CROATIA TO BE GRANTED ANOTHER STAND-BY ARRANGEMENT?

ZAGREB, Jan 11 (Hina) - Another stand-by arrangement could be considered at the final talks on Croatia's current stand-by arrangement with the International Monetary Fund (IMF) that are to take place in late January or early February, sources close to the government said. According to the sources, Croatian negotiators will try to see that the new stand-by arrangement includes strategic goals and that its control mechanisms are not as elaborated as they are in the current stand-by arrangement. Croatia was granted its current stand-by arrangement with the IMF in March last year and the arrangement expires in May this year. It includes detailed reference points which the Croatian authorities are expected to observe. Macroeconomic goals, such as a four-percent growth of the Gross Domestic Product (GDP) in 2001 and the reduction of the fiscal deficit to 5.3% of GDP have been achieved, whereas some other goals, such as the inflation rate, have been exceeded (the inflation rate was initially planned at 4.5% and in December last it was 2.6%). However, the arrangement included a set of other obligations as well, such as cuts in the wage budget in the public sector, layoffs in the state sector particularly in the defence sector, the solution of the problem of the Croatian Postal Bank, etc., which have not been fulfilled entirely and which in late October prompted the Croatian government to seek an extension for the implementation of the arrangement for another three months. Money is not the reason Croatia needs another stand-by arrangement as it was stated clearly in negotiations on the current arrangement that the granted funds, amounting to USD250 million, would not be drawn. The arrangement is necessary, government officials say, because it guarantees the state's credibility and enables it to seek more favourable loans on international financial markets. Croatia needs such loans also because of its high foreign debt, which currently amounts to some 11 billion dollars and accounts for more than 55% of the country's GDP. This year alone Croatia must return 9.9 billion kuna of the foreign debt, slightly less than last year, when it had to pay 11 billion kuna. Foreign debt payments account for 25-26% of the state budget. Government officials say new loans will be sought only for the payment of the existing obligations. Finance Minister Mato Crkvenac has been claiming for some time that new loans, granted under favourable conditions, would be used for the payment of old loans, which were granted under much less favourable conditions. (hina) sb rml,