The Council of the Croatian National bank, chaired by Governor dr. Marko Škreb, met on Wednesday, June 30, 1999, to review recent economic and financial developments and determine, on the basis of these developments, guidelines for monetary policy in the third quarter of this year.

Stability of the country's macroeconomic framework has remained satisfactory. Prices grew by 3.8 percent in May year-on-year. In June, for the fourth consecutive month now, the German mark exchange rate fluctuated within the range of 3.88 and 3.89 kuna. The liquidity of the banking system is good. This can be observed on the movements of the average money market rate - recently it fell below 12 percent, which was last time recorded 14 months ago. The average interest rate on total new credit granted by commercial banks fell to 14.1 percent. In June, for the second consecutive month now, total international reserves on accounts of the central bank recorded an increase. Foreign exchange deposits also increased in June, after a decrease was observed in March and April and stagnation in May. Upward movements in the amount of foreign exchange savings in June signal that both the household and enterprise sector believe that the peak of the banking crisis is over.

Industrial production does show certain signs of recovery, but it still remains below the level observed in the first five months of 1998. For the first time since June 1998, registered unemployment showed a decrease in May. However, it was still 12.5 percent higher than at the end of May 1998. Net wage bill paid in April was in nominal terms 8.5 percent and in real terms 5.1 percent higher than in the same month last year. The CNB Council noted that this wage growth is not in line with the level of economic activity, which may signal additional cost pressures on the competitiveness of Croatian products on the domestic and, especially, on the international market.

According to available indicators, the current account deficit has been decreasing. It amounted to USD 490 million in the first quarter of 1999, 26.9 percent less than in the same period last year. This is indeed a desirable tendency. However, it is unfavorable that the improvement of the merchandise trade balance was realized primarily due to developments in imports and not due to increased exports. The stagnation of exports observed for the fifth consecutive year now is a very unfavorable indicator, especially when it is present in a small transition economy as is the Croatian economy. The members of the CNB Council believe that the possibilities for overcoming the stagnation of exports are closely linked to the integration of Croatia in adequate international organizations, since this would most effectively enhance direct foreign investments and growth of exports.