IMF: EXTERNAL DEBT NO IMMEDIATE THREAT, BUT MUST BE CLOSELY WATCHED

ZAGREB, Sept 13 (Hina) - The level of Croatia's external debt does not pose an immediate threat, but it should be monitored closely, the head of the International Monetary Fund's mission to Croatia, Hans Flickenschild, said after a meeting with Croatian President Stjepan Mesic in Zagreb on Saturday. #L# The Croatian National Bank (HNB) as well as the government should do their utmost to keep lid on external debt growth and reduce the current account deficit. The current account deficit is not necessarily an additional debt, because direct foreign investment and reinvested profit can finance it without increasing the debt, Flickenschild said. HNB governor Zeljko Rohatinski stated this week that the external debt, which now totals US$19 billion, could by the end of this year, together with the current account deficit of seven percent of GDP, reach the amount of almost $21 billion, which would increase its share in GDP to over 70 percent. The head of the IMF mission said that apart from the external debt and the current account deficit, the talks with President Mesic also addressed the mission's impressions of their visit to Croatia so far. He stressed that economic growth was higher than expected, that inflation was lower than planned and that the fiscal situation was better than expected. The talks, he added, also addressed the HNB's forecasts and plans to curb credit growth and reduce imports, thus decreasing the current account deficit. Flickenschild recalled that the central bank in January introduced measures to restrain credit growth and that in early September it passed a decision increasing banks' compulsory foreign currency reserves. The HNB believes that these measures are sufficient to reduce imports and improve the situation with the current account deficit in the second half of the year. The IMF hopes this will happen, but cannot be certain about it, Flickenschild said, adding that the mission was considering the HNB's judgement. The mission will continue discussing this matter in the continuation of its visit, and will be able to say more at a news conference on September 17, he said. The question of another stand-by arrangement was not discussed at the talks with Mesic. Parliamentary elections are scheduled for November and that issue will be for the new government to decide, said the IMF mission head. The mission arrived in Croatia in the middle of this week for a second review of the process of implementation of a stand-by arrangement the IMF granted Croatia in February. The delegation is expected to pay another visit at the end of the year. (hina) rml