Starting Monday, thousands of Croatia's poorest citizens will benefit from an unusual gift: They will have their debts wiped out. Named "fresh start," the government scheme aims to help some of the 317,000 Croatians whose bank accounts have been blocked due to their debts.
Given that Croatia is a relatively small Mediterranean country of only 4.4 million inhabitants, the number of indebted citizens is significant and has become a major economic burden for the country. After six years of recession, growth predictions for Croatia's economy remain low for this year.
"We assess that this measure will be applicable to some 60,000 citizens," Deputy Prime Minister Milanka Opacic was quoted as saying by Reuters. "Thus they will be given a chance for a new start without a burden of debt," Opacic said earlier this month.
To be eligible, Croats need to fulfill certain criteria: Their debt must be lower than 35,000 kuna ($5,100), and their monthly income should not be higher than 1,250 kuna ($138). Those applying for the scheme are not allowed to own any property or have any savings.
Among economists, the scheme is regarded as unprecedented and exceptional. "I can't think of anything comparable," Dean Baker, co-director of the Washington-based Center for Economic and Policy Research, told The Washington Post.
Although the program is expected to cost between 210 million and 2.1 billion Croatian kuna ($31 million and $300 million), according to conflicting reports by Austrian press agency APA and Reuters, the Croatian government expects economic long-term benefits that will outweigh the short-term investment. Prime Minister Zoran Milanovic has convinced multiple cities, public and private companies, the country's major telecommunications providers, as well as nine banks to clear some of their citizens of their debt. The government will not refund the companies for their losses.
Overall, the debt of all Croats amounts to $4.11 billion -- and the debt that is about to be wiped out accounts for about 1 to 7 percent of that. However, for those who are eligible the agreement will make a significant difference by enabling them to gain access to their bank accounts. By reducing debt by less than 10 percent, Croatia frees nearly 20 percent of the country's debtors from their obligations.
Some economists, among them Baker, are skeptical whether the scheme will succeed: "I am not sure that this is the best way to help low-income people. If lenders think this can happen again they will charge very high interest rates to low-income borrowers," Baker said.
Post by Velar Fricative on Feb 3, 2015 11:03:40 GMT -5
Some criticism is detailed here. I see both sides of the coin which is why I really want to see what happens both in the immediate and long-term future.
RIJEKA, Croatia — Some 60,000 Croatian citizens will get the chance to see some of their debts erased on Monday in one of the boldest moves from the Croatian Social Democratic Party (SDP) after winning the parliamentary elections more than three years ago.
The government plan, dubbed "fresh start," lets the poorest citizens in the country ask for their debts to be written off for up to a maximum of 35,000 HRK (about $5,145). Only those on social welfare or with monthly income lower than 1,250 HRK ($184) per household member (2,500 HRK, or $368, for single citizens), may apply. Additionally, it will only apply to those without savings accounts, real estate (barring their current living situation) or other valuable property.
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The measure comes after six years of recession, which crippled the country's economy, impoverished many citizens and brought the GDP below the levels measured in 2008. While it earned SDP some praise for finally making a move to protect the poorest, many critics feel it's a case of too little, too late. While it earned SDP some praise for finally making a move to protect the poorest, many critics feel it's a case of too little, too late.
"Blocked," an NGO that gathers Croatian citizens with blocked bank accounts, called the measure "discriminatory," claiming it only helps one-fifth of the indebted and is generally more helpful to the creditors than the debtors.
The organization claims 320,000 Croatian citizens have blocked bank accounts. According to the Croatian government, the total debt of Croatian citizens whose accounts have been blocked for more than 360 days is a staggering 1.476 billion HRK ($217 million), much of it comprised of debts to banks, telecoms and the state. Individual creditors must agree to take part in 'fresh start,' however, and with some cities and companies possibly electing to opt out, Blocked views it as unjust.
"It's solving the consequences and not the causes of the problem," Saša Cvetojević, a Croatian entrepreneur and owner and CEO of logistics company Insako, told Mashable. "It's just a quick, band-aid-style measure for a much bigger issue." "It's just a quick, band-aid-style measure for a much bigger issue."
The move comes after another equally polarizing social measure, in which the exchange rate for the Swiss franc was fixed toward the euro in January to help some 60,000 Croats who hold loans tied to the franc.
While most experts agree that the pressure created by the strong franc must somehow be alleviated, some fear that this type of fix is temporary and unfair. Speaking to Croatian Television (HRT) on Tuesday, economist Velimir Šonje said this initiatve will only suffice until the next government is formed; then, a long-term solution will become necessary.
The fleeting and partial nature of both decisions — the first deeply social measures aimed at helping the struggling citizens of Croatia in three years of SDP's governing — are likely what irks both the poorest citizens and entrepreneurs in the country. While economists looking from the outside see the debt erasure as unprecedented, the locals are, for the most part, shaking their heads.
"I feel for the people which are in these financial problems, I really do. I'm interested, however, in whether other measures, that could fix their situation long-term, would be a better solution," Cvetojević added. "I'd hate to see these same people (whose debts have been erased) in the same situation in six months or two years."
Prior to the 2011 elections, the SDP and its coalition partners promised a number of reforms, including severely cutting down the costs of both local and central government and decreasing the tax burden for businesses. Neither has happened, and with one year left until the next elections, this opportunity to boost Croatia's economy and make it a better place for doing business — which would help the poorest citizens in the long run — could be lost.
I heard about this the other day. Very interested to see what happens too. On a related note, I'm curious about the straightforward approach homelessness in some cities (parts of Utah or the whole state?) - start by giving people housing.
I suspect these actions could have long-lasting positive impact if accompanied by the right regulations, rules, and support mechanisms.