COM CALL ON NEW SLOVENE FINANCE MINISTER, ANDREJ

C O N F I D E N T I A L LJUBLJANA 001119

SIPDIS


DEPT FOR EUR/NCE, EUR/RPM
TREASURY FOR VIMAL ATUKORALA
COMMERCE FOR ITA/SAVICH

E.O. 12958: DECL: 12/14/2014
TAGS: EFIN ECON PREL SI
SUBJECT: COM CALL ON NEW SLOVENE FINANCE MINISTER, ANDREJ
BAJUK

REF: LJUBLJANA 1047

Classified By: Ambassador Thomas B. Robertson Reasons 1.4 (b) and (d)


1. (SBU) Summary. Ambassador paid a courtesy call on newly
confirmed Finance Minister, Andrej Bajuk, on December 13.
Accompanying the Ambassador were DCM and Pol/Econ chief.
Bajuk, interestingly, held the meeting with no staff present.
Throughout the discussion, Bajuk stressed the need for the
new government to move quickly and to have some early, up
front, success stories on privatization, tax reform and new
investment. He also underscored the need for support and
assistance from the USG and multilateral banks in order to be
able to achieve these early successes. Bajuk made a strong
pitch that Slovenia not be forced to graduate from EBRD and
other multilateral bank programs prematurely. Though
Slovenia has made a good case for itself as a stable and
prosperous country, many of the difficult privatizations have
been long delayed and will be difficult to manage properly
without international support. End Summary.

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PRIVATIZATION - NEED EARLY SUCCESS
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2. (C) Relative to an earlier meeting on November 12
(reftel),Bajuk seemed more relaxed and focused on what he
needed to and could do in the short-term. On the
privatization front, he wants to work on the banking sector
first and has his sights set on Nova Kreditna Banka Maribor
(NKBM). He is convinced that once average Slovenes
understand how banks are supposed to work - catering to the
small and medium sized customer as well as the corporate
behemoths - they will be less concerned about who owns them.
Keeping in mind it will be difficult to overcome the Slovene
aversion to foreign investors, Bajuk thinks getting the EBRD
on board as an investor will provide a good transition to
full privatization. Bajuk fully expects strong opposition to
his plans, and he seems prepared to debate the issue
publicly. Should the decision come to a referendum,
something that can happen if 30 parliamentary deputies want
one or if enough voter signatures are gathered, Bajuk is
certain he will prevail.


3. (C) Bajuk would also like to back the government out of
the private sector through diversification and privatization
of the government run pension fund known by its acronym KAD.
KAD is government managed, 100% invested in Slovene stocks,
and by far the biggest player in the Ljubljana Stock
Exchange. Though the plan did not seem fully crystallized,
and we had not heard about this in earlier meetings or in the
press, Bajuk has a plan to privatize the fund. His idea is
to convert to private management and diversified investments
in 10% annual increments.


4. (C) The first weeks in office seem to have been full of
revelations for Bajuk, one important one being the extreme
difficulty he will have privatizing Telekom Slovenije. Bajuk
was clear that he was not abandoning this goal (an issue on
which he ran during the campaign),but that he would push it
down the road a little in order to better concentrate on
having success with the banks. He knows it will be difficult
and wants to be sure privatization succeeds.

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INVESTMENT
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5. (SBU) In addition to success in privatization, Bajuk
stressed the need to have success with a foreign investor.
He lamented that there was no "greenfield" investment in
Slovenia and this must be addressed. He looked to the
Ambassador for ideas. The Ambassador suggested a trade
mission to the US which would included key government
officials as well as members of the Slovene business
community. Again, the Ambassador underscored the need for
Slovenia to develop a strong, positive message about business
opportunities and to bring itself to the attention of
potential investors in the U.S. and elsewhere.

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TAX LAW REFORM
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6. (SBU) Bajuk hopes an early political victory will be a
change to the draft capital gains tax law submitted by the
previous administration and currently under parliamentary
consideration. If he can get his changes accepted, he will
demonstrate to the management of large Slovene companies that
he is not out to get them and can keep campaign promises.
Some have cried foul that his plan only benefits the wealthy,
but Bajuk sees this as an "entrepreneur friendly" measure.
Bajuk's plan, as explained to the Ambassador, would
effectively reduce the short-term capital gains rate to 30%
and the long term rate to 20% for the large shareholder. The
vote is to be taken on Thursday, December 16. Post will
report separately on those results.

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NATO OBLIGATION - HARD TO MEET
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7. (C) The transition has also given Bajuk a chance to look
at the books for the first time, and he expressed concern
about Slovenia's ability to meet the 2% of GDP military
budget commitment by 2008. While not saying outright that he
would be unable to meet the obligation, he did suggest that
he would need to be able to show some sort of tangible
benefit to the Slovene people, and suggested that "dual use"
investments could be considered, without giving examples.
The Ambassador reminded Bajuk of the commitment made by the
previous government and reiterated by current Prime Minister
Jansa, to which Bajuk responded that it would also be
important to ensure that all the money was really being spent
on military necessities - suggesting this may not have been
the case previously.

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COMMENT
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8. (C) It is clear that Bajuk is gaining command of his
brief. He has more focus - if not vision - about where he
needs to concentrate his efforts and political clout. There
seems to be a recognition emerging from the government and
private sector that Slovenia's days of "gradual transition"
are over and the painful work of moving the government out of
the economy must begin in earnest. Bajuk also has a large,
unwieldy ministry to contend with. It is spread out across
the city in eight different locations, and staffed by
entrenched bureaucrats and LDS appointees who may not be as
enthused about change as he is. He will have to work hard to
find trustworthy aides and to also gain the trust and support
of his ministry in order to ensure success in his endeavors.
ROBERTSON


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