IMF says planned Slovenia reforms can avert bailout

LJUBLJANA Tue Oct 2, 2012 9:37am EDT

LJUBLJANA (Reuters) - Slovenia can still avoid becoming another euro bailout recipient if the government enforces planned reforms, the International Monetary Fund said on Tuesday.

The lender voiced confidence at the end of a regular annual visit that the country could finance itself on international markets again, provided it acts on reforms such as raising the retirement age and making it easier to hire and fire employees.

However, the IMF urged the government to be more ambitious in privatizing state-owned banks, which are sinking under bad debts. The export-driven economy is struggling in recession after expanding rapidly when it joined the euro zone in 2007.

"If Slovenia implements courageously all the reforms that are clear we think that should be enough to reassure the markets," Antonia Spilimbergo, head of the IMF mission for Slovenia, told a news conference.

He said it was up to the government to decide whether it would need international help, adding the IMF is "open always" for such requests.

Spilimbergo said the reforms went in the right direction but urged Ljubljana to reconsider its decision to keep 25 percent stakes in both its largest banks, Nova Ljubljanska Banka and Nova KBM NKMB.LJ. Both banks are majority state-owned and burdened by bad loans.

He said complete privatization of those banks would "convey a very strong signal" that Slovenia was determined to reduce the influence of the state on the economy.

The Fund said Slovenia's gross domestic product (GDP) would this year fall by 2.2 percent and another 1 percent next year, before returning to growth in 2014. Slovenia's central bank this week forecast a decline of 1.8 percent in 2012 and 0.7 percent in 2013.

The conservative government also plans to improve the management of state firms, speed up privatization and establish a company that will take over bad loans.

The government hopes the reforms will reopen international financial markets to Slovenia, which has been unable to issue sovereign bonds for the past year because the yields demanded were too high. It now hopes to issue a $1.5 billion bond in October or November.

(Reporting By Marja Novak; editing by Zoran Radosavljevic and Ruth Pitchford)

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