REPORT ON 3RD REVIEW OF IMPLEMENTATION OF IMF-CROATIA STAND-BY DEAL

ZAGREB, Dec 17 (Hina) - Croatia's external debt, which the International Monetary Fund (IMF) in September projected to be about 68 percent of Gross Domestic Product (GDP), will very likely reach about 74 percent of GDP by the end of this year. The reason for this trend is a weaker dollar, the IMF mission's head, Hans Flickenschild, said in Zagreb on Wednesday. #L# Last year, the external debt rose from 58 to 68 percent of GDP, and a half of the increase was caused by differences in exchange rates and the depreciation of the dollar. During its previous visit to Zagreb in September, the IMF mission projected the external debt would be 68 percent of GDP. Speaking at the closing press conference at the end of the mission's third review of the implementation of the stand-by arrangement, Flickenschild said they had proposed that the incumbent government seek more loans on the domestic market than abroad. Unfortunately, the government did not follow the advice but decided to take loans abroad, he added. He also confirmed that the Croatian National Bank (HNB) governor, Zeljko Rohatinski, was right to say that the current budgetary deficit would require taking much bigger loans on the domestic market than planned. Croatia's macroeconomic indicators are favourable, and the economic growth is higher than expected. Therefore the IMF is changing its previous assessment of a 4.7% rise in GDP in 2003 to over five percent. This growth is expected to slow down and come to some four percent in 2004. The inflation rate remains low, i.e. about 1.5 percent, the exchange rate of the national currency is stable, and the central bank's foreign currency reserves have risen to 7.5 billion US dollars. State revenues are as expected as is government spending, and the state deficit should be 4.5 percent of GDP, Flickenschild added. Concerning the current account deficit, improvements are evident thanks to high revenues from tourism. In September, the IMF projected this deficit to be six percent of GDP, but according to the latest indicators it will be 5.4 percent. The incumbent government and the HNB have drafted a letter of intent with updated information and the latest indicators of economic developments in 2003, which will be sent to the IMF headquarters. Flickenschild announced one more visit of the IMF mission for the end of January or early February, until which time the mission should receive all relevant data on developments until 31 December 2003 inclusive. The mission will then hold talks with the new government on fiscal and structural polices for 2004. The deadline for the completion of the entire job concerning this stand-by deal is 2 April, he added. Asked about further cooperation in light of a statement by the new ruling party (HDZ) that it prefers looser ties with the IMF, Flickenschild said it was still premature to comment on it. Croatia's obligations and rights, which stem from its membership in the Fund, are regular consultations, access to technical assistance and financial sources of the IMF, and other rights and obligations defined by the IMF statute, he said. Asked by reporters about the IMF's stand on the work of shops on Sundays, Flickenschild said the IMF was against banning work on Sundays. He said that banning work on Sundays undermined freedom of market competition and introduced differences in businesses which might lead to a rise in unemployment and a fall in earnings and sales. Consequently this can affect GDP, he added. Therefore, the IMF welcomes the proposal of the council for the protection of market competition that the ban be postponed until further notice. The IMF advises the HDZ not to enact the relevant law, Flickenschild said adding that the IMF saw in this issue other sides which needed not be economic. (hina) ms sb