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© 2005 International Monetary Fund
September 2005
IMF Country Report No. 05/349
Republic of Croatia: First Review Under the Stand–By Arrangement and Requests for Waiver of Nonobservance of Performance Criteria and Rephasing of Purchases—Staff Report; Staff Supplement; Press Release on the Executive Board Discussion; and Statement by the Executive Director for the Republic of Croatia
In the context of the first review under the Stand-By Arrangement and requests for a waiver of nonobservance of performance criteria and rephasing of purchases with the Republic of Croatia, the following documents have been released and are included in this package:
the staff report for the First Review Under the Stand-By Arrangement and Requests for Waiver of Nonobservance of Performance Criteria and Rephasing of Purchases, prepared by a staff team of the IMF, following discussions that ended on June 6, 2005, with the officials of the Republic of Croatia on economic developments and policies. Based on information available at the time of these discussions, the staff report was completed on August 9, 2005. The views expressed in the staff report are those of the staff team and do not necessarily reflect the views of the Executive Board of the IMF.
a staff supplement of September 6, 2005 updating information on recent developments.
a Press Release summarizing the views of the Executive Board as expressed during its September 14, 2005 discussion of the staff report that completed the review and requests.
a statement by the Executive Director for the Republic of Croatia.
The documents listed below have been or will be separately released.
Letter of Intent sent to the IMF by the authorities of the Republic of Croatia*
Annex*
Technical Memorandum of Understanding*
*May also be included in Staff Report
The policy of publication of staff reports and other documents allows for the deletion of market-sensitive information.
To assist the IMF in evaluating the publication policy, reader comments are invited and may be sent by e-mail to publicationpolicy@imf.org.
Copies of this report are available to the public from
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Price: $15.00 a copy
International Monetary Fund
Washington, D.C.
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INTERNATIONAL MONETARY FUND
REPUBLIC OF CROATIA
First Review Under the Stand-By Arrangement and Requests for Waiver of Nonobservance of Performance Criteria and Rephasing of Purchases
Prepared by the European Department
(in consultation with other departments)
Approved by Reza Moghadam and Anthony Boote
August 9, 2005
The 20-month, SDR 97 million (26.6 percent of quota) Stand-By Arrangement, which the authorities treat as precautionary, was approved on August 4, 2004. At that meeting, the Executive Board also concluded the 2004 Article IV consultation with Croatia.
Discussions on the first review of the SBA took place during two missions in late 2004 (October 27-November 8 and December 2-13) and, after a delay of a few months requested by the authorities (resulting in a postponement of the Board meeting initially planned for March), during May 24-June 6, 2005. The missions comprised Messrs. Demekas (head), Eskesen, Konuki, Moore (EUR), Hilaire (PDR), and Ms. Mitra (MFD) and were assisted by Mr. Vamvakidis, Resident Representative in Zagreb. Staff met Prime Minister Sanader; Deputy Prime Ministers Hebrang and Polancec; Finance Minister Suker; Sea, Tourism, Transport and Development Minister Kalmeta; Health Minister Ljubicic; Agriculture Minister Cobankovic; Economy Minister Vukelic; Croatian National Bank (CNB) Governor Rohatinski; other senior officials; members of parliamentary committees; and representatives of political parties, trade unions, and the private sector. Mr. Stucka (OED) attended some of the meetings.
The missions had frequent contact with the media and engaged in other outreach activities. The authorities intend to publish this report and the attached letter to the Managing Director.
The current minority government of the Croatian Democratic Union (HDZ), supported by six other parties, was formed in early 2004. The next parliamentary elections are to take place by November 2007.
The EU’s Stabilization and Association Agreement with Croatia entered into force on February 1, 2005. Croatia has been recognized as a candidate country but the EU has delayed the start of accession negotiations pending Croatia’s full cooperation with the International Criminal Tribunal for the former Yugoslavia (Hague Tribunal).
The February 2005 on-site Safeguards Assessment concluded that the requirements of the safeguards policy are met. CNB financial statements comply with international standards and controls are comprehensive and detailed.
Contents
I. Recent Developments and Program Performance in 2004
II. The Program for 2005
A. Fiscal Policy
B. Monetary and Financial Sector Policies
C. Structural Policies
III. Staff Appraisal
Text Boxes
1. Croatia’s Pre-Accession Economic Program
2. The Impact of Higher Oil Prices in 2005
3. Monetary Policy Measures to Curb Foreign Borrowing
4. Strengthening the Program’s Structural Agenda
5. Repaying the “Pensioners’ Debt”
Figures
1. GDP and Selected High-Frequency Indicators, 2000-05
2. External Developments, 2001-05
3. Capital Market Conditions, 1998-2005
Tables
1. Key Macroeconomic Indicators, 2001-06
2. Balance of Payments, 2001-05
3. Performance Under the Stand-By Arrangement, 2004-05
4. Consolidated General Government Finances, 2002-05
5. Financial Soundness Indicators, 1999-2005
6. Indicators of External and Financial Vulnerability, 2001-05
7. Monetary Accounts, 2002-05
8. Prior Actions, Performance Criteria, and Structural Benchmarks for 2005
9. Schedule of Purchases Under the Stand-By Arrangement
10. External Financing Requirements, 2003-2010
11. Indicators of Capacity to Repay the Fund, 2005-2010
12. Projected Payments to the Fund as of May 31, 2005 Under the Obligations Repurchase Schedule
Attachment
I. Letter of Intent; Annex; and Technical Memorandum of Understanding
Appendices
I. Sustainability Analysis
II. Financial Position in the Fund
III. Statistical Issues
IV. World Bank Relations
Appendix Figures
4. Public Debt Sustainability: Bound Tests
5. External Debt Sustainability: Bound Tests
Appendix Tables
13. Public Sector Debt Sustainability Framework, 2000-10
14. External Debt Sustainability Framework, 2000-10
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INTERNATIONAL MONETARY FUND
REPUBLIC OF CROATIA
First Review Under the Stand-By Arrangement and Requests for Waiver of Nonobservance of Performance Criteria and Rephasing of Purchases—Supplementary Information
Prepared by the European Department
(in consultation with the Policy Development and Review and Legal Departments)
Approved by Reza Moghadam and Anthony Boote
September 6, 2005
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Press Release No. 05/208
FOR IMMEDIATE RELEASE
September 14, 2005
International Monetary Fund
Washington, D.C. 20431 USA
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September 14, 2005