Italy
| Pages | 96-108 |
Page 96
The public debt management policy in Italy, as conducted in the last decade, has followed the prescriptions of the Maastricht Treaty, which created a monetary union and the single currency, the euro, among those European countries respecting the criteria of economic stability and fiscal discipline.1
Since 1992, the Italian Treasury has undergone a process of profound change in the structure of its liabilities. The main goals to be reached at the end of this process were, in brief:
- the reversion in the growth path of general government consolidated gross debt, as defined according to the specification of the excessive deficit procedure related to the European Monetary Union (EMU);
- the overall reduction of the pressure on capital markets due to excessive supply of bonds;
- the reduction of the exposure to interest rate fluctuations; and
- the creation of a deep and liquid market for government securities.
The strong commitment to the attainment of these goals has been expressed in the legislation passed from 1992 on and in the organizational and structural reforms in the field of public debt management.
The strategic guidelines for 2002 and 2003 define the objective of public debt management as "...to ensure that the financing needs of the State and its repayments obligations are met, minimizing the cost of debt, the level of risk being equal."
Referring to the legal framework of responsibilities, the Public Debt Direction (PDD) of the Italian Treasury Department is directly responsible for the issuance and management of public debt domestic securities. Page 97
The PDD is also responsible for issuance and management of all other securities. This includes borrowing and other activities in the international capital market, such as issuing syndicated loans and commercial paper and activity on the swap market. The PDD also manages the public debt sinking fund and the cash account ( conto disponibilità ) at the Bank of Italy (BOI) (both dating back to 1993).
The PDD also exercises surveillance over access to financial market funding of public entities, local authorities, and companies controlled by the state that have or do not have a state guarantee
Coordination between fiscal and monetary policies and debt management activities is a priority for Italian authorities. The division of responsibility and specialization of tasks among the different institutions is clearly stated. The PDD has the responsibility of the issuance and management of public debt. The Italian Treasury Department is responsible for the management of the state treasury and monitoring the financing needs of the central government. The BOI-as a member of the European Central Bank (ECB)-is in charge of monetary policy and surveil- lance over the Italian financial system.
The set of rules and constraints and the different tasks assigned to each of the acting departments (PDD, treasury department, BOI, and also general government entities) require a deep and constant coordination in activities to prevent the breaking of legal rules and ensure the orderly functioning of state activities (collection of revenues and distribution of payments).
As it is for all members of the EMU, the issue of coordination of debt management with monetary policy in Italy must be seen in the framework of the Maastricht Treaty. The treaty establishes a prohibition against monetary authorities financing the state deficit by buying government securities on the primary market. This provision of the treaty was reflected in national legislation in 1993, which prohibited the BOI from participating in government bond auctions. Regarding the conduct of monetary policy, the PDD has never had any privileged information, because the setting of official interest rates was an exclusive privilege of the BOI until 1998 and of the ECB thereafter.
The legal framework ensures a complete separation of objectives and accountability for monetary policy and debt management. The BOI is fully independent from the government and acts as an independent authority, or an institution performing its activities with no interference and deriving its powers from specific legislation, without any possibility of intervention or influence by the government onging to specified categories. However, according to the BOI statute, the majority of shares must be in the hands of public entities or companies owned by public entities. As of December 31, 2000, there were 86 shareholders (80 with voting rights).
In addition, Italian law, in accordance with Article 101 of the treaty establishing the European Community as modified by the Maastricht Treaty, forbids all overdraft facilities of the state with the BOI or the ECB, in any form and amount. Since 1993, the direct purchase of public debt instruments from the BOI is forbidden by law. The system also includes the cash account of the treasury at the BOI, implying the removal of any overdraft facility for the treasury. According to the law, this account has to show an average positive balance of € 15.49 billion.
However, even though Italy has implemented a clear separation of roles between the treasury and the BOI, these two institutions have always maintained a close dialogue on public debt management issues. First, they exchange views in regular meetings in which issuance policy matters such as amount and instrument mix to be offered are discussed. Second, the BOI is usually involved in workgroups that are occasionally established to work on specific innovations or questions that are relevant for debt management, such as the creation of the strip market, the definition of new facilities, and the like. Third, a close exchange of information is maintained on the issuance activity in foreign currency, given its implications on reserves management and the fact that the BOI is the fiscal agent of the republic.
The smooth functioning of the borrowing activity of the PDD requires constant monitoring of the financing needs of the state in coordination with the direction of the treasury department. This constant monitoring is also done by means of estimates and Page 98 forecasts of the possible future trends in those needs, taking into account the usual annual cyclical and extraordinary patterns of cash expenses and revenues (typically, revenues from direct and indirect taxation, expenses for salaries, and the like). Finally, the financing requirements need to take into account the maturity and reimbursement profile of outstanding debt.
A close exchange of information is also maintained on the balance of the cash account that the treasury holds at the BOI, through which most payments of the republic are channeled. Although this account is established at the BOI, only the treasury is entitled to order any payment or receipt. However, the two institutions keep close contact on the balance on account because of its implications for liquidity in the system and therefore on monetary policy.
The budget law ( legge finanziaria ), passed annually by parliament, sets the binding limit for the net borrowing of the state and for the market borrowing activity during the financial year. The latter represents, in brief, the total amount of gross issuance of public debt.
The legal framework for public debt management activity is defined first by the state law, which has recently created the new ministry of the economy and finance (MEF). The MEF is assigned-among others-the competencies related to the "... funding of Government's financing needs and of Public Debt. ..."
A secondary regulation defines the concrete organization and division of competencies assigned to the treasury department within the MEF, and in particular to the PDD.
The PDD is responsible for the issuance and management of domestic and external public debt, the management of public debt sinking fund, and surveillance of market financing activities of other local and public entities. This surveillance over public and especially local entities is a sensitive issue for the PDD. The obligations of the state related to the excessive deficit procedure are to be met at the general government level-for example, taking into account the funding activity of the local entities and of all entities included in the general government sector.
The particular legislative framework, together with the hierarchy of legislative sources, entails a sound assurance that Italian government stands behind any transactions the PDD managers enter into. The officials of the PDD are civil servants; the managers of the various offices that form the PDD are subject to accountability principle, implying civil, administrative, accounting, and criminal law responsibility.
The PDD produces four main documents illustrating its activities and strategic plans for the future:
- The annual strategic guidelines are drafted...
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