The Mission of the International Monetary Fund led by Hans Flickenschield has arrived in Zagreb to conduct its first review of Croatia's implementation of the Stand-By Arrangement with the IMF and to discuss further issues related to the realization of this arrangement. The Mission first met on Monday with the CNB management led by Dr.Željko Rohatinski, CNB Governor.

Governor Rohatinski informed the Mission about the favorable macroeconomic indicators that continued from the beginning of the year. Annual inflation rate stood at 0.9% in April and the expectations are that its annual level will remain below 2.5%. Kuna's depreciation against the euro of 3.4% in the first quarter was followed first by its appreciation in April and then the exchange rate stabilization at 7.55-7.60 HRK/EUR. No greater exchange rate fluctuations are expected in the forthcoming period. The level of usable international reserves is similar to that at the beginning of the previous year, which is in line with the criteria under the Stand-By Arrangement for the end of the first quarter.

Measures undertaken by the central bank in January began to give results as evidenced by a continued gradual slowdown in credit growth of banks in the first twenty days of April. However, on-site examinations in banks will show if the data submitted to the central bank are indeed based on real developments or if they involve a certain amount of "resourcefulness" on the part of banks evading the restrictive CNB measures. If the latter proves to be true, the CNB will be prepared to take additional measures to keep the expansion of bank placements in check and enable economic growth without excessive foreign borrowing and unsustainable balance of payments current account deficit.

Having observed that as far as Croatia's inflation rate is concerned, the country has become as "boring" as developed countries, the Mission Chief, Hans Flickenschield, also wanted to know what other measures the central bank plans to activate to help keep the situation under control and to what extent it could count on fiscal policy support and how the overall cooperation between the CNB and the Ministry of Finance was getting along. He was also visibly pleased to hear that, high credit growth, notably at the end of last year, notwithstanding, the banking system can be considered to be stable. He congratulated Governor Rohatinski on the recognition the Governor received recently from international financial circles for his exceptional performance in monetary policy management.

In the course of this and the next week, the IMF Mission will have several more meetings in the central bank and will also meet with the representatives of the Government of the Republic of Croatia, the Ministry of Finance, the Ministry of Economy, the Ministry of Health and the Croatian Institute for Health Insurance, Ministry of Labor and Social Welfare, Ministry of Tourism, HBOR, several commercial banks, unions and other associations and institutions.