Croatia Courts Old Enemy and Its Tourism Spending

DUBROVNIK, Croatia — It is a sign that the global financial crisis has hit the Adriatic when Croatia is reaching out to its former enemies: for the first time since Serbian and Montenegrin forces besieged this historic port city in 1991, businesspeople here are publicly appealing to Serbian tourists to help rescue the economy.

Dubrovnik, the heart of tourism in Croatia, was besieged by Serbian and Montenegrin forces in 1991, and bitterness lingers.

When tourism officials from two Croatian regions, Istria and Dalmatia, sent a delegation to a trade fair in Serbia last month, people on both sides noted sardonically that economic doldrums were forcing Croats to turn to Serbs to help save them. Many here bitterly recall the 1991-1995 war, which erupted after Croatia declared independence from Yugoslavia; more than 10,000 Croats and Serbs died, and hundreds of thousands fled their homes.

But Goran Strok, the owner of Dubrovnik’s choicest hotels, said it was time to put historical grievances aside. “What Milosevic and Serbian politicians did was unforgivable and should be remembered,” he said, referring to Slobodan Milosevic, the former Serbian leader, whose embrace of Serbian nationalism set off nearly a decade of Balkan fighting.

“But the war is finished, and we can’t change who our neighbor is,” Mr. Strok added. “The Serbs are also good people, and the time has come to reach out to them. I want to see Serb tourists in Dubrovnik.”

Many of the countries of the western Balkans — Serbia, Bosnia, Macedonia and Montenegro — are among Europe’s poorest and least stable. While Croatia is wealthier than the others, and first in line to join the European Union and NATO, the region as a whole remains the weak spot of Europe.

Many analysts worry that the financial crisis could curtail a decade of political and economic progress in the region as exports and foreign investment shrink. Already, Serbia has turned to the International Monetary Fund for a rescue package, and its neighbors could soon follow.

The region’s problems pose a challenge to the European Union as it struggles to avoid a rift between richer countries that have weathered the downturn so far and those members and would-be members that are facing severe pressures on their banking sectors and currencies.

In Croatia, the government says that the economy will contract by 2 percent this year and that unemployment rose to 14.5 percent at the end of January. Croatia has to refinance some 6.1 billion euros, or almost $8 billion, of foreign debt in the remainder of 2009, and credit and foreign investment are drying up. Alarm is growing that tourism — the anchor of the economy, accounting for some 20 percent of gross domestic product — may shrivel and send the economy into a tailspin.

Though some businesspeople say tourism will withstand the downturn because it has been sheltered by restrictions on foreign investment, others believe it is all the more insecure because Croatia’s central bank, traumatized by the hyperinflation of the war years, has rigidly pegged the local currency, the kuna, to the euro, even as other currencies in the region have plummeted. The strong kuna has diminished the purchasing power of would-be visitors from the Czech Republic, Hungary, Britain and Russia.

Here in Dubrovnik, the beautiful walled medieval city that is the cradle of the country’s tourism industry, business leaders say they are already feeling the pain. They are aggressively courting Serbian tourists, even as political relations between Croatia and Serbia remain tense.

There are still no direct flights between the countries’ capitals, and Serbian tourists traveling by car to Croatia with Serbian license plates say they often drive at night to avoid being detected. The police have also reported random cases of harassment of Serbs in the country. Nevertheless, tourism officials and political analysts say Serbia’s recent turn toward the West, following last year’s election of a government that is reaching out to the European Union and the United States, is spurring a thaw.

After the war, thousands of Serbian refugees fled Croatia, and many sold their homes. But tourism officials say Serbs, who vacationed in droves on the Croatian coast when the area was still part of Yugoslavia, are slowly beginning to return. Last year, some 90,000 Serbian tourists came to Croatia.

Tomislav Popovic, a Croatian tourism official from the Istrian peninsula in the north, who went to the tourism fair last month in Belgrade, Serbia’s capital, said he was optimistic that the promise of an idyllic coastal holiday would increase Serbian tourism this summer by more than 50 percent. “Serbs want to come here because we are close to the sea, we share a common language and it is an inexpensive trip by car,” he said.

Even with the hoped-for increase in Serbian tourists, businesses are scaling back. Mr. Strok, whose company, GS Hotels and Resorts, has invested 160 million euros, or $210 million, in developing luxury hotels in Croatia, said the group had slashed management salaries by up to 25 percent. To help lure big-spending clients, his five-star Excelsior hotel in Dubrovnik is offering incentives like 100-euro vouchers for luxury boutiques in town and discounted meals at the hotel’s sushi restaurant.

The group is hoping that wealthy tourists from nearby Italy, Austria and Germany — countries that have long had strong economic ties with Croatia — will forsake expensive overseas vacations and choose Croatia instead.

“No doubt it will be a bad year, as the full blast of the credit crunch has not hit us yet,” Mr. Strok said.

Nevertheless, many businesspeople and economists predicted that Croatia would weather the crisis, saying its recent history of war had made its people resilient. While economies across the world are introducing stimulus packages to spur spending, economists say people in the Balkans need little encouragement: such is the live-for-today mentality that people will spend every last penny, until there is no gasoline for the car.

Louis Frankopan, the director of Zagrebacki Neboder, a real estate development company that owns one of the tallest buildings in Croatia’s capital, summed up the country’s mind-set by mixing the language of an optimist with that of a banker. “God must be Croatian, since the country is not encumbered by dangerous financial instruments, while its banks have no toxic assets,” he said.