The Institutional Framework of Debt Management in Hungary. Amsterdam, December 2006 András Réz, Head of Planning, Research and Risk Management - PDF

The Institutiona Framework of Debt Management in Hungary Amsterdam, December 2006 András Réz, Head of Panning, Research and Risk Management 1 Organisation of Debt Management in Hungary ÁKK Pte Ltd manages

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The Institutiona Framework of Debt Management in Hungary Amsterdam, December 2006 András Réz, Head of Panning, Research and Risk Management 1 Organisation of Debt Management in Hungary ÁKK Pte Ltd manages the debt of the centra government A functions are performed by ÁKK Long-term process: gradua take-over of debt (back office, foreign currency debt) The financing and debt of other sub-sectors of the State is being taken over (Socia Security Funds, Extrabudgetary funds) Guarantees Principe of singe sovereign issuer. 2 Institutiona Framework of Debt Management Ministry of Finance: owner of ÁKK Pte Ltd strategic decisions Hungarian State Treasury: executing the budget, cash-fow projection, roe in actua payments, direct retai saes through branch network Nationa Bank of Hungary: important roe unti 1999, but not any more. 3 Nationa Bank of Hungary an overview An independent organisation responsibe ony for monetary poicy Foreign reserve management is the responsibiity of the Nationa Bank of Hungary, coordination in foreign currency debt issuance is important Deveopment of domestic debt market is a priority aso improves the effectiveness of monetary poicy 4 Nationa Bank of Hungary previous roes Unti : excusive responsibiity for foreign currency debt management on behaf of the Repubic of Hungary heritage of centray panned economy, bank of the country Back office for oca debt management (auctions, interest payments and redemptions) Retai debt management (network) Advisor to and Bank of the government and the Ministry of Finance Natura division of abour, NBH has a the necessary expertise and resources and a cost efficient soution 5 Nationa Bank of Hungary why not? In the eary 1990s new centra bank aw: responsibe for ow infation and imitation of government funding That imits its avaiabiity as the banker of the government Confict of interests between monetary poicy and debt management responsibiities defined in the aw are usuay stronger than auxiiary functions 6 Nationa Bank of Hungary foreign currency debt management NBH used to manage FX debt on behaf of the Repubic of Hungary Question: What is the roe of FX debt: current account deficit financing or part of government debt management? Current account deficit financing by the centra bank is usuay a short term question (depends on private sector fows) Government debt management usuay uses medium term targets (guideines for debt structures) and FX debt has important advantages in it (ong term financing) 7 Nationa Bank of Hungary domestic debt management Roe of domestic debt: government debt management or can hep of monetary poicy? Issuance is the function of the budget deficit. Higher demand (e.g. due to increased foreign interest) is good for ower yieds but the amount shoud not be increased (avoid extra costs according to strategy) Centra Banks may consider government debt as a cost effective substitute for monetary steriisation instruments in case of surpus domestic iquidity and faing yieds 8 Confict of Interest possibe soutions Those conficts can be soved by macroeconomic decisions by the government however these decisions may not be thought deepy enough (different abiities to argue) and are not ong asting One ong term soution can be the compete separation of functions (e.g. independent CB and autonomous debt office), ike in Hungary Doing both functions in the Centra Bank separatedy (good for cost effectiveness) is difficut in rea ife, very few working exampes 9 Concusion The best working soution to these probems is the autonomous debt office responsibe for a debt management (oca and foreign currency) Sove both confict of interest with monetary poicy and economic poicy Common issues (ike FX reserves and conversions shoud be arranged propery High eve of reguation is needed Long process aready 10 years from beginning in Hungary and not over yet! 10 Thanks for your attention! More info on Hungarian pubic debt management at: 11
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