"Croatia is less attractive (for foreign investment) than it should be," Merton said adding that the key to Croatia's competitiveness was in the strengthening of the private sector. along with the strengthening of the overall social awareness regarding the need for changes and reform.
"Croatia is a success story," Merton said adding that the country had joined NATO and the EU. "I think that it isn't repeated often enough," he added.
Merton said that as a friend of Croatia, he must warn about another very real challenge - the lack of economic growth and economic opportunity.
He said Croatia needed to focus on the role of a vibrant private sector in revitalising growth. In that context Merton applauded the steps the current government has taken, like passing the Law on Strategic Investments and the Hydrocarbons Law, and establishing the Agency for Investment and Competitiveness, adding however that more steps like those still needed to be taken.
He underscored that no country can be economically successful without attracting foreign investment.
"Poland, Slovakia and Latvia are often held up as good examples of central and eastern European countries that successfully attract a significant levels of foreign direct investment.
"These regional success stories all have something in common; these countries embarked on fundamental economic reforms to enhance their business climates. Reforms included thinks like large scale privatisation, creation of efficient legal systems able to enforce contracts in a timely manner, instituting strong financial regulation, crafting a modern tax system, lowering entry bars into the market for foreign firms, and increasing the focus on educating citizens in an entrepreneurial culture," Merton underscored.
Some of these reforms were controversial, some were very painful, but they yielded long-term results by attracting foreign firms and creating jobs, the ambassador said.
Merton adding he was aware that privatisation brings groans from the general population and skeptics of the problematic privatisations of the 1990s.
"The large budget deficit Croatia faces makes talk of reducing or simplifying tax rates a difficult proposition. High unemployment brings significant political cost to any talk of reforming the public sector and state owned corporations that would require layoffs and restructuring."
He said that in his opinion there was not enough discussion about the benefits that some of these tough choices would bring.
"I think those benefits are clear. By clearing away the 'underbrush' that impedes investment - in this case, all of the barriers that make Croatia less attractive than it should be - you would create breathing room for your competitive private sector to grow, employ people, and contribute sorely-needed budget revenues," Merton stressed.
"I have noticed that the public sector is everywhere in Croatia. It dominates nearly every major sector of the economy," he said adding that it comprised 68% of Croatia's GDP in 2013, while the private sector lost more than 150,000 jobs.
Merton said a certain level of resistance to "outsiders" was pretty baffling for a country that welcomes millions of tourists each year and that has joined the largest economic union on earth, adding however he had confidence in Croatia's skills, business abilities and the private sector, if adequate business and investment climate could be created.