Slovenia needs ESM support: IIF

(WASHINGTON) - The influential banking association, the Institute for International Finance, urged European authorities Tuesday to extend precautionary credit assistance to Slovenia to avert a potential larger bailout.

The IIF, which groups 450 of the world's largest banks and which had a key role in Greece's bailout, said a modest support facility from the European Stability Mechanism could go far to stabilize the country's financial situation.

As Slovenia struggles to raise funds itself to bridge its fiscal shortfall and recapitalize its frail banks, the IIF said an ESM facility could help keep the bond market open to fund-raising.

The IIF said that the government's funding shortfall could run from 9.3-11.8 billion euros over 2013-2015, depending on the severity of the country's economic downturn.

With ESM support, though, on top of an aggressive privatization program and other key fiscal and bank reforms, Slovenia could maintain access to the commercial market, it said.

"Bond market sentiment would be reinforced... by an agreement on a precautionary contingent credit arrangement that would make government bonds eligible for primary market purchases by the ESM," the IIF said.

"Even at 10 billion euros ($13 billion), a precautionary facility would be considerably less, relative to GDP, than the regular stability support loans agreed for Greece, Ireland, Portugal and now Cyprus."

"Much less could do the trick, however."

A severe recession and a mountain of bad debts at its banks have raised concerns that Slovenia, once a model newcomer to the European Union, may be the next eurozone member after Cyprus to need a bailout.

The troubled eurozone member came up well short of its goal in a bond sale earlier Tuesday, raising 56.1 million euros, compared to a target 100 million euros, and at considerably higher rates than it paid in February and March.

New Prime Minister Alenka Bratusek said Tuesday that her government was working around the clock to save its banking system and avoid becoming the debt-riddled eurozone's next bailout recipient.

Bratusek met European Commission President Jose Manuel Barroso for talks on economic reforms and measures that already resemble conditions applied in previous bailouts.

"Literally, day and night we are dealing with this problem," said Bratusek, the country's first female prime minister who had been in charge of the budget at the finance ministry.

"Absolutely we are trying to save our banking system," she added.