Slovenia Pledges to Sell 15 Firms, Raise VAT to Avert Bailout
Slovenia pledged to sell 15 state firms and raise VAT on Thursday in a desperate bid to avoid an international bailout, but gave little detail and delayed the spending cuts investors say are needed to stabilize its finances.
The much-anticipated package offered no timeframe for the sell-off of state firms including the country's second largest bank, its biggest telecoms operator and the national airline. Nor did it say how much they were worth.
It also said cuts to the public sector wage bill would have to await the outcome of negotiations with unions.
The former Yugoslav republic was a trailblazer for ex-Communist eastern Europe when it joined the euro zone in 2007 as the bloc's fastest growing economy.
Buoyed by exports of Renault cars, household appliances and pharmaceuticals, successive governments shied away from the unpopular sale of state assets, including the country's biggest banks, and reform of the welfare system and rigid labor market.
Exports hit a wall with the onset of the global crisis, driving up bad loans, borrowing costs and exposing widespread cronyism and corruption that saw disastrous loans made to politically-connected businessmen.
Prime Minister Alenka Bratusek said the package, which includes a rise in value added tax from July 1 to 22 percent from 20 percent, would be enough to prevent the tiny Alpine country following Cyprus in the euro zone queue for a bailout from the European Union and International Monetary Fund.
The plan will go to the European Commission, the EU's executive arm, on Friday.
"This programme will enable Slovenia to remain a completely sovereign state," Bratusek told a news conference. Her finance minister, Uros Cufer, said: "Slovenia is a plane losing altitude and we first have to stabilize that altitude."
The bloc is growing increasingly nervous over Slovenia's commitment to the overhaul the EU says is needed to an economy roughly 50-percent controlled by the state and shackled with 7 billion euros (5.9 billion pounds) of bad loans in local banks.
Reaction was cautious.
"If all the measures are also put into practice and not just written down, I believe we are still in a position to solve the problem ourselves," Slovenian Central Bank governor Marko Kranjec, a member of the European Central Bank's governing council, told Austria's ORF television.
Saso Stanovnik, lead economist at investment firm Alta Invest, said the plan might buy time, but was not a "permanent solution".
"The biggest problem of this program is that it does not put enough emphasis on cutting costs," he told Reuters. "The privatization announcement is a positive surprise, but because of past experience we're skeptical that Slovenia will indeed sell these firms."
The country bought breathing space last week when it managed to issue two bonds with a total value of $3.5 billion, but will have to tap markets again no later than the first quarter of 2014 before a 5-year 1.5 billion euro bond matures on April 2.
A spokesman for EU Economic and Monetary Affairs Commissioner Olli Rehn said the Commission would study the plan and offer its response on May 29.
Analysts have voiced concern that the funding might encourage complacency in the government, an unlikely alliance of parties ranging from neo-liberal centrists to leftists and which faces rising public anger.
Cufer said the national fire sale would include No.2 state lender Nova KBM, the largest telecoms operator, Telekom Slovenia, flag carrier Adria Airways and Ljubljana Airport. The state would not retain any blocking stake in the companies.
Cufer said Slovenia had 2.4 billion euros in deposits in state banks and so did not foresee any problem in recapitalising this year to the tune of 900 million euros. He said the transfer of bad loans to a 'bad bank' would begin by the end of June.
Bratusek said the budget deficit would soar to 7.8 percent of national output this year and that the government aimed to bring it down to 3.3 percent in 2014.
The government, she said, had decided against a new, progressive "crisis tax" on wages, saying the VAT increase alone would bring in 250 million euros per year.
But Bratusek said the government needed to agree with unions to cut public sector spending by 250-300 million euros to avoid having to introduce the crisis tax next year.