ECONOMISTS DISCUSS BANKING SYSTEM AND ILLIQUIDITY

ZAGREB, May 6 (Hina) - Bankruptcy procedures have been instigated in Croatia for nine financial institutions - the Vukovarska Banka and now the Ilirija Banka, Glumina Banka, Komercijalna Banka, Zupanijska Banka, Gradanska Savings, Neretva Commercial Bank and Invest Savings. In each of these banks the potential losses are larger than 50 per cent of the guaranteed capital of the said banks or savings institutions, said Mladen Sunjic, the director of the State Agency for the Insurance of Savings Investments and Rehabilitation of Banks on Thursday. Sunjic was speaking at the beginning of a two-day advisory gathering of Croatian economists (HED), dealing with the "Current problems in the banking system and of illiquidity in the Croatian economy". Recalling that the State had previously decided to rehabilitate five banks - the Slavonska, Splitska, Rijecka, Privredna and Dubrovacka banks, Sunjic said that after rehabilitation has been conducted the banks are to be restructured and then privatised. In line with this, the Agency has sold 35 per cent of the shares in the Slavonska Banka to the Hypo Bank and the European Bank for Reconstruction and Development and as such no longer has any shares in that particular bank. Twenty-five per cent of the shares in the Rijecka Banka were sold to clients and previous share holders leaving the Agency with 75 per cent of the shares. The Agency still owns 86 per cent of shares in the Splitska banka and 91 per cent of the Privredna banka while it completely owns the Dubrovacka banka. Following international competitions, advisor banks were elected to privatise the Privredna, Rijecka and Splitska banks. President of HED, Vladmir Veselica considers that the solution to Croatia's economic crisis is in reforms and not idle decrees. It is necessary to introduce a significantly higher level of securities. Veselica believes that 25-30 per cent of Croatia's Gross Domestic Product lies in the "grey economy" and that we are even enterring a phase of "dark economy" consisting of elements of criminal activities. Economist Branimir Lokin reminded that it was necessary to differentiate between illiquidity and insolvency because the two terms were by no means the same. The banking system cannot separate itself from real economy which is currently in a deep crisis and recession according to Lokin. Once again Croatia is turning to foreign advisors although as Lokin says, Croatia has qualified economists who forewarned of the current situation and even recommended certain solutions. Lokin noted that the current state of non-payments amounts to a debt of 18 billion kuna with a monthly increase of 1.5 billion kuna which means an annual increase of 15 billion kuna and a break down in the system. The response is radical - clear and rough decision in the system (to admit to the debts which the banks owe to the real sector) or inflationary financing, Lokin said. The current situation in Croatia is identical to that in Russia just prior to its financial collapse except in Russia the situation was caused by foreign investors. Stjepan Zdunic believes that the recession began back in 1995 and the worst is yet to come. We are facing a critical moment and it is vital to redefine our economic policies and then to define measures for economic and monetary loans programmes, he said. The gathering was also addressed by the head of the World Bank Office for Croatia, Sandor Sipos who focussed on the influence of the global financial crisis on developed countries in central Europe and central Asia. sp