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Brazilian Debt ManagementTransparency
Luiz Fernando Alves June, 2015
2
A diretriz para a definição dos objetivosestratégicos e metas foisemelhante à 2012
Avanços em relação a dinâmica das metasconjuntas: participaçãodos consultores para reuniõesquadrimestrais
1986 The National Treasury
Secretariat is created
Strengthening of public finance
and responsible management
of public resources
Public Debt (SUDIP)
Fiscal Policy
Subnationals
Statistics and Fiscal
Planning
Governmental Accounting
Institutional Development
and IT
MINISTRY OF
FINANCE
NATIONAL
TREASURY
NATIONAL TREASURY SECRETARIAT: INSTITUTIONAL STRUCTURE
Strategic Planning Dept(Middle-Office)
Development of medium and long term strategies, risk management, macroeconomic scenario, and investor relations
Register, control and payment of the domestic and external debts, being also responsible for the budget and debt official statistics.
Development of short term strategies related to securities issuances in the domestic and external markets; domestic market auctions and external issuances; structured operations.
Public Debt Undersecretariat(DMO)
Operations Department(Front-Office)
Control Department(Back-Office)
3
FEDERAL PUBLIC DEBT MANAGEMENT: INSTITUTIONAL STRUCTURE
STRATEGIC PLANNING AND TRANSPARENCY IN BRAZIL
2014
2009
2003
1999
2005
2000
1992
Treasury begins
its regular bond
issuances
Debt
Committee
First Annual
Debt Report SUDIP is created
and searches for
benchmarks in
the international
experience
First Annual
Borrowing Plan
• Long Term
Optimal Debt
Composition
• Medium Term
Planning
• External debt
management
SUDIP
modernization
project
The Brazilian
experience is
published in a
book
3
STRATEGIC PLANNING, TRANSPARENCY AND COMMUNICATION
5
» The National Treasury of Brazil has come a long way from transparency to build trust in agents.
» Simple and robust indicators are used in the APB and for the long term optimum composition as well as setting
targets for these indicators. The ABP set targets for the debt composition and for its maturity structure.
» It is essential to publicize the goals and responsibilities of debt management to ensure credibility. Transparency
reduced the market uncertainties related to debt management goals and made political decisions more consistent.
» There are no demands on law concerning mandatory design and publication of financing strategies, ABP or MTDS.
» Nevertheless, Congress has control elements with respect to the management of public debt
» There are some legal limits to the public indebtedness level in Brazil, constraining the amount of new credit
operations in a year, as well as the stock of debt (net and gross debt)
» Besides, the Budgetary Guidelines Law (LDO) requires an assessment of fiscal risks that may arise from public debt.
» A report on debt management is also part of an Annual Presidential Message to the Congress.
6
Accomplish economic
and financial research;
Participate on the
middle and long term
financing strategy;
Monitor, analyze and
forecast domestic and
external scenarios.
Maintain and improve
relationship with investors
and opinion makers;
Broaden the investor
base;
Provide uniformity and
publicity on the
information about debt
management;
Management of Tesouro
Direto Program.
Develop studies on
public debt management;
Research and
development technology
to improve the Public
Debt management;
Give support in
technical themes related
to institutional
responsibility of COGEP.
Monitor risk exposure
indicators of public debt,
focus on Federal Public
Debt;
Identify and propose
the optimal structure of
public assets and
liabilities;
Elaborate middle and
long term strategy.
Risk Scenarios Investor Relations Special Studies
Strategic Planning Dept(Middle-Office)
TRANSPARENCY AS GUIDELINES: INSTITUTIONAL RELATIONS UNIT
TRANSPARENCY AS GUIDELINE: MAIN PUBLICATIONS
7
» In 2001, an Institutional Relations Unit within the Middle Office was created: direct channel with the press, rating
agencies and market agents in order to provide information about the public debt
»Main Publications:
» The Optimal Federal Public Debt Composition, published in 2011, bringing the desired profile for the
debt structure in the medium-term;
» The Annual Borrowing Plan, since January 2000, which presents the National Treasury’s objectives,
guidelines, financing needs, strategies and targets to the end of the year;
» The Annual Debt Report, which offers a retrospective analysis of PDM for previous year, describing the
goals and targets, and its results.
» The Monthly Debt Report, which presents information and statistics on issuances, buybacks,
outstanding debt and its average maturity and life, maturity profiles and average costs for the FPD,
including domestic and external federal debt, for which the Treasury is responsible.
» The Yearly Issuance calendar, which, at the start of each year, list the dates of auctions, as well the types
of bonds to be offered in each auction.
OBJECTIVE AND GUIDELINES RELEASED SINCE THE FIRST ABP, IN 2001
8
The objective of the Federal Public Debt Management is that of efficiently meeting the National
Treasury Borrowing Requirements, at the lowest possible long-term financing costs, while ensuring the
maintenance of prudent risk levels. Additionally, the aim is to contribute to the smooth operation of the
Brazilian government securities market.
