BUSINESS NEWS BULLETIN NO 306

BUSINESS NEWS BULLETIN No 306 09th- 15thDecember 2002 CONTENTS: UNEMPLOYMENT RATE DROPS IN NOVEMBER RETAIL PRICES DROP, LIVING COSTS INCREASE IN NOVEMBER CROATIA'S FOREIGN TRADE DEFICIT AMOUNTS TO USD4.75 BILLION D&B: CROATIA'S CREDIT RATING UNCHANGED EIGHT MILLION TOURISTS VISITED CROATIA IN FIRST TEN MONTHS OF 2002 ZAGREBACKA BANKA ENDS 2002 SUCCESSFULLY HVB CROATIA BANK AND BMW AGREE ON SALE OF CARS IN CROATIA GOVERNMENT ADOPTS DRAFT MEMORANDUM ON STAND-BY ARRANGEMENT GOVT. SENDS PARLIAMENT DOCUMENT ON NEW STAND-BY ARRANGEMENT CROATIAN GOVERNMENT ADOPTS BILL ON CONSUMER PROTECTION GOVT. ADOPTS NATIONAL PROGRAMME FOR INTEGRATION WITH EU GOV'T EXTENDS DEADLINE FOR OFFERS FOR OIL COMPANY'S SHARES INA RETURNS TO KOSOVO MARKET AFTER TWELVE YEARS SALE OF SUNCANI HVAR POSTPONED ERICSSON NIKOLA TESLA MAKES DEALS ON NEW JOBS HT'S 2002 PROFIT EXCEEDS ONE BILLION KUNA LURA: 2003 - YEAR OF BIG CHANGES RUSSIAN-CROATIAN COMPANY BUYS KARLOVAC GAS TURBINE FACTORY TETRA PAK: FIRST TEST RECYCLING OF PACKAGES IN CROATIA PLIVA, ISKONINTERNET SIGN BUSINESS COOPERATION AGREEMENT BRODOMERKUR HAS SUCCESSFUL BUSINESS YEAR STATE RAILWAYS TO WRAP UP 2002 WITH HALVED LOSSES LOAN FOR CONSTRUCTION OF NEW PLANT FOR STOCK-CATTLE FEED OIL PLATFORM "MARICA" TO BE BUILT BY NORTH ADRIATIC OFFSHORE POTENTIAL PARTNERS START CHECKING SITUATION IN SISAK IRONWORKS RACAN: CROATIA BUS PROBLEM MUST BE SOLVED BY RILE-OF-LAW IMF MISSION CHIEF SPEAKS OF NEW CROATIA-IMF STAND-BY DEAL AGREEMENT ON CO-FINANCING OF INFO-CENTRES SIGNED IN ZAGREB CROATIAN DEPUTY PREMIER TALKS TO HUNGARIAN TRANSPORT MINISTER S-E EUROPEAN STOCK MARKETS RAISE COOPERATION TO HIGHER LEVEL INDEPENDENT TRADE UNIONS CRITICISE GOVERNMENT MACROECONOMIC STABILITY SHOULD BE TRANSFORMED TO MORE WORK CROATIAN CHAMBER OF COMMERCE COMMENTS ON ECONOMIC SITUATION CROATIAN EMPLOYERS' ASSOCIATION ON PROBLEMS IN METALLURGY 1. ECONOMIC INDICATORS UNEMPLOYMENT RATE DROPS IN NOVEMBER Croatia's unemployment rate in November dropped by 1.4 percent in relation to October and four percent in relation to the same month the year before, the Croatian Employment Bureau reported on Monday. In late November 369,687 unemployment persons were registered at the Croatian Employment Bureau, which is 5,300 persons less than in October and 15,600 persons less than in November 2001. RETAIL PRICES DROP, LIVING COSTS INCREASE IN NOVEMBER Retail prices, including seasonal products, in Croatia in November dropped by 0.3 percent in relation to October and two percent as against November 20014, the Central Bureau of Statistics said in a statement on Monday. Living costs in November increased by 0.3 percent in relation to October and two percent in relation to November 2001, the statement said. Retail prices of goods in November dropped by 0.3 percent, while prices of services dropped by 0.7 percent in relation to October. Within the living costs, prices of goods in November increased by 0.4 percent as against October. The prices of services dropped by 0.2 percent in the same period. In the first eleven months of 2002, retail prices increased by 2.3 percent, while living costs increased by 1.9 percent in relation to the same period the year before. CROATIA'S FOREIGN TRADE DEFICIT AMOUNTS TO USD4.75 BILLION Croatia's foreign trade deficit in this year's first ten months amounted to US$4.75 million, the Central Bureau of Statistics said in a statement on Tuesday. In the said period, Croatia exported US$4.02 billion in goods to foreign markets, which is 2.3 percent more than in the same period the year before. At the same time Croatia's export increased by 14.4 percent, reaching US$8.77 billion. The amount of exports made up for only 45.8 percent of imports in this year's first ten months. Viewing the amount of Croatia's deficit expressed in US dollars, one should consider the effects of changes to the currency exchange rates. The average exchange rate of the US dollar expressed in kuna in the first ten months (in exports) was 5.3 percent lower than in the same period the year before. The amount of Croatia's export expressed in kuna in the first ten months amounted to 31.9 billion kuna, which is 2.7 percent less than in 2001. In the same period Croatia imported 69.47 billion kuna in goods (8.3 percent more). According to this, Croatia's foreign trade deficit amounted to close to 37.57 billion kuna. EUR1 = 7.45 kuna D&B: CROATIA'S CREDIT RATING UNCHANGED Croatia's credit rating for December remains unchanged, at DB4d, the Dun & Bradstreet (D&B) credit rating agency reported through the Zagreb-based BonLine business information agency. According to the latest D&B report, Croatia's investment risk profile is characterised by strained relations with the Hague-based war crimes tribunal following the issuing of an indictment against General Janko Bobetko. The resolution of the situation, the report notes, has been postponed by the general's still unstable condition. Bobetko was indicted for war crimes against Serb civilians committed in 1993 during the Medak Pocket military operation. In terms of economy, the analysts note, Croatia's GDP in 2002 could grow to 3.8 percent, the inflation rate could be two percent and the unemployment rate 22 percent. The DB4d risk rate, which Croatia has been given for a number of months, signifies a moderate investment risk, however, it implies a significant risk for investment returns. Heading the D&B ladder of countries in Central and Eastern Europe with the highest credit rating, BD2d, are