Croatian PM vows economic reforms after election (Reuters)

ZAGREB (Reuters) ? Croatia will persist with fiscal consolidation and reforms to improve the business climate and boost growth after next month's general election, Jadranka Kosor, prime minister and head of the ruling conservative HDZ party, said Wednesday.

The former Yugoslav republic completed its European Union entry talks in June and is set to join the block in mid-2013.

But Kosor's HDZ, which is seeking a third straight four-year term in the December 4 vote, is far behind a center-left opposition coalition in opinion polls, with economic growth weak and a budget deficit this year of almost 5 percent of GDP.

"Our plan is to build on the results we've achieved. Now, we have mild growth and our economic priorities are to halve the budget gap by 2014 and carry on with removing obstacles for a favorable business climate," Kosor told Reuters in an interview.

The World Bank and the International Monetary Fund, as well as many businessmen and analysts, praised an economic recovery program that Kosor's government adopted in April 2010, but cautioned that its implementation was much too slow.

Croatia's bonds are currently rated at the lowest investment grade by the main rating agencies.

Two of the agencies recently changed their outlook from stable to negative and one from positive to stable on concern that the next government may not press on with reducing the fiscal deficit, cutting red tape, easing the high tax burden and reducing the role of the state in the economy.

"We want to reduce the fiscal gap by cutting spending while protecting socially vulnerable groups, and at the same time by boosting revenues through higher growth. The goal is to cut the gap to 1.8 percent of gross domestic product in 2014 from this year's 4.9 percent," Kosor said.

Croatia's public debt is rising and nearing 60 percent of GDP. Although this is relatively low by current euro zone standards, analysts say the negative trend, coupled with low growth prospects, is worrying.

Kosor's government has forecast that the economy will grow 1.0-1.5 percent this year and 2.0-2.5 percent next year, but independent analysts see growth at 1.0 percent this year and 1.5 percent next year at best, unless the new government improves the investment climate.

FIGHTING CORRUPTION

Kosor said she believed Croatia would not suffer a downgrade -- which would considerably raise financing costs and deter investors -- because the HDZ was ready to enact necessary reforms without turning to the International Monetary Fund.

She said that, unlike the opposition, the HDZ had put forward an unambiguous economic agenda.

"For example, we say we can run our fiscal and economic policy responsibly on our own, without assistance from the IMF, while various opposition leaders are sending ambivalent signals. I'm afraid they may have two programs, one public and one still undisclosed," she said.

"That's not good. I think the voters should know clearly what each (political) option offers."

The center-left coalition, led by the Social Democrats (SDP), has similar economic goals but says it has more credibility and willingness to achieve them.

Some opposition leaders have said IMF support might become necessary if they find the state of public finances to be worse than expected once in office.

An opinion poll in late October put the center-left Alliance for Change on 38.8 percent, with the HDZ far behind on 20.3 percent.

Kosor took over the government in July 2009 when her predecessor Ivo Sanader stepped down, and launched a strong anti-corruption campaign as part of a drive to conclude the EU accession talks.

Sanader is now on trial on corruption charges, and the HDZ is itself under investigation for running alleged slush funds, after the police arrested its former chief treasurer and head accountant.

Kosor says the HDZ should get credit for not sparing itself in the fight against graft. In the interview, she said that whoever forms the next government must press on with the campaign, which the EU has vowed to monitor closely before Croatia joins.

"Fighting corruption is also a key for a better investment climate," she said.

(Reporting by Igor Ilic; Editing by Zoran Radosavljevic and Kevin Liffey)

Source: http://us.rd.yahoo.com/dailynews/rss/europe/*http%3A//news.yahoo.com/s/nm/20111116/wl_nm/us_croatia_election_pm

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