FOREIGN DEBT GROWING, FINANCIAL SYSTEM VULNERABLE - HNB GOVERNOR

ZAGREB, June 26 (Hina) - Addressing parliament on Thursday, Croatian National Bank governor Zeljko Rohatinski cautioned about the increasing external debt and the consequent vulnerability of the domestic financial system to outside quakes. #L# Presenting the central bank's annual report, Rohatinski said the external debt had reached US$17.4 billion early this year as a result of debts incurred by commercial banks abroad to provide the basis for a faster loan growth. The debt was used to increase imports, he said. One negative consequence is turning foreign debt liabilities into domestic currency assets, which makes the financial system vulnerable to outside quakes, he said, calling for additional caution. The measures the central bank has taken are yielding the expected results, but additional ones will be taken if the current transactions deficit does not decrease as envisaged, said Rohatinski. The central bank will not agree to the International Monetary Fund's proposal to increase interest on treasury bonds because this could spur commercial banks to incur further debts abroad, thus raising interest on finance ministry treasury bonds and increasing the budgetary deficit, Rohatinski said. He added the central bank would not agree to this proposal even if relations with the IMF became strained. (hina) ha