Hungary and Slovenia, which are followed by the Czech Republic, Estonia and Poland, rated at DB3b. The bottom of the ladder remains reserved for Yugoslavia with a rating of DB6d, which is also shared by Uzbekistan, Turkmenistan, Tajikistan, Georgia, Bosnia- Herzegovina, Belorussia and Albania. EIGHT MILLION TOURISTS VISITED CROATIA IN FIRST TEN MONTHS OF 2002 During the first ten months of 2002, 8.07 million tourists visited Croatia, which is six percent more than in the same period last year. Overnight stays rose by three percent to 44.1 million, the State Bureau of Statistics reported. The number of domestic arrivals was 1.2 million or four percent more compared to last year, while overnights dropped by one percent to 4.6 million. Most foreign tourists were from Germany - 1.45 million or 14% more than in 2001 - who made 10.7 million overnight stays, an 11% increase. The first ten months of this year saw an 83% increase in French arrivals (132,000), a 24% increase in British arrivals (128,500) and a 44% increase in Israeli arrivals (80,000). 2. BANKING AND FINANCE ZAGREBACKA BANKA ENDS 2002 SUCCESSFULLY The business year 2002 was a successful one for the Zagrebacka Banka (ZABA) Group, and was marked by three very important events for Croatia's banking, the successful transition to the euro, the take- over of domestic payment transactions, and the strategic merger with UniCredito and Allianz, ZABA deputy board chairman Nikola Kalinic told reporters on Thursday. In a year of exceptionally increased competitiveness on the domestic market, ZABA has managed to sustain its position as a bank with the largest amount of assets, those of the Group exceeding 50 billion kuna and ZABA's 30 billion kuna, said Kalinic. This year the bank granted 22 million kuna worth of loans, while deposits reached 39.3 billion kuna. Kalinic said that the year had also been marked by significant technological progress in the bank's work, and stressed that more than 60 percent of all transactions were executed outside of ZABA sub-branches, i.e. via automatic teller machines or Internet Banking. ZABA's five investment funds also had a successful year. They have been entrusted with property worth 1.4 billion kuna, as well as the AZ pension fund, which makes up for more than 40 percent of the Croatian pension funds market, Kalinic said. HVB CROATIA BANK AND BMW AGREE ON SALE OF CARS IN CROATIA A bank, called HVB Croatia, and the Munich-based BMW AG singed a contract on financing the sale of BMW cars in Croatia, while the HVB Leasing company and the German car-maker signed a contract on a leasing sale of BMW cars on the Croatian market. Officials of the bank reported last Wednesday that the contracts would made it possible for this bank to offer products and services with the BMW trademark on the Croatian market. The Vienna-based Austria Creditanstalt, which is the parent company of the Croatian bank, recently signed with the BMW an agreement on cooperation in central and eastern Europe. Pursuant to this agreement, HVB Croatia and the German company concluded the said contracts on local cooperation. 4. ACTIVITIES OF GOVERNMENT, MINISTRIES AND STATE INSTITUTIONS GOVERNMENT ADOPTS DRAFT MEMORANDUM ON STAND-BY ARRANGEMENT Restrictions in salary outlays, a decrease in the number of Defence Ministry employees by 12,000 next year, the continuation of the privatisation process, and the decision on a strategic partner for the Ina oil company by the end of next March, the privatisation of the Croatian Postal Bank in phases, the adoption of a number of laws, including a new Labour Law, are only some commitments which the Croatian government has listed in a document related to a new stand-by arrangement with the International Monetary Fund (IMF). At Thursday's session, the government adopted a draft memorandum on economic and financial policy, whose contents have been harmonised with the IMF Mission. The parliament is scheduled to debate on the document at next week's extraordinary session. The government should make a final decision about whether there will be a new stand-by arrangement at the beginning of next year, while the IMF Board of Directors will make a decision on February 3. The new arrangement would be valid for 14 months, until March 2004. It would provide the Croatian government with USD140 million, but the government has stated in a letter of intent, which it is sending to IMF leaders along with the memorandum, that it did not intend to draw the funds. In the document, the government has stated that its goal was further stepping up of economic growth, and that it expected GDP to increase by 4.2 percent in 2003. The aim of the programme is a further lessening of the fiscal deficit and the share of the state's expenditure in GDP, as well as the stabilisation of the share of public debt in GDP after its continued growth during the past several years. In line with the recently adopted government budget for 2003 and budgets of 53 biggest local units, the state deficit will decrease from this year's 6.2 percent to five percent of next year's GDP. This deficit was sufficient for the share of debts in GDP to be stabilised at an estimated level of 57.5 percent of GDP at the end of the year. The draft memorandum elaborates on changes to tax laws which will become effective on January 1, 2003, and states that the government does not intend to introduce any other measures in the tax or benefits systems. The government "will not decrease the 22 percent rate of the Value Added