An Expanded Commitment to Economic Freedom Will Strengthen U.S.-Croatia Partnership

COMMENTARY International Economies

An Expanded Commitment to Economic Freedom Will Strengthen U.S.-Croatia Partnership

Jul 29th, 2020 2 min read
COMMENTARY BY
Anthony B. Kim

Research Manager and Editor of the Index of Economic Freedom

Anthony B. Kim researches international economic issues at The Heritage Foundation, with a focus on economic freedom and free trade.
According to Heritage's annual Index of Economic Freedom, which measures degrees of free market capitalism in countries around the globe, Croatia has notably progressed. chain45154/Getty Images

Key Takeaways

In its bilateral relations fact sheet, the U.S. State Department describes Croatia as “a leading partner in Southeast Europe and a model for its neighbors.”

The young free market democracy has made great strides since gaining independence in 1991.

Now is the time for the U.S. and Croatia to ensure that the evolving strategic partnership between the two nations grows stronger than ever.

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

In its bilateral relations fact sheet, the U.S. State Department describes Croatia as “a leading partner in Southeast Europe and a model for its neighbors.”

The young free market democracy has made great strides since gaining independence in 1991.

According to The Heritage Foundation’s annual Index of Economic Freedom, which measures degrees of free market capitalism in countries around the globe, Croatia has notably progressed.

In the 2020 Index, the country recorded its highest score to date, with its economic freedom score of 62.2 out of 100—higher than the global average—earning it the designation as a “moderately free” economy.

Competitive tax reforms and trade liberalization following independence have contributed to modernization of the economy and to the emergence of a vibrant private sector, and Croatia has made a number of regulatory reforms to streamline business formation and operation. 

On the other hand, significant state control or involvement lingers in a number of industries.

Going forward, the key to economic competitiveness and prosperity will be an environment that supports entrepreneurial dynamism and greater investment.  That necessitates Croatia’s commitment to policy reforms that will advance its economic freedom.

While the U.S. remains Croatia’s most important ally outside the European Union, Russia and China have been seeking to expand inroads there. Chinese and Russian investments in Croatia are far below those in neighboring western Balkan nations, but are not insubstantial.

On that geostrategic point, deep structural reform efforts will be critical to ensuring Croatia’s economic resilience as its overall progress has been lagging those of other leading emerging markets around the globe.

Further strengthening the rule of law and enhancing the investment framework, while advancing the quality and transparency of public services and safeguarding the independence of key institutions, would contribute to nurturing both economic freedom and democracy.

Facilitating such institutional and economic progress, where pragmatically possible, should be a centerpiece of U.S. engagement with Croatia.

To that end, the Three Seas Initiative offers a strategic opportunity to strengthen and upgrade the Croatian economy with greater reform momentum and regional connectivity with other key allies of the U.S. in Central and Eastern Europe.

Launched in 2015 by then-Croatian President Kolinda Grabar-Kitarovic and Polish President Andrzej Duda, the Three Seas Initiative has established a regional cooperation platform to promote connectivity among nations in Central and Eastern Europe by supporting infrastructure, energy, and digital projects.

The U.S. has been a strong supporter of the initiative. President Donald Trump attended a summit of the group in 2017, and Secretary of State Mike Pompeo announced an American commitment of $1 billion to the Three Seas Initiative Investment Fund at the Munich Security Conference earlier this year.

Needless to say, Washington cannot provide Zagreb with the political will that it needs to transform its economy according to free market principles.

However, by getting involved in critical and timely policy dialogues, particularly with a new government led by a conservative party that won a parliamentary election earlier this month, Washington can help.

The U.S. can also engage at the technical and practical level in a way that enables Croatia to advance its economic freedom and development.

Now is the time for the U.S. and Croatia to ensure that the evolving strategic partnership between the two nations grows stronger than ever.

This piece originally appeared in The Daily Signal