(Fixes typo in headline)
* Says fewer human rights abuses since unity government
* Optimistic power-sharing deadlocks can be broken
* Expects elections within 18 months
By Jason Webb
VALLADOLID, Spain, Oct 9 (Reuters) - Prime Minister Morgan Tsvangirai said on Friday people could live in peace in Zimbabwe since the formation of a power-sharing government.
He said that while there were some "toxic issues" for the government he formed with old foe Robert Mugabe this year, he hoped his party could make progress working with the veteran president and eventually be elected in its own right.
"If you were to have come to Zimbabwe last year between March and June, the level of human rights abuses was far higher and now people can live in peace," Tsvangirai told Reuters in the northern Spanish city of Valladolid where he was due to receive a prize for lifetime achievement.
"There has been substantive progress, it's just that you have got one or two incidents and then it spoils the thing."
Tsvangirai formed the unity government with Mugabe to try to end a violent political crisis.
Tsvangirai himself was a victim of abuses under Mugabe's government, and was once so badly beaten that his face was barely unrecognisable.
Mugabe, in power since independence from Britain in 1980, is blamed by critics for plunging his country, once the bread basket of southern Africa, into poverty through mismanagement and corruption.
He has accused his Western foes of ruining the economy through sanctions in retaliation for a policy of seizing white-owned farms for landless blacks.
Tsvangirai said while progress has been difficult, he was hopeful his Movement for Democratic Change could work productively with Mugabe.
"Progress is gradual and it cannot be an event. You have to work it on a daily basis and hopefully we can do that within the shortest possible time," he said.
But he said: "There are deadlock issues with regards to certain appointments, the governor (of the Reserve Bank), attorney general, and there are issues of the implementation which have to do with provincial governors."
"Then there are toxic issues, the issue of not complying with the spirit and the letter in terms of the media."
Tsvangirai said an online poll of supporters had provided positive feedback despite the problems.
"I want to tell you the evaluation is overwhelmingly that we should stay in government and make this the direction the country needs to take," he said.
"We have to manage our transition until such time as the MDC can be elected in its own right," he said, adding he expects a date for elections to be set within the next 18 months.
The Zimbabwean government says it needs up to $10 billion in foreign aid to help repair an economy that saw inflation surge to over 500 billion percent in 2008, according to the IMF.
But so far, nowhere near this sum has been forthcoming from Western donors and Tsvangirai said Zimbabwe would need to be weaned gradually onto a greater flow of aid anyway.
"It isn't a question of having billions of dollars, because we may not have the capacity to absorb them," he said, adding that aid should focus more on development than addressing humanitarian needs.
"So even if at the end of five years the actual amount of required aid is huge at this stage I don't think that the country has the capacity to absorb those billions," he said.
Tsvangirai was optimistic a reform to the country's struggling mining sector would address concerns of foreign mining companies, who were worried by an earlier draft they feared would have given locals control of mining operations owned by foreigners.
"We're doing our part to create conditions that will attract foreign direct investment in the mining industry," he said. (Editing by Marius Bosch and Alison Williams)