Tax, nor will it allow the spreading of the zero rate or exemption from paying the VAT," the draft states. The memorandum says that the key to success of the fiscal programme is in a restrictive salary policy and a decrease in the number of employees whose salaries come from the government budget. The government has decided to maintain the same salary base as this year (4,232.43 kuna), and the same coefficients, except for those for salaries of teachers in primary and high schools. The draft states that funds for increasing the number of employees in the justice system, education and Finance Ministry have been secured, but that a significant decrease in net employment will be achieved through the reform of the defence sector. "Starting with the lay-offs of some 5,000 employees in the defence sector in the first quarter of 2003, the government intends to lessen the number of employees in the Defence Ministry by about 12,000 in 2003," the document says. In line with Croatia's firm opting for development, capital outlays, especially for highways, continue to rise, and will increase their share in GDP to 6.8 percent. Next year, these outlays should amount to almost 12.8 billion kuna, which will be 9.4 percent higher than this year. The government has also stated that its plan of financing the budget for next year relies less on revenues from the privatisation of companies, but more on internal debts. Foreign debt should be halved next year, and the draft announces that beside paying off the second instalment of the SAL loan (USD100 million), the government will issue eurobonds of EUR500 million in next year's first quarter, while bonds will be issued on the Japanese market in the middle of 2003. In order for the level of debt to stabilise, the IMF has accentuated the need for government guarantees not to increase. The guarantees will make up for 14.7 of GDP at the end of this year. As far as structural reforms are concerned, the draft cites a reform of the financial sector, reforms of public companies, privatisation, and a reform of the production and labour market. In the draft memorandum, the government has underlined its determination to sell almost all public companies and keep a minority of shares in only a few of them. By the end of next year, the Croatian Privatisation Fund is expected to halve its portfolio which currently numbers some 1,100 companies. Outside of the portfolio, the government is continuing the reorganisation and privatisation of most large state-owned companies. The government stresses that there will not be an additional extension for the submission of binding offers for the purchase of 25 plus one share of the Ina oil company, due in mid-January, and announces that a decision on the offers will be made by the end of March. The document also states that the privatisation of power plants will be possible in 2004, while the power distribution infrastructure and JANAF pipeline will not be privatised. Regarding the Croatia osiguranje insurance company, the government says it is planning to sell 30 percent of the company through the Zagreb Stock Exchange. In the second quarter of 2003, seven percent of Croatian Telecom (HT) shares will be sold to HT employees. The government has also decided to privatise the Croatian Postal Bank in phases. It has also announced new laws on companies, market race and labour. EUR1 = 7.45 kuna GOVT. SENDS PARLIAMENT DOCUMENT ON NEW STAND-BY ARRANGEMENT The Croatian government on Thursday adopted a draft memorandum on the country's economic and financial policies, whose content was agreed on with an International Monetary Fund (IMF) mission, and forwarded it to parliament, which should discuss it at a special session next week. The government is to decide about the new stand- by arrangement at the beginning of next year. The arrangement should be discussed by the IMF board of directors in early February next year. The new arrangement, which Finance Minister Mato Crkvenac said was not so restrictive as the previous one, would be valid until March 2004. It would put 140 million dollars at Croatia's disposal, however Crkvenac said the funds would not be drawn. He said that US$70 million worth of special drawing rights, used in 1994/97, were paid this morning. Crkvenac stressed that the government's economic policy was contained in the draft memorandum. This primarily refers to next year's deficit, which under the adopted 2003 budget should not exceed five percent of the Gross Domestic Product. The new arrangement will not make Croatia lose independence in development, Crkvenac said, adding that Croatia determined its policy and development on its own. Under the draft, the government's programme is aimed at accelerating economic growth and raising the GDP growth rate by 4.2% next year. The key to the success of the fiscal programme is a decisive wage policy and cuts in work force. It is expected that a significant reduction of the net unemployment rate will be achieved by implementing reforms in the defence sector. "By starting the lay- off of some 5,000 employees in the defence sector in the first quarter of 2003, the government intends to reduce the number of employees in the Defence Ministry by around 12,000," the document notes. Structural reforms include reforms in fiscal and financial sectors, a reform in public companies and privatisation, and a reform of the production and labour market. For example, the document notes that by the end of March next year the government intends to adopt a