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Croatian Primier Fires Finance Chief on Land-for-Tax Deal

May 6 (Bloomberg) -- Croatian Prime Minister Zoran Milanovic fired Finance Minister Slavko Linic in connection with a land-for-tax deal that the premier said has hurt the state budget.

Linic was ousted for approving last year’s transaction with a local businessman who offered a rural parcel in lieu of a cash payment to settle arrears, using an inflated value for the parcel, Milanovic said today at a news conference in Zagreb. He named deputy Finance Minister Boris Lalovac to succeed Linic, which needs to be approved by parliament.

“The finance minister doesn’t have my trust anymore,” Milanovic said. “The land in the deal was overvalued. Companies can’t be saved at the state’s expense.”

The departure of Linic, 65, who pledged to instill fiscal discipline in the budget and reduce the gray economy, comes as the newest European Union member faces a sixth year of recession. The government failed to use its first year in the bloc to pull itself out of a crisis, with the European Commission predicting it will be the EU’s only post-communist member to remain in recession this year.

The Social Democrat-led government, who which took power in 2011 on promises to fix the economy and eradicate corruption, is struggling to rein in a bloated public payroll and cut unemployment that reached 22.3 percent in March.

Deficit Fighting

Linic has led efforts to comply with EU recommendations to narrow the budget deficit, forecast at 4.4 percent of economic output this year, below the EU target of 4.6 percent. The Finance Ministry is also preparing to sell about 800 million euros ($1.1 billion) in new bonds in the next few weeks on the European market.

The change would probably be “overall negative as Linic had been seen as trying to push reform forward,” Timothy Ash, chief emerging-markets economist at Standard Bank Group Ltd. in London, said in an e-mail to Bloomberg. “The government needs to find a heavyweight replacement.”

The yield on the Croatian government’s dollar bonds maturing in 2024 fell 0.015 percentage points to 5.388 percent in Zagreb, the lowest since April 10.

Milanovic and Linic, both Social Democrats, have disagreed in recent months over the conduct of two Finance Ministry officials, including the head of the Tax Office, who resigned last week amid allegations of abusing her office.

The dispute sharpened last week when Milanovic asked Linic to explain how he reached the valuation of the parcel. Linic yesterday posted a response on his ministry’s website. Within a day, he was fired.

The anti-corruption agency, or USKOK, yesterday said it had requested the related documents from the Finance Ministry.

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

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

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