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Economist: Slovenia's Aversion to Foreign Capital Deepened the Crisis

Koper, 17 May (STA) - One of the reasons why Slovenia has been hit by the economic crisis more severely than other countries is its aversion to foreign investments, Igor Masten of the Ljubljana Faculty of Economics told a business meeting Monday.

Much like other countries making the transition to a market economy, Slovenia borrowed heavily in order to finance economic growth.

But its borrowing was very risky, as banks took on huge amounts of debt whereas the share of portfolio investments was lower than in developed European countries.

When the crisis hit, banks had to shoulder the debt and had to be bailed out by the state, Masten told a meeting of Business Club of Slovenian Istria.

"Had we opened up our capital market [to foreigners], the burden of falling stock prices would have been distributed more evenly between residents and non-residents," he said.

Masten estimates that the crisis has cost Slovenia the equivalent of 10% of GDP, which compares to some 2% of GDP in the United States.

Slovenia's public debt is projected to rise to 43% of GDP by 2013, but add to it the debt of the motorway company DARS, about 10% of GDP, and it exceeds 50% of GDP.

Slovenia would thus join the group of countries with medium-level debt such as Portugal and Spain, he said.

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