By Marja Novak
LJUBLJANA, Dec 21 (Reuters) - Slovenian public sector unions dropped a referendum demand on Friday, removing the last formal hurdle to reforms meant to save the euro zone country from having to seek a bailout.
The unions' decision against pursuing a public vote on the draft 2013-14 budget was announced shortly before several thousand people staged mass rallies in Ljubljana and other cities, alleging government corruption and denouncing austerity measures.
Earlier this week, Slovenia's Constitutional Court rejected demands for referendums on two key reform laws filed by the opposition and a trade union in October.
"With this (withdrawal of the referendum demand), we are showing respect for the rule of law... but we will continue to defend the right to social dialogue, public services and citizens' welfare," Janez Posedi from the Confederation of public sector unions said in a statement.
Otilia Simkova, an analyst at the Eurasia Group, said Prime Minister Janez Jansa's conservative government can now focus on implementing the reforms. "However, the country is not out of the woods yet and investors will continue to monitor reform efforts," she said.
Slovenia is struggling to manage its finances given weak demand for its exports, a recession that is eroding tax revenues and the need to support local banks whose bad loans amount to 19 percent of gross domestic product.
Public sector unions had demanded a referendum on the budget because it envisages a 5 percent pay cut for the sector in 2013, after a 3 percent cut earlier this year.
They now plan a general strike against cuts, probably in January.
In Ljubljana, several thousand people rallied in front of parliament, whistling, booing, honking horns and chanting anti-government slogans in front of police barricades.
"They stole everything and now want to take what we have left," said Marta, a 62-year old retired administrator who joined the protest. "They are cutting spending for schools, students, health, pensions. We need a new system, a new government and these protests should have started long ago."
The first three hours of Friday's protests, organised through Facebook, were peaceful and no injuries or arrests were reported by the police.
Protests have spread around the country over the past month. In early December, more than 30 people were hurt and over 140 were arrested in the most serious anti-government protests since Slovenia gained independence in 1991. (Reporting by Marja Novak, Editing by Zoran Radosavljevic and Ruth Pitchford)