By Marja Novak
LJUBLJANA (Reuters) - The fate of Slovenia's coalition government, which saved the country from an international bailout last year, hung in the balance on Friday ahead of a leadership battle in the main party due later in the day.
Prime Minister Alenka Bratusek hopes to be confirmed as president of the center-left Positive Slovenia (PS) but a victory by her challenger, Ljubljana mayor Zoran Jankovic, would most likely topple the government.
"The result of the vote is entirely unpredictable and will be tight," said Tanja Staric, a political analyst at daily Delo.
The country managed to avoid an international bailout in December by pumping some 3.3 billion euros in its troubled banks and expects GDP growth of 0.5 percent this year after two consecutive years of recession.
With its borrowing needs covered for 2014, Slovenia looks unlikely to have to resort to outside help even if the government collapsed, but it could delay a program of cuts and privatizations aimed at reviving an economy badly hit by the global economic crisis.
Bratusek has indicated she will resign as prime minister if she does not get the support of her own party at the congress that is due to have several hours of debate before a vote expected around 2000 GMT.
All three of her coalition partners have said they will not cooperate with a party led by Jankovic, who is being investigated for corruption. He has denied the allegations.
Jankovic founded the PS two months before an election in 2011 but failed to form a government despite winning the most votes.
After a centre-right cabinet collapsed over another corruption scandal, he resigned from the party helm in February 2013 to enable his hand-picked successor Bratusek to form a new government.
The yield on Slovenia's 10-year benchmark bond, which has fallen back to the 2007 level this year as investor confidence grows, rose to 3.664 percent on Friday from 3.562 a day before, according to Reuters data, and could rise further if political instability continued.
Analysts say a government collapse would lead to an early election and slow down reforms, which include privatizations and trimming the public sector and national health service.
Last year, Bratusek's government earmarked 15 firms for sale, including the largest telecom company Telekom Slovenia and the number two bank Nova KBM, in the hope of selling most of them by the end of this year. So far only two have been sold.
"Overall, if there is a risk of an early election, the most important point from our perspective is whether the new government will remain friendly to the privatization process, which has not been too popular among voters," said Jaromir Sindel, an economist of the Citi Research.
Slovenia has refused to sell its major banks, insurers, telecom and energy firms over the past two decades so the government still controls about a half of the economy.
Analyst Staric said the coalition government would not last until the next regular election, due in late 2015, even if Bratusek won control of the party "because of the tension inside the leading party and within the coalition".
"Therefore we can expect an early election later this year or at the start of 2015 even if the government stays intact for now," she said.
Slovenia was the fastest growing euro zone member in 2007 when it joined the monetary union but was badly hit by the global crisis due to its dependency on exports.
(Editing by Zoran Radosavljevic and Alison Williams)