ANALYST COMMENTS - Weathering Global Crisis Will Be Key Test for Slovenia’s New Government

Slovenia’s parliament on Friday voted into office a centre-left cabinet assembled by Prime Minister Borut Pahor after his Social Democrats (SD) narrowly won September elections ahead of the centre-right SDS party of ex-Prime Minister Janez Jansa. The cabinet was endorsed in a 56-30 vote in the 90-seat parliament.

SD formed a coalition with two other centre-left parties, Zares and LDS, and the pensioners’ party DeSUS. The four parties together control 50 seats in the chamber.

Analysts said the new coalition government is homogeneous as its member parties are all left-leaning but the challenges it will face in the coming months will determine whether it would sail or sink.

“A difficult task is awaiting the new government. Slovenia is yet to face the consequences of the financial crisis, especially in the real sector. Some quick measures are needed now,” Primoz Cirman, journalist at local Dnevnik daily, told SeeNews. 

“The financial crisis will be one of the biggest tests for the new government,” said Zoran Potic, a journalist at local daily Delo, adding the future of the new government hinges on what the economic picture in the country will be.

Potic said 2009 will be a key year for the new government. “Next year will show how serious the new government is and how solid it is [...] If the coalition survives next year, it will hold until the end [of its four-year term of office].”

Analysts said the financial crisis also offers the centre-left parties a chance to shine after the four years in office of the previous government coalition led by the SDS.

The new prime minister has pledged to cut taxes and promote dialogue with trade unions and employers.

New Finance Minister France Krizanic has pledged to accelerate public investments in infrastructure projects such as construction of new motorways, modernisation of railroads and new energy facilities to counter the impact of the global financial and economic crisis.

But if the crisis is not deep and long, the main measure would be to launch a "developmental turnaround" through targeted incentives for business, Krizanic said in a presentation to the Finance and Monetary Policy Committee in the country's parliament last week. Other financial policy goals include changes in budget planning, a gradual increase in the general income tax relief and improved absorption of European Union funds.

Analysts, however, doubt the new government’s promises herald major changes in the country’s economic policy in the short term.

Credit rating agency D&B said in its November report that major changes in economic policy under a centre-left government should be unlikely.

“The main difference will be in the income policies, with the centre-left more inclined to redistribute income to the poor. Part of the funds needed to do this would likely come from cutbacks in defence spending,” the agency said.

It also said the direct impact of the ongoing international turmoil on Slovenia has been limited so far. No Slovenian bank has come under pressure so far, as Slovenia's membership of the eurozone makes the country less vulnerable to a harsher international financial environment than most other Central and Eastern European countries, D&B added.

However, analysts have said the main consequences of the global turbulence for the local economy are lower demand for Slovenian products abroad and tougher conditions for borrowing. Slovenian companies have already announced plans to cut jobs due to lower demand for their products on foreign markets.

Analysts said the Labour Minister, Ivan Svetlik, will be most under attack in view of expected lay-offs.

“Nothing significant will change in the short term,” Franci Tusek, an analyst with local brokerage house Medvesek Pusnik, told SeeNews.

He considers the presence of too many academics in the new government as its weakness.

“All these people have never worked in the real economy [...] Books are one thing, the real conditions are something different,” he added.

Krizanic has been head of the Economic Institute at Ljubljana's Law Faculty, while Mitja Gaspari, who became Minister for Development and European Affairs, is a former central bank governor.

Tusek expects the government’s measures will have no impact on the Ljubljana Stock Exchange (LJSE), which has suffered steep losses in the last few weeks, following a slump on global markets.

Due to low prices on the capital market Tusek expects no privatisation deals in Slovenia in the next two years.

“They [the government] have missed the best train,” he said, referring to 2007.

Last month the government's Institute of Macroeconomic Analysis and Development (UMAR) said it expects Slovenia's GDP to grow by 4.8% this year. Slovenia posted economic growth of 6.8% in 2007.

The Alpine country, which gained independence from socialist Yugoslavia in 1991, joined the EU in 2004, becoming its first South-East European member. In 2007 it became the 13th member of the eurozone.