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Slovenia court rejects referendums on reform laws

Source: Thomson Reuters Foundation - Wed, 19 Dec 2012 17:58 GMT
Author: Reuters
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* Bad bank to become operational in April

* NLB cap hike seen next year (Adds finance minister's comments from para 2)

By Marja Novak

LJUBLJANA (Reuters) - Slovenia's Constitutional Court on Wednesday rejected opposition and union calls for referendums that could have blocked economic reforms aimed at averting an international bailout.

The rejection will mean that a "bad bank" set up to relieve lenders of soured loans and a new holding company to manage state-owned firms can become fully operational in April as planned, Finance Minister Janez Sustersic told reporters.

The small euro zone economy, sapped by weak demand for its exports, has been struggling with budget problems including bad debts at state-owned banks.

In October Slovenia passed a law setting up a state firm to take over the bad loans and enable the banks to be sold, and another to manage all state firms and speed up privatisation.

But centre-left party Positive Slovenia and a union demanded referendums on the laws, claiming the privatisation sales could offer scope for corruption.

Referendums present a big obstacle to reforms in Slovenia, where anyone can demand one on any newly passed law by collecting 40,000 citizens' signatures in its favour.

The government appealed to the court saying the latest laws were crucial to the country's financial stability.

"The delay or rejection of the laws ... at the referendums would have consequences that would be against the constitution," the Court said in a statement explaining its decision.

It said constitutional values such as the development of the economic system, social security and international obligations "have an advantage ahead of the right to demand a referendum considering the gravity of the economic crisis".

The rejection enables enforcement of the laws intended to help local banks tackle bad loans worth around 19 percent of gross domestic product (GDP), and to enable privatisation.

Sustersic also said the country's largest bank, state-owned Nova Ljubljanska Banka, would get a capital boost within six months, although the bank's supervisors had sought a 375 million euro (${esc.dollar}497 million) increase by the year-end.

"The (Court) decision today gives us more time," said Sustersic.

NLB, of which Belgian banking and insurance group KBC owns 22 percent, received 381 million euros from the state in July but needs more because bad loans are growing.

Sustersic said the government will have to provide up to 4 billion euros of guarantees for bonds that will be given to banks in exchange for bad loans, and 1 billion euros of fresh capital to hike state banks' capital.

However, analysts said the court's decision will ease the pressure on Slovenia, which issued its first sovereign bond in 19 months in October.

"Given that Slovenia's government has been quite successful in approval of other key laws, like the government budget for 2013 and pensions reform, the expectations of a near-term international bailout are likely to ease," Jaromir Sindel, an analyst at Citi Research said after the court's decision.

But he warned "a likely prolonged recession" could further damage state banks and government finances.

Sustersic said he expected the Court would also block a referendum on the draft budget for 2013 and 2014, demanded by trade unions who oppose plans to cut public sector wages. (${esc.dollar}1 = 0.7568 euros) (Reporting By Marja Novak; Editing by Ruth Pitchford)

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