decision on the privatisation of the Croatian Oil Industry (INA), that the privatisation of power plants would be possible in 2004, that the Adriatic Oil Pipeline (JANAF) would not be privatised, etc. The document also mentions the adoption of new laws on companies, bankruptcy, market competition and labour. The two latter should be approved by parliament by the end of February. CROATIAN GOVERNMENT ADOPTS BILL ON CONSUMER PROTECTION The law on consumer protection will ensure that consumers are well informed and creates space for a good relationship between the consumer and the state, Economy Minister Ljubo Jurcic said at Thursday's government session at which a bill on consumer protection was adopted for the first time in Croatia. The bill, the adoption of which is also Croatia's obligation in line with the Stabilisation and Association Agreement with the EU, defines the protection of basic rights of consumers. GOVT. ADOPTS NATIONAL PROGRAMME FOR INTEGRATION WITH EU The Croatian government on Thursday unanimously adopted a national programme for integration with the European Union for 2003. Government officials adopted two conclusions proposed by Prime Minister Ivica Racan. Racan proposed that the parliament call an extraordinary session for next week, possibly on December 18, at which it should adopt the programme by consensus. The government has also requested the parliament to adopt a resolution conveying the readiness of all parties to cooperate in the programme and defining the deadline for the submission of an application for EU membership. This, Racan said, should be done by the end of February next year. The programme was presented by European Integration Minister Neven Mimica. Mimica said that the programme analysed Croatia's current position regarding adjustment to EU standards, and in a systematic and comprehensive way defined the obligations of the government and all bodies of state administration, thus becoming a "binding guide". The programme includes the names of personnel in the state administration responsible for the job, with their phone numbers and duties, Mimica said. Mimica said that the government would adopt a new programme every year. "I believe that we have finally adopted a document which can bring about a general consensus on the dynamics and nature of tasks that must be completed so we could speed up our integration with the EU," Mimica said. He explained that countries which were candidates for EU membership had such programmes, but they adopted them only after they had been granted the status of candidates. Croatia is probably the only non- candidate which has such a programme at such an early stage of adjustment to EU standards, he added. PM Racan said the programme was a basis for all activities within the process of implementation of the Stabilisation and Association Agreement. 4. COMPANIES GOV'T EXTENDS DEADLINE FOR OFFERS FOR OIL COMPANY'S SHARES At the closed-door part of Thursday's session the Croatian government decided to extend until January 17 the deadline for the submission of binding offers for the purchase of 25 percent plus one share of the oil company INA. The deadline was extended after INA's management failed to draw up a business plan for 2003 and a five- year development plan for the company, two documents on which the binding offers should be based. There are three strategic partners, Austria's OMV, Hungary's MOL, and Russia's ROSNEFT. They should submit the offers by 17 January 2003. INA RETURNS TO KOSOVO MARKET AFTER TWELVE YEARS The Croatian Oil Industry (INA) made its come back on the Kosovo market after twelve years at a presentation held in Pristina on Tuesday. INA was in this region twelve years ago and it practically covered the entire Kosovo market, a member of INA's management board, Zeljko Vrbanovic, said at the presentation in Pristina's hotel "Grand". The head of the Croatian Chamber of Commerce office in Kosovo, Ilirjana Shehu, also spoke at the event. Kosovo's Minister of Public Works Jakup Krasniqi spoke about the significance of INA's return to Kosovo and wished the company much success. INA's presentation was covered by numerous journalists from Croatia as well as the local media. SALE OF SUNCANI HVAR POSTPONED The Croatian government on Thursday postponed passing a decision on the privatisation of Suncani Hvar because some ruling coalition parties would like the coalition to previously consider the decision, according to unofficial reports. A senior official of the Croatian Peasants' Party (HSS) said the issue was too serious, perhaps even of national interest. The HSS would like to address it with the other four parties in the coalition before the final decision is made. The Croatian Privatisation Fund's management on December 3 suggested the government should accept the offer of Slovenia's Terme Catez spa, which has offered 74.5 million kuna (EUR10.1 million) for a 62.3 percent share in Suncani Hvar, as well as an investment programme for the next ten years. ERICSSON NIKOLA TESLA MAKES DEALS ON NEW JOBS A Croatian company called Ericsson Nikola Tesla (ETK) has recently signed three new contracts, worth 8.45 million euros, with telekom companies in Bosnia-Herzegovina and Montenegro, ETK representatives reported. In Sarajevo, the Croatian company and BH Telekom signed two agreements on the expansion and improvement of telephone exchanges (AX Local 7.2). The agreements cover the training of buyers and offering of other services. HT'S 2002 PROFIT EXCEEDS ONE BILLION KUNA