New Slovenia PM vows to help growth, jobs before parliament vote

Reuters News

3/20/2013 12:13:33 PM - Reuters News

By Marja Novak

LJUBLJANA (Reuters) - Slovenia's new prime minister, Alenka Bratusek, is determined to revive the country's economy and overhaul its crumbling banks to avoid an international bailout, she told parliament on Wednesday.

Legislators are expected to confirm Bratusek's cabinet, grouped around her center-left Positive Slovenia party, late on Wednesday. It will take over from Prime Minister Janez Jansa's conservatives, who lost their majority in parliament in January over a corruption scandal.

Bratusek's four-party coalition controls 49 out of 90 seats in parliament. She told deputies before the vote that her cabinet plans to ensure fiscal and political stability, increase the competitiveness of the economy and create jobs for the young.

"I expect a consolidation of the public finances that will not reduce economic growth," Bratusek added, marking a departure from Jansa's austerity drive.

She said the government would focus on solving the problems of local banks, whose 7 billion euros ($9 billion) of bad loans amount to 20 percent of gross domestic product (GDP).

"All (coalition) partners are aware that solving the problems of the banking sector is necessary and we will continue with it in a somewhat different form," said Bratusek.

She gave no details but the future finance minister Uros Cufer said on Tuesday the new government would set up a "bad bank" as planned by the previous conservative cabinet.

AILING BANKS A PRIORITY

The International Monetary Fund said the three largest Slovenian banks, all majority or partially state-owned, would need a capital boost of about 1 billion euros in 2013 and cautioned that "deteriorating economic conditions could increase the need for capital in (later) years".

It also said in a statement on Wednesday that Slovenia should facilitate debt restructuring of companies, improve corporate governance and attract more foreign investment by privatization, which has been on the back burner for years.

The country's banks, mostly state-owned, are at the heart of speculation that the ex-Yugoslav republic of 2 million people may have to follow Cyprus and other vulnerable euro zone states in seeking a bailout.

Analysts said enforcing the bad bank was a priority for the new government.

"Fitch's current assumption is still that Slovenia will not request international financial assistance, which implies that the incoming government will successfully complete and implement key legislation on the bad bank," said Matteo Napolitano of Fitch Ratings.

He said Fitch would review Slovenia's sovereign rating, currently at A- with a negative outlook, by early August.

Slovenia, which is also struggling with a renewed recession due to weak demand for its exports and budget cuts squeezing spending, managed to issue its first sovereign bond in 19 months in October, averting a bailout at least until June.

The European Commission expects Slovenia's GDP to fall by 2 percent this year after a contraction of 2.3 percent in 2012. The government's macroeconomic institute expects unemployment, currently at a 14-year-high of 13.6 percent, to fall significantly only in 2015.

Bratusek said she would ask for a confidence vote in parliament in one year, in line with a coalition agreement, giving her partners a chance to opt for a snap election.

The next regular election is due in late 2015.

(Reporting By Marja Novak; Editing by Zoran Radosavljevic and Hugh Lawson)