September 28, 2012 / 8:52 PM / 8 years ago

Slovenia debt to rise but no bailout needed: PM

UNITED NATIONS (Reuters) - Slovenia’s economy, saddled by a banking crisis, does not need a financial bailout, even though public debt levels will likely breach European Union rules in two years, Prime Minister Janez Jansa said on Friday.

Prime Minister of Slovenia Janez Jansa addresses a news conference at the EU Commission headquarters in Brussels June 27, 2012. REUTERS/Laurent Dubrule

Jansa expects government reform programs, such as increased public-sector wage cuts, job cuts, an increase in the retirement age and consolidation of a privatization program, if executed in time, will boost economic growth and make a bailout unnecessary.

“If we do what we planned, we won’t need a bailout,” Jansa told Reuters on the sidelines of the United Nations General Assembly meeting.

Slovenia is struggling to avoid becoming the sixth euro zone member to need some form of financial aid. Jansa said he hopes that all of the reform programs will become law within the next 45 days. He said that if there was a call for a referendum by opposition politicians, it would only serve to delay the process by two months, not stop it.

“Of course, if we run the same debt next year, the bailout is the only solution. But we are determined not to do it. This is why we had early elections and why we changed course,” he said.

Slovenia’s public debt to gross domestic product ratio rose to 47.7 percent in the first quarter of 2012, but it could cross above the 60 percent threshold set by European Union rules in 2014, Jansa said.

“2014 maybe,” he said on the debt threshold, adding: “2014 is also the year when we count on all these measures to start growth will also have some impacts.”

The overall public debt to GDP ratio for the 17-member euro zone rose to 88.2 percent in the second quarter, up from 87.3 percent in the prior period.

Jansa said Slovenia’s budget deficit stood at 3.4 percent, and required smaller cuts, despite plans to place bad loans in the banking sector - equal to 17.5 percent of economic output - into a so-called “bad bank.”

That move would require more government spending, but Jansa said it would not just be bad loans that are transferred.

“We will also transfer the shares of the companies,” he said, referring to loans, the majority of which are tied to corporate assets.

“But with all of the other measures we are implementing, the value of those shares after two or three years will rise,” Jansa said, referring to plans for more sales of state assets to raise revenues and reduce Ljubljana’s ownership of enterprises.

He rejected criticism that consolidating the five agencies in charge of privatizations into one overseen by the government was a recipe for increased political influence and selling of assets on the cheap.

“We have five different agencies which are dealing with this and the transparency is very low. Now we are creating a system with 100 percent transparency,” he said.

Jansa reiterated plans to start the process of selling a $1.5 billion Eurobond in October with the aim of finishing the sale before the end of the year to help finance the reform programs.

Slovenia postponed a similar issue in euros in April because the yield demanded was above 5 percent.

Slovenia’s bond issuing plans were helped dramatically by the drop in European government bond yields brought on by a July 26 pledge from European Central Bank President Mario Draghi to do whatever is necessary to protect the euro zone from collapse.

“He has to do this,” Jansa said. “There will never be total consensus about those measures because the difference between member countries is too big.”

Editing by David Brunnstrom and James Dalgleish

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