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Slovenia's Ratings Lowered To 'A+/A-1'; Outlook Negative

Publication date: 13-Jan-2012 16:56:51 EST

  • Standard & Poor's is lowering its long-term sovereign credit rating on the Republic of Slovenia to 'A+' from 'AA-' and its short-term sovereign credit rating to 'A-1' from 'A-1+'.
  • The downgrade reflects our opinion of the impact of deepening political, financial, and monetary problems within the European Economic and Monetary Union, into which Slovenia is closely integrated.
  • The outlook on the long-term rating is negative.
FRANKFURT (Standard & Poor's) Jan. 13, 2012--Standard & Poor's Ratings 
Services said today that it lowered the long-term sovereign credit rating on 
the Republic of Slovenia to 'A+' from 'AA-' and the short-term rating to 'A-1' 
from 'A-1+'. At the same time, we removed the ratings from CreditWatch with 
negative implications, where they were placed on Dec. 5, 2011. The outlook on 
the long-term rating is negative.

Our transfer and convertibility (T&C) assessment for Slovenia, as for all 
European Economic and Monetary Union (eurozone) members, is 'AAA', reflecting 
Standard & Poor's view that the likelihood of the European Central Bank 
restricting nonsovereign access to foreign currency needed for debt service is 
extremely low. This reflects the full and open access to foreign currency that 
holders of euro currently enjoy and which we expect to remain the case in the 
foreseeable future.

The outcomes from the EU summit on Dec. 9, 2011, and subsequent statements 
from policymakers lead us to believe that the agreement reached has not 
produced a breakthrough of sufficient size and scope to fully address the 
eurozone's financial problems. In our opinion, the political agreement does 
not supply sufficient additional resources or operational flexibility to 
bolster European rescue operations, or extend enough support for those 
eurozone sovereigns subjected to heightened market pressures. 

We also believe that the agreement is predicated on only a partial recognition 
of the source of the crisis: that the current financial turmoil stems 
primarily from fiscal profligacy at the periphery of the eurozone. In our 
view, however, the financial problems facing the eurozone are as much a 
consequence of rising external imbalances and divergences in competitiveness 
between the eurozone's core and the so-called "periphery." As such, we believe 
that a reform process based on a pillar of fiscal austerity alone risks 
becoming self-defeating, as domestic demand falls in line with consumers' 
rising concerns about job security and disposable incomes, eroding national 
tax revenues. 

Accordingly, in line with our published sovereign criteria, we have adjusted 
downward the political score we assign to the Republic of Slovenia (see 
"Sovereign Government Rating Methodology And Assumptions," published on June 
30, 2011). This is a reflection of our view that the effectiveness, stability, 
and predictability of European policymaking and political institutions (with 
which Slovenia is closely integrated) have not been as strong as we believe 
are called for by the severity of a broadening and deepening financial crisis 
in the eurozone.

We believe this environment, and the lack of an effective policy response, is 
likely to increase caution among both households and investors. As a result, 
we expect precautionary savings to increase, which could, in turn, constrain 
the country's growth outlook. Slovenia's high degree of openness also makes it 
susceptible to shifts in external demand, in our view. As a result, we expect 
that negative growth prospects for the country's trading partners could 
continue to affect growth in Slovenia while the crisis in the eurozone 

In addition to the political score, we also lowered the external score for 
Slovenia. We believe that the country's external financing costs may remain 
elevated for an extended period of time and see further risks of rapid 
deterioration of market conditions. Such financing costs are exacerbated by 
high leverage in the corporate sector, which in our view continues to weigh on 
asset quality and profitability in the financial sector. 

The ratings on Slovenia remain supported by our view of its open economy, 
which has a relatively large export base that contributes to economic growth, 
and a track record of fiscal prudence that has kept debt levels moderate 
despite recent increases. The lack of resolve in progress on structural 
reforms continues to constrain the ratings in our view. 

The outlook on the long-term rating on Slovenia is negative, indicating our 
view that there is at least a one-in-three chance that we could lower the 
rating again in 2012 or 2013. The negative outlook reflects our view of the 
significant downside risk to budgetary performance and the possibility of 
deterioration in growth prospects and income levels, which could lead us to 
reduce the fiscal or economic scores. 

We could lower the rating if we see that the new government does not present, 
and begin to implement, a credible reform program, one that is likely to 
include reforms in the labor market and pensions system, to ensure growth that 
would maintain GDP per capita at the current level or higher.

We could revise the outlook to stable if we come to believe that the 
government reforms reduce some of the structural rigidities in the economy and 
allow for a more efficient allocation of resources. We expect that this, in 
turn, would result in a more adaptable economic structure and more competitive 
economy with higher levels of income. 

All articles listed below are available on RatingsDirect on the Global Credit 

Standard & Poor's will hold a teleconference on Saturday Jan. 14, 2012 at 3:00 
PM UK time. The teleconference can be accessed live or via replay and by phone 
or audio internet streaming

The call will begin promptly at 3:00 p.m. 

Passcode: 2705831 
For security reasons, the passcode will be required to join the call. 

Country        Toll Numbers            Freephone/Toll Free Number
AUSTRIA        43-1-92-80-003          0800-677-861 
BELGIUM        32-1-150-0312           0800-4-9471 
DENMARK        45-7014-0239            8088-2100 
ESTONIA                                800-011-1121       
FINLAND        106-33-149              0800-1-12771 
FRANCE         33-1-70-75-25-35        080-563-9909 
GERMANY        49-69-2222-3198         0800-101-6627 
GREECE         30-80-1-100-0674        00800-12-6609 
IRELAND        353-1-247-5274          1800-992-870 
ITALY          39-02-3601-0953         800-985-849 
LUXEMBOURG     352-27-000-1351         8002-9058 
NETHERLANDS    31-20-718-8530          0800-023-4392 
PORTUGAL                               8008-12439 
SLOVAK REPUBLIC 421-2-322-422-16           
SPAIN          34-91-414-40-78         800-098-194 
UNITED KINGDOM 44-20-7950-6551         0800-279-3590 
USA            1-210-795-1143          866-297-1588 

Call notes: This call is to be recorded for Instant Replay purposes
UK TOLL #: +44-20-7108-6279
UK TOLL FREE #: 0800-376-9027

The instant replay will start at: Jan. 14, 2012 5:30pm UKT
The instant replay will end at: Feb-14-2012 11:59pm UKT

Passcode for replay: 7498
Restrictions may exist when accessing freephone/toll free numbers using a 
mobile telephone. 

To join the event:
Conference number: 1297498
Passcode: 2705831 

To access the Audio Replay of this call, all parties can:
1. Go to the URL listed above.
2. Choose Audio Streaming under Join Events.
3. Enter the conference number and passcode. (Note that if this is a recurring 
event, multiple dates may be listed.)
Replays are available for 30 days after the live event. 

Complete ratings information is available to subscribers of RatingsDirect on 
the Global Credit Portal at All ratings affected 
by this rating action can be found on Standard & Poor's public Web site at Use the Ratings search box located in the left 
column.  Alternatively, call one of the following Standard & Poor's numbers: 
Client Support Europe (44) 20-7176-7176; London Press Office (44) 
20-7176-3605; Paris (33) 1-4420-6708; Frankfurt (49) 69-33-999-225; Stockholm 
(46) 8-440-5914; or Moscow 7 (495) 783-4009.
Primary Credit Analyst:Moritz Kraemer, Frankfurt (49) 69-33-99-9249;
Secondary Contact:Frank Gill, London (44) 20-7176-7129;

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