Colombia
| Pages | 49-54 |
Page 49
The main objective of debt management is to ensure that financing needs are met with a low funding cost in a long-term perspective, within a sustainable path, and with a prudent level of risk. The risks considered are refinancing, market, credit, operational, and legal.1
Debt management covers both internal and external debt. In addition to funding, debt management also includes management of outstanding debt and contingent liabilities, the latter especially related to infrastructure and public credit operations.
The 1991 Constitution states that Banco de la República (BdR), the central bank, will be the independent agent responsible for monetary and foreign exchange policy, and the ministry of finance will be responsible for fiscal policy. The DMO, Dirección General de Crédito Público (Directorate General of Public Credit), is situated within the ministry.
Issues that require coordination with the BdR regarding monetary policy, debt management, and the macroeconomic agenda are discussed in the regular biweekly meetings of the board of the central bank, of which the minister of finance is member. The BdR is also in charge of the settlement and clearing of the domestic debt market, which involves coordination between fiscal and monetary authorities in the management of the domestic public debt.
Two officials from the BdR are also members of the Debt Advisory Committee, which determined the guidelines for debt management and the debt issuing program.
The legal framework for debt management is included in Decree 2681 of 1993, which covers
- Public credit transactions that involve new funding and, therefore, increasing the debt stock. Page 50
- Debt management transactions that reduce portfolio risk and do not increase debt stock. These transactions include hedging operations such as cross-currency swaps, interest rate swaps, debt exchanges, refinancing, debt conversions, and the like.
As mentioned, the ministry of finance is responsible for debt management, and the DMO (Dirección General de Crédito Público) is a division of the ministry. The ministry of Finance has six divisions:
- Superior (minister, deputy ministers, general secretary),
- Macroeconomic Policy Division,
- National Treasury (Tesoro Nacional),
- Budget Division,
- Subnational Governments Division, and
- Dirección General de Crédito Público.
The DMO is in charge of debt management, and the National Treasury is in charge of cash and asset management. Coordination and communication with the treasury is essential. Although the DMO works closely with the treasury to create synergies between the two areas, communication could be vastly improved by merging these two divisions. No doubt, this merger would also improve ALM. However, at present, there are no plans for a merger.
The DMO adopted a new internal structure in May 2001, following recommendations from the World Bank. The new structure, including responsibilities, is the following:
- front office-local and external funding,
- middle office-analysis of portfolio risks and strategy, and
- back office-operational issues.
Besides these three sections, the DMO also includes the legal affairs office and the IT office.
The new structure improves communication and coordination among front, middle, and back offices, thereby reducing operational risk. Completion of a document describing the DMO procedures has also reduced operational risk.
Debt management decisions and actions must be based on accurate and updated information about the debt portfolio. To improve databases and analysis tools, DMFAS software from the United Nations Conference on Trade and Development (UNCTAD)2 is currently in the process of being implemented. This software is especially designed to strengthen the technical capacity to record, manage, and analyze external and internal debt. It also provides facilities for the recording and monitoring of bond issues, on- lending, and private nonguaranteed debt. After the software is adjusted for the Colombian requirements, it is expected to
- reduce operational risks,
- simplify procedures,
- produce debt profiles and financial risk quantification in real time,
- improve capacity to evaluate statistical models,
- be compatible with other information systems,
- increase accuracy of exercises,
- allow Internet operability, and
- provide a proactive alarm system, which will alert management if the portfolio reaches any debt management policy limits, such as the stated currency or interest rate composition of the debt.
Staff members receive continual training, allowing them to acquire important market skills, while helping the DMO attract and retain qualified staff. This is particularly true in the middle office, where staff...
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