Croatian Telecom (HT) will end the business year 2002 with a total income of some 7.5 billion kuna (one billion euros) and a net profit exceeding a billion kuna (EUR134.22 million); as of January 1, 2003 HT's mobile network will operate as a separate company, "HT mobilne komunikacije", with HT as its 100% owner and the market brand HTmobile. This was stated at last week's annual news conference of the HT management. HT management board director Ivica Mudrinic said that "HT mobilne komunikacije" would employ 900 workers. The company will be managed by a four-member board, headed by a former HT management board member and director for mobile communications, Wolfgang Breuer. The reason for setting up a separate company is a continually increasing number of mobile phone users (this year's figure is one million) and the need for a more efficient and flexible market approach, Mudrinic said. HT expects to be awarded an UMTS licence and expects that bids will be invited by the summer of 2003. Since the deregulation of the fixed telephony in Croatia starts next year, Mudrinic believes this will prompt the company to improve its results since a new operator in the fixed telephony is expected to emerge on the domestic market. In order to keep its leading position on the fixed telephony market, HTtel will step up its promotional campaign for the fixed network and offer its customers (around 1.7 million) a wide range of new services. The new operator will use HT's current fixed telephony infrastructure for which it will pay a fee. LURA: 2003 - YEAR OF BIG CHANGES By the end of January 2003 the leading Croatian dairy producer Lura will complete a strategic development plan for coming years; it intends to make new acquisitions in the country and abroad and introduce new products, and by May next year appoint the fifth member of its management board, management board director Zeljko Peric told reporters at last week's Christmas reception. Lura will complete the year 2002 with increased sales, while its profit will be lower than expected, primarily due to the increased cost of milk purchase, which exceeds 60 million kuna. The year 2002 marks the beginning of a period in which Lura intends to develop into a regional food producer, Peric said. The management has also announced new jobs and investments in employee education. RUSSIAN-CROATIAN COMPANY BUYS KARLOVAC GAS TURBINE FACTORY Since last week, the Karlovac-based Gas Turbine Factory (TPT) has a new owner - the Russian-Croatian company TPT Ltd., with the seat in Karlovac. The president of Karlovac's Commercial Court and chairman of TPT's bankruptcy council, Frane Prpic, last week confirmed that several Moscow companies, acting on behalf of TPT Ltd., had paid the remaining 17.44 million kuna of TPT's debts. On November 6, TPT Ltd. had paid five percent of the price from a contract on the sale of TPT. The factory was sold at a price of 18.3 million kuna, which includes product stocks worth five million kuna. Factory manager Kresimir Landeka has announced the arrival of the first group of Russian engineers, who will establish the condition of the machines. He has also said that the factory will continue producing jet turbine blades for the Russian market. TETRA PAK: FIRST TEST RECYCLING OF PACKAGES IN CROATIA The Croatian branch of the Swedish Tetra Pak company for the production of packaging and containers for food, last Tuesday presented the first test recycling of Tetra Pak packages in Croatia, which previously had been performed in November in the paper plant in the eastern town of Belisce. The recycling was done in cooperation with the Croatian Tetra Pak's client, the Lura company. According to the head of the Tetra Pak department for communications and environmental protection, Sonja Kozul, Tetra Pak was this year marking its 50th anniversary. She said that in 2001 the company earned 7.6 billion euros of the net sale when it sold about 94 billion of various packaging. At the moment it employs 20,000 workers and has 77 branches which offer their products in 170 countries all over the world. PLIVA, ISKONINTERNET SIGN BUSINESS COOPERATION AGREEMENT The Pliva drugs company and the IskonInternet service provider have signed a business cooperation agreement for the construction of Pliva's communication network. The Croatian pharmaceutical giant has chosen IskonInternet as its global Internet provider after assessing it provided the best international Virtual Private Network (VPN). IskonInternet offers high quality service, has a wide network all over the world thanks to its cooperation with Telia and other global providers. Especially crucial was the VPN price, which Pliva said was more favourable than the cost of the construction of its own network. BRODOMERKUR HAS SUCCESSFUL BUSINESS YEAR Brodomerkur's CEO Sando Ivanisevic assessed 2002 as a very successful year which saw the realisation of all plans and a 23 percent turnover increase in the first 11 months as against the same time the year before. According to current data, Brodomerkur will wrap up 2002 with a 30 percent increase in profits, which is the result of curbed business costs, said Ivanisevic. This year the company employed 47 new workers, most of whom are economy graduates. An investment cycle was also begun this year, involving 27 million kuna. The biggest investment was made into the Dujam mall in Split, which after only two months has proven to be a completely profitable venture and a quality answer to the increasing competition in