The monetary policy in a small, open and highly euroized economy such as Croatia cannot be shaped through conventional economic theory, because Croatia is neither China nor the US, Croatian Finance Minister Martina Dalic said in Zagreb on Wednesday at a conference on the monetary policy in Croatia's European Union accession process.
The conference was organised by the Croatian Chamber of Commerce (HGK). Dalic was indirectly responding to recent criticism from the International Monetary Fund, saying "mainstream economy" did not have the answers to Croatia's problems.
One can say that the central bank should increase the money supply in the recession, as many countries have done, but the supply in the national currency which the central bank manages is only a little over 20 per cent of all liquid assets, the rest being foreign currencies, said Dalic.
One can also say, what's wrong with depreciating the exchange rate when the economy will become more competitive and exporters be in a better position, but changing the exchange rate does not affect only entrepreneurs' revenues but their costs as well, she added.
HGK president Nadan Vidosevic said the situation in the Croatian economy was worrying, as Croatia was paying for an irresponsible fiscal policy and rigid monetary policy, which he said prompted the IMF's warning that Croatia was not doing a good job.
The governor of Hungary's central bank, Andras Simor, said the experience of the countries which had joined the eurozone had shown that targeting inflation was better for maintaining lower prices and stability than the exchange rate policy, adding that the countries with targeted inflation had adapted better and overcome the recession more easily.
Polish expert Dariusz Rosati said that for a small and open economy like Croatia it would be useful to join the eurozone as soon as possible, as it would make capital cheaper and ensure lower interest rates.
For open economies, monetary sovereignty is a very limited notion, as the national currency does not ensure full independence from the monetary policy, however, the national currency is a luxury costing us 1.5-2 per cent od GDP a year, he added.
Slovenian economist Joze Mencinger said Slovenia led a successful economic policy until 2004 which ensured stability and an annual GDP growth of four per cent, but then loans quickly exploded, leading the country into credit dependency and a credit crunch after the crisis.
The credit-deposit ratio in banks until then had been 1-1 but changed to 1-60 in only three years, in which period the external debt went up EUR 10 billion, he said, adding that Slovenia was now paying the price for that and would have to sell companies.
Croatian experts were very critical of the fact that Croatia is in a phase of restrictive monetary and fiscal policy.
Ivan Lovrinovic from Zagreb's School of Economics said this was not a way out of the recession and warned that foreign banks were increasingly exposed to credit risks, which worried the IMF, as Croatian foreign exchange reserves were insufficient. He also advocated revoking the currency clause on loans and deposits.
Dragoljub Stojanov from Rijeka's School of Economics pushed for devaluing the kuna and an active economic policy that favoured industry and output.
