On Monday evening local time, the Executive Board of the International Monetary Fund considered the Staff Report for the 2002 Article IV Consultation with Croatia, held by the representatives of that financial organization from late May till early June, in accordance with Article IV of the Articles of Agreement of the IMF.

"Croatia experienced solid growth in the last two years, but unemployment remains high... The short-run growth outlook is favorable, but marred by uncertainty. These are the basic conclusions from the mentioned report, which also comprises the assessment that: exchange rate stability and structural changes have helped reduce inflation to below the euro area level; despite the revival of private investment and the initiation of large public works, the external current account deficit is small thanks to an increase in private savings; monetary policy continues to be accommodating in the context of low inflation and an appreciating exchange rate, encouraged by capital inflows; and despite a run on the third largest bank, the banking system has remained stable.

The fiscal deficit was reduced from 7.4 percent of GDP in 1999 to 5.4 percent in 2001 and a further decline to 4.25 percent is expected in the current year. However, according to the staff representatives, the attainment of this target is at risk owing to some slippages in the implementation of certain economic policy measures at the beginning of the year.

Structural reforms are a key element of the authorities´ medium-term strategy to reduce unemployment and improve living standards. However, the mission believes that the authorities´ efforts have been hampered by lack of consensus within the coalition government and social opposition. Nonetheless, marked progress has been made in rationalizing social transfers, improving the pension system, reforming the public sector compensation system and the police and defense sectors. Fiscal decentralization has been started, a single treasury has been introduced and the legislative framework in the financial sector has been strengthened. However, according to the mission, reforms have lagged behind in the health, education and judicial sectors as well as in the labor market area.

In accordance with the longtime transparent relations between this country and IMF as the most prominent international financial organization, the Croatian authorities once again consent to the publication of this report, considered by the IMF´s Executive Board, together with all documents pertaining to it, at the IMF´s website. As the documents are written in the English language, as usual, the Croatian version will be available at the websites of the Croatian National Bank or the Ministry of Finance immediately after its finishing.