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CROATIA'S OBLIGATIONS FROM INTERNATIONAL AGREEMENTS IN 2005

ZAGREB, Jan 2(Hina) - Changes to the pension adjustment scheme, fasterprivatisation, continuation of the privatisation of the INA oilcompany and the Croatian Telecom, and faster reorganisation ofshipyards are some of the obligations from agreements withinternational financial institutions which Croatia is expected tofulfil in 2005.
ZAGREB, Jan 2(Hina) - Changes to the pension adjustment scheme, faster privatisation, continuation of the privatisation of the INA oil company and the Croatian Telecom, and faster reorganisation of shipyards are some of the obligations from agreements with international financial institutions which Croatia is expected to fulfil in 2005.

These obligations arise from a stand-by arrangement with the IMF, the first Pre-accession Economic Programme (PEP) submitted to the European Commission, and from the matrix of measures for a World Bank Programmatic Adjustment Loan (PAL) (the loan is expected to be granted in early January). According to projections from those documents, Croatia's economic growth in 2005 is expected to be between 4.1 and 4.4 percent, inflation is expected to be between 2.3 and 2.9 percent, the budgetary deficit is expected to account for 3.7 percent of GDP, and the foreign debt should stabilise at some 77 percent of GDP (expressed in euros). Workers receiving their salaries from the government budget cannot expect any significant salary rise this year. Under the stand-by arrangement with the IMF, the government has pledged that it will curb the growth of the wage budget so that it does not exceed the inflation rate. Pensioners can expect changes to the pension adjustment scheme to reintroduce the previous scheme (the sum of salary and price growth divided by two) or introduce a new scheme ensuring fiscal sustainability of the pension system.

All three documents announce a faster privatisation process. The privatisation of the tourist portfolio is expected to be completed this year and progress is also expected in the privatisation of the agricultural sector. At least 15 percent of INA shares are expected to be sold and the third stage of privatisation of the Croatian Telecom is expected to be finished by the end of the year. The privatisation of the state-owned financial and insurance sector is to continue. Under the stand-by arrangement, a plan for the privatisation of the "Croatia osiguranje" insurance company should be completed by the end of June, by which time the state is expected to withdraw from Croatia Banka and consider options for the privatisation or a strategic partnership for the Croatian Postal Bank. As regards the shipbuilding sector, under the stand-by arrangement and the PEP, shipyards will be restructured and prepared for privatisation, while under the matrix of measures for the PAL, shipyards should also be privatised this year. Under the matrix, the Croatian Privatisation Fund is to complete the privatisation of the state share in two shipyards by mid-November and invite bids for the privatisation of another two shipyards. However, according to the Economy Ministry, the only shipyard which could be ready for privatisation this year is the Pula-based "Uljanik". Economy Minister Branko Vukelic recently announced the continuation of restructuring of other shipyards so that they could be ready for privatisation. The restructuring of the national railway company will continue as well, and the World Bank is expected to support the process with a PAL. Under the matrix of measures for the PAL, the government is bound to adopt and start implementing a detailed time plan for the restructuring of the Croatian Railway. Under the stand-by arrangement with the IMF, other important public companies will be restructured this year as well, including the Croatian Forests and the "Jadrolinija" shipping company. Under the three documents, Croatia is expected to prepare a single system of supervision for non-banking financial mediators and adopt new legislation on insurance and investment funds, as well as regulate government subsidies, continue reform of the agricultural, judicial, education and health care sectors, speed up the establishment of a state treasury, etc.

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