IMF Executive Director on visit to Croatia

Published: 3/7/2000

On Monday, July 3 2000 Mr. Johannes de Beaufort Wijnholds, Executive Director of the International Monetary Fund and Director of the IMF constituency to which Croatia belongs, visited the Croatian National Bank where he met with the CNB Governor dr. Marko Škreb and his associates. Mr. Wijnholds was primarily interested in recent economic and financial developments in Croatia, including the developments in the Croatian banking system.

According to available indicators, in the first quarter of this year GDP grew by 4 percent compared to the same period last year. It is expected that the growth rate for 2000 could reach about 2.6 percent. A favorable indicator is the one showing that economic revival is enhanced considerably by growing net exports of goods and services. Due to this fact, the current account deficit for 2000 is expected to amount to about USD 1 billion (about 5.3 percent of GDP). In the past few months, prices grew faster than forecasted, also as a consequence of changes in the tax system. However, considerably more moderate movements of prices are to be expected in the coming period. Currently, the exchange rate of the kuna is facing usual seasonal appreciation pressures, however, not to such an extent that would make it difficult for the central bank to maintain the exchange rate stability.

Real interest rates have decreased, primarily due to the exit of problem banks from the market and stronger competition among good banks. If competent commercial courts should accept all proposals for the initiation of bankruptcy proceedings over fallen financial institutions that have been submitted so far, the number of banks and savings banks to remain operating in the Croatian banking system will total 49 and 27, respectively. Taking into consideration the currently ongoing bank mergers, it can be expected that the number of Croatian financial institutions will fall even further in due time. Further, since the privatization of several rehabilitated banks realized through the sale of these financial institutions to strategic partners is bringing to Croatia an additional number of strong foreign banks, it can be expected that the competition in the banking market will grow stronger and bank services offered to clients will be more diversified and more favorable.

At the Monday meeting, the esteemed guest and the CNB officials reviewed the possibilities of completing a stand-by arrangement with the International Monetary Fund, as well as of future cooperation between this international institution and the Croatian central bank.

During his two-day stay in Croatia Mr. Wijnholds also had meetings with the President of the Republic of Croatia Stipe Mesić, Prime Minister Ivica Račan, Deputy Prime Minister Slavko Linić and Finance Minister dr. Mato Crkvenac.