The Council of the Croatian National Bank, chaired by Governor dr. Marko Skreb, met on Wednesday, March 3, 1999 to review recent economic and monetary developments.

The Members of the Council of the CNB were presented the report (produced by the temporary administrator appointed to Croatia banka d.d. Zagreb) on the first results of the measures introduced in Croatia banka for the purpose of stabilizing the situation in the bank. Croatia banka's accounts were blocked on February 10, 1999, due to the bank's inability to meet its financial obligations. Consequently, Croatia banka had to apply for the central bank's help. After the Council of the CNB appointed a temporary administrator to Croatia banka on February 23, 1999, and after a special liquidity loan was granted to the bank, it managed to pay its foreign currency and domestic currency arrears. On March 1, 1999 the bank opened all its branch offices for regular operation with citizens and other depositors. Available indicators show that the measures introduced in the bank produced a very favorable effect. Once Croatia banka's depositors were convinced that they have their money at free disposal again, a significant number of savers and other depositors decided to leave the money in the bank. By acting in this way, depositors made a valuable contribution to the stabilization of the situation in the bank whose services they used so far, and which, according to available records, had serious problems with liquidity, but was not insolvent.

Economic and monetary developments recorded in February do not differ considerably from the developments observed in the previous period. Economic indicators related to industrial production and other sectors of the economy, as well as unemployment records signal a further slow down of economic activity. Movements of prices in February have not been covered by statistics yet, but no significant increase in prices is to be expected. In February, the kuna depreciated against the German mark by 2.4 percent and against the American dollar by 6 percent. This shows that the February interventions of the CNB on the foreign exchange market where the central bank sold 156 million euros and 7 million American dollars only slowed down the depreciation of the kuna, but did not entirely stop it. It was estimated that the increase of commercial banks' demand for foreign exchange occurred primarily due to the fact that significant amounts of installments for foreign exchange loans came due in that period, as well as due to the reduced foreign exchange inflow. In this regard, the revenues collected from the sale of Croatian eurobonds will contribute considerably to the easier maintenance of the adequate stability of the kuna exchange rate in the period before the start of the tourist season.

At the beginning of this year, favorable indicators were observed in foreign trade. In dollar terms, January exports were 10.3 percent higher and January imports 5.3 percent lower than in the same month last year. Thus, the trade deficit recorded in January this year was 22 percent lower than in January 1998, which represents a significant contribution to the further decrease of current account deficit. Since the movements in the exchange rate were higher than movements in domestic producer and retail prices, they exerted favorable influence on the competitiveness of Croatian exporters.

At the Wednesday meeting, the Council of the Croatian National Bank granted an operating license to Raiffeisen stambena stedionica d.o.o. Zagreb, the fourth home loan and savings association to be founded in Croatia, and approved the nomination of Ms. Manda Zulic for chairwoman of its management board, and Dr. Herbert Weinzetl for member of the management board of the same association.