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

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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


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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


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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


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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.


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The Changing Role of the Debt Manager

The Multilateral Era (1990 – 1994)

Organizational Structure


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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


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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.


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The Changing Role of the Debt Manager

The Brady Era (1995 – 1997)

Organizational Structure


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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


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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.


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The Changing Role of the Debt Manager

The International Capital Market Era (1998 – 2001)

Organizational Structure


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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


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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.


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The Changing Role of the Debt Manager

The Domestic Capital Market Era (2002 – 2005)

Organizational Structure


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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


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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.


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The Changing Role of the Debt Managerby Aracelly Méndez

Thank you

Fifth Inter-regional Debt Management Conference

Geneva, June 2005


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