Croatia parliament approves new conservative-led cabinet

ZAGREB (Reuters) - The Croatian parliament approved on Wednesday a new government led by the conservative HDZ party leader Andrej Plenkovic whose main task will be to boost growth and sort out fragile public finances in one of the weakest European Union economies.

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The new government was formed by the HDZ and its junior center-right reformist partner Most (“Bridge”) after several weeks of negotiations following a Sept. 11 snap election.

The government got support of 91 out of 151 parliamentary deputies.

“We will be the government that knows how to bring about changes,” Plenkovic told the parliamentary deputies while presenting his cabinet.

He said that spurring growth and improving the business climate would be his government’s priorities.

“We will ease conditions for doing business and implement tax reform to make the taxation system simpler and ease burden for citizens and businesses,” Plenkovic said.

In the past many investors have largely shunned Croatia due to red tape, high taxes, frequently changing regulations and a slow judiciary.

Plenkovic said that the 2017 budget, which is expected in November, will clearly reflect efforts to reduce the fiscal gap and public debt which now stands at around 85 percent of gross domestic product.

Tentatively, the government wants to reduce the gap to two percent next year from some 2.5 percent expected this year.

Among the main challenges for the new government will be disputes with Hungary’s MOL over decision-making in jointly owned Croatian energy group INA, with public sector trade unions over wage hike promise, and with local banks over the forced conversion of Swiss franc loans into euros.

Disputes over the promise of higher wages, dating back to 2009, and CHF loans, whose conversion cost was entirely imposed on the banks, could potentially inflict costs worth billions of kuna and undermine fiscal consolidation plans.

Analysts widely believe that without measures to significantly improve the business climate, the country is unlikely to surpass the 2.5 percent growth figure in the coming years.

HDZ won most parliamentary seats in the snap election following a collapse of the previous HDZ-Most government in June, after just five months in power, due to a row over a conflict of interest case involving a former HDZ leader..

Analysts believe the new government, led by the new HDZ leader, has a good chance of completing the four-year term.

Reporting by Igor Ilic; Editing by Angus MacSwan