##vatized companies that labor - shedding took place. we should be aware that workers will not automatically embrace privatization and restructuring of their companies in spite of the fact that they are very often carried out in their interest or are the only option for the company to stay alive. the same can be said for the case of banking crisis resolution in croatia. based on my own experience, any resolution is bound to be faced with strong resistance and delays. first, the budget ( i. e. the ministry of finance ) will not willingly accept that it has to pay for the costs of banking crisis resolution. second, the management of the banks will try to change the banking problem resolution and not shoulder the costs of their actions. they have clear vested interests in the bank as it is ( their high salaries, their influence through credit allocation, the wish to hide previous decisions, etc ). third, depositors ( households and companies ) will make every effort to minimize their losses and get someone else to bear the costs of the problem. fourth, the owners of banks will try to put political pressure on the government to bail them out. fifth, there is the personnel of the bank, because they know that either all or part of them will lose their jobs. sixth, politicians will try to minimize the problem in the hope that it will not hurt their “ image ”. every decision on the bank resolution problem is a redistribution problem. there are always welfare losses for some interest groups, so we should be aware that such decisions will create very strong lobbying, corruption, ruthless behaviour, a fight to preserve vested interests, etc. needless to say, all such behavioral patterns mean using scarce resources to influence the outcome in a redistributive way, and not use them to produce new wealth. to overcome this problem policymakers must make sure that they have the “ incentives right ” and have a clear set of rules to diminish the scope of discretionary decision - making which always gives room for rent - seeking. b ) support for policies ultimately sound economics is sound politics as well. but the problem is that economic measures may take time to bear fruit. in other words reforms usually have immediate costs and the benefits are ( sometimes ) distant. let me stress again that policymakers must educate the public at large to get their support. if this is not the case, it may be a serious obstacle to rapid transition. with the benefit of hindsight and from the perspective of a central banker i would say that in

rent - seeking behavior, and b ) lack of broad political support for reforms ( which i partly discussed before ). a ) rent - seeking if private returns on predation are larger than private returns on production, this will send “ wrong ” incentives to people and society will not develop in the desired direction. therefore we have to make every effort to “ get the incentives right ”. this is not an easy exercise. socialism and, sometimes even more, early transition, have created vested interests and it is understandable that every socio - economic in no way am i trying to imply that the main cause of the banking crisis is inadequate supervision and regulation. but, they can certainly deepen banking problems. group will fight either to preserve their status quo or try to “ grab ” even more. the problem is especially exacerbated if the prevailing mentality in a society as a whole is the “ take it ” and not “ make it ” philosophy. every change is a redistribution, redistribution of power and relative wealth. transition by definition is a change. people on average resist change. i have called this the newtonian law of transition, namely : “ every action creates a reaction. ” ( skreb, 1998 ). this resistance to reform ( changes ) is probably “ time - dependent ” and positively correlated with the time spent in transition. in the early stages reforms are more general ( macroeconomic stabilization ) and there is much more support for them. in the later stages “ transition fatigue ” starts to develop, and disappointment with slowness ( or even a decline or stagnation ) in the rise of living standards is more and more present. on top of this, structural reforms imply microeconomic changes ( usually labor - shedding ). this is a challenge to the status quo. these are some of the reasons why structural reforms are so much more difficult to implement and slower than glamorous macroeconomic stabilization programs or measures like the announcement of a new currency, a new exchange - rate regime or a new central bank governor. based on croatia ’ s experience i would like to say that some important large - scale privatizations and foreign direct investments were either postponed or abandoned because of resistance from workers and local communities. they both preferred the imaginary safety of the status quo. the conventional wisdom is that government ownership ( the status quo ) should ensure at least minimal wages and job security. by contrast, private ownership of a company means job uncertainty for employees, as they have observed in many cases of pri