PUBLIC DEBT MANAGEMENT
IN ARGENTINA
INTERACTION BETWEEN
THE NATION AND THE PROVINCES
Francisco Eggers – Director of Public Credit National Office of Argentina / former
Director of Financing Policy and Public Credit of the Province of Buenos Aires
SANTIAGO DE CHILE, NOVEMBER 10TH, 2011
Contents
• The need for federal coordination
• Recent history of Argentine public debt
• The “deleveraging” process
• Tools of federal coordination
• Argentine debt: current stance
• Summarizing
2
Why is coordination necessary?
• A federal country has national and sub-national governments, all of
them with some degree of autonomy, but with an explicit or implicit
coordination at a central level.
• For many people, “the government” is like a sort of unity, covering
the national and sub-national governments.
• This way of thinking can be synthesized by quoting Nicolás
Avellaneda, President of the Republic in the XIX century: “The
Republic can be divided deeply… but it has only one honor and one
credit, as it only has one name and one flag to foreign peoples”.
3
Recent history of Argentine public debt
The ’80s (1983-1991):
•
No voluntary private financing available
– Sources of provincial voluntary financing were limited to the National
Government, multilateral organizations –with national guarantee-, and provincial
and national banks.
– This financing structure determined that provincial financing, except for what
came from their own banks –regulated by the Central Bank- had to have national
authorization.
– There was, besides that, informal financing through delays in payments to
suppliers.
– Overall, we can estimate –even when there are not reliable debt statistics
available for this period– that total provincial debt, except debt with the
corresponding provincial banks, was relatively low.
•
No major need for explicit coordination
4
Recent history of Argentine public debt
The ’90s (1991-2001):
•
“Explosion” of privately-funded public debt
– After the “Brady Plan” (1992-93) the Republic accessed international and local
capital markets frequently.
– Most Argentine provinces took debt with local banks using their national tax coparticipation receipts as collateral.
– Though less frequently than the National Government, some sub-national
governments (Province of Buenos Aires, City of Buenos Aires, Mendoza, etc.)
also accessed capital markets.
•
The National Ministry of Economy imposed to the provinces they had to ask
for authorization before each indebtedness operation.
•
Besides, informal consultations were made to the National Government
before provincial issuances, in order to avoid overlapping.
5
Recent history of Argentine public debt
Between stages: the 2001-2002 crisis
• In 2001-2002 Argentina faced one of the worst fiscal,
economic and financial crises in its history.
• As a result of economic recession, fiscal deficit and currency
devaluation, public (and most private) debt services became
unaffordable. Default was inevitable.
• There have been restructuring offers for defaulted public
securities, but there are still hold-outs who refused to enter
the exchanges and filed lawsuits against the Republic.
6
Recent history of Argentine public debt
The post-default years (2002-2011): the “deleveraging” process
– With the purpose of breaking the strong dependence on external
debt, the National Government has established a fiscal policy
aimed at reducing debt exposure to the private sector and to the
International Monetary Fund.
– Refinancing risk has been reduced and the Republic regained
freedom of action at economic policymaking.
– In this context, the National Government has consistently
assisted the provinces, helping them to reduce their debt with
the private sector.
7
Recent history of Argentine public debt
AT THE END OF THE CURRENCY BOARD PERIOD (1991-2001),
PROVINCIAL DEBT GREW TO WORRISOME LEVELS; BUT AT
THAT TIME, IT WAS NOT “THE” PROBLEM
ARGENTINE PUBLIC DEBT 1996-2001
AS % OF GDP
60%
12%
50%
10%
40%
8%
30%
6%
20%
4%
10%
2%
Nat. Gov. Debt
Povincial debt(*)
0%
1996
1997
1998
1999
2000
0%
2001
(*) Provincial debt (right axis) excludes indebtednes s with the National Government or
guaranteed by the National Government
8
Recent history of Argentine public debt
AND, WHEN NATIONAL DEBT RATIOS IMPROVED, SO DID
PROVINCIAL DEBT RATIOS
ARGENTINE PUBLIC DEBT 2002-2010
AS % OF GDP
180%
8%
160%
7%
140%
6%
120%
5%
Nat. Gov. Debt
100%
4%
Povincial debt(*)
80%
3%
60%
40%
2%
20%
1%
0%
0%
2002
2003
2004
2005
2006
2007
2008
2009
2010
(*) Provincial debt (right axis) excludes indebtedness with the National Government or
guaranteed by the National Government
9
The “deleveraging process”
•
From 2003 to 2011, the National Public Sector has achieved a sustained
primary surplus.
