In an interview with January's issue of Banka magazine, Vujcic criticises those who he says have started invoking devaluation and inflation after the recent credit rating downgrade, recalling that he warned about the danger of pushing such ideas in a speech in late October because "they can additionally deepen the crisis and destabilise the country." He says such discussions belong to the past.
Vujcic recalls that in the said speech he proposed attracting foreign direct investments as the only solution for a quick recovery and that this was possible only with radical structural reforms.
He says that without a political and general social consensus on the main goals, "at least among the most relevant social and political forces, vested interests and populist impulses threaten to blockade the processes which are in the country's interest in the long term."
Vujcic says the Croatian economy is not competitive primarily because of a business environment that is neither competitive nor stimulating. He says nobody wants to deal with these problems in part because of incompetence and in part because of the resistance of interest groups.
The governor says the problems lie in the efficiency of the commodities market, rules on foreign direct investments, taxes, market domination and the anti-monopoly policy, the efficiency of the labour market, investor protection, and the issuance of building permits.
He says it is necessary to analyse those problems and come up with an action plan on how to solve them, adding that experts and all ministers should be engaged on that.
In the interview, Vujcic reiterates that the Croatian National Bank (HNB) predicts a 0.3% growth in 2013 but that, due to the Standard and Poor's credit rating downgrade, there are many risks.
He says the downgrade "should be understood as a serious warning that fiscal consolidation has stopped and that structural reforms are not swift enough." He urges revising the budget and implementing at least one major structural reform.
Asked why the incentives to the real sector which the HNB has tried to give several times have failed, Vujcic says "the monetary policy is like a rope. It's easier to tighten it than extend it, as evidenced by this crisis." He adds that the monetary policy is less effective if the debt is higher and structural problems bigger.
The worst combination is high indebtedness and high structural rigidity, he says, insisting on the fastest and most radical way of dealing with the structural problems. "For years we have actually been buying time for reforms that have failed to happen."
As for Croatia's accession to the European Union next year, Vujcic says the most important aspect is that it will make Croatia more attractive for foreign direct investments, underlining the need to improve the investment and business climate.
The second aspect of EU accession is the possibility to draw a lot of money from the Union's agricultural and cohesion/structural funds, which requires increasing the absorption capacities, the governor says.
The third aspect is the "six-pack" and upon accession Croatia will most likely fall under the Excessive Deficit Procedure, and perhaps the Excessive Imbalance Procedure, which could significantly restrict the freedom of running the economic policy, notably the budget policy, Vujcic says, adding, "The economic policy could be faced with a version of the IMF (International Monetary Fund) even without the IMF."
Asked about the situation in the banking sector, the governor says that both the banks and the economy feel the consequences of the crisis, notably in the growth of unpaid claims, a higher risk aversion and a decline in credit activity.
The banking system remains very stable, with a 20 per cent capital adequacy ratio, and can weather major portfolio stresses, the governor says, adding that changes in banks' activity depend on economic trends and prospects.
Asked about the cash drain, Vujcic says bank deleveraging is a trend not only in Croatia but in the region and globally as well and that it will stop once credit activity picks up again, which requires a revival of economic activity. He adds that another prerequisite is the willingness of banks to take the risk and start lending.
Asked if the cash drain can reach such proportions to prompt the HNB to react, Vujcic says this would happen if the central bank assessed that the problem jeopardised the stability of the system but that Croatia is far from that.