IN CROATIA 35 (3) 253-276 (2011) 274 FINANCIAL THEORY AND ANTO BAJO, MARKO PRIMORAC: PRACTICE GOVERNMENT GUARANTEES AND PUBLIC DEBT IN CROATIA

275 35 (3) 253-276 (2011) Future research should establish whether government guarantees are primarily are primarily guarantees whether government establish should research Future or to growth economic the overall stimulate sectors that growing to fast extended without survive in the market which would not zombie companies the so-called companies). aid (e.g. shipbuilding such state [on- 13/2008,

cation on cation 30 June 2011. 30 June 2011. A Hidden Risk to Fi- Hidden A 16/2003. Zagreb: Nar- :

Washington D.C.: Interna- Washington Economic and Fiscal Policy Economic and Fiscal Economic and Fiscal Policy Economic and Fiscal Press Release, Press

n.hr/en/annual-reports-of-ministry- “Government at Risk, Contingent Li- [online]. Available from: [http://www. Available [online]. Zagreb: Ministry of Finance. Zagreb: Ministry of Croatia to issue Eurobonds worth EUR Croatia to issue Eurobonds worth EUR n.hr/hr/novosti/izdanje-euroobveznica-repub- Washington D.C.: The World Bank ; Oxford Uni- World The D.C.: Washington . Washington: The World Bank. World The . Washington: o obliku i sadržaju, te načinu prikupljanja podataka i vođenja eviden- o izmjenama i dopunama kriterija za davanje državnih jamstava, NN o izmjenama i dopunama kriterija za o državnim potporama, NN 121/2003, 50/2006. Zagreb: Narodne no- o kriterijima za davanje državnih jamstava, NN o kriterijima za davanje državnih jamstava, o objavljivanju pravila o državnoj potpori u obliku jamstava, NN o objavljivanju pravila o državnoj potpori nance]. Governing the Rights and Obligations of Shipyards in the Process of Restruc- the Process in of Shipyards Obligations Rights and the Governing cija državnih potpora, NN 11/2005. Zagreb: Narodne novine. cija državnih potpora, NN 11/2005. vine. nancial Stability odne novine. 39/2009. Zagreb: Narodne novine. abilities and Fiscal Risk”. versity Press. tional Monetary Fund. D.C.: International Monetary Fund. Washington dum of Understanding. 750m, with the maturity date 2018” [online]. line]. Available from: [http://www.mfi Available line]. of-fi 108/2003. Zagreb: Narodne novine. NN 61/2011. Zagreb: Narodne novine. Zagreb: turing, NN 61/2011. Guidelines for the Period 2011-2013”. Guidelines for the Period the Application of Articles 87 and 88 of the EC Treaty to state aid in the form to state aid in Treaty and 88 of the EC Articles 87 Application of the pp. 32-32). C 244, 25. 09. 2008, OJ (52008XC0620(02)R(01), of guarantees the form of to state aid in 87 and 88 of the EC Treaty Articles Application of OJ C 155, 20. 06. 2008, pp. 10-22). guarantees (52008XC0620(02), mfin.hr/en/novosti/economic-and-fiscal-policy-guidelines-for-the-period- 2010-2012]. from: [http://www.mfi Available like-hrvatske-u-iznosu-od-eur-750-milijuna-dospi]. Guidelines for the Period 2010-2012 Guidelines for the State Aid Act, NN 47/2003, 60/2004 and 140/2005. Zagreb: Narodne novine. Uredba Pravilnik Odluka Polackova Brixi, H. and Schick, A., 2002. Polackova Brixi, H. and Schick, Polackova, H., 1998. Government Contingent Liabilities Republic of Croatia: Letter of Intent, Annex, and Technical Memoran- Annex, and Technical Letter of Intent, 2006. Republic of Croatia: IMF, “ Ministry of Finance of the RC, 2011. Annual reports of Ministry of Finance Ministry of Finance of the RC. Annual reports Odluka Odluka LITERATURE Act Narodne novine. 87/2008. Zagreb: Budget Act, NN 96/2003, Notifi to the Commission’s 2008. Corrigendum Commission, European Notifi cation of the European Commission on the Commission cation of the European Notifi Commission, 2008. European 2009. Republic of Croatia, Government of the 2010. Republic of Croatia, Government of the Government Guarantees and Fiscal Risk. 2005. Government Guarantees IMF,

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