•
The end of the currency board regimen and the end of the private
administration of pension funds have allowed the Government to regain
control over international reserves and pension funds.
•
The Debt Exchanges 2005 and 2010 established a reduction in capital
and/or in interest rates of the restructured debt.
•
From 2003 the country has been experiencing one of the most impressive
growth process in its history, thus reducing the weight of the country’s debt
in relative terms.
10
The “deleveraging process”
ARGENTINA: NATIONAL AND PROVINCIAL PUBLIC DEBT
As % of GDP
DECEMBER
2001
SEPTEMBER
2010
WITH NATIONAL GOVERNMENT
1.7%
4.5%
WITH MULTILATERAL ORGANIZATIONS (GUARANTEED BY NATIONAL GOV.)
1.2%
0.9%
PRIVATE CREDITORS
8.3%
2.0%
11.2%
7.4%
WITH NATIONAL PUBLIC AGENCIES (*)
2.7%
22.4%
WITH MULTILATERAL ORGANIZATIONS
12.0%
4.8%
PRIVATE AND BILATERAL CREDITORS
39.0%
19.8%
TOTAL NATIONAL PUBLIC DEBT
53.8%
47.1%
TOTAL DEBT OWED TO PRIVATE & MULTILATERALS
59.3%
26.7%
PROVINCIAL SECTOR DEBT
TOTAL PROVINCIAL PUBLIC DEBT
NATIONAL PUBLIC DEBT
(*) 2001: Estimation based in Banco de la Nación Argentina and Central Bank of the Republic of Argentina's figures.
Source: Ministry of Economy and Public Finance, Argentina
11
The “deleveraging process”
HEALTHY PRIMARY & OVERALL BALANCE OF THE
NATIONAL PUBLIC SECTOR
NATIONAL & OVERALL BALANCE OF THE NPS (%GDP)
4.5%
4.0%
3.5%
3.0%
2.5%
2.0%
1.5%
1.0%
0.5%
0.0%
-0.5%
-1.0%
2.5%
1.7%
1.5%
0.2%
0.2%
2003 2004
2005
2006 2007
2008 2009
2010 2011P 2012P
-0.6%
Primary balance
Overall balance
12
The “deleveraging process”
ANNUAL REAL GROWTH HAS AVERAGED MORE
THAN 7% FROM 2003 TO NOW
Y.O.Y. QUARTERLY GDP CHANGE (%)
12%
10%
8%
6%
4%
2%
-2%
I 03
III 03
I 04
III 04
I 05
III 05
I 06
III 06
I 07
III 07
I 08
III 08
I 09
III 09
I 10
III 10
I 11
0%
13
The “deleveraging process”
EVOLUTION OF SOVEREIGN DEBT INDICATORS
Gross Debt, Net Debt, External Debt & International Reserves (all as % of GDP)
166%
160%
164%
Public debt / GDP
140%
Net debt / GDP
120%
100%
External debt / GDP
95%
IR / GDP
80%
60%
44.1%
40%
20%
23%
17%
14%
11%
0%
Dec-02
Dec-03
Dec-04
Dec-05
Dec-06
Dec-07
Dec-08
Dec-09
Dec-10
Jun-11
„
We accomplished a sustained downward trend in external debt as a consequence
of GDP growth and a significant improvement in the debt composition.
„
The unprecedented accumulation of International Reserves led to an almost full
coverage of external debt.
14
14
Tools for Federal Coordination
FISCAL RESPONSIBILITY LAW + BILATERAL AGREEMENTS
• The Ministry of Economy and Public Finance is
continuously analyzing the provinces’ fiscal stance.
• It has to approve all indebtedness to be taken by the
provinces.
• The Ministry also provides financial and technical
assistance to the provinces.
15
Tools for Federal Coordination
FISCAL RESPONSIBILITY LAW
The “Fiscal Responsibility Law” (2004) established:
– Rules of fiscal transparency
– Limits to public expenditure’s growth.
– Provinces should not incurred in new debt if their debt services
exceed 15% of their revenues.
– National Government has to maintain a downward trend in debt,
measured in terms of GDP.
