VZCZCXYZ0000
RR RUEHWEB

DE RUEHLJ #0080/01 0441444
ZNR UUUUU ZZH
R 131444Z FEB 07
FM AMEMBASSY LJUBLJANA
TO RUEHC/SECSTATE WASHDC 5539
INFO RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS LJUBLJANA 000080 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
DEPT FOR EUR/NCE (SSADLE), TREASURY FOR V.ATUKORALA 
 
E.O. 12958: N/A 
TAGS: ECON EFIN PREL SI
SUBJECT: RE-ELECTION WOES FOR SLOVENIA'S CENTRAL BANK 
GOVERNOR: DRNOVSEK AND JANSA FACE OFF 
 
REF: A. LJUBLJANA 0051 
     ¶B. LJUBLJANA 0002 
 
 ¶1. (SBU) Summary. In a close vote February 2, Mitja Gaspari 
failed to get the 46 votes necessary for re-election as the 
governor of the Bank of Slovenia (BOS). On February 9, 
President Drnovsek put forward BOS Vice-Governor Andrej Rant 
as his second nominee.  The ostensible cause of Gaspari's 
downfall was the charge that he had sent analytical documents 
to the European Central Bank (ECB) painting an unfairly bleak 
picture of the Government of Slovenia's (GOS) fiscal policy. 
Subsequently, it was determined that the documents had, in 
fact, not been sent to the ECB at all but were, rather, 
internal documents pondering possible scenarios. The concerns 
surrounding the leaked documents seems to have hurt him 
politically, more because it gave his detractors something to 
use against him than any inappropriate behavior on his part. 
Now there is a stalemate between Drnovsek and Jansa's 
Slovenian Democratic party (SDS). Drnovsek has stated that he 
will not submit a new candidate if Rant is not confirmed, and 
the SDS is not expected to support Rant's candidacy. If left 
unresolved by March 31, it is unclear whether the GOS will 
have official representation in the ECB after Gaspari's term 
ends. End Summary. 
 
---------- 
Background 
---------- 
¶2. (U) Before the uproar over the "controversial" documents, 
Mitja Gaspari had an exemplary career in the Slovenian 
Central Bank, with Slovenia's entry into the euro zone as his 
crowning achievement. Previously, at the time of the 
dissolution of Yugoslavia, he went to work at the World Bank 
in Washington D.C. as a senior financial economist. In June 
1992, Gaspari returned to Slovenia when he was appointed 
Minister of Finance by then Prime Minister, Janez Drnovsek. 
Gaspari was Finance Minister until Drnovsek nominated him -- 
and parliament confirmed him -- to be the new Central Bank 
Governor in 2001. Drnovsek, now president of Slovenia, 
recently nominated Gaspari to a second term, with his current 
6-year term ending in March 2007. 
 
-------------------------------- 
An Unexpected Bump on Euro Trail 
-------------------------------- 
¶3. (U) Slovenia's entry into the euro zone was historic (Ref 
B).  The only one of the new EU accession countries to join, 
Slovenia showed discipline and resolve in its drive to adopt 
the euro. From beginning to end, ECB officials lauded the 
work of Gaspari and the Bank of Slovenia in not only meeting, 
but exceeding the Maastricht criteria. ECB Governor 
Jean-Claude Trichet has even said that Gaspari was "one of 
the most important people in Slovenia." On January 15, a gala 
event heralded in the euro as Slovenia's official currency 
and paid tribute to the tolar, Slovenia's official currency 
since 1992. Even as Gaspari's and the Government of 
Slovenia's achievements were being celebrated, controversy 
was brewing over Gaspari's alleged defamatory report to the 
ECB. When the accusations became public, Gaspari and Trichet 
both categorically denied that documents painting a dire 
picture of Slovenian public finances were sent to the ECB. 
 
