Trends of gradual revival of economic activity finally evident

Published: 10/5/2000

At its meeting held on Wednesday, May 10 2000, the Council of the Croatian National Bank, chaired by governor dr. Marko Škreb, reviewed recent economic and monetary developments, agreed the central bank's provisional financial plan for this year, and made several decisions acting in accordance with its authorities.

Data on economic developments in the first part of this year show that trends of a gradual, months-long revival od economic activity are finally evident: in the first quarter industrial production grew by 3.7 percent compared to the same period last year. Retail trade turnover also increased at the end of the last and at the beginning of this year. However, so far these developments had no desirable effects on the employment growth, that is on the reduction of unemployment which even rose slightly. Both retail prices and cost of living increased in April by 0.8 percent largely as a consequence of the increase in oil prices.

The exchange rate of the kuna remained stable. Especially favorable data show that the amount of foreign currency savings continued to rise, which is the most reliable indicator of the confidence in the domestic banking system; total growth of foreign currency savings in the first quarter of this year amounted to about 2.5 billion kuna (6.8 percent). In addition, an increase, although considerably more moderate, but still significant, was observed with domestic currency savings.

Interest rates decreased, so that, according to available data, average lending rate stabilized on 12 percent. Members of the CNB Council paid special attention to indicators suggesting that the liquidity of commercial banks is high, but is accompanied with stagnation in lending to enterprises and growth of interest in CNB bills and Treasury notes. According to available indicators, the reason for such orientation of commercial bankers is the fear of the collection risk, since an effective protection of creditors in relation to debtors who handle their financial obligations irresponsibly has not been established yet. Until the law-governed state starts functioning completely according to principles of market economy there are few chances that "technical operations" such as multilateral compensations would achieve long-lasting results, that is, eliminate essential causes of the liquidity crunch, which - in a large number of cases - mirrors the insolvency of enterprises that do not meet the criteria for surviving on the market.

According to the provisional financial plan for this year, which was prepared by taking into consideration the remarks made by the Croatian Parliament in its recent discussion on central bank's financial statements, total revenues of the Croatian National Bank in 2000 should amount to 960.6 million kuna and total expenditures to 941.5 million kuna. Consequently, the surplus profit amounting to 19 million kuna should be transferred to the government budget.

At the Wednesday meeting, the Council of the Croatian National Bank, approved the nomination of Ms. Mladenka Gombar for the chairwoman of the management board of Medjimurska banka d.d. Cakovec. In addition, the CNB Council agreed with the nomination of Mr. Julio Kuruc for chairman and Mr. Drago Galović, Ms. Bozica Širic and Mr. Vladimir Novak for members of the management board of Podravska banka d.d. Koprivnica. The CNB Council appointed dr. Ivo Spremic for member of the management board of the Agency for Domestic Payments.