– Provinces has to ask for national previous authorization for debt
operations.
16
Tools for Federal Coordination
NATIONAL SUPPORT TO PROVINCIAL DEBT
MANAGEMENT OFFICES
• The Public Credit National Office offers to the provincial
debt management offices its know-how in its specialty.
• In that sense, it has recently supported the implementation
of SIGADE in the province of La Rioja.
• At the end of November, there will be a meeting of
provincial and national representatives, aiming at
discussing several ways of collaboration between the
Nation and the provinces, and among provinces
themselves.
17
Argentine debt: current stance
THE MAIN MENACES TO NATIONAL DEBT SUSTAINABILITY
ARE UNDER CONTROL NOW IN ARGENTINA
• Potential “Internal” menaces:
– Too much debt denominated in foreign currency, when faced to
a sudden and sharp devaluation.
– Too much short term debt with the market, when faced to
refinancing problems (e.g., caused by market turbulences).
– Too much floating rate debt, when faced to a significant increase
of reference interest rates.
18
Argentine debt: current stance
THE MAIN MENACES TO NATIONAL DEBT SUSTAINABILITY
ARE UNDER CONTROL NOW IN ARGENTINA
• “External” menaces:
– Structural fiscal deficit aggravated by an economic crisis,
triggering a shortfall in fiscal revenues and putting pressure on
fiscal expenditures.
– Financial institutions fragility, when exposed to a banking crisis.
– Provincial debt crisis, fed by excessive provincial deficit.
19
Argentine debt: current stance
THE FINANCIAL SYSTEM HAS SHOWN CONSIDERABLE
ROBUSTNESS DURING THE LAST YEARS
Broad liquidity/ total deposits
Liquid assets/liquid liabilities and ROE
50%
40%
27%
30%
40%
20%
37%
25%
30%
10%
0%
20%
-10%
ROE
-20%
Liquid assets/liquid liabilities
-30%
10%
0%
2003
2004
2005
2006
2007
2008
2009
2010 Jul-11
2003 2004 2005 2006 2007 2008 2009 2010 2011*
*Includes first seven months of the year.
20
Argentine debt: current stance
Argentine debt: current stance
MANAGEABLE REFINANCING RISK
By Creditor
US$ 176.59 Bn
IFIs
10%
Paris Club
4%
Public Sector
Agencies
51%
Private Sector
35%
„
As of June 2011, while outstanding debt settled at US$ 176 billion, debt to private
investors represented 35.4% of total debt and 15.6% of GDP.
„
Half of the debt is held by Public Sector Agencies. Out of that amount, 50% is debt to the
Central Bank.
21
Argentine debt: current stance
HEALTHY COMPOSITION OF THE PUBLIC DEBT
By Currency
By Type of Instrument
US$ 176.59 Bn
US$ 176.59 Bn
IPS Non-mk
Securities
8%
Loans
21%
By Maturity
Euro
12%
Others
2%
US$ 169.56 Bn
ARG$
17%
2011-2013
22%
2030-2089
26%
Bonds
71%
U$S
48%
CERadjusted
ARG$
21%
2020-2029
22%
2014-2019
30%
„
38% of total debt is denominated in pesos, 21% adjusts by inflation as measured by CER
index and the rest accrues fixed or Badlar rates with no CER adjustment.
„
60% of the debt that adjusts by CER is held by Public Sector agencies.
„
Total average maturity of debt is 11.2 years (or 12 excluding short-term Intra Public debt).
„
22% of total debt matures in the next three years, or 14% if we exclude debt held by the
public sector (23% of 2011-2013 maturities consist of Intra Public Sector non-marketable
securities).
22
Summarizing
•
Provincial debt has basically mirrored the National Government’s behavior.
It grew when National debt grew, and it decreased when National debt
decreased.
•
Now, provincial indebtedness with third parties is relatively low, and it is not
a significant risk to national debt sustainability. The Ministry of Economy
and Public Finance exerts a continuous monitoring over the provinces’ fiscal
stance and assists provinces on a regular basis, providing them with
financial and technical assistance.
•
This happens in a context of a downward trend of the national public debt –
as measured in terms of GDP or public revenues-, an external debt that
currently represents less than 20% of GDP, sustained primary surplus of the
National Government since 2003, and a sound financial system.
23