The first auction for model B, which concerns a guarantee fund in which the state participates in covering some of the risk of bank lending, is expected in some ten days.

"I hope these measures will boost both employment and economy and that unemployment figures will drop below 300,000," Finance Minister Ivan Suker said at a press briefing at which he spoke about the specifics of the government measures aimed at enabling economic recovery and development.

As regards the first auction, to be held on Friday, the credit quota of the HBOR, whose contribution to bank loans is 40 percent, amounts to HRK 200 million. If the share of banks, whose contribution in loans is 60 percent or, in this case, HRK 300 million, is added to that amount, the credit potential would amount to HRK 500 million.

If the interest in lending exceeds the credit quota, the next auction can be organised already in 15 days' time, Suker said.

After the auction, the HBOR is expected to select the best bank offers and report about the auction's results within three days. How much time will pass between the publishing of auction results and the awarding of a loan depends solely on business people and commercial banks.

If business people and banks are ready, business people can obtain a loan practically in 25-30 days, said Suker.

The main criterion for the selection of banks is the interest rate at which they are willing to offer their 60 percent share in the financing of a loan.

The HBOR's interest rate on its 40 percent share in a loan is 3.8 percent, and the final interest rate for business people will be the result of weighting, to include also the interest rate offered by banks at the auction.

If banks offer a six percent interest rate for their 60-percent share in a loan, the final interest rate will be 5.12 percent, and if they offer an interest rate of seven percent, the final interest rate will be 5.72 percent, said Suker.

The HBOR will publish invitations to auctions, to be held at least once a month, three days before auction day.

The HBOR will today sign a club credit agreement whereby commercial banks will direct to the HBOR two billion kuna released thanks to a reduction of the reserve requirement rate.

The club credit will have a maturity period of three years and banks will direct the funds to the HBOR with an interest rate of three percent. After the agreement is signed, it will also be known which banks will be able to participate in auctions.

The Finance Ministry and the HBOR recall that banks which fail to direct to the HBOR a part of funds released owing to the lowering of the reserve requirement rate, will not be allowed to participate in auctions for credit quotas.

Loans from model A are designed to finance working capital, including the payment of claims to suppliers, banks, the state and other creditors.

It will be possible to use a maximum 20 percent of the loan for the payment of financial obligations to banks, and it has been tentatively agreed that a business will be able to use a maximum 20 percent of a loan to pay obligations to the state.

If a bank fails to use more than 90 percent of the credit quota awarded to it, it will not be able to participate in the next auction, and if its credit quota utilisation rate is below 30 percent, it will not be able to take part in the next three auctions.

The HBOR and banks have well defined mechanisms of controlling and penalising businesses which do not use loans for the purpose they were obtained for, the Ministry and the HBOR said.

The first auction for model B (guarantee fund) is to take place in some ten days, and the state guarantee could amount to a maximum 50 percent of the principal sum. At least 70 percent of the loan will have to be used to finance investments, and up to 30 percent for working capital or payment of financial obligations to the state.

The guarantee fund amounts to two billion kuna, and officials at the Finance Ministry expect the total lending according to that model to amount to HRK 5-6 billion.

Ministry officials would not comment on media reports about changes in the taxation system and speculation about possible cancellation of extra taxes, introduced last summer, or on changes to the VAT system.

When asked about the current situation with regard to budget revenues, they said that revenues were slightly higher than in the same period of last year.