Slove­nia pledge to con­tinue aus­ter­ity

The Pak Banker - - COMPANIES/BOSS -

Slove­nia's pledge to con­tinue aus­ter­ity mea­sures failed to stem a rise in bond yields to record highs as in­vestors worry the Alpine na­tion will fol­low Cyprus as the next euro-re­gion mem­ber re­quir­ing a bailout.

Prime Min­is­ter Alenka Bra­tusek, in her first ma­jor pol­icy speech since tak­ing of­fice, told Par­lia­ment yes­ter­day that her week-old government would re­build ail­ing banks and im­prove state fi­nances that are in "bad shape" so the coun­try won't be­come the sixth euro mem­ber to need aid. Euro­pean Union of­fi­cials are striv­ing to con­tain a debt cri­sis that prompted Cyprus to join Greece, Por­tu­gal, Ire­land and Spain in agree­ing on a bailout. Bra­tusek's lack of specifics on how to avoid for­eign sup­port helped push the coun­try's bench­mark dol­lar-de­nom­i­nated bonds to an all-time high at a time when Slove­nia is look­ing to tap bond mar­kets.

"De­vel­op­ments in Cyprus have trans­lated into con­cerns that Slove­nia will strug­gle to ac­cess the Eurobond mar­ket over the coming months as it moves to re­cap­i­tal­ize its bank­ing sec­tor and shift re­liance for bud­get fi­nanc­ing away from the domestic bank­ing sec­tor, with an in­creased risk of a hair­cut in de­posits," Gil­lian Edge­worth, chief econ­o­mist at UniCredit SpA (UCG) in Lon­don, wrote in a note to clients yes­ter­day.

Slove­nia's econ­omy has strug­gled with two re­ces­sions over the past four years, boost­ing bank­rupt­cies. Banks such as Nova Ljubl­jan­ska Banka d.d. are strug­gling with surg­ing bad loans af­ter the col­lapse of the con­struc­tion in­dus­try, which fu­eled growth be­fore the cri­sis. Bad loans ac­count for about a fifth of eco­nomic out­put, spark­ing fears it may be next to seek help.

Slove­nia needs about 3 bil­lion eu­ros of fund­ing this year, while banks need an ad­di­tional 1 bil­lion eu­ros of fresh cap­i­tal, the Washington-based IMF said last week. The pre­vi­ous government of Janez Jansa, which fell Feb. 27 amid a cor­rup­tion scan­dal, had pro­posed a 4 bil­lion-euro plan to deal with bad as­sets at fi­nan­cial in­sti­tu­tions that Bra­tusek pledged to fol­low with some un­spec­i­fied changes. "Slove­nia won't need aid, we can do this on our own," Bra­tusek said yes­ter­day. "Our bank­ing sys­tem is sta­ble and safe and com­par­isons with Cyprus aren't valid.

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