Croatia - Money



The Croatian currency, established in 1991, has experienced a slight depreciation (decline in value) since it was launched. The National Bank of Croatia uses the euro as a reference currency; therefore, the recent depreciation of the euro against the U.S. dollar had the same effect on the exchange rate between the kuna and the U.S. dollar. In 1995, US$1 equaled 5.230 kuna, while at the end of 2000, the exchange rate jumped to 8.320 kuna to US$1. According to the Quarterly Economic Report of Germany's Commerzbank, this situation is likely to change by 2002 when US$1 will equal 7.88 kuna.

There are many reasons for the depreciation of the kuna, among them deficits in the pension system, the slow rate of privatization, and compensations paid to depositors of bankrupted banks. The ratio of pensioners to the employed increased from 0.65 in 1998 to 0.95 in 2000. This statistic means that for almost every retired person there is only 1 person employed in Croatia. One external factor that influenced a drop in the kuna exchange rate was the recent increase in energy prices.

Exchange rates: Croatia
Croatian kuna per US$1
Jan 2001 8.089
2000 8.277
1999 7.112
1998 6.362
1997 6.101
1996 5.434
SOURCE: CIA World Factbook 2001 [ONLINE].

Croatian monetary policy and supervision of the commercial banking sector is managed by the National Bank of Croatia (the central bank). Although there are over 50 banks operating in Croatia, more than 70 percent of the overall assets of the banking system belong to the 6 largest. Most of these, and some of the medium-sized banking institutions, are indirectly owned by the government, which holds large proportions of shares in these operations through government-controlled companies. There are several representative offices of foreign banks operating in Croatia.

A large portion (approximately 75 percent) of the total assets of the Croatian banking system are immobilized, which is to say they are not generating returns. Such assets consist of state bonds, public debt, ownership in companies that yield no dividends, and investments that are unlikely to produce returns. This is the main reason for high real interest rates for long term loans, which are 25 to 30 percent per year. The government is committed to restructuring the most problematic banks and has received a pledge of US$100 million from the World Bank to assist in solving this problem.

The Zagreb Stock Exchange is the only stock exchange operating in Croatia. It originated in 1918 but was abolished by the communist regime in 1945. Almost half a century later, after Croatia became independent in 1991, the stock exchange was revived by 25 banks and insurance companies as a non-governmental, non-profit-making institution. The ZST is fairly small, and there are only a few privatized firms that trade on it.

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