We do not see the future of the Croatian economy in competing through a cheap labour force but in reducing the obstacles facing investors, in making public administration more efficient, limiting state spending, and in improving the entrepreneurial and investment climate in Croatia, the ministry said in a statement.

The ministry recalled that the Mission's report on consultations on the IMF Statute's Article IV, held this year, analysed the entire economic situation and the results of Croatia's economic policy.

The report recognises the progress the Croatian government has made in the implementation of its Economic Recovery Programme, the statement said.

The report's main recommendations refer to the need to increase economic competitiveness in order to increase its growth capacity in the next medium term, the ministry said, adding it did not completely agree with the recommendation to cut salaries and prices to that end.

The ministry recalled that the state sector sent a clear signal regarding the salary policy by reducing salaries by six per cent in 2009 and freezing them at that level until now.

In the entrepreneurial sector, companies' financial reports show that average labour costs in 2010 were reduced by 3.4 per cent, the ministry said.

On average, Croatia has higher salaries and labour costs than the EU's new members, except Slovenia, which is probably why the IMF sees salary cuts as an imperative element for increasing competitiveness, the ministry said.

It said the government adopted many measures in its Economic Recovery Programme aimed at increasing competitiveness, as noted in the IMF report, such as judicial reform, discouragement from early retirement, equation of the pension age for men and women, restriction of the time during which the unemployed are eligible for benefits, restriction of state spending, and strengthening of the private sector.

The ministry said it saw the private sector as the generator of a new development cycle in Croatia.