Politics compound Slovenia woes, migrants head for the exits

* Ex-Yugoslav republic struggling to avoid a bailout

* Government on brink of collapse, slowing reforms

* Bratusek comes forward as new PM candidate

* Migrant workers head for the exits

By Marja Novak and Zoran Radosavljevic

LJUBLJANA, Feb 22 (Reuters) - Labourer Dalibor Marinkovic came to Slovenia from impoverished eastern Bosnia in 2007, when the Alpine country was a thriving member of the euro zone and a shining example to its fellow former Yugoslav republics.

"Everything was good. I earned 1,000 euros ($1,300) per month and even brought my wife here," said the 37-year-old construction worker.

Five years later, he was among dozens of other unskilled labourers queuing outside the German embassy in Ljubljana for a visa and a one-way ticket out - a telling anecdote in the story of Slovenia's dramatic rise and fall.

Ravaged by falling export demand and rising bad loans, Slovenia's 35-billion-euro economy is in the throes of a second recession since 2008. The construction sector has led the way, declining 60 percent since 2008.

Local economic and political analysts said the crisis was manageable.

But now the country's governing coalition is on the brink of collapse, threatening a second snap election in less than two years and slamming the brakes on reforms Slovenia needs to avoid going cap-in-hand to its European Union partners.

Embroiled in a corruption scandal, Prime Minister Janez Jansa lost a second member of his ruling coalition on Friday when pensioners' party Desus formally quit, and is expected to lose the third party on Monday.

That will leave him with only 30 out of parliament's 90 seats, unable to govern effectively but still clinging to power.

The main opposition party, the centre-left Positive Slovenia (PS), is seeking majority support for its candidate for prime minister Alenka Bratusek, who would be Slovenia's first female premier if she wins a "constructive no-confidence vote" likely to be called after parliament returns on March 4.

"Slovenia faces the bailout threat because of its politics and not because of its macroeconomic figures, which are not great but also not that bad," said Marko Rozman, head of investments at the treasury sector of privately-owned Dezelna Banka.


Doubts are growing over the fate of much-needed labour reforms, the sell-off of state assets and a 'bad bank' where the government wants to park bad loans before recapitalising and selling the banks.

Without such measures, Slovenia may soon be unable to find financing and repay some 2 billion euros of outstanding debt due in mid-2013.

"Unless the bad bank is established, no one will want to lend money to the state," former Finance Minister Janez Sustersic, whose Civic List party quit the government in January, told Reuters.

The opposition centre-left parties, who could join forces with some of Jansa's former allies to control the parliament, strongly oppose the bad bank plan.

The finance ministry, now also headed by Jansa after Sustersic's resignation, told Reuters no bailout would be needed as the country had plans in place that would "ensure it pays all its obligations."

But economic analysts say a halt in reforms will only increase the likelihood of Slovenia needing to ask for aid.

Estimates suggest Slovenia could need up to 5 billion euros, small change in comparison with the 240 billion euros the EU, International Monetary Fund and European Central Bank have so far spent trying to keep Greece afloat.

Most of the money will go towards shoring up the banking sector. The local banks, mostly state-owned, are laden with some 7 billion euros in bad loans - 20 percent of Slovenia's gross domestic product (GDP) - much of which were poorly insured and went to local companies that went bankrupt after the crisis hit in 2009.

The government wants to keep the banks afloat but also retain access to financing until it reaches a balanced budget in 2015.

"The likelihood of investors closing the door on the Slovenian government would increase should the government not be able to deliver a critical mass of reforms promised to investors in October 2012," said Otilia Simkova, an analyst in charge of Slovenia at political risk research firm Eurasia Group.

In October, the country managed to issue its first sovereign bond in 19 months at a yield of 5.7 percent.


The euro zone could probably take the bailout in its stride, given that Slovenia accounts for a meagre 0.3 percent of the currency bloc's economy, although it would be politically awkward when the group is already wrestling with financial woes in Greece, Spain, Italy and Cyprus.

"My best estimate is Slovenia might need 4 to 5 billion euros," said Timothy Ash, a researcher at Standard Bank.

"I think there will be very limited implications now, as Slovenia is a very small economy, so knock-on effects will be limited, and it will be manageable in terms of cleaning up the mess," he said.

It would not be an easy ride for Slovenia, however. With the bailout would come strict conditions, on top of a 3 percent average cut in public sector wages last year and plans for more reductions in pay and jobs in 2013.

"A possible bailout would mean tougher job and wage cuts across the public sector, under outside supervision," said Rozman of Dezelna Banka. "I think our politicians will do everything to avoid that."

Jansa remains in power, but there's an axe hanging over his government that analysts say may fall in a matter of weeks.

With unemployment at a 14-year high of 13 percent in December, the last data available, migrant workers like Marinkovic are voting with their feet.

"For the last three years, it's been getting worse and worse," he said. "I sent my wife home because we couldn't pay the rent. There is no work and when there is, we're often not paid.

"So I'm here to get a visa for Germany, where we are at least paid on time." ($1 = 0.7479 euros) (Editing by Matt Robinson and Sonya Hepinstall)