Split. Ivanisevic said ambitions for 2003 were high, including investments worth 45 million kuna. STATE RAILWAYS TO WRAP UP 2002 WITH HALVED LOSSES Croatian State Railways (HZ) estimates this year's business loss will stand at 220 million kuna (EUR29.7 million), which is twice less than in 2001. CEO Marijan Drempetic told reporters HZ's increase in the transport of goods this year was 7-8 percent and that of passengers one percent. As against 2001, transport revenue grew by 11 percent and is estimated will reach 814.9 million kuna (EUR110.1 million). At the end of this year HZ will have 15,935 employees, while by the end of 2006 the figure will be reduced to 12,700. LOAN FOR CONSTRUCTION OF NEW PLANT FOR STOCK-CATTLE FEED The Varazdin-based "Vindija" will begin building a new plant for the production of stock-cattle feed in mid-2003, and an agreement on a loan for the construction of the factory was last Wednesday signed in the offices of the Vindija, that is a majority owner of the "Koka" company, on whose premises the plant is to be built. The loan, worth, 115 million kuna (i.e 15.9 million euros), will be granted by two members of the Zagrebacka Bank Group: Varazdinska Bank with 34 percent of the share in the credit, and Zagrebacka Bank with 66%. The Vindija CEO, Dragutin Drk, said this would be the state-of-the-art plant for manufacturing fodder, and described it as an important investment of the Vindija company. OIL PLATFORM "MARICA" TO BE BUILT BY NORTH ADRIATIC OFFSHORE The company called "North Adriatic Offshore" owned by "Viktor Lenac" shipyard from Rijeka and "Rosseti Marino" from the Italian city of Ravenna in 50:50 ratio, was entrusted with the task to build an oil platform in northern Adriatic (off Mali Losinj), called "Marica", worth 18 million dollars. The job will be done in accordance to the ownership shares of the two companies. "Viktor Lenac" is to construct the processing module, and "Rosseti" will build the steel base. The pillars from the seabed will be built by the Split-based company BSO. POTENTIAL PARTNERS START CHECKING SITUATION IN SISAK IRONWORKS On the basis of letters of intent for the take-over of the Sisak Ironworks, potential strategic partners began working on gaining a better insight in the state of affairs in this plant so as to prepare their bids, the Croatian government's social partnership office reported last week. The final decision on the selection of a new strategic partner should be made on 15 January, the office's head, Vitomir Begovic, said. RACAN: CROATIA BUS PROBLEM MUST BE SOLVED BY RILE-OF-LAW Croatian Prime Minister Ivica Racan said on Tuesday that the deblocking of the "Croatia Bus" company was not an issue to be solved by police, but by the rule-of-law. "A prime minister cannot order police to unblock a company, only the rule-of-law can to that," Racan said during talks with the Croatia Bus union which backs the company's management. Racan called on the Union of Professional Drivers and Car Mechanics to each an agreement with competition's unions regarding the unblocking of the company, and to be patient until the law-based state completes its task in the next several days. He relayed the same message to members of the New Union and the Union of Maritime Affairs and Communications, which blocked the entrance into the company more than a month ago, requesting the sanctioning of the company's former director, Leon Sulic, for alleged embezzlement. "If institutions do not act immediately, another 350 people will be in the Employment Bureau," unionist Marica Japundzic responded to Racan. Chief State Prosecutor Mladen Bajic who attended the meeting, said that a number of cases of abuse of office and illegal business had been established in Croatia Bus. He called on unions to help the State Prosecution gather information important for the continuation of the investigation. 5. INTERNATIONAL COOPERATION IMF MISSION CHIEF SPEAKS OF NEW CROATIA-IMF STAND-BY DEAL The International Monetary Fund (IMF) Mission and the Croatian government have reached an agreement about a new stand-by deal between Croatia and the IMF, Mission head Hans Flickenschild said in Zagreb on Wednesday. The purpose of the deal is to introduce some discipline in the election year 2003 and give Croatia a simpler and faster access to the financial market, while its main objective is to curb the debt's share in the Gross Domestic Product, Flickenschild told reporters. He announced the IMF Executive Board would decide about the stand-by deal on February 3. The necessary documentation should be prepared in the meantime, while the Croatian parliament should address the deal next week. The deal would refer to the amount of US$140 million, which Flickenschild said was not crucial for the government in light of the foreign reserves and the good standing on the international financial market. The deal would be valid throughout 2003 and might be extended until March 2004, when the government would be allowed to draw funds from it if necessary. Flickenschild said the government had stated in a letter of intent the funds would not be withdrawn. The stand-by deal's main objective is the stabilisation of the debt's share in GDP, which has been growing over the past decade, jumping from 25 to 57.5 percent of GDP, Flickenschild said. Two things need to be done to achieve that goal - ensure a relatively low budgetary deficit and not issue state guarantees, he said. Flickenschild recalled the state budget parliament adopted last week envisaged a