Monday 19 February 2018

Second bailout hangs on euro's stability -- NTMA

Brendan Keenan

Brendan Keenan

Corrigan says investors buying Irish government bonds are gambling on successful outcome

IRELAND'S chances of avoiding a second bailout after 2013 will critically depend on a solution to the eurozone debt and banking crisis, the man who manages the country's national debt said yesterday.

"The mood music will have to be better if we are to return to the markets," John Corrigan, chief executive of the National Treasury Management Agency (NTMA), said.

"My judgment is that the question in the minds of investors is not whether the eurozone problem will be sorted, but when it will be sorted."

Last year, the NTMA met over 300 institutions that lend to governments by buying their bonds, as it prepares to try to resume commercial borrowing in the second half of this year.

Mr Corrigan said US investors in particular had been buying Irish government bonds as a way of betting on a successful outcome to the euro crisis, driving down the interest paid on such purchases from 14pc to 7.5pc.

"When we meet potential investors, we don't get that many questions about the Irish situation; it tends to be more about the euro itself, or the wider European picture.

"US investors don't know what to think about European policy at the moment, and the shifts on things like private sector losses on Greek debt.

"I think they will wait 'until the fat lady sings', but the market yield on Irish bonds suggests they think we can come out of bailout in 2013," he said.

The NTMA hopes to borrow some short-term money later this year, moving on to longer-term loans in 2013. "If we do go in, it will be billions rather than millions we are talking about," Mr Corrigan said.


But sentiment may have to improve further before the NTMA will risk going to the market. The present 10-year yield above 7pc is widely regarded as too high.

"We have to be careful that re-entry to the market is not a failure. We would postpone any move if we thought that was going to be the case," Mr Corrigan said.

"A number of things have to happen in the first half of the year to give us a chance of meeting the plan, including an improvement in the wider situation."

This includes continued progress in tackling the Irish public finances. NTMA chief economist Rossa White said a "primary" surplus of revenue over spending before interest costs had to be achieved and then maintained.

There is also concern that the NTMA has to replace €12bn of existing debt in January 2014 just as it will be, at best, re-establishing itself in the bond market.

The NTMA drew €34.5bn from the EU/IMF bailout fund last year, to cover the budget deficit, bank recapitalisations and repayment of €9bn of existing debt. The average interest rate on the bailout funds was 3.7pc.

The NTMA results for 2011 show that the national debt -- excluding public sector cash -- had reached €119bn by the end of the year.

The interest cost to the taxpayer was €5.4bn, although the taxpayer made a once-off saving of the same amount through not repaying junior lenders (bondholders) to Irish banks.

That left the debt equivalent to 107pc of the 2011 output of goods and services (GDP). The figure is supposed to rise only 12pc more, before peaking in 2013, which is a tough target with GDP expected to fall again this year.

Eileen Fitzpatrick, director of the Government's NewERA, which oversees the management and potential sale of commercial state companies as part of the NTMA, said they were already advising the Cabinet on such sales.

"We are heavily involved in the issue of asset disposals," Dr Fitzpatrick, former head of AIB Investment Managers, said.

"Decisions are a matter for government but we are working on the attraction of private capital -- including from the national pension fund -- investor attitudes and disposal structures which need to be set up," she said.

Dr Fitzpatrick said they were also working on future investment in water supplies and there had been a positive early response to its core job of overseeing the strategic plans of state companies.

The NTMA results show that its State Claims Agency is dealing with claims against the public sector totalling almost €1bn, with €830m of this relating to medical claims.

Last year, the agency beat the estimated costs of €106m in medical claims, with actual payouts to claimants totalling €81m.

Irish Independent

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