John Bruton
Question:13 Mr. J. Bruton asked the Minister for Finance the basis for the projection of a saving of £100 million by the National Treasury Management Agency this year.
Ceisteanna—Questions. Oral Answers. - National Treasury