Croatian PM sacks finance minister over property purchase

ZAGREB Tue May 6, 2014 7:28am EDT

Croatia's then new Finance Minister Slavko Linic is seen in parliament before his centre-left government has been approved in Zagreb in this December 23, 2011 file photo. REUTERS/Nikola Solic/Files

Croatia's then new Finance Minister Slavko Linic is seen in parliament before his centre-left government has been approved in Zagreb in this December 23, 2011 file photo.

Credit: Reuters/Nikola Solic/Files

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ZAGREB (Reuters) - Croatian Prime Minister Zoran Milanovic sacked the finance minister on Tuesday over a property deal he said had hurt the state budget, but economists said Slavko Linic's dismissal would have no impact on fiscal policy.

Croatia, the European Union's newest member, is struggling to exit a recession now into its sixth year but is also under orders from Brussels to slash a budget deficit expected to hit 4.5 percent of gross domestic product (GDP) this year.

"Minister Linic does not enjoy my confidence any longer and I will propose that he be replaced by his deputy, Boris Lalovac," Milanovic told reporters.

Milanovic said Linic was politically responsible for the finance ministry's purchase of property from a struggling firm that was later found to be worth at least 20 million Croatian kunas ($3.66 million) less than the ministry had paid for it.

"It is possible there was no (ill) intention. Mistakes happen but then it should be checked who was responsible for the mistake ... I waited two months but the minister took no action and I am not satisfied with his explanation," Milanovic said.

"I don't think the removal of Linic will have a negative impact on Croatia's (eurobond) issuing plans as Lalovac was Linic's deputy," said Zrinka Zivkovic Matijevic, an analyst at Raiffeisenbank.

"Also, Croatia's fiscal policy is under monitoring from Brussels that provides rather firm fiscal guidelines."

The former Yugoslav republic is tentatively planning to issue a eurobond in May or June. The market expects an issue worth about 1.5 billion euros.

Croatia, whose economy is forecast to contract modestly this year, is currently in the EU's Excessive Deficit Procedure (EDP), a tool Brussels uses to enforce fiscal discipline in member states. Zagreb has to cut its budget gap to below three percent of GDP by the end of 2016.

Linic is the sixth minister to leave the Social Democrat-led government since it took over in late 2011 and the first to be sacked.

Relations between Milanovic and Linic had long been strained, according to local media. Linic's sacking follows the recent resignation of Croatia's tax department chief who said the finance ministry had obstructed her work.

Croatia's anti-corruption police said on Monday they were investigating documents related to the property purchase that has toppled Linic. ($1 = 5.4714 Croatian Kunas)

(Reporting by Igor Ilic; Writing by Maja Zuvela and Igor Ilic; Editing by Gareth Jones)

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