five percent deficit, which is 1.2 percent less than this year, although it is estimated it will reach 6.2 percent. The budgetary deficit will be financed through a meagre privatisation revenue, a meagre indebtedness on the foreign market and a higher one on the domestic market. Flickenschild said the budgetary cuts envisaged for 2003 were considerable but would nevertheless make it possible to carry out reforms in education, science, agriculture, and the judiciary. These reforms will result in new jobs in said sectors although employment will not grow as there will be layoffs in the defence sector, said the IMF Mission chief. The most difficult part of the 2003 budget was the amount set aside for salaries and the one percent increase in it, said Flickenschild. He recalled that the government's salary policy did not envisage either a base increase or a change in coefficients, with the exception of pays for primary and secondary school teachers. As for state guarantees, Flickenschild said they accounted for 14.5 percent of the debt's 57.7 percent share in GDP. The plan is to keep this percentage, which means the government will issue limited guarantees on loans, he said. The stand-by deal's strategic measures are privatisation, particularly of the oil industry INA, and the amending or passing of new laws on companies, market competition, labour, and bankruptcy, said Flickenschild. The Croatian government intends to carry out six steps even before the IMF Executive Board adopts a decision on the new arrangement. According to Flickenschild, these include a five percent budgetary deficit, collecting data on 53 units of local self-government, the government's obligation to draw up a new labour act for parliament to address, and collect offers for and privatise INA. Tax-related steps have mainly been adopted, he said. The IMF Mission head said the programme defined by the new stand-by deal was a very responsible and resolute step the Croatian government was making in the election year. Flickenschild sees it as the continuation of the government's policy of fiscal adjustment and structural reforms. AGREEMENT ON CO-FINANCING OF INFO-CENTRES SIGNED IN ZAGREB Top officials of the Croatian Chamber of Commerce (HGK) and the European Commission (EC) Delegation in Croatia on Wednesday signed an agreement on the co-financing of a joint project aimed at establishing an info-communication centre which would provide Croatian companies with data about the latest changes in the European Union's economy and assist them in adjusting their business to the European market. The agreement on the EUR192,000- worth project was signed by HGK president Nadan Vidosevic and the chief of the EK Delegation, Jacques Wunenburger. With the agreement, Croatia will join a network of more than 300 Euro Info centres across Europe. The EC is investing EUR72,000 into the project through its CARDS programme, while the HGK will finance the rest. With the Euro Info Centre Zagreb (EICC), Croatian companies will be able to receive all information about the latest changes in the EU's economy and Croatian laws within three days. Vidosevic said that this would help their adjustment to and business on the European market. He added that for members of the HKG, this was the start of a process of adjustment to what Croatia wants, which is full membership in the EU. Wunenburger said the project would help and open doors to small and middle-scale companies connected with the EU in all areas, so that their business could be facilitated and more efficient on the unified EU market. This will be achieved through seminars and presentations, news releases, brochures and guides, as well as information via the Internet. CROATIAN DEPUTY PREMIER TALKS TO HUNGARIAN TRANSPORT MINISTER Croatian Deputy Prime Minister Slavko Linic spoke with Hungarian Economy and Transport Minister Istvan Csillaga, who headed a Hungarian delegation of businessmen, in Zagreb on Wednesday, the Croatian government reported. Linic and Csillaga confirmed good relations between Croatia and Hungary and stressed the importance of an improved transport connection between Zagreb and Budapest. The two countries should investigate new areas for cooperation, particularly in constructing gas pipelines and networks of electrical energy, the Hungarian Minister said, expressing his desire for co-operation in accessing European and world associations as well as information sharing and exchange of experiences so that this process could be made easier for both countries. S-E EUROPEAN STOCK MARKETS RAISE COOPERATION TO HIGHER LEVEL Nine south-east European stock markets on Wednesday signed a protocol on an education consortium of financial markets, which establishes foundations for communication and the development of cooperation based on the centralised market business model. The protocol was signed at the end of a two-day regional conference on the development of the financial market, held in Belgrade. The document was signed by Belgrade, Ljubljana, Athens, Banja Luka, Bucharest, Bulgarian, Macedonian, Zagreb and Nex Montenegro stock markets. A statement released at the end of the conference notes that the establishment of the consortium for the promotion of financial analyses, with the support and partnership of international institutions, will enable countries in south-east Europe to establish, by using their own potential, a region with professional personnel and recognisable business qualifications. Participants in the conference also stated that stockholders' rights should be additionally regulated and improved with legal standards, while stock market regulations should be adjusted to the European Union standards. 