Slovenia’s Parliamentary Speaker Gregor Virant rejected a move by opposition lawmakers to call a referendum on the government’s bank stabilization plan, easing concern the nation may be forced to seek a bailout.
Thirty legislators filed a motion on Oct. 30 to call a plebiscite on the plan to recapitalize the nation’s banks and create a wealth fund meant to ease the sale of state assets, saying they are a “bad solution.” Virant said proponents failed to follow the rules when they filed the motion on Oct. 30. The wealth fund motion was valid and a referendum will probably be held in January, Virant said.
“Lawmakers failed to follow rules when they filed the motion just before midnight on Oct. 30, which means I will not put the bank plan motion for a vote on the next session of parliament,” Virant told reporters in Ljubljana today. “It means there will be no referendum on the bank plan. It is their mistake and they have to live with it.”
The Adriatic nation would be forced to ask for international assistance if the two measures are rejected in a vote called by opposition leaders, Finance Minister Janez Sustersic said on Oct. 31. The government of Prime Minister Janez Jansa will ask the Constitutional Court next week to block the motion for a popular vote on the wealth fund.
Before Virant’s announcement, the Finance Ministry said he had a “reasonable doubt” over the authenticity of signatures by lawmakers on the bank plan.
Slovenia has been pushing for a bank recapitalization plan, the creation of a wealth fund and other measures to overhaul the economy as it seeks to avoid becoming the sixth euro-region nation after Greece, Ireland, Portugal, Spain and Cyprus to require assistance.
Due to a new political crisis it is very likely that the credit rating companies will re-assess Slovenia’s credit score, InterCapital Group, an asset management company and brokerage in Zagreb, Croatia, said in a report today.
The debt rating may be downgraded again if there is further deterioration in economic prospects or funding conditions because of “new, substantial domestic economic and financial shocks from the euro area crisis or the banking sector,” Jaime Reusche and Rebecca Karnovitz, analysts at Moody’s Investors Service in New York, said in a Oct. 30 note.
Moody’s cut Slovenia’s credit score to Baa2 in August, two levels above junk territory and keeps a negative outlook on the sovereign. Standard & Poor’s rates Slovenia A while Fitch Ratings keeps a A- rating.
Slovenia’s bank stabilization plan foresees the creation of a bank that would take non-performing loans from the country’s ailing lenders amounting to as much as 4 billion euros ($5.16 billion) in exchange for state-backed bonds that would probably be eligible as collateral for further financing with the European Central Bank.
“Should a referendum go ahead in December, the government will have to seek alternative bank restructuring options,” Gillian Edgeworth, economist at UniCredit SpA (UCG) in London wrote in a note to clients yesterday.
Such a move would be “less efficient” as it would also reduce appetite among foreign buyers for direct investment into the lenders, Edgeworth said in the note.
If voters reject the plan, Slovenia would probably sell ailing banks like Nova Ljubljanska Banka d.d. and Nova Kreditna Banka Maribor d.d. for a token 1 euro and leave it to the new owners to clean up their balance sheets, Sustersic said Oct. 31.
Slovenia has sufficient funding until spring next year before it would consider asking for aid, Sustersic said, after the country sold $2.25 billion of 10-year bonds last month.
The sale “staves off the risk of Slovenia becoming the latest euro area member to seek international assistance,” Moody’s said in the report. “However, the weak banking sector and an unsupportive economic environment continue to pose major risks to the sovereign’s credit profile.”
The referendum request increased Slovenia’s borrowing costs, especially on the dollar bond sold last month, the Finance Ministry said in a separate statement today.
The yield on the country’s benchmark 10-year dollar bond sold last month jumped 29 basis points to 5.49 percent on Oct. 31, a day after the referendum request was filed. The rate slid today by eight basis points, or 0.08 percentage point, to 5.41 percent at 11:58 a.m. in Ljubljana, according to data compiled by Bloomberg.
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