Croatian Premier Looks to Fill Void After Ally Resigns

Croatian Premier Zoran Milanovic has decided on replacements for his deputy, Economy Minister Radimir Cacic, who quit after he was given a 22-month jail term for causing a fatal car crash in Hungary.

Milanovic will appoint Construction Minister Ivan Vrdoljak to take Cacic’s place as economy minister and Foreign Minister Vesna Pusic as deputy premier, said two government officials who asked not to be identified because the information is not public yet. Cacic, 63, resigned yesterday after the sentencing by a Hungarian court.

Croatia, which is set to become the European Union’s 28th member in July next year, is struggling to revive its economy after three years of recession and stagnation. Cacic’s pro- business agenda and experience was “really critical” to efforts to jump start the economy through investment, said analysts including Timothy Ash, London-based chief emerging- market economist for Standard Bank (SBK) Group Ltd.

“This is a significant blow to the ruling coalition as he was a powerhouse on the reform front and a political heavyweight,” Ash said in an e-mail yesterday. “Croatia faces huge challenges in addressing deep-seated structural weaknesses in the economy, raising competitiveness, overcoming vested interests, and raising the growth potential of the economy.”

Cacic, who was found guilty of speeding and causing an accident in January 2010 that killed two people, was sentenced in absentia in a binding, appellate ruling yesterday, court spokesman Attila Vadocz said by phone from the Hungarian town of Kaposvar. Cacic, 63, will be eligible for parole after serving half of his sentence, Vadocz said.

Croatia’s dollar-denominated government bond maturing in 2017 fell 0.32 percent, pushing the yield to 3.895 percent from 3.83 percent.

‘Sorely Missed’

The court announced its decision as Cacic was flying to Zagreb from a trade mission to Doha, Qatar. Cacic, who told reporters yesterday he “deeply” regrets the accident and “will bear the consequences,” was leading the efforts to increase the government’s influence in INA Industrija Nafte (INARA) d.d., a Croatian refiner controlled by Hungary’s Mol Nyrt.

“He will be sorely missed in government,” Milanovic told a news conference in Zagreb yesterday, adding that he will make some adjustments to his Cabinet because of the resignation by the end of the week. “We have a good team and we’ll try to keep it that way.”

Cacic, the leader of the Croatian People’s Party, a partner in the 10-month-old ruling coalition, was Milanovic’s closest ally. He didn’t say when he would start serving the sentence, or if he’d do it in Croatia or in Hungary.

The government is trying to trim public spending as it readies for EU entry. The government forecasts the economy will stagnate this year while the European Commission and the International Monetary Fund are less optimistic.

Economic Outlook

Gross domestic product will shrink 1.5 percent in 2012 as external conditions and subdued domestic demand slow the recovery from a recession, the Washington-based lender said Nov. 13 following a visit to the Adriatic Sea nation. The estimate was revised from a February forecast for a 1 percent contraction. GDP next year will expand 0.75 percent, it said.

The commission, the EU’s executive arm in Brussels, said on Nov. 7 the economy will contract 1.9 percent this year.

“This is a huge blow to the Croatian government and the economy,” Jelena Lovric, an analyst at Europa Press Holding, Croatia’s biggest newspaper publisher, said by phone from Zagreb. Cacic “has started investment projects crucial for the country’s recovery, and at the moment I don’t see a person who could replace him.”

To contact the reporter on this story: Jasmina Kuzmanovic in Zagreb at jkuzmanovic@bloomberg.net

To contact the editor responsible for this story: James M. Gomez at jagomez@bloomberg.net

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