--------------------- 
Lies...And Statistics 
--------------------- 
¶4. (U) The disagreement centers around assumptions about the 
Government's fiscal health. The BOS's divergent unofficial 
internal assessment predicts that Slovenia could have budget 
deficits of up to 2% in 2007 and 2008, which could spiral up 
to 8-11% by 2011. For its part, the Ministry of Finance (MOF) 
projects deficits of 1.5% in 2007-8. The BOS says its numbers 
are based on conservative estimates with minimal government 
intervention, and, also include worst-case scenarios. Finance 
Minister Andrej Bajuk argued that the assumptions underlying 
the BOS report amounted to irresponsible conjecturing and 
simplistic thinking, whereas the Finance Ministry's report 
assumed a scenario by which the GOS could raise the 
value-added tax (VAT) and use other tools to contain budget 
deficits. The BOS countered that its projections were based 
on current realities rather than possible future actions. 
 
--------------------------------------- 
Gaspari Vindicated But Still Under Fire 
--------------------------------------- 
¶5. (U) After heated exchanges between the Ministry of Finance 
and the Bank of Slovenia, it became clear that the BOS had 
never sent the documents in question. In reality, the 
documents were internal projections, which included 
projections for worst-case scenarios. With the main criticism 
 
of Gaspari a non-starter, MPs opposed to Gaspari's nomination 
then attacked his past record as Finance Minister as well as 
his leadership of the BOS. Gaspari's supporters, on the other 
hand, claimed that the accusations were a smokescreen and the 
real agenda was an attempt to diminish the independence of 
the BOS and install a governor that is politically acceptable 
to Jansa. 
 
---------- 
Next Steps 
---------- 
¶6. (U) On learning that Gaspari did not receive the necessary 
votes, Drnovsek decried the parliament's decision as 
undermining independent institutions in Slovenia. Drnvosek 
stated that he would choose someone like Gaspari again: 
"someone with impeccable professional credentials as well as 
political independence." Drnovsek met with PM Jansa on 
February 7 and suggested Joze Mencinger, a vocal critic of 
the Jansa government, as his potential nominee. Jansa made it 
clear that he was not an acceptable option and Drnovsek 
withdrew his name. Then, on February 9, Drnovsek surprised 
everyone by submitting to parliament BOS Vice-Governor Andrej 
Rant, a 30-year central bank veteran, as his new nominee. 
Rant, as one of Gaspari's deputies, is known as a strong 
Gaspari supporter and by association is considered a Drnovsek 
"insider" who is not expected to garner the necessary votes 
in parliament. Business daily Finance described Rant as 
knowledgeable but "anemic," -- lacking charisma and 
leadership skills. Prior to Rant's nomination, pundits had 
been speculating that the front-runners were Egon Zakrasek, 
an economist working at the US Federal Reserve, Boris 
Pleskovic, a long time economist at the World Bank in D.C., 
or Marko Kranjec, renowned economist and former finance 
minister. On February 12, Drnovsek stated that he would not 
submit any more names if Rant is not confirmed. In response, 
Joze Tanko, deputy of Jansa's Slovenian Democratic party 
(SDS), stated that SDS would not support Rant. Drnovsek said 
this would lead to an institutional crisis, but expert 
opinions vary. Slovenian law states that in the absence of a 
governor, one of the central bank deputies would assume the 
role of acting-governor, though there is no law explicitly 
regulating participation in the ECB. Also, Slovenian 
newspaper Delo noted that a parliamentary majority could 
remove Drnovsek's right to nominate the candidate. 
 
¶7. (SBU) Comment. The public fracas between the Bank of 
Slovenia and the Ministry of Finance is being fueled by what 
has now, over the last year, become a more contentious 
relationship between President Drnovsek and PM Jansa. 
Although many people in the government and the press have 
been critical of Gaspari's treatment by Jansa's camp, they 
have been equally critical of Drnovsek's unilateral 
decision-making on key appointments and nominees. Social 
Democrats party (SD) leader and presidential contender, Borut 
Pahor, criticized Drnovsek for his refusal to work with 
lawmakers to find a suitable central bank governor nominee. 
The back and forth on the nominations of Gaspari, Mencinger 
and then Rant is a classic example of the political wrangling 
between Drnovsek and Jansa. Local media speculated that 
Drnovsek's strategy was to suggest Mencinger, someone so 
unacceptable to Jansa, so that Rant would seem acceptable by 
comparison. The economic implications of this struggle are 
not the focus of the media or the public. Instead, this 
dispute is a battle of wills between Jansa and Drnovsek to 
install "their" man at the helm of the central bank. End 
Comment. 
 
ROBERTSON