UPDATE 1-Slovenia needs new investment cycle for financial stability -governor

Thu Jul 17, 2014 9:42am EDT

(Updates with quotes, details, background)

By Marja Novak

LJUBLJANA, July 17 (Reuters) - Slovenia will have to embark on a new investment cycle in the coming year and restructure over-indebted companies to ensure long-term financial stability, Bank of Slovenia Governor Bostjan Jazbec said on Thursday.

The euro zone member narrowly avoided an international bailout last year by pumping in 3.3 billion euros into its banks to save them from collapsing under bad loans.

It expects to get a new centre-left government in September after a new party, SMC, headed by political novice and legal expert Miro Cerar, won a snap general election on Sunday.

"Outside (financial) help is always a possibility ... but I see no need for it at this moment," Jazbec, who is also a member of the European Central Bank governing council, told a news conference. "We can avoid it if we prepare a strategy that will enable new investments in the coming months or at least until the end of 2015."

Jazbec said the country also needed to cut red tape, increase tax income by enforcing a real-estate tax and improving tax collection, improve the flexibility of the labour market and reform the national health and pension systems. Most of those reforms have been dodged by successive governments.

He said the new government's priority will have to be establishing a system that make it easier to restructure companies that have piled up massive amounts of debt over the past two decades. That is the only way to avoid further problems in Slovenian banks, he said.

"The status and the structure of the banking sector is not sustainable in the long run," Jazbec said, but he added that local lenders should pass the European stress tests this year.

He said Slovenia's economic growth since gaining independence from Yugoslavia in 1991 was based on debt rather than on ownership capital. He urged the government to sell state companies and attract foreign investors.

The new prime minister is expected to be Cerar, a 50-year-old legal expert who entered politics just six weeks ago. He is due to start coalition talks next week.

He told Reuters on Sunday that Slovenia would meet deficit targets agreed with the European Union but would seek "our own ways" to get there. His cabinet, he said, would review which state companies would be sold.

The outgoing government last year put 15 companies up for sale, including the number two bank NKBM and the main telecom operator Telekom Slovenia. (Reporting By Marja Novak; Editing by Zoran Radosavljevic and Larry King)

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