Croatia clears the debt of some 60k of its citizens

[TASS07]

"[...]the government scheme aims to help some of the 317,000 Croatians whose bank accounts have been blocked due to their debts[...]

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.

http://www.independent.co.uk/news/wo...-10016484.html

Apparently the "Croatian government expects economic long-term benefits that will outweigh the short-term investment". It is also reported that the PM of Croatia achieved the measure by convincing cities, banks, telecommunication companies and multiple other companies to clear these people's debts, without any compensation from the state.

Critics argue that the intention may not be honest, but rather to gain voters in light of upcoming elections. Also critics fear that the measure would backfire: "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" (Dean Baker).

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Certainly an unusual measure. I've not quite made my mind up about it either. Generally I do support solidary acts such as this one. The people affected had their bank accounts blocked, in many regards limiting their abilities to break the vicious cicle they were stuck in. I too find it interesting that their PM managed to convince cities (that is public money though) and companies to cut their debts. That way some of the financial burden this represents isn't going to be shouldered by the tax-payers. I wouldn't be surpised if the same companies that now agreed to cut these debts were also irresponsable in the way they did their business before. With regard to telecommunication companies I have to think of the fact that mobile phones and phone contracts are often stated as the primary cause for young people to acquire large amounts of debt (keyword debt trap aka "Schuldenfalle" mobile phone).

At the same time I'm having my doubts considering the economic benefits of the measure, can these 60k make such a noticable difference? Also I find Baker's above fears making sense, if that happened it could also punish other borrowers that have not/are not going to fall for a debt trap. Last but not least I'm having my doubts whether this will result in permanent clearance for the people affected: It tackles the debt, but what about the source that led to all this debt?

I'd be interest to hear some opinions on that.

[paleologos]

The question by which you end the OP is also likely to hint to the answer.
Allow me to restucture it.

Will the program clear the debts of people who are in debt because they borrowed money?
Or will it only clear debts that were caused by people's inability to pay their bills, even though they did not borrow money?
Are we talking about people who found themselves in temporary difficulty and because of that they missed a payment?
This would offer the banks an excuse to raise their interest rates for them, which would be a form of usury.
In which case those Croats might stop depositing their money in the banks because that money would automatically be transferred to the creditors' accounts.
Clearing such debts (the small amounts) in order to unblock the bank accounts and encourage people to start depositing money to the banks once more would, at least in theory, result in a moderate injection of liquidity to the banking system. I am talking about liquidity that already exists but is out of the banking system.
This would explain why the corporate entities of Croatia were convinced to participate without compensation.
If that is the case it would also demonstrate how corporate media in the first world are manipulating the news by presenting them selectively to their audiences/readers.

[Aru]

It will clear the debt of people who couldn't pay for water and electricity bills. Not people who took a loan to buy a car or a boat. It's mostly old and long-term unemployed people who couldn't even access their account because of the debt. Debt which would never be repaid because they have no meaningful income.

[paleologos]

It will clear the debt of people who couldn't pay for water and electricity bills. Not people who took a loan to buy a car or a boat. It's mostly old and long-term unemployed people who couldn't even access their account because of the debt. Debt which would never be repaid because they have no meaningful income.

Aru are you a Croat?
You are very assertive of your post.
I guessed it would be something like that but since I am not a Croat and have no access to Croat language news outlets I could not be 100% certain about my guesses.
If you are a Croat and you have first hand knowledge of the situation on the ground there, then the Croatian government's decision makes perfect sense.
We might also do well to consider those people who are informally employed so as not to have their salaries deposited in accounts that were readily confiscable until now.
This move has the potential to increase the formal part of the Croatian economy.

[Aru]

Yes. People working in gray economy mostly get their wages in cash. I doubt they'll get formally employed just because their bank accounts are cleared. But if their debt is erased, and their accounts cleared, they get a fresh chance to pay their bills regularly, and those who are owed money can finally start getting money from those 60k people again, instead of just amounting more and more debt from them which will never be repaid.

It's worth mentioning that there is no personal bankrupcy in Croatia.
Also worth mentioning parliamentary elections are a year from now. Governing party is set to lose. It may not be much for economy, but it's something they can bring up in a campaign.

For economy the debt of the companies to each other and to the state is much bigger problem which won't be so easily solved.

[TASS07]

It's worth mentioning that there is no personal bankrupcy in Croatia.
Also worth mentioning parliamentary elections are a year from now. Governing party is set to lose. It may not be much for economy, but it's something they can bring up in a campaign.

I feared that elections were the real motivator here, making it but a temporary farce that is going to be forgotten right after the elections. Croatia has no personal bankrupcy? Really? Sounds like something they should be tackling as a whole rather than committing to symbolic acts if that is true.

[Aru]

I feared that elections were the real motivator here, making it but a temporary farce that is going to be forgotten right after the elections. Croatia has no personal bankrupcy? Really? Sounds like something they should be tackling as a whole rather than committing to symbolic acts if that is true.

Law on personal bankrupcy was in the work for a while now and... I don't really know why it isn't enacted yet.

But now that I think about it, this debt forgiveness measure may be even better if personal bankrupcy will be enacted soon after it. It will prevent tens of thousands of people who have small debt to be forced to declare bankrupcy and suffer the consequences for years over the debt worth of 1000 or few thousand euros.

[Stavroforos]

Those pensioners clearly made mistakes in handling their money, they shouldn't be forgiven and burden the rest of Croatia's tax payers.