A Mission of the International Monetary Fund, headed by Mr. Hans Flickenschild, that is on visit to Croatia for the purpose of negotiating a new financial arrangement between Croatia and this international financial institution, had the first official meeting with the Governor of the Croatian National Bank dr. Zeljko Rohatinski and other high CNB officials on October 27, 2000. Main issues discussed at the meeting were recent economic and financial indicators, as well as changes in monetary policy and financial sector regulation that were prepared or introduced in the period since the Mission's last visit.

According to the latest estimates, presented by the CNB Governor, gradual recovery of economic activity will result in GDP growth of about 3.5 percent in 2000, improved goods and services balance and reduction of current account deficit in GDP from 7.5 percent in 1999 to about 5.5 percent in 2000. The exchange rate of the kuna remains stable also without CNB's interventions on the foreign exchange market. Retail prices increase of 6.6 percent in the first nine months of this year is higher than in the previous years, but the central bank is estimating that inflation is under control and is ready to undertake all available monetary policy measures, should October indicators point to a revival of inflationary expectations.

Related to financial sector regulatory framework, CNB officials informed the Mission that a draft of the new Law on the Croatian National Bank has been completed and amendment to the relevant provision of the Croatian Constitution proposed. In addition, CNB prepared amendments to the Foreign Exchange Law and Payment System Law, so that the national settlement system could start operating at the beginning of 2001. Further, legal framework for the fulfillment of government liabilities to owners of savings deposits covered by deposit insurance scheme has been agreed upon. Drafting of a new banking Law has also began. Related to CNB's activities, special importance is given to the unification of reserve requirements and efforts to consolidate further the banking system and improve precautionary banking supervision.

Mr. Flickenschild said that IMF's assessments of economic growth in Croatia and main balance of payments indicators do not deviate significantly from those presented by the Croatian National Bank. He showed special interest in instruments that the central bank intends to use, should October price developments call for it. Nevertheless, also with a higher level of inflation than in the previous years, it is obvious that fiscal adjustment and reduction of budget deficit remain key problems. According to estimates for this year (without privatization revenues), budget deficit should be about 6 percent of GDP (previous IMF's assessments indicated even higher levels). Consequently, during its two-week stay in Croatia the Mission will concentrate on the three-year budget projection and necessary structural adjustments in the public sector, announced Mr. Flickenschild.