Croatia needs no IMF deal

CAVTAT, Croatia – Croatia needs no new arrangement with the IMF to continue its good economic performance and boost reforms now that it is in negotiations to join the European Union, a senior state economic official said on Monday. Martina Dalic, state secretary for development strategy, told Reuters in an interview the focus for Zagreb was to reform state administration, tackle loss-making public enterprises and reduce the government’s overall role in the economy. If it achieves that, its economic growth could rise to some 7 percent in 2010, the year by which it hopes to join the EU, from 4.3 percent in 2005. «Reforms take time to yield effect but 7 percent is not beyond reach around 2010, depending, of course, on how many reforms are implemented and how fast,» Dalic said on the sidelines of an international investment conference. She said fiscal discipline, low inflation and stable exchange rates, which have now been achieved, were bound to continue. «Our macroeconomic stability is beyond doubt, with or without the IMF. The key for our competitiveness and growth is the speed of implementing reforms and the IMF is really not the best institution for that,» she said. «That does not mean we would sever all links with the IMF; we welcome all exchanges of views with them. But a country striving for EU membership does not need the IMF because it must eventually assume all responsibilities of EU membership, which include sovereign economic policies,» she added. Zagreb’s current standby deal with the International Monetary Fund, focused on fiscal adjustment and the consolidation of high foreign debt, expires in mid-November and officials have indicated they would not seek to renew it. Dalic said EU entry talks, which Zagreb hopes to complete in 2008, provided a much stronger policy and reform framework than any IMF monitoring and one of the top priorities was to make public administration smaller and more efficient. «Without that, we shall not be able to make full use of money available from EU funds once we join.» Another priority was to reduce the state’s role in the economy, which currently accounts for about 40 percent of gross domestic product. To achieve that, the government has this autumn relaunched its privatization drive, including the sale of further stakes in national telecom operator HT, 51 percent-owned by Deutsche Telekom and oil concern INA, and in which Hungary’s MOL has 25 percent. Both are due to be listed on stock exchanges in Zagreb and abroad by mid-2007. Furthermore, the government must resolve the issue of its loss-making shipbuilding industry, formerly a flagship sector that is still Croatia’s major exporting force, indebted steel mills and various firms that depend on endless state subsidies. «Of course, the government is balancing, seeking a trade-off between less popular reforms and short-term political effects. But this government has already shown it can review and change its own economic decisions that have proved inadequate. That shows it has strength,» Dalic said. «So some time next year, we should have a situation in which the government has taken major steps in reducing its role,» she said.