April 28 (Bloomberg) -- Slovenian Prime Minister Alenka Bratusek will meet President Borut Pahor tomorrow, raising speculation she will step down after being ousted as party leader and increasing the risk bond yields will soar.
Ljubljana Mayor Zoran Jankovic unseated Bratusek as the chairman of the Positive Slovenia party on April 26. She has said she can’t remain at the helm of the government without party support and didn’t rule out calling an early election. Bratusek spokesman Matija Sevsek confirmed the Pahor meeting in a text message yesterday. Stocks plunged the most in three years and bond yields soared.
Bratusek, Slovenia’s third prime minister since 2011, helped the country avoid joining other euro-zone members in need of an international bailout. In return, she has fought criticism for spending 3.2 billion euros ($4.4 billion) to rescue the banking industry and pushing austerity and asset-sale programs that improved investor confidence and allowed bonds to recover.
“This is clearly credit negative and bonds should trade meaningfully wider,” said Abbas Ameli-Renani, an emerging-markets strategist at Royal Bank of Scotland Group in London. Early elections could leave Slovenia “with no functioning government for a period of three to four months, bringing the process of privatization and structural reform to a halt.”
The government’s euro-denominated bonds maturing in 2024 fell, pushing the yield up 19 basis points, or 0.19 percent, to 3.88 percent at 6:36 p.m. in Ljubljana after reaching a seven-week high in earlier trading, according to data compiled by Bloomberg.
The yield dropped to a record-low 3.41 percent on April 7 as the leadership challenge for the ruling party emerged. The yield on Slovenia’s benchmark notes surpassed 7 percent last year on investors’ concern the country may need outside assistance.
On Slovenian debt “we expect some further deterioration, but this is likely to be contained as Slovenia can be said to be in a much better position than last year amid an improving growth outlook and secured funding needs for the year,” Carlos Ortiz, an economist at UniCredit Bank AG in London, said in a report today.
The European Commission, the European Union’s executive, is following developments in Slovenia “very closely”, spokesman Simon O’Connor told reporters in Brussels today. The country needs to do more to make its economy more competitive, O’Connor said.
Slovenia’s main stock index, the SBI TOP, plunged the most in more than three months, making it the worst performer among 93 equity indexes tracked by Bloomberg.
The gauge of eight most-traded stocks dropped 4 percent to close at 728.57 points in Ljubljana after dropping the most in almost three years earlier today, with phone company Telekom Slovenije d.d. and retailer Mercator Poslovni Sistem d.d. leading the decline, data shows.
“This coalition doesn’t exist anymore,” Igor Luksic, leader of the Social Democrats said in an interview with TV Slovenija on April 26. His group is part of the four-party ruling bloc that controls 49 seats in a 90-member assembly. Other coalition partners have also said they can’t be part of the government as long as Jankovic is party chief.
The export-driven economy is recovering after more than two years of recession and is set to advance 0.6 percent this year and accelerate further in 2015, the central bank has forecast.
“It is now clear that the economy is on the mend as exports and industrial production are rising while the yield on our bonds is 50 percent lower than it was when I took over,” Bratusek said before the party vote. “With no support from you, members, you cannot ask me to seek a confidence vote and support from other parties.”
Jankovic, who formed Positive Slovenia two months before a snap vote in late 2011, stepped aside in 2012, leaving the premiership to Bratusek after he was accused by the country’s anti-graft agency of failing to declare his private assets along with the former Prime Minister Janez Jansa.
Prosecutors have yet to act on accusations against him. Jankovic said after the vote he sees no problem being party chief while Bratusek continues as premier.
Bratusek took power in March 2013. Regular elections are expected in the second half of 2015.
Slovenia covered its financing needs well into next year after selling $6.3 billion of debt in February and April. Timothy Ash from Standard Bank Plc in London said Slovenia got “ahead of the curve by significantly prefinancing itself.”
“I am more relaxed than I was a year ago because most of the urgently needed reforms are done,” Lutz Roehmeyer, who helps manage $1 billion in emerging-market assets, including Slovenian debt, at Germany’s Landesbank Berlin Investment, said in an e-mail on April 26. “I do not like political instability with often-changing governments, but I think you have to accept this when you invest in countries like Slovenia.”
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