The Slovenia Times

Taking a Look Back

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7


The Hypo Alpe Adria Bank Scandal

The sudden replacement in February of the entire management of the Slovenian branch of the bank Hypo Group Alpe Adria and its leasing arm Hypo Leasing caused a huge uproar in Slovenia. The media widely reported that the move was the result of suspicion of wrongdoing on a massive scale.
"The supervisory board doubts that the management of the bank and the leasing house are providing comprehensive and correct information. Unfortunately there is evidence... of fraud, corruption, unlawful property gains ad gross negligence," said a document submitted by the Austrian parent bank to the Slovenian central bank and which was published in Finance, the Slovenian daily.
Allegedly, an internal audit found opaque transfers to Liechtenstein and other tax havens, hidden commissions, blackmailing of bank customers, approval of loans without sufficient collateral, and unwarranted outsourcing of back-office activities.
Seven managers were replaced on short notice and escorted from the bank. The fact that Austrian security guards participated in the action was seen by many as proof that the Slovenian justice system couldn't be trusted, leaving the Austrians deciding to take matters into their own hands. The affair was another in the long list of scandals that surrounded former interior minister Katarina Kresal. Eventually, they caused her downfall - and that of the entire Pahor government.

A Visit by Vladimir Putin

Russian Prime Minister Vladimir Putin visited Slovenia in March in what was billed as a new chapter in bilateral relations. Energy was the main focus with an agreement signed on a joint venture to build the Slovenian section of the South Stream gas pipeline.
The chairman of Russian gas giant Gazprom Alexei Miller and the boss of Slovenian gas infrastructure utility Geoplin plinovodi Marjan Eberlinc signed the agreement, establishing the Južni tok Slovenija (South Stream Slovenia) company, which would take charge of the project once the route through Slovenia is confirmed as feasible.
The accord sets down that each partner will hold a 50 percent stake in the company. But it does not determine the final route of the pipeline through Slovenia, which will be decided based on a comprehensive feasibility study by Gazprom.
Apart from energy Pahor and Putin discussed ways of boosting bilateral trade beyond the current level of EUR 1.2bn a year.
Pahor stressed in particular the prospects of Slovenian construction companies bidding for deals in Russia, including for facilities for the Winter Olympics in Sochi in 2014.
Putin meanwhile said Russia was particularly interested in expanding cooperation in the high-technology sector and making capital investments.
A total of six agreements were signed on the occasion, including a memorandum on the establishment of scientific and cultural centres, a memorandum of understanding between the agriculture ministries and an agreement on cooperation between Slovenia and the Ulyanovsk region.

NLB Bank Recapitalisation

The financial state of Slovenia's biggest bank, NLB, dominated the headlines for most of 2011. The bank had a capital injection by taxpayers back in March, amounting to EUR 250m. Yet in July, the bank barely passed the European Bank Authority's stress test, with its core Tier 1 ratio being 5.3 percent, with the threshold set at five percent. The EBA has recently stated that it wants all major European banks to increase their capital Tier 1 ratio to 9 percent, meaning that NLB will need another capital injection. The shareholders have approved the recapitalisation which needs to happen by June next year. However, it is yet unclear who will provide the money and how much, with figures varying from EUR250m to EUR 400m. In the meantime, Fitch ratings agency downgraded NLB's long-term foreign currency credit rating from A- to BBB.

Mini Jobs Act Referendum

The act on mini jobs was decisively defeated in April's referendum, with a surprising majority of over 80 percent voting against on a turnout of nearly 34 percent. The outcome was a painful vote of no-confidence for the government, and was a preview of the hard times the coalition would face pushing through with other, more crucial changes such as pension reform.
The mini jobs act would have abolished student work in its present form and extended short-term contracts to the unemployed and pensioners. The work would have been capped at 720 hours per year and income at EUR 6,000 gross per year. Unlike present student work, mini jobs would have partially counted towards pensionable years and formally be considered as work experience.

NKBM Bank Double Listing

Slovenia's second-largest bank, NKBM, listed its shares on the Warsaw Stock Exchange in May so becoming the first Slovenia company to be listed on a foreign stock exchange as well as the domestic one.
Prior to the listing, NKBM launched a capital increase on 4 April which was surrounded by controversy. The existing owners were invited first and then other investors to subscribe just over 13 million new shares which would be double-listed in Ljubljana and Warsaw.
The state decided not to take part in the NKBM recapitalisation, which was valued at up to EUR 132.4m.
However, the guardian of the state's capital stakes in companies - the Capital Assets Management Agency - urged the government to take part in order to retain its majority stake in the bank. The agency said the relatively low share price (EUR 8) was a reason to do so.
The agency then went as far as to order three state-owned companies to take part in the capital rise, which caused uproar among some government ministers and resulted in calls for the dismissal of the agency's management.
Although huge hopes were placed on the listing on Warsaw Stock Exchange, the listing failed to inspire investors or the value of the bank's shares. Indeed, NKBM has seen its fortunes flounder this year. In November it reported a EUR 4.4m loss for the first nine months this year. On 29 November alone, the value of its shares dropped by 9 percent. From EUR 10 per share in January this year, the shares were hovering around EUR 3.5 in December. The outlook for 2012 is even gloomier.

