LJUBLJANA – Slovenia will not be the next euro member to need a financial rescue as it can afford to wait for lower borrowing costs before issuing new debt, its top economic official said on Friday.
The new center-left government was widely expected to raise money on financial markets shortly after taking office on March 20 but has not done so because Slovenia's borrowing costs have soared due to the turmoil in Cyprus.
Investors are betting that Slovenia, another tiny member of Europe's currency zone with a population of just 2 million, will also need a rescue to keep its banks and economy afloat.
Last week, Cyprus became the fifth euro member to receive financial help from Brussels to survive a regional debt crisis.
While Slovenia's banks are also in trouble the sector is smaller than in Cyprus and it does not share the exposure to toxic Greek debt and Finance Minister Uros Cufer said his country did not need help.
"We will need no bailout this year," he said. "I am calm."
Like many other euro zone members, Slovenia is in recession, with slowing exports to its neighbors and high unemployment.
It last issued a bond in October last year before the conservative government collapsed over a corruption scandal in January and was this month replaced by the new center-left cabinet of Prime Minister Alenka Bratusek.
Analysts were expecting a swift debt issue from the government but yields have jumped. The 2021 bond yield rose to 6.06 percent on Friday, from 5.45 a week ago.
The International Monetary Fund says Slovenia will need to raise at least 3 billion euros this year for the budget, debt repayment and the bank overhaul, and former Prime Minister Janez Jansa has said Slovenia must issue debt by June.
But Cufer said Slovenia, a mountainous country on the Adriatic neighbored by Austria, Italy, Croatia and Hungary, was not in a hurry.
"We do not have to go to the markets in these overheated times due to Cyprus," he said. "We can wait for the markets to calm down, for the investors to feel comfortable about our action and then we will tap the market."
He said the government would launch a "bad bank" by September that would take over a part of 7 billion euros in bad loans from the three main banks, all of which are in majority or large state ownership.
The banks would then require up to 1 billion euro ($1.28 billion) in a capital injection, which Cufer said Slovenia could raise later this year via a bond, part of the total 3 billion in planned debt issuance for this year.
With successive governments citing national interests, Slovenia was the only ex-communist state that refused to sell its largest lenders ahead of EU entry last decade, creating a toxic combination of political control and poor management in banks that backfired when the economy went downhill in 2009.
The global financial crisis ended years of fast growth and indiscriminate lending that included loans worth a reported 187 million euros from one bank to the largest builder, SCT, which went bankrupt after a collapse in real estate and construction.
Many other highly leveraged local companies went bust, sticking banks with more bad loans that combined amount to about a fifth of the economy.
Cufer, 42, took part in shaping the bad bank under a plan launched by the previous conservative government on the side of the biggest lender, Nova Ljubljanska Banka (NLB), where he worked as head of financial management.
He said the bad bank had already been established and would be fully operational "surely in a few months, definitely by the start of September".
Along with the 1 billion euros to shore up their balance sheets this year, the lenders will swap bad loans in exchange for state-guaranteed bonds issued by the bad bank, he said.
NO BANK SALES SOON
Cufer said the banks were now worth 10-20 percent of their book value, which would be 25 to 50 million euros, and the government would wait until they were recapitalized and markets stabilized before sells them into private hands.
"Now is not the appropriate time to sell. Selling at these prices makes no sense... Even next year is very optimistic," he said.
Cufer tried to stress that unlike Cyprus - where banking assets were seven times larger than the economy, as opposed to about 1.3 times for Slovenia - Ljubjana could handle its problems on its own.
"Slovenia cannot be compared to Cyprus, it is certainly not a tax haven... the basic problem of the banks in Slovenia is too much debt in companies and a lack of capital," he said.
To offset the costs of bank cleanup, the government will step up the sale of state companies rather than pursue the type of austerity measures that have deepened economic downturns in Greece, Portugal and other struggling states.
He declined to name what companies could be privatized but said they would continue with the program of the previous government. He added there would be at least "one major privatization" by the end of the year.
The last government was mulling selling stakes in telecoms operator Telekom Slovenia, insurer Zavarovalnica Triglav and fuel retailer Petrol. ($1 = 0.7788 euros)
(Writing by Zoran Radosavljevic; editing by Michael Winfrey and Anna Willard)