Introductory meeting of the IMF Mission with the highest CNB officials

Published: 21/7/2000

On Friday, July 21, 2000 a Mission of the International Monetary Fund, headed by Mr. Hans Flickenschild, met with the Governor of the Croatian National Bank Dr. Željko Rohatinski and his associates, in the context of preparations for a new stand-by arrangement between Croatia and the IMF.

As Mr. Flickenschild emphasized at the beginning of the meeting, Croatia does not actually need a new stand-by arrangement due to typical reasons, such as low level of international reserves or shaken confidence in the financial system. However, a stand-by arrangement is desirable and can be important primarily as a signal of IMF's support for economic policies and structural reforms conducted in Croatia. Taking this into consideration, the Mission will try to acquire as complete as possible insight in economic and financial developments in Croatia, especially in the Government's decisions related to consolidating public expenditures. The Mission was interested in prospects for the central bank under new management to continue conducting monetary policy aiming at maintaining stabilization and to resist possible inflationary pressures. In addition, the Mission expressed interest in the current situation in the banking sector and the progress achieved so far in drafting the new central bank law, which, among other issues, should define more precisely the future relationship between the central bank and the Finance Ministry.

Governor Rohatinski pointed out firm commitment of the CNB management to persist in maintaining macroeconomic stability as a necessary precondition for sound and sustainable economic growth regardless of pressures, which may be expected. The maintenance of macroeconomic stability should be enhanced both by a more realistic approach to key issues in the period after the elections and by a more significant revival of economy. Especially now, after Croatia joined the WTO and neared integration into European associations, it can be expected that competitiveness, exports and investment activity will increase.

According to central bank estimates, the growth of GDP in 2000 could be somewhat higher than the previously expected 2.6 percent. Current account deficit is expected to be between 5 and 6 percent of the GDP, which is more favorable than in the past few years. The latest indicators of movements in prices have deteriorated in comparison with usually observed values, but certain signals indicate that this is only a temporary diversion that occurred due to the increase in prices of oil products and changes in the tax system, not due to accelerated inflationary inertia. The share of government expenditure in domestic product may be somewhat reduced this year and the three-year budget projection, which is currently being prepared, is expected to provide the fiscal sector with satisfactory predictability.

The situation in the banking system has been improving continuously, the growth of savings deposits indicating that the improvement is perceived as such also by depositors. Due to increasing competition and greater presence of foreign banks in the market, trend towards mergers, including the search after adequate strategic investors, intensified.