Slovenian PM Faces Leadership Challenge on Budget, Sales

Slovenian Prime Minister Alenka Bratusek faces a leadership challenge that threatens to splinter the coalition and derail budget cuts after it swelled because of a $4.4 billion bank-rescue program.

Ljubljana Mayor Zoran Jankovic, the founder of Positive Slovenia, is running to wrest the party’s top spot from Bratusek, who helped the Adriatic nation avoid becoming the euro region’s sixth country to need a bailout. Her defeat could undermine the government’s goals of completing repairs on the bank industry, which holds 11 billion euros ($15.21 billion) of toxic loans, and selling state-owned companies.

“There is concern among investors about the leadership contest,” said Carlos Ortiz, an economist at UniCredit Bank AG in London, in an e-mail on April 23. “If Jankovic wins, it is very likely the coalition will break up.”

With strains widening in her 13-month-old government, Bratusek is fending off attempts by coalition partners and members of her own party to water down pledges on selling state assets as she strives to cut the budget shortfall that last year surged to almost 15 percent of the nation’s output. The gap is set to shrink to 4.1 percent by the end of this year, according to the central bank.

Positive Slovenia’s meeting outside of the capital Ljubljana has started, with the vote results expected later in the evening.

Party Influence

“I expect a result that will enable Slovenia to continue with the recovery and the stabilization of the economy,” Bratusek said in an interview in today’s edition of the Delo newspaper. She said she hopes members will choose to allow the party to “significantly” influence government policies rather than give up on it.

Slovenia’s bank rescue and the start of selling state-owned enterprises, including Telekom Slovenije d.d., have led to reductions in borrowing costs to record lows.

The yield on euro-denominated 10-year notes advanced for a third consecutive session, rising 13 basis points, or 0.13 percentage points, to 3.69 percent at 5:30 p.m. in Ljubljana from yesterday after dropping to the lowest level on record on April 7 of 3.41 percent as the leadership challenge emerged.

The yield on Slovenia’s benchmark notes surpassed 7 percent last year on investors’ concern the country may need outside assistance to fix its ailing banks.

‘Impressive’ Rally

“The rally on Slovenian debt has been impressive since September of last year,” Ortiz of UniCredit said. “I do not expect a significant increase in yields, and nowhere near what we saw back in April-May of last year following the the post-Cyprus concerns of Slovenia’s bankruptcy.”

Jankovic, who formed Positive Slovenia two months before a snap vote in late 2011, stepped aside in 2012, leaving the helm 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 Jankovic.

Bratusek became the former Yugoslav republic’s third premier since 2011 before she took power in March 2013. Regular elections are expected in the second half of 2015.

Jankovic said on April 14 he would be happy to lead the ruling party without unseating Bratusek from the premier’s post, while Bratusek said she cannot see herself remaining at the government’s helm if she fails to win party support.

Bratusek Favored

“Bratusek will likely prevail,” said Otilia Dhand, an analyst at Teneo Intelligence, in a April 23 phone interview from London. “However, in the unlikely event of a Jankovic victory, her government would likely be left destabilized.”

Bratusek, who said a snap election is possible if she loses the party bid, is “confident she will win the vote because the party would stand to lose a lot” in case of an early vote, Dhand said.

Slovenia spent 3.2 billion euros ($4.4 billion) to recapitalize its largest banks, Nova Ljubljanska Banka d.d., Nova Kreditna Banka Maribor d.d. and Abanka Vipa d.d. in December.

In February and April, it raised $3.5 billion and 2 billion euros of debt, which brings Slovenia to a “very comfortable cash position, while the bank recapitalization worries are now off the table,” UniCredit’s Ortiz said.

“Early elections would delay considerably the implementation of reforms, particularly the advancement of the government’s privatization agenda,” Ortiz said.