A mission of the International Monetary Fund started fresh talks with Croatia on Tuesday on a new stand-by arrangement that should reassure foreign investors and help the country reduce fiscal deficit and foreign debt.
The IMF team opened the second - and possibly final - round of talks on a successor deal to a $146 million accord that expired in April, by meeting top finance ministry officials on Tuesday morning.
The ministry confirmed the meeting was underway.
"The main ideas are to increase domestic borrowing and reduce foreign borrowing and fiscal deficit," a Western banking source close to the talks said.
Deputy Finance Minister Martina Dalic told Reuters last week the government wanted a deal for a period of 18 months, which would take effect in the late summer and guide government fiscal policy over several years.
The former Yugoslav republic does not need to draw any funds but wants the new arrangement to anchor its fiscal and monetary policies, where further adjustments are needed as the country seeks European Union membership in this decade.
Croatia projected its economy to grow 3.2 percent this year and the government set a fiscal deficit of 4.5 percent of Gross Domestic Product. The source said the Fund would like to see a lower deficit already this year.
"There are some risk elements. Revenues in the first quarter came out a little lower than expected. No one can say if tourism receipts will increase as projected. So to guard against those risk elements, the Fund would like to see some further measures. But exact measures are left up to the government."
The mission is expected to wind up the visit next Tuesday. Croatia's foreign debt amounted to some $24 billion, or more than 80 percent of the planned GDP for 2004.
The current account deficit totalled some 6.5 percent of the GDP at the end of 2003. The previous stand-by arrangement with the fund expired in April without completion, after the previous cabinet and the central bank missed most of the main targets including the fiscal deficit that hit 5.6 percent at the end of 2003, or one percentage point higher than planned.