Bad loans in Slovenia remain on rise as reforms wait

LJUBLJANA Wed Nov 7, 2012 7:57am EST

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LJUBLJANA Nov 7 (Reuters) - Slovenia, which is struggling to avoid an international bailout, saw bad loans rise again in September, the government's macroeconomic institute said on Wednesday.

The head of the institute, Bostjan Vasle, appealed for structural reforms, including those to deal with the bad loans, to be brought in without delay.

"If we do not enforce (the reforms)... economic activity will worsen further," Vasle told a news conference when asked when the bad loans situation would improve.

The institute said provisions for bad loans in local banks rose by 85.7 million euros in September but gave no total figures. In July, Slovenian banks, mostly state-owned, were nursing some 6.5 billion euros of bad loans, equivalent to 18.2 percent of GDP.

On Tuesday, Standard & Poor's put the euro zone country's A rating on review for possible downgrade, questioning whether the government could implement planned reforms because of trade union and opposition demands for referendums.

Slovenia is struggling with recession and a gap in public finances, after the global and regional economic crises crippled domestic and export demand, prompting the government to bring in unpopular austerity measures.

Prime Minister Janez Jansa's conservative government last month passed a law establishing a state-owned entity to take over local banks' bad loans in exchange for state-guaranteed bonds, but trade unions stalled the enforcement of the law by seeking a referendum on it.

The opposition is also demanding a referendum on a new law that would set up a state holding to manage all state assets and speed up privatisation.

The government still hopes to persuade the trade unions and the opposition to retract their referendum demands and to agree on other reforms, like raising the retirement age and cutting public sector wages and unemployment benefits.

Vasle said the number of employees in the public sector, particularly in health and education, continued to rise this year although the government curbed employment in the central government.

Vasle said new data confirmed the institute's forecast that Slovenia's GDP would this year contract by 2 percent, with a further contraction of 1.4 percent seen in 2013.

Last month Slovenia issued its first sovereign bond this year, a 10-year $2.25 billion bond with a yield of 5.7 percent, averting a bailout for at least six months.

But Prime Minister Jansa had said the country would not be able to borrow abroad again unless the reforms were enforced quickly.

The government expects a budget deficit of 4.2 percent of gross domestic product this year, down from 6.4 percent in 2011. (Reporting By Marja Novak; editing by Zoran Radosavljevic and Stephen Nisbet)

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