The ongoing banking system crisis in Croatia and its political implications are analyzed by Milan Gavrovic of the "AIM" news pool on June 25, 1998.

Many have predicted that the recent breakdown of the "Dubrovacka" bank will bring about the so called domino effect, that the whole banking system will break down. This, though, did not happen. This time, the panic did not only catch the small investors. The authorities got scared too. That is why the "Dubrovacka" bank is being salvaged by enormous sums of money from the tax payers. With just concluded budged rebalancing, it will receive 650 million Kuna's, that is, over 180 million DEM. With what it has already received, the cost of the salvation of this bank is already over 300 million DEM.

Inthe meantime, fear of yet another scam, centered in Dubrovnik, swept through Croatia, creating panic at banks in Istria, Karlovac and some other cities. That is why the authorities are trying to calm down the investors, raising the sum that will be guaranteed by the state from 30 thousand up to 100 kuna's, or almost 28 thousand DEM. Of course, not for the agreed interest rate, but for the Ntional bank rate, that is for the interest on the money from primary emissions.

The twilight of the "Dubrovacka" bank was not instigated by the investors panic, but by the famous tycoon Miroslav Kutle, who withdrew 300 million DEM from it. So, he took exactly the sum that is currently being paid by Croatian taxpayers through the budget and mediation of the ruling HDZ party. Other partners from the ruling party took part in this twilight zone action, while at the end of the line were those that took "only" from 300 to 500 thousand DEM of credit lines.

The problem lies in the fact that in Croatia those able borrow money under particularly favorable conditions, while banks are "able" to regain only half of all loans they gave out. So, the other half has been given to somebody.

But this statistical truth covers the fact that the banks are not treating all debtors the same way. Ordinary citizens are having hard time getting a loan, while they have to pay them off quite regularly. They have to accept a very high, variable interest rate; the bank can raise the price of the loan at any time. If the debt is not repaid, there's no mercy. But, nothing of this comes the way of privileged and "respectable" debtors. Nobody took anything from Mr. Kutle.



Source: "AIM" news pool, June 25, 1998