It might be helpful if I outlined some of the functions of the NTMA. Five major legislative provisions affect it. The agency was originally established at the end of 1990 to manage the national debt and deal with the borrowing activities of the State, at a time when the State's financial problems were very acute. There were major difficulties in the Department of Finance in trying to obtain staff experienced in this area and in holding on to them. They were leaving to join the private sector. The Government of the day decided that if one could not beat them one should join them and that the best thing to do was to set up a separate entity outside the Civil Service and hire people from the private sector to deal with this difficult matter and with the huge sums of money involved. I am sure part of the reasoning was that if we could reduce expenditure on the national debt, on the interest bill, it would be much more acceptable than trying to cut expenditure on health, social welfare or education. At this time, the paying of the interest on the debt required about 8% of our GNP. This has now reduced to between 1% and 2%.
We were the first country in the world to set up a separate entity to deal with the national debt. The Swedes have had an office to deal with their debt for about 200 years but we were the first to establish one in modern times. Before this, the debt was dealt with by the Central Bank and the Department of Finance. As I said, the problem was one of not being able to obtain staff.
Most countries have come to see us and have copied what we have done. They have realised it is a business and not an administrative activity. Most countries have not gone so far as us in terms of setting up an agency outside the Civil Service. Our organisation is the only one in the State in which, by law, a civil servant cannot work. It was designed to focus people's minds. For anybody who wanted to join the Civil Service, there was no going back; one resigned and that was it. In many other organisations in the State one can go on secondment from the Civil Service which allows for the possibility of return. This was not an option regarding the NTMA.
As time went on, other activities were given to the agency, mainly because we were the only entity available to central government that had commercial freedom to operate, hire people, pay them whatever was required and get the business done. One of the first tasks we received was the securitisation of the State's mortgage book under the rainbow coalition Government. The State had lent a lot of money to local authorities for on-lending to lower income groups to buy their houses and it needed its money back. Legislation was enacted to enable us to set up a company called Ulysses Securitisation plc which issued bonds and got the money for the State. In return the mortgage payments were then made to the company. This was the first major job.
We were then approached by the then Attorney General, Mr. Dermot Gleeson, about the problem of people suing the State. He said he had seen it from both sides, having acted for plaintiffs and having seen the difficulties the State was having in defending these claims as Attorney General. He approached me about the issue and I admitted frankly that it was an area about which we knew nothing. The only thing we brought was that we had taken a function out of the Civil Service, and the Central Bank and had set it up as a business.
Mr. Gleeson also felt we were managing risk, and there was much risk involved in these claims. People were suing individual Ministers and the claim would go to the relevant Department. Most Departments did not have specific groups that could deal with claims against the State so they would send them to the Office of the Chief State Solicitor, which was overburdened with many other activities. Eventually, junior counsel would be hired and then senior counsel. The cases would be settled in either the High Court or on the steps thereof when people's expectations had risen enormously, as had the legal bills. The idea was that if we could hire people who knew this business and could settle claims quickly, there would be considerable benefits for the State.
The matter dragged on and I spoke to successive Attorneys General about it to see if they were still in favour of the idea. They were and the legislation was eventually passed in 2000. The body in question, the State Claims Agency, came into existence at the beginning of 2001. We have hired claims managers, engineers and medical doctors. In more recent times, because of problems in the health area, the remit of the claims agency has been extended to deal with hospitals, doctors, health boards, etc. Anybody who wants to sue them will sue us. In fact they are doing so and there is an ongoing problem with the MDU, of which I presume the committee is aware.
The next thing that came our way was the national pensions reserve fund. Again, there was specific legislation to cover this. There had been no fund in existence to cover the accumulated liabilities in respect of those employed in the public service or those who are entitled, in due course, to the old age contributory pension. The Minister for Finance took the view that with the ageing of the population we needed to make some provision for this liability, which is containable at present.