Pension Reform Referendum

The Labour, Family and Social Affairs Ministry presented a blueprint for modernising the pension system, last reformed in 1999. Under the plan, the retirement age would have gradually been raised to 65 years for both men and women (from 63 and 61 years) and the minimum retirement age set at 60 years. The pension calculation period would have been gradually extended from 18 to 35 years. The new pension system would have entered into force in 2015.
Those opposing the reform - including DeSUS, the pensioners party that were government coalition partners at the time - called for a referendum. Despite a powerful campaign backed by the OECD and European Union, an overwhelming 72 percent of Slovenians who voted rejected the proposal. This ultimately led to the fall of government and early elections. The outgoing prime minister Borut Pahor blamed the subsequent lowering of credit rating of Slovenian bonds and banks on the failure to pass the reform.

Slovenia Marks 20 Years

This year Slovenia observed a key milestone - it celebrated 20 years of independence. Weeks of events, which were an opportunity to celebrate the country's achievements and to debate impending challenges, culminated on the eve of National Day with a central national ceremony in Ljubljana. National Day remembers 25 June 1991, when the Slovenian Assembly passed the Constitutional Charter on Sovereignty and Independence, with which the country gained statehood for the first time in its history.

Construction Sector Crisis

Slovenia's construction sector has all but collapsed since the crisis hit the country in late 2008 and some 20,000 people have lost their jobs in the industry in the past three years. Continuing a marked contraction, although at a slightly slower pace than in the previous quarters, the sector shrank by 19.7 percent in the third quarter this year, compared to the same quarter the year before. The outgoing government has proposed some measures to help the sector but with the outlook for the economy in 2012, it is very unlikely the sector will pick up any time soon.
In 2008, the construction sector accounted for 7.3 percent of GDP. Its share of the economy decreased to 7 percent of GDP in 2009, to 6 percent in 2010, and to only 4.3 percent in the first half of 2011.

Eurozone Crisis

Moody's Investors Service, a global rating agency, downgraded Slovenia's government bond ratings to Aa3 from Aa2 due to problems in the corporate and financial sector at a time of growing uncertainty regarding the government's ability to curb growing debt. In a further blow, after lowering Slovenia's credit rating by one notch to AA-, Fitch ratings agency also downgraded credit ratings of seven Slovenian banks. The banks whose long-term foreign currency credit ratings were lowered were NLB (from A- to BBB), NKBM (from BBB+ to BB), Abanka Vipa (from BBB- to BB-), Gorenjska banka (from BBB to BB), Banka Celje (from BBB to BB) and Probanka (from BB- to B).
Finally, Standard & Poor's downgraded Slovenia's long and short-term sovereign credit ratings by one notch to AA-/A-1+ from AA/A-1+ on grounds that the country's fiscal position has deteriorated since the onset of the 2008 financial crisis and that policy makers have not yet presented a credible consolidation strategy.
Reports in November showed that Slovenia's economy contracted by an annual rate of 0.1 percent (seasonally and working days adjusted) in the third quarter of 2011, and shrunk by 0.2 percent on the quarter before. The Finance Ministry blamed the contraction on the euro debt crisis and its impact on exports, and the prolonged credit crunch, which it said caused a more pronounced slowdown in Slovenia than elsewhere in the EU.

Sale of Mercator

The attempt by a consortium of banks and Pivovarna Laško to sell the majority stake in retailer Mercator to Croatian retailer Agrokor has caused an uproar in Slovenia both with those in favour of and against the sale. Those against are mostly worried that Slovenian food and drinks producers will lose their place on Mercator shelves. They are also worried that due to Agrokor's apparently weak financial standing, it will use Mercator's relatively good financial standing to cover its own costs. Those for the sale argue that those against it are letting their "national interest" sabotage a perfectly sensible and profitable deal. Agrokor is by far the highest bidder for the Mercator shares, at EUR 221 per share. The saga continues...

Early Elections

Early elections started off with pessimism with old faces gracing the list of candidates. However, the election race was significantly revived with the entry of two new candidates: Gregor Virant and Zoran Janković. Even so, the campaign turned into affair-seeking-race with the media, the public, and the candidates themselves looking to find evidence of who was more dishonest and corrupt. Virant's inability to fight off accusations of taking legitimate government pay while freelancing at the same time cost him a lot of votes. Janković had to continuously explain his connection with his sons' companies as well as dubious deals that his sons were involved in. Janša's opponents managed to dig out some dodgy documents regarding the property he owns, as well as having the ongoing Patria affair trial at their disposal. In the end it lost him another election, with Janković being the surprise winner. His victory gives Slovenians a new alternative to the well-established political elite but Janković will nevertheless have little choice but to form a government that will include old familiar faces.

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