At its meeting held on Wednesday, September 1, 1999 the Council of the Croatian National Bank, chaired by Governor dr. Marko Skreb, reviewed recent monetary and financial developments. Further, the Council was briefed on the progress of payment system reform and informed about the work of the State Agency for Deposit Insurance and Bank Rehabilitation. The CNB Council also made several decisions acting in accordance with its authority.
Firmly and unanimously committed to the preservation of the stability of prices and the exchange rate which continues to be the primary goal of the central bank, the members of the CNB Council paid special attention to those indicators which could make the achievement of this goal in the coming period more difficult. Especially important among them is the one indicating that July was the seventh consecutive month this year in which the government budget recorded negative saldo, totaling now about 4 billion kuna. In addition, it has to be kept in mind that during the remaining period of the year the level of current government borrowing from the central bank should be reduced gradually, since, as legally prescribed, the central bank may only grant loans earmarked for bridging temporary discrepancies between budgetary revenues and expenditures. Thus, the members of the CNB Council, although strongly emphasizing the necessity for relieving the tax burden, see not possibilities for reducing the tax rates without introducing significant changes in the distribution of domestic product and in the structure of consumption, especially in the period which has not seen the expected revival of economic activity yet.
According to available indicators, in the first seven months of this year industrial production was 1.9 percent lower than in the same period last year. Exports were 5.2 percent lower and imports 9.2 percent lower in dollar terms than in the same period last year, so that the trade deficit narrowed, however, due to the reduced merchandise trade activity. Data related to tourist season have not been completed yet, but those available show that the 1999 season was worse than the last year's season. Downward trend of economic activity also remained the feature of the retail trade. Registered unemployment was on the average 9.3 percent higher in the first seven months of this year than in the same period last year; at the end of July it was 16.5 percent higher than in 1998.
Despite such economic environment, paid wage bill and the average income have grown. The average net wage paid in July amounted to 3,076 kuna, which is in nominal terms 14.1 percent and in real terms 9.5 percent higher than in July 1998. Gross wages increased in that period by 11.1 percent in nominal terms and by 7.4 percent in real terms.
According to the State Statistics Bureau, retail prices were 1.1 percent higher in July than in the previous month and 5.1 percent higher than in July 1998. The increase of oil prices and prices of oil products had considerable impact on these developments in prices. Exchange rate fluctuations were not significant and the expected seasonal pressure of strong foreign currency supply failed to occur. Foreign currency offered on the market was bought primarily by banks for their own needs, so that in six auctions held in July and August the central bank purchased only USD 19 million. Nevertheless, international reserves managed by the central bank reached the amount of nearly USD 2.9 billion which is more than last year.
The average interest rate on new loans granted by banks in June was significantly reduced; the 13.8 percent interest rate charged on kuna loans is the lowest interest rate observed since the achievement of monetary independence. The average spread decreased as well. It is estimated that such developments in interest rates occurred to a high extent due to the exit of a number of problem banks from the money market. Another encouraging indicator is a July increase of foreign currency savings in Croatian banks.