There was much discussion on how the fund would be managed, including the suggestion that it be managed by a bank. The Minister for Finance was anxious not to get involved in taking decisions on how to invest the money as he wanted an expert group to deal with it. He set up a commission which was granted all the decision making powers. As some group had to look after the public interest, the question was whether the NTMA, the Department of Finance or a new agency would do it. The Department did not seem to have any wish to do it as it would have had similar problems with the recruitment of staff. There was no wish either to set up a new body and we only discovered later that the Central Bank had expressed an interest. The NTMA had to hire people from financial institutions and the private sector who were experts in the area to assist us in managing the fund, which is now worth €10.5 billion.
The NTMA was also granted control over the National Development Finance Agency. That came into existence at the beginning of 2003. We had to start these agencies from scratch as there was no model nor existing agency. Up until that stage, if a Department had a project, it would hire a pool of experts at high cost who would develop the expertise needed for a specific project. When the project was completed, the group dispersed and the expertise was lost. The idea with the National Development Finance Agency was that if there was a pool of expertise available to the State, then it could be used again and again for different projects.
The Act to establish the National Development Finance Agency provided for three things. The NTMA would run the agency, it would advise on the optimal way of financing major infrastructure projects and it could borrow or guarantee up to €5 billion for these projects if it was cheaper for the NTMA to fund them instead of the private sector. The NTMA could also set up special purpose companies. This was an attempt to find out if it could get projects off the State's balance sheet as there has been a view that many desirable infrastructure projects have been held up because of EUROSTAT rulings and so on. If these projects could be cleared off the balance sheet, they could go ahead. This is another new organisation and its first chief executive resigned last December. Anne Counihan then took over as chief executive.
The NTMA also undertakes a number of other activities. It acts as a central treasury service for local authorities, health boards, VECs and so on. This initiative seeks to prevent these bodies from paying too much to banks. If they had spare cash they placed it with banks but got a poor rate of return and if they wanted to borrow money they paid over the odds for it. The NTMA will give them a reasonable rate of return and will lend them cash if they are short. It can do that on a short-term or long-term basis. The level of expertise in many State entities is quite low. Some local authorities claimed that the NTMA was charging them too much, although it was over a 20-year period, and that they could get cheaper money from banks. We at the NTMA could not understand how the banks were prepared to do this so we asked to see the documentation. No one would do this but one local authority agreed that we could look at the legal agreement it had with the banks. When we looked at the agreement there were different kinds of break clauses. The bank had the right to demand its cash back in six months rather than 20 years. These documents are cleverly worded but officials at the NTMA have the expertise to spot those clauses.
We are also funding the housing finance agency. This agency had been borrowing on the market in its own name with the State's guarantee. We considered that there was no point in having two State entities borrowing, especially since this agency was paying more than the NTMA for money. We are now acting on its behalf to raise the money that it requires and it has made savings as a result. We also manage the social insurance fund on behalf of the Minister for Finance, which is worth over €1 billion. We manage the dormant accounts fund on behalf of the board that has been set up to do it. We manage liquidity on behalf of the European Central Bank. The ECB requires a five-day forecast of the amount of cash that the NTMA has in the Central Bank on behalf of the Government. It requires this information to manage liquidity within the eurozone. The amount of money that is in surplus or deficit has to be put in the market. We frequently find ourselves in the situation late in the day with a surplus or a deficit of between €500 million and €1 billion. We then have to either place it in the market or raise that money to maintain a deposit with the Central Bank. That is one of those awkward jobs where one has to search the market around the world and try to find out if there is any spare cash or if anyone wants to have our cash.
That is a quick synopsis of what the NTMA does. When I was before the Committee of Public Accounts a few months ago, we went through many of the issues from 2002. I circulated the end of year press release. We have been anxious to get whatever information we have into the public arena as quickly as possible. We have had a press release every year on 31 December, which is a pretty demanding target. The chairman of the national pensions reserve fund was anxious to release information on the pension funds. He therefore issued a review for 2003. The "Ireland information memorandum" is another document which we just released. It is a marketing document which essentially provides information on what we do.