Croats vote in snap election, new coalition cabinet looming

By Igor Ilic

ZAGREB (Reuters) - Croats choose a government on Sunday for the second time in less than a year, and polls predict a close outcome and another coalition that lacks a clear mandate to push through painful cuts and restructuring being urged by European authorities.

Almost 7,000 polling stations opened at 7 a.m. (0500 GMT) and will close at 7 p.m. (1700 GMT). The first preliminary official results are expected around 10 p.m. (2000 GMT), but exit polls after the end of the vote may prove a good indicator.

A Social Democrat-led four-party alliance stands to win about 60 of 151 seats in a fragmented parliament, while its conservative rival, the Croatian Democratic Union (HDZ), should be a few seats behind, the opinion polls say.

That would leave them seeking support from the center-right Most (Bridge) party, also the kingmaker after last November's elections, which wants to end the 20-year dominance of the big parties it accuses of clientelism and corruption.

The previous HDZ/Most coalition collapsed after just five months amid rows over political appointments, public administration reforms and a conflict of interest case.

Under former Prime Minister Zoran Milanovic, the SDP hopes to wrest control from the short-lived technocratic government, but the HDZ hopes a new leader, European Parliamentarian Andrej Plenkovic, can make up lost ground and renew the coalition.

Any government faces an enormous task in revitalizing one of the European Union's weakest economies, dominated by state enterprises and where red tape deters private investment.

Three years after joining, the country's record on drawing down European funds is poor, pointing to glaring public admnistration shortcomings and contributing to macroeconomic imbalances the European Commission sees as exessive.

Yet a government relying on even smaller, populist parties to govern may have an incentive to avoid reform measures.

"Most of our politicians are not really interested in the economy," said one economic official. "Now we have some growth and a lower budget deficit, there is a risk that reforms will remain tepid."

Parties offer few details on how to deliver promised higher standards of living for the 4.3 million people of Croatia, where unemployment is 13 percent. All promise lower taxes financed by expected higher growth.

With public debt at 85 percent of gross domestic product, Croatia spends about 3.5 percent of GDP on interest payments alone. Growth of 2.5 percent expected this year is insufficient to boost living standards, analysts say.

"Our current growth potential is 1.5 percent to 2.5 percent, but we need at least 3.5 percent to 4.0 percent," said Raiffeisen analyst Zrinka Zivkovic Matijevic.

(Reporting by Igor Ilic, Editing by Thomas Escritt and Clarence Fernandez)

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