Croatia decided on Wednesday to make a eurobond issue to raise 1.5 billion dollars (1.0 billion euros) aimed at helping to pay down foreign loans and cover the budget deficit, a statement said.

Croatia's gross domestic product (GDP) was to contract by 5.0 percent this year, the finance ministry has forecast.

The budget deficit was projected at about 1.2 billion euros, or 2.8 percent of GDP.

According to the central bank figures, in 2009 Croatia's external debt would reach 42.2 billion euros (62.4 billion dollars) or 94 percent of GDP.

The central bank governor Zeljko Rohatinski warned that the external debt could reach 100 percent of GDP in 2010.

The government asserted that it had secured the success of the issue with a series of presentations in Europe and the United States.

During the presentations, "potential investors were presented with the stability of Croatia's financial sector and its economy's resistance to external quakes," a government statement said.

The 10-year bonds will be placed with a 6.75 percent interest rate, or yield, it said.

Fifty-five percent of the bonds were being placed in the United States, 25 percent in Britain, 13 percent in other European countries and seven percent in Asia, the statement added.