FinMin Lalovac says economic policy will be changed

Finance Minister Boris Lalovac said on Wednesday that he would present national economic reform measures at an informal meeting of EU finance ministers in Riga, Latvia, this week, adding that the country's economic policy would have to be changed due to a high public debt.

Speaking in an interview with Croatian Radio, Lalovac said that he would present a set of reform measures at the Riga meeting.

The Croatian government on Tuesday sent the European Commission additional reform measures it intends to implement, with the total fiscal effort amounting to 0.634% of GDP, more than the 0.4% of GDP requested by Brussels.

The minister said he did not know to what extent the EC would accept the government's plans to meet its demand to cut the budget deficit.

"We will see if it is enough, that is why we have proposed slightly higher amounts. If it should not be enough, we will again look for ways to make additional savings and continue with structural reforms within the budget," said Lalovac.

Lalovac assumes that Brussels will not accept some of the measures as reform efforts, but as one-off moves, for example, the withdrawal of all profits from public companies, and that it will accept the withdrawal of only a part of those profits.

On the other hand, he expects the EC to approve the establishment of standard expenditures for all state institutions, including ministries.

Lalovac also spoke about the debt of domestic companies, saying that of 19 leading companies, which had debts amounting to HRK 80 billion in total, nine were state-owned and their debt totalled HRK 53 billion. The government has issued guarantees for most of those debts, and under the new Eurostat methodology, those guarantees are included in public debt.

"In the future, those companies will have to change their management philosophies," Lalovac said, adding that it would not be as easy to obtain government guarantees as had been the case until now.

"We will change our economic policy. Public companies will no longer be treated as generators of economic growth, exclusively the private sector will have that role," Lalovac said, adding that infrastructure building would be based exclusively on EU funding, not state guarantees.

The minister said that an even bigger problem than the need to support the business sector with more loans was the fact that "bankers are making a problem out of HRK 300 million worth of costs related to loans pegged to the Swiss franc, while on the other hand, they have given companies with virtually no revenues loans in the total amount of HRK 4.1 billion. When businesses with revenues of around HRK 100 are added to that number, the amount of such bank loans rises to as much as 6 billion kuna."

"We will see very soon that in the period from 2008 to 2013 banks have earned billions - we are not against it, but (the banks see as a problem) citizens who regularly pay their loans in the current situation, with interest being three times higher than in Austria or Italy, which is intolerable," Lalovac said, adding that he was not at war with banks or the central bank's governor but had the right to speak about those problems and seek solutions as minister.

He added that "the banks have bad decisions in their portfolios, and I would not want their bad decisions to be paid eventually by citizens who would not be able to endure an increase in loan instalments of 60%."

He said that after banks' financial reports for 2014 were published soon, it would transpire that a commercial bank had established a limited liability company to which it transferred its entire bad portfolio, stating it in its financial report as a loss of 4 billion kuna. Lalovac would not say which bank he was talking about.

"And we are discussing here a cost of 200-300 million kuna for 60,000 citizens in financial trouble. I just want to put things in the context."

Commenting on a recent warning by Croatian National Bank governor Boris Vujcic that loan instalments pegged to the euro could increase as well, Lalovac said that neither the monetary nor the executive authorities could only issue warnings because they were not weather forecasters, but had to act in line with the relevant laws and find solutions.

(Hina) rml

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