To achieve this objective, the guidelines underlying FPD management are as follows:
Increase the average maturity of the outstanding debt
Smooth the maturity profile, with special attention given to short-term maturities
Gradual replacement of floating-rate securities by fixed-rate and inflation-linked instruments
Improvement of the External Federal Public Debt (EFPD) profile through issuance of benchmark securities, buyback program and structured
operations
Development of the yield curve on both domestic and external markets and growth in the liquidity of federal government securities on the
secondary market
Broadening of the investor base
9
DECISION MAKING PROCESS – DEBT MANAGEMENT COMMITTEE
Cash Management
Short term Strategy
Auction
Risk Management
Targets Monitoring
Benchmark
MTDS
External Market
Domestic Market
Public Debt Under-Secretary
Head of Front-Office
Head of Middle-Office
Head of Back-Office
Debt Committee
Treasury Secretary
Annual Borrowing Plan
Medium Term Strategy
Benchmark
Technical Staff
ANNUAL BORROWING PLAN: MAIN INFORMATION DISCLOSED
10
» The mid-range indicators for 2015’s indicators show stability for the FPD profile towards the end of the year
»Another important guideline relies on lengthening the average maturity, which is expected to reach a new record in 2015.
Minimum Maximum
Stock of FPD (R$ bn)
FPD 2,295.9 2,450.0 2,600.0
Profile (%)
Fixed Rate 41.6 40.0 44.0 45.0 +/- 2.0
Inflation Linked 34.9 33.0 37.0 35.0 +/- 2.0
Floating Rate 18.7 17.0 22.0 15.0 +/- 2.0
Exchange Rate 4.9 4.0 6.0 5.0 +/- 2.0
Maturity Structure
% Maturing in 12 months 24.0 21.0 25.0 20.0 +/- 2.0
Av. Maturity (years) 4.4 4.4 4.6 5.5 +/- 0.5
Av. Life (years) 6.6 _ _ _ _
Indicators 2014Limits for 2015 Long Term Limits
Reference
THE DISCLOSURE OF THE ANNUAL TARGETS MAKE THEM BINDING FOR THE DEBT MANAGER: DEBT COMPOSITION
11
0
10
20
30
40
50
% o
f FP
D
Fixed Rate
0
10
20
30
40
50
% o
f FP
D
Inflation Linked
0
10
20
30
40
50
% o
f FP
D
Floating Rate
0
10
20
30
40
50
% o
f FP
D
Exchange Rate
12
10
15
20
25
30
35
40
45
50
% o
f FP
D
% in 12 Months
2
3
4
5
Year
s
Average Maturity
THE DISCLOSURE OF THE ANNUAL TARGETS MAKE THEM BINDING FOR THE DEBT MANAGER: MATURITY STRUCTURE
RETAIL DEBT PROGRAM (TESOURO DIRETO)
13
» To offer to Brazilian citizens a safe and profitable savings alternative, paring up with the what is available
to institutional investors
» Uses roughly the same on-the-run instruments for debt roll-over with the same yields;
» Attractive for low-scale investors:
» Low Minimum Ticket (around USD 10);
» Competitive Fees;
» Financial Education Purpose:
» Provide transparency over the yields paid by the govern to finance itself;
» Increase the interest about public debt management and fiscal policy.
IMPORTANCE OF TRANSPARENCY
14
» Rating Agencies highlight the importance of transparency:
» Moodys
» Analysis based on four macro indicators: Economic, Institutional, Fiscal andRisk Exposure. Transparency is key in the institutional factor:
“Transparency and accountability of the public sector is a key focus of thisindicator.”
» S&P
» Analysis based on five factors: Political, Economic, Fiscal, External Sector andMonetary Policy. Transparency is key in the Political Factor:
“The transparency and accountability of institutions, data, processes, aswell as the coverage and reliability of statistical information”
IMPORTANCE OF TRANSPARENCY IN BRAZIL
15
» The S&P, in its 2008 report when Brazil was rated as investment grade, wrote:
“Generally pragmatic and predictable policy and fairly transparent institutions
have underpinned macroeconomic stability in Brazil. This has facilitated a
sounder foundation for economic growth and fiscal improvement over the past
five years.”
» Brazilian Debt Management has been recognized as adopting good practices in
transparency: the IIF Report has classified Brazil among the top emerging countries
in investor relations
LESSONS LEARNED ON GOVERNANCE DIMENSIONS OF DEBT MANAGEMENT STRATEGY
16
» Debt management requires a well defined (long term) objective and clear
guidelines
» Transparency itself is a powerful enforcement mechanism to allow the DMO
to implement debt strategies according to its preferences and analytical work
» The definition of targets involves balancing transparency and flexibility to react
to shifting in market conditions, without shifting the long term goal
» Institutional aspects are important to support strategy design and
dissemination
17
For additional information access the National Treasury website:
www.tesouro.fazenda.gov.br/en
Or contact Institutional Relations area:
The information on this presentation is issued by the Brazilian Debt Management Office (DMO) for informational purposes. It does not contain and is notan invitation or offer to buy or sell securities.
Translation of the original text of this document is provided only for the convenience of the reader. While reasonable care has been taken to ensure theauthenticity of the translation, its accuracy cannot be guaranteed. Reliance upon this translation shall be at the reader's own risk. Under no circumstances,shall the Brazilian National Treasury, its officers, employees or agents be liable to the reader or anyone else for any inaccuracy, error, inconsistency,omission, deletion, defect or alteration of the content of the translation from the original Portuguese text, regardless of cause, or for any damagesresulting therefore. The original Portuguese text of this document is the only official version, which can be found inhttp://www.stn.fazenda.gov.br/index.asp. In the event of any discrepancy or contradiction between the Portuguese and translated version, thePortuguese version shall prevail.