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Zakrajsek Says Slovenian Economy Too Rigid

Ljubljana, 29 November (STA) - Egon Zakrajsek, a Slovenian working for the US Federal Reserve (Fed), has singled out the lack of flexibility as the main problem of Slovenia's economy.

Zakrajsek, who heads the Fed Division of Monetary Affairs, said for the Saturday supplement of daily Dnevnik that almost 20 years into independence, the state still holds important stakes in key companies, that the job market is rigid and the capital market poorly developed.

"This are all factors which make it very difficult to relocate capital and work from unproductive to productive sectors. I see the last 20 years as a missed opportunity to rationalise the economic model. Instead, we were arguing that foreign ownership is bad - why would we be servants if we can be masters," he said.

Claiming that Slovenia had missed the chance to gain a competitive edge, Zakrajsek said that "the Slovenian people will have to pay for the rigidity of the economic system and poor economic policies - by left as well as right governments - with weak recovery".

Weighing the pros and cons of Slovenia's euro adoption, Zakrajsek said that Slovenia now no longer has the possibility of devaluing its currency and boost exports. On the other hand, this probably would not have been enough the compensate for the likely collapse of the entire Slovenian banking system without the euro, he added.

As regards Slovenia's crisis exit strategy, Zakrajsek said that the path Slovenia chooses needs to be linked to the recovery of the world economy, especially of Germany's.

While this is when it will be necessary to start withdrawing fiscal measures, this will not help solve problems with the budget deficit and the public finance debt. Zakrajsek believes Slovenia will face serious obstacles here, since it has little scope for bringing down the deficit.

"The first option is increasing taxes, which are however already very high, and would thus slow down growth further. Curbing the costs of the state is very unlikely, especially reducing the size of the public sector and pay expenses. Future government will have the very demanding task of finding a way out of this," he said.

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