By Marja Novak and Michael Winfrey
LJUBLJANA Slovenia, struggling to avoid
following Cyprus into a bailout, announced plans on Thursday for
the early rollover of debt maturing in June, a move that could
calm markets and thwart a squeeze on its finances.
But in a decision that underscored concern over the
three-week-old government's commitment to reforms, parliament
postponed a vote on a "golden rule" seen as a condition if the
nation of 2 million people wants to seek aid from its euro zone
Criticised in reports from international institutions this
week and facing investor frustration over unclear plans to clean
up its banks and cut its budget deficit, Slovenia has watched
its borrowing costs jump since the Cyprus's messy rescue.
Slovenia was the first state to break away from the former
Yugoslavia in the 1990s, but failed to follow other ex-Communist
European Union states in privatising its biggest banks.
Political influence and bad management have piled up a bad loan
burden that some investors fear is too big for the country to
At the heart of the matter have been conflicting statements
from officials over whether Slovenia had enough cash to roll
over a large tranche of debt maturing in June and stay afloat.
The Finance Ministry said it would try to refinance the debt
early with an auction of around 500 million euros worth of
18-month treasury bills on April 17.
At the same time, it said it would offer to buy back 855
million euros in June 6 bills at 99.525 percent of their face
Analysts said the operation - probably agreed ahead of time
with Slovenia's mostly state-owned banking sector - could give
the markets more time to calm down following Cyprus's rescue.
"The government seems to be trying to roll over the debt
prematurely so as to postpone the need for a bond issue until
autumn," said Andraz Grahek of corporate finance advisers
"I expect the issue will succeed but it will be mostly
domestic banks that will purchase it while the interest rate is
likely to be higher."
The maturing bills carry interest of 3.99 percent.
Grahek said the auction may also explain why the ministry
sold only about half the 100 million euros in short-term paper
it has aimed for in an auction this week, in which yields on 1
year bills jumped by half to 2.99 percent, because the banks
were anticipating the new sale.
The government needs about 3 billion euros this year to
recapitalise state-owned banks, repay maturing debt and cover
the budget deficit.
But yields on its 10-year benchmark bond rose to 6.48
percent on Thursday - closer to the 7 percent threshold at which
a country's finances can become unsustainable - from 4.77
percent on March 15, the day before the Cyprus bailout deal.
GOLDEN RULE POSTPONED
On Wednesday, the European Union's executive Commission
issued a "wake-up call" to Slovenia, Spain and other countries
over their failure to bring their budget deficits in line with
the bloc's prescribed norms.
It followed a critical report from the OECD club of wealthy
states that said Ljubljana may have underestimated the cost of
the clean-up of its three biggest banks - all state owned - that
the IMF estimates will cost up to 1 billion euros this year.
The government is also mulling austerity measures and a
"golden fiscal rule", which all euro zone members have to
enforce by the end of the year and which would require
governments to achieve a nearly balanced structural budget.
Passing the law would send a positive signal to markets,
analysts said, but Prime Minister Alenka Bratusek said parties
had not yet agreed on the year that it should take effect and
postponed a vote planned for Thursday until May 7.
The centre-right opposition has suggested 2015, but parties
in the four-member ruling coalition, which have resisted
spending cuts, have suggested they want more time.
Slovenia's budget deficit was 3.7 percent of annual output
in 2012, above the EU's 3 prescribed percent ceiling.
Slovenia's European Central Bank Governing Council Member,
Marko Kranjec, said it would be possible for Slovenia to avoid a
bailout, but the "ball is in the government's court."
"The situation of course is serious and it is the government
that has to take steps to give very clear signals that they are
serious," he told Marketnews in Dublin. "And if they do it I
believe it will be possible to get out without any programme."