... I say that if the trends from 1997 were to continue, it will be just fine. The production growth will continue, quite certainly, at a rate of at least seven per cent. Even in the worst case scenario, with all the re-structuring processes, due to which some people must find new employment, there will be no growing unemployment. The payment deficit will surely be smaller than in 1997. The completion of the peaceful re-integration process will add to the production growth, there will be a better tourist season, effects of earlier investments ...

You must also count the jobs created pursuant to investments and direct or indirect Government involvement, and you will see that more than 50,000 jobs have been created ... In all sectors. From those saved in direct rehabilitation of individual companies, those newly created through loans granted to demobilised Croatian defenders, land grants, activities of the Croatian Bank for Reconstruction and Development.

Whether or not to have the balance of payment deficit is not at issue. We need it in 1998; to put it simply, the only question is how large and how good. If we have major investment equipment and production materials imports, which we have had for the last four years, then it is a growth stimulating deficit. When investments must be larger than home savings, due to the rehabilitation of the war damage and transition, and the state shows low level indebtness, a moderate balance of payment deficit is acceptable. In a country with our development features, the balance of payment deficit is the best thing that can happen to us.

There was no general increase in interest rates, only in individual major banks. This happened for several reasons ... I can say that the loans have become more expensive, first as a result of the mandatory deposit insurance; due to public perception that all banks were equally secure, there occurred a movement of deposits from larger to smaller banks. Secondly, loans were affected by the introduction of the Money Laundering Act. Thirdly, we have an enormous loan demand, partially caused by the introduction of value-added tax (VAT). At the end of 1997 many people used loans to purchase goods to make reserves, believing that everything would be more expensive once VAT was introduced. Now we see that this is not the case, and that there is no reason for a price increase in many products. All this was followed by the re-introduction of passive interest rates, so it is no wonder that loans became more expensive.

... Of course we have expected product prices to increase, and we have expected what is happening now. Likewise, we have expected that there will be no immediate decrease in the prices of products which ought to become less expensive, and there is a whole lot more ... that are to become more expensive. The same happened in all countries which introduced VAT ... it is not right to point the finger solely at retailers, because they have acted more decently than the producers. The producers are the ones to blame for the price increase, they who accidentally/on purpose forget how VAT is calculated. The Government adopted measures for the most important groceries ... Everyone criticised me for not publicising them prior to the VAT introduction, and now you can see that we could not do such a thing due to the nature of those measures. Every product - bread, milk, oil, meat - has a specific programme, and each of them will serve as a stimulus to producers to calculate VAT correctly. Generally, whatever is happening has already been seen in other countries which introduced VAT before us.

Yes, this is social policy, and the social policy is much better implemented with direct transfers from the State budget, rather than with differentiated tax rates. If we have the protection of the consumers' standard of living at heart, then we give back what was taken from them as VAT by keeping the price of the most important products level. Again, VAT and its rate is not at issue, but ...

The VAT rate could even be 12 or 15 per cent, if some other income sources were to be found or the budget expenditure reduced. This is because the tax rate is determined for a particular country, year and budget, not as a school exercise or by copying the tax rate levels of neighbouring countries.

To continue, it is better to implement the social policy from the budget directly, because in such a case every single kuna spent becomes visible - you know who receives how much. On the other hand, if you set a privileged tax rate for someone, you have no idea who the final beneficiary of the privilege is. All research indicates that the target group of citizens to benefit from a privileged tax rate never obtains more than one-third of the privilege amount. Two-thirds are pocketed by others.

I do not know which government would undermine its own chances of re-election? This is a theory I cannot understand. HDZ has won the election eight times. Would it be able to do this by disastrous moves? When I joined the Government I calculated that my predecessors lasted six months on average. The circumstances have been as such that I am looking at my fifth full year with the Government ... Do you think all this could have been achieved by having such a bad economic policy? There were mistakes, of course, and moves which could have been made differently ...

... first and foremost every company must have its own strategy, without waiting for the national one. Free market, private sector domination, trade liberalisation, global links, employment growth, change of the pension insurance system, privatisation of public companies - these are common knowledge and I will not waste millions of kunas to have somebody write a strategy about it. In this connection each company must have its own vision of development, and not wait for the Government to hand out instructions. Political parties must have strategies as a part of their programme. They cannot appear at the elections with a handful of promises, and only if elected to power ... arrive at some sort of strategy.