Introduction of VAT has not disturbed the liquidity

Published: 4/2/1998

Recent economic and financial developments, the expectations for February, as well as the results of the first balance of payments revision were main topics discussed by the Council of the Croatian National Bank, chaired by governor dr. Marko Škreb, in its regular meeting held on Wednesday, February 4.

Available indicators confirmed that in 1997 industrial production grew by 6.8 percent, while the annual growth of productivity in the first eleven months of the year was 10.7 percent. Retail trade turnover recorded the forth consecutive year of growth (it grew by 13.8 percent in 1997), and 41 percent more overnight stays than in 1996 were registered in tourism. According to relevant indicators, building industry shows further signs of recovery. In 1997, average net wages grew by 12.4 percent in real terms, while real gross wages registered a growth rate of 8.3 percent (deflated by the cost of living), which is not in disagreement with the increase in productivity levels. Less favorable indicators are those related to unemployment, as well as to the stagnation of exports (compared to 1996 data, exports increased by 8.5 percent in kuna terms, but in dollar terms they decreased by 3.8 percent).

Lending activity of commercial banks was considerably higher in 1997 than in 1996: credits to the enterprise sector grew by 42 percent and credits to the household sector by 93 percent. Only banks' claims on the central government decreased by about 40 percent. Although the growth of monetary aggregates was relatively high, it slowed down gradually, and credit expansion of commercial banks was financed primarily on the basis of foreign credits.

The introduction of value added tax marked the beginning of 1998 in the financial sector. The State Bureau of Statistics issued indicators showing that in January retail prices grew by 2.4 percent compared to the previous month. The Council of the Croatian National Bank observed that such increase does not cause particular concern, but enhances expectations that a part of this movement in prices could be neutralized in the following months. From the monetary policy stand, it is important that this huge change in the tax system has not disturbed the liquidity. This is confirmed by indicators showing that that the average interest rate on the money market stabilized again, while the demand for CNB bills and treasury bills increased, accompanied by a slight rise of interest rates. The average lending rate of commercial banks is still about 14 percent. After a more significant appreciation at the beginning of this year, the kuna exchange rate fluctuates again within a very narrow band.

Members of the Council of the Croatian National Bank were briefed on results of the first phase of the BOP revision. The purpose of this project is to harmonize the BOP statistics with international standards in order to obtain a more complete and realistic insight in all business and financial transactions of the Republic of Croatia with other countries. The application of new methods to BOP statistics already produced indicators of current account deficit which are significantly more favorable than those calculated according to previously applied methods.

After members of the supervisory board of Privredna banka Zagreb had been appointed at the General Meeting of the bank, the Council of the Croatian National Bank of Croatia approved the nominations of Mr. Bozo Prka for Chairman of the Management Board of Privredna banka Zagreb and Mr. Zvonko Agicic, Mr. Franjo Filipovic, Mr. Ivan Krolo and Mr. Ivan Gerovac for Members of the Management Board of the same bank. In addition, the Council agreed on the nomination of Mr. Miro Dodic for Chairman of the Management Board of Istarska kreditna banka Umag d.d.. Further, the Council approved the nominations of Ms. Ruzica Bebic for Chairman of the Management Board of Neretvanska gospodarska banka d.d. Ploce Ms. Ilonka Jelcic for Member of the Management Board of the same bank. The Council also agreed on the nominations of Mr. Branko Petanjek for Member of the Management Board of Gospodarsko-kreditna banka Zagreb, Mr. Zlatan Kuljiš for Chairman of the Management Board of Štedionica Sonic d.o.o. Zagreb and Mr. Marijo Kirinic for Member of the Management Board of Štedionica za obnovu i razvoj d.o.o. Zagreb.

The Council of the Croatian National Bank decided to revoke the operating licence from Libertas banka d.d. Dubrovnik, since it failed to register with the Commercial Court and did not start operating within the prescribed period of six months.