Slovenia's euro switch to boost investment, growth, Bajuk Says

The switchover from the national currency, the tolar, will help the nation of 2 million people attract foreign cash, said Bajuk, in an interview yesterday in the capital Ljubljana, without giving details. The former Yugoslav republic will become the 13th European Union nation and the first eastern European state to switch to the common currency on January 1, ending its transition from communism to a free-market economy. The country beat other euro hopefuls because its slower pace of economic growth kept a lid on inflation. „Slovenia will be more recognizable and not just as a tourist destination, but especially for investors from the broader European business environment,” said Bajuk. „We do not have any visible signs of a cooling of the economy.” Gross domestic product grew 5.6% in the Q3 and the annual inflation rate in November rose to 2.3% from 1.5% a month earlier. Estonia's economy expanded 11.6% in the third quarter, helping pushing inflation last month to an annual 4.6% and forcing the Baltic nation that had planned to adopt the euro with Slovenia to delay the switch.

Bajuk, who has been finance minister since December 2004, said Slovenia should keep inflation under control though prices may rise after the switchover. „The danger is always there, but I would stress again that Slovenia has a very open economy, we are thus being monitored by world markets and I am sure we will cope,” he said. Membership in the euro area is compulsory for all 10 countries that joined the EU in May 2004. They must keep inflation within 1.5 percentage points of the 12-month average of the three EU nations with the lowest inflation. They must also hit targets for budget deficits, debt, interest rates and currency stability. Other new EU members have complained the rules are too strict, forcing most of them to put off adoption. Bajuk said Slovenia was benefiting already from its success in meeting the terms. „We couldn't have adopted the euro if we hadn't fulfilled the criteria that most of Western Europe already has and this is already being positively reflected in our exports,” Bajuk said.

Exports in the Q3 rose between 5% and 6% and in the first 10 months by 17%, according to the Finance Ministry's Web site. Bajuk said next year the government plans to continue with asset sales in industrial companies and banks, though the government will keep a 25% stake in companies and financial institutions that it deems „strategically important.” Slovenia is reluctant to sell some banks, most notably Nova Ljubljanska Banka, the largest lender by total assets, and cites EU regulations that give too much power to foreign regulators in the case of foreign-owned banks. „If some institution holds a controlling stake in a Slovenian bank, it has a final say in moments of crisis, but the ultimate responsibility in is still the government's,” said Bajuk. (Bloomberg)