IMF, CROATIAN GOVT. AGREE STATE DEFICIT IN 2003 FIVE PERCENT OF GDP

ZAGREB, Nov 13 (Hina) - An International Monetary Fund (IMF) Mission and representatives of the Croatian government agreed in principle on Wednesday that the state's deficit in 2003 could account for five percent of Gross Domestic Product. #L# The government had planned a 5.15 percent deficit and now has to pass a decision on cutting spending by some 200 million kuna (EUR26.7 million). The IMF and the government will resume talks early in December. In the meantime, the government, the social partners, and parliament have to take a position on this IMF request. Negotiations on a new stand-by agreement between Croatia and the IMF, which were the reason for the Mission's presence in Croatia over the past two weeks, could then be concluded. The IMF is willing to support a fiscal deficit of five percent of GDP in 2003, Mission chief Hans Flickenschield said tonight. He added there remained a set of issues which had to be dealt with to make said deficit realistic and feasible. Deputy Prime Minister Slavko Linic said intensive talks were held with the IMF Mission over the last fortnight about the government's programme, the 2003 budget, and the monetary and fiscal policies, all within preparations for the new deal with the IMF. Linic said the talks were difficult because of the state's deficit share in the GDP. Investments are possible, alongside effective reforms, but if these fail the deficit might exceed the agreed five percent, which will undermine the government's programme, said Linic. The IMF Mission arrived in Croatia on Oct. 22 for talks on a new stand-by agreement which would be valid for only one year, during the remainder of the incumbent government's term of office. (hina) ha sb