Panama, Republic of Panama The Changing Role of the Debt Manager

1. Panama, Republic of PanamaThe Changing Role of the Debt Manager Aracelly Méndez Public Credit Director Ministry of Economy and Finance Fifth Inter-regional Debt Management Conference Geneva, June 2005

2. The Changing Role of the Debt Manager Agenda • Debt Stage Evolution: main drivers, DMO organizational charts, objectives, functions and staff skills. • The Multilateral Era • The Brady Era • The International Capital Market Era • The Domestic Capital Market Era • Conclusions

3. The Changing Role of the Debt Manager Debt Stage Evolution 1990 - 1994 The Multilateral Era The Brady Era 1995 - 1997 The International Capital Market Era 1998 - 2001 The Domestic Capital Market Era 2002 - 2005

4. The Changing Role of the Debt Manager The Multilateral Era (1990 – 1994) • First democratic Government in charge, after 20 years of military Goverment. • Country was recovering from economic crisis, which had resulted in debt default in 1987. • Deficit was partly financed by decentralized institutions (such as: electricity and telecommunications enterprises). • Primary sources of financing were loan instruments (with multilaterals and commercial banks) and domestic non-market securities. • Debt Management Office was mainly focused on paying debt (current and defaulted debt), lacking a sound public debt strategy. • Organizational Structure was not task-oriented.

5. The Changing Role of the Debt Manager The Multilateral Era (1990 – 1994) Organizational Structure

6. Front Office Middle Office Back Office Contract Negotiation (Decentralized) Data Recording & Validation Functions The Changing Role of the Debt Manager The Multilateral Era (1990 – 1994) • Continue with Paris Club Rescheduling. • Validate the entire debt database. • Implement first debt management system. Objectives • Knowledge of common financial terms and conditions. • Knowledge of payment and conciliation procedures. • Basic knowledge of IT applications. • No specific University degree required (diverse academic background). • Reading-writing skills (Spanish & English). Staff Skills

7. The Changing Role of the Debt Manager The Brady Era (1995 – 1997) • Debt re-structuring plan was implemented by issuing Brady bonds for a face value of US$3,228 million. • As a result, debt composition shifted from commercial bank debt to Brady bonds. • Credit-risk ratings were obtained from Moody’s and S&P. • Implementation of an external debt management strategy was initiated, supported by the creation of a project control and risk analysis units. • Debt Management Office was re-organized by creditor type.

8. The Changing Role of the Debt Manager The Brady Era (1995 – 1997) Organizational Structure

9. Front Office Middle Office Back Office Contract Negotiation (Decentralized) Data Recording & Validation Strategy Planning Functions The Changing Role of the Debt Manager The Brady Era (1995 – 1997) • Re-access capital markets by issuing guaranteed securities (Brady Bonds). • Get access to new financing sources. • Obtain a credit-risk rating by Moody’s and S&P. Objectives Market Monitoring • Specialized knowledge of financial terms and conditions by creditor type. • Intermediate knowledge of IT applications (such as: DMFAS, Bloomberg and Reuters). • Some specific staff qualifications are required (strategic planning skills). • Reading-writing + listening-speaking skills (Spanish & English). Staff Skills

10. The Changing Role of the Debt Manager The International Capital Market Era (1998 – 2001) • Privatization process of decentralized institutions is initiated. • Deficit financing was mostly funded by issuance of global bonds. • A Brady refinincing strategy is started (liability management transactions). • Debt composition is shifted from Brady bonds to global bonds. • As a result, access to capital markets is strengthened. • Market and risk analysis functions are reinforced. Some new issues are now been addressed, such as: yield curve design, interest rate and FX analysis, market research, monitoring of public debt ratios.

11. The Changing Role of the Debt Manager The International Capital Market Era (1998 – 2001) Organizational Structure

12. Front Office Middle Office Back Office Contract Negotiation (Centralized) Data Recording & Validation Strategy Planning Functions The Changing Role of the Debt Manager The International Capital Market Era (1998 – 2001) • Minimize long-term financing costs. • Build an efficient long-term yield curve. • Extend and improve maturity profile. • Minimize interest rate risk. Objectives Risk Monitoring Market Monitoring • Specialized knowledge of market securities. • Advanced knowledge of IT applications (modeling macros in excel). • Specific staff qualifications are required (such as: proposal evaluation skills and market & risk monitoring skills). Staff Skills

13. The Changing Role of the Debt Manager The Domestic Capital Market Era (2002 – 2005) • Due to privatizations, public Goverment finances are pressured by increasing financing needs. • A fiscal Reponsability Law is passed. • An internal debt funding strategy is implemented. • Primary sources of financing are global bonds (long-term securities) and treasury notes (medium-term securities), issued in the international and domestic capital markets. • However, public debt strategy is mainly focused on the development of the domestic capital markets and creation of an efficient short/medium-term yield curve. • Organizational Chart is a mix of creditor and task-oriented set-up with a backoffice department properly organized. Project control functions are reinforced.

14. The Changing Role of the Debt Manager The Domestic Capital Market Era (2002 – 2005) Organizational Structure

15. Front Office Middle Office Back Office Monitor budget & financial execution Contract Negotiation (Centralized) Data Recording & Validation Strategy Planning Functions The Changing Role of the Debt Manager The Domestic Capital Market Era (2002 – 2005) • Get access to low-cost financing sources. • Develop domestic capital markets. • Reinforce financial and budgetary controls. • Continue with Brady bond refinancing (liability management strategy). Objectives Risk Monitoring Market Monitoring • Specialized knowledge of domestic market operations (auction types, pricing strategy, clearing issues, secondary market monitoring, MM programs). • Advanced knowledge of IT applications (such as: negotiation systems and electronic auction systems). • IT design skills (to develop integrated systems). • Enhanced monitoring skills (financial and budgetary). Staff Skills

16. The Changing Role of the Debt Manager Conclusions • Debt Management Offices are dynamic. Therefore, their organizational charts and staff skill requirements change as a country matures as a borrower. • Countries at different levels of development need different organizational structures for their debt office, which should be defined according to the types of financing sources it has access. • Thus, there is not a unique organizational structure applicable to all Debt Management Offices. • As more functions are undertaken by a Debt Office, greater reliance on information management technology and team-work skills are required.

17. The Changing Role of the Debt Managerby Aracelly Méndez Thank you Fifth Inter-regional Debt Management Conference Geneva, June 2005