US embassy cable - 04LJUBLJANA1119

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 
------------------------------ 
 
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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