6. UNIONS INDEPENDENT TRADE UNIONS CRITICISE GOVERNMENT The president of the Federation of Independent Trade Unions of Croatia (SSSH), Davor Juric, said on Thursday the government had not fulfilled its pre-election promises and had in fact by-passed unions wherever it could. The SSSH will in the future only support governments which do not adopt anti-workers laws and will only negotiate with those employees who respect collective agreements and do not humiliate workers, Juric said at an SSSH election congress in Opatija. The government is not adhering to signed agreements and is not implementing them, Jurcic said. It has shown that it will sign one thing while intending something else and doing something completely different, he added. He criticised the Croatian Employers' Association because, as he said, to this day it is not known whom it represents nor how many members it has. Juric also said that employers are quick to find a common language with the government concerning a law that decreases workers' rights. He assessed that the division on the union scene goes in favour of the government and employers. MACROECONOMIC STABILITY SHOULD BE TRANSFORMED TO MORE WORK Croatian Prime Minister Ivica Racan said Thursday that an end to restrictions and self-sacrifice was around the corner for Croatia, but for this the government needed the cooperation of employers and unions. "An end to a period in which we needed restrictions and self-sacrifice is near," Racan said at the electoral congress of the Federation of Independent Unions of Croatia (SSSH) in Opatija on Thursday. Speaking to social partners, the prime minister said "it is now important that you transform macroeconomic stability into more work and higher wages." In the past three years, the government has failed to do many things, but results are there and need to be acknowledged. "It is easier to criticise and I accept that, but you should also think about what you need to be do," Racan said in response to SSSH president Davor Juric who said in his opening statement that the government had not fulfilled its electoral promises. Racan believes that the chief obstacles to development were a lack of developmental projects and entrepreneur spirit, insufficiently educated people, and fear of competition. "We must make the labour market more flexible so we can decrease unemployment and facilitate employment," Labour and Social Welfare Minister Davorko Vidovic stated. 7. SUNDRIES CROATIAN CHAMBER OF COMMERCE COMMENTS ON ECONOMIC SITUATION Croatia is facing great historical opportunities and one of this year's most significant events, after the signing of the agreement on admission to the Central European Free Trade Agreement (CEFTA), will be an agreement between the ministers of six countries (Russia, Belorussia, Ukraine, Slovakia, Hungary and Croatia) on the DruzbaAdria oil transport system, Croatian Chamber of Commerce (HGK) president Nadan Vidosevic said on Monday. The agreement, which should be signed in mid-December, will render Croatia an important link in the transport of energy products, Vidosevic said. Addressing an HGK assembly, Vidosevic pointed to the importance of developing the infrastructure, upgrading railways, and entering new markets, as well as to the need for co-operation between the public and private sectors. The assembly was acquainted with data about the current economic situation in the country at the end of the year. As was highlighted, this year has seen the continued growth, that started in 2000, of the Gross Domestic Product. In the first half of this year, the GDP growth rate measured 4.2 percent, which should be its annual level. Industrial production in the first ten months of 2002 grew by 4.6 percent in relation to the same period last year and it is estimated its growth next year will not be below four percent. This year also saw a low inflation rate, measured by the retail prices index. In October, the inter-annual average growth of retail prices was 2.2 percent, which is the lowest rate in the past seven years. It is estimated that the average inter-annual inflation rate in 2002 will be below 2.5 percent. The assembly adopted a plan of the HGK's activities and a financial plan for 2003. The Chamber's budget for 2003 will amount to about 105 million kuna (14.18 million euros). CROATIAN EMPLOYERS' ASSOCIATION ON PROBLEMS IN METALLURGY Employers in metallurgy do not believe that the government should solve managment problems, but ask of its to create preconditions for their successful work, primarily the adoption of a clear industrial policy and development strategy of metallurgy. The strategy should include the determination of the position of ship- building, car industry, military industry, exports, economic diplomacy and other issues, the Association of the Metallurgy Industry at the Croatian Employers' Association (HUP) said in a statement. The latest events in metallurgy and metal-working industry -- Sisak Ironworks, Djuro Djakovic, TLM and others, indicate an escalation of difficulties in this branch of economy, members of the HUP said at Tuesday's meeting. They said that such a situation was the result of a systematic neglect and marginalising the metal industry and the overall national economy, and asked of the government to undertake appropriate action as soon as possible.