Prime Minister Milanovic: Reducing interest rates is in interest of people

Prime Minister commented the announcement by commercial banks that they would sue the Croatian government to the EC over its decision to limit contractual default interest rates, saying that the government's measure was sensible, well thought out and in the interest of people

"We had to take this measure not because of the forthcoming election but because an entire category of people have found themselves in a dire situation economically and socially. We should not be asking questions as to who is to blame for this, but the government had to act to protect the weaker party," Milanovic said while opening an exhibition marking 120 years of social democracy in Croatia.

He said that the class of people being protected with this decision was the same class who 120 years ago fought for their rights against those who were extracting huge profits from the production process.

The Croatian government on Thursday adopted a bill to amend the Contractual Relations Act, whereby default interest rates for households and companies would be reduced. Default interest rates under commercial contracts between merchants and public authorities would be reduced from the present 15% to 10.14%, while default interest rates for commercial transactions between undertakings and between undertakings and public authorities, where a public authority is a debtor, would be reduced from the present 12.14% to 10.14%. In other cases, default interest rates would be lowered from the present 12% to 8.14%.

The Croatian Banking Association (HUB) said it was confident that the European Commission would have "a lot of questions and objections" regarding the amendment of the provisions of the Contractual Relations Act concerning the limitation of contractual interest rates, noting that the amendments reducing default interest rates were not common in the European Union but that they were acceptable.

Speaking to the press at the exhibition, Finance Minister Boris Lalovac explained why the government had opted for such a move. He said that default interest rates in Croatia had been usurious for a long time and such interest rates had driven people, who suddenly could not repay their debts regularly anymore, into debt bondage.

"The government decided to reduce that (usurious) portion of interest rates, and let the banks sue us. I regret that they did not go against me, but against my colleague (Justice Minister Orsat) Miljenic, and I will certainly help him," Lalovac said.

Lalovac said that the government was not afraid of the European Commission either. "We will make it clear to the European Commission what the situation with default interest rates in Croatia is like. Default interest rates in the EU are 8 per cent, and the Commission probably is not even aware that in Croatia they are 14 per cent and the extent of debt they have caused," he said.

Commenting on negotiations on the problem of loans denominated in Swiss francs, Lalovac said that the banks should become actively involved in the efforts to solve this problem. "The Ministry of Finance will help and will be one of the active participants. You see that this whole time I have been urging everyone to return to the negotiating table, and with concrete solutions rather than empty phrases," he said.

Lalovac stressed that a solution to this problem would have to come from the banks, so that there would not be any new lawsuits. "I hope they will be more active. I'm conducting internal talks with their board directors and want them to come up with proposals. Talks between them have apparently hit an impasse," he said, adding that the government would continue pressing the banks to find a solution to the CHF-pegged loans.


(Text and Photo: Hina)

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