"We are currently in an advanced stage of talks, discussing financial aspects," he said.

Lengthy discussions on technology and the future of the partership were over and Zastava was now talking with two foreign car-makers on specific bank guarantees, Beko said.

He declined to identify them, but industry sources have identified them as Peugeot of France and Italy's Fiat.

Sources close to the company said earlier Zastava's top managers travelled to Paris in May, visited Peugeot and signed a letter of intent on establishing cooperation, but as the deal came amid the worsening Kosovo crisis, the company took a vow of silence and was nowwaiting for the crisis to end.Since May, company sources said talks had resumed with Fiat too. But those could be misleading as Zastava is trying to negotiate repayment of its outstanding debt to the Turin-based firm, which is estimated at anywhere from 60 to 140 million German marks ($36-$84 million).

Beko declined to comment."We have reason to be optimists, but we must certainly not underestimate past experiences when Zastava was only inches away from a deal and could not sign it due to ongoing events," he said.

In view of the Kosovo crisis, which has brought fresh financial and investment sanctions against Yugoslavia, Zastava had found it impossible to privatise or to provide direct access to foreign partners.

"Politics should not influence economics and politics must not prevent investors from reaching their targets," Beko said.

To legally protect its future partner, Zastava's sources said it would initially have to act as a dealer, selling up to 10,000 foreign cars on the local market subjectonly to local taxes and no import duties.Only later when sanctions were lifted would the Kragujevac-based company be able to start producing spare parts and components and then gradually become fully integrated with its foreign partner.Beko declined to confirm this, but said regardless of who won the deal, Zastava and its partner would need to immediately invest some 60 million German marks to upgrade technology.

Over the first five years of cooperation, Zastava would need a total of 1.0 billion marks to revamp its production lines, Beko said.It is far from clear where all the money will come from as Zastava is heavily indebted and the Yugoslav state is at present believed to have less than $200 million in disposable hard currency reserves.Zastava's foreign partner should also help it to join the world automotive industry, Beko said. In the meantime the company would present its own concept of an upgraded local car industry.

"With the new concept, the entire sector will soon be able to reach the thresholdof profitability and attract strategic foreign partners," Beko told a news conference in Sombor on Thursday, where Zastava's factory launched its first new multi-purpose pick-up in ten years.

Together with its associated industries, Zastava provides jobs to some 120,000 workers across Serbia.