Bloomberg News

Slovenian Leader Vows More Talks as Early Vote, Bailout Loom

February 14, 2013

Slovenian President Borut Pahor agreed to continue talks to break a political deadlock that threatens to spark early elections as the euro member tries to avoid a bailout.

Pahor met party leaders including Prime Minister Janez Jansa today in the capital, Ljubljana. The talks were arranged to discuss “common and responsible behavior about the most important questions for the interests of the state and the benefit of the people at the time of increased political uncertainty,” Pahor’s office said yesterday in a statement.

Slovenia, on the brink of becoming the sixth euro member to ask for a bailout, has drafted a 4 billion-euro ($5.4 billion) bank recapitalization plan that would take up bad loans from ailing lenders. The proposal may be derailed by early elections as a political crisis deepens over corruption allegations against Jansa.

The People’s party, a member of Jansa’s minority government, said yesterday it would support a no-confidence vote against the current administration and refused to be part of a new technocrat Cabinet being pushed by the largest opposition group, Positive Slovenia.

‘Continued Flux’

“It now seems difficult to see the two remaining parties in the ruling coalition managing to endure much longer in a minority capacity, and early elections would appear the most likely outcome,” Timothy Ash, an emerging-markets economist at Standard Bank Plc in London, said yesterday in an interview. “The continued flux on the domestic political scene is expected to put further downward pressure on the sovereign ratings and also Slovenian asset prices.”

Slovenia had its credit score cut by Standard & Poor’s Feb. 12 by one level to A-, the fourth-lowest investment grade, because of rising debt levels and uncertain growth prospects. That brought the S&P rating to the same level as Fitch Ratings while Moody’s Investors Service gives the Adriatic nation a Baa2 score, the second-lowest investment rating.

The yield on the nation’s dollar-denominated debt maturing in 2022 rose to a record 5.7836 percent Nov. 15 as opposition parties and trade unions threatened a referendum on the bank recapitalization plan. The motion was struck down by the Constitutional Court. The yield on the notes has dropped since and was at 5.0485 percent today in Ljubljana, according to data compiled by Bloomberg.

Debt Sales

“We aren’t excluding Slovenian bonds will underperform and the rating change affecting the planned sale of bonds in the near term,” Matjaz Music, director of economic research at Hypo Alpe-Adria Banka d.d. in Ljubljana, said in a report yesterday.

Slovenia wanted to sell as much as 3 billion euros of debt this year and planned to tap the U.S. bond market, Deputy Finance Minister Dejan Krusec said in a Jan. 15 interview. He has since stepped down from his post. Jansa rejected the state’s borrowing plans for this year, overruling the Finance Minister Janez Sustersic, who has also resigned.

Jansa’s Cabinet, which took power a year ago after an early vote following the collapse of the previous government, passed legislation on the plan, as well as the creation of a sovereign holding and pension changes that are meant to make the economy more competitive and pull it out of its second recession in three years.

“Slovenia is most probably heading toward the ‘caretaker government,’ which will result in early elections later in the year unless premier Jansa asks for a confidence vote,” Jaromir Sindel, an economist at Citigroup Inc. in Prague, said by phone. Sindel sees a chance the country can avoid a bailout as the S&P cut “could put pressure on politicians to work on a way out from the current political crisis.”

To contact the reporter on this story: Boris Cerni in Ljubljana at bcerni@bloomberg.net

To contact the editor responsible for this story: James M. Gomez at jagomez@bloomberg.net


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