War with Croatian National Bank Could Cause Credit Rating Downgrade

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Will Parliament accept the annual report of the Croatian National Bank?

The routine submission of the annual report on activities of the Croatian National Bank in 2014 could turn into yet another political conflict. The report was recently discussed in Parliament, just like so many reports by other state institutions, reports Večernji List on March 6, 2016.

Ivan Lovrinović (MOST) did not miss the opportunity to attack the central bank and its governor, using the same arguments with which he has been criticizing monetary policies for the last twenty years. Such discussions are common in academic circles, and there is no reason why they would not extend to Parliament as well. However, the fact that Lovrinović entered Parliament as a MOST MP has strengthened the lobby which advocates for greater involvement of the central bank in the economy through higher cash injections, different exchange rate policies and the ban on loans pegged to foreign currencies.

Similar remarks about the Croatian National Bank could already have been heard in Parliament before, but the balance of political forces has never been such that Parliament would question the basic principles of monetary policy based on price and exchange rate stability. Lovrinović does not hide his ambition to become the governor and change the course of monetary policy, and the rejection of the report could be the first step toward that goal.

The central bank is not a sacred cow, and its operations can certainly be questioned, but the possible rejection of the report would present a bad image of the relationship between the executive and monetary authorities, and could even eventually lead to a credit rating downgrade. The principle of independence of central banks is one of the cornerstones of the European Union, which is why Croatia had to amend its Constitution and the Law on the Croatian National Bank before entering the EU. According to these amendments, the first report after the Croatian accession to the EU presented to Parliament for 2013 was not “accepted” by the MPs, but only “acknowledged”. It was expected that the same would happen for 2014, but MOST has not stopped with its allegations and has even found some support from SDP and Goran Marić (HDZ).

By shifting the vote to the next week, Parliament Speaker Željko Reiner bought some time for more discussions between MOST and HDZ. If Croatia were in a stable situation, disputes like these would be considered usual political debate. However, buyers of Croatian debt could interpret it as pressure on monetary authorities’ independence or as a prelude to the dismissal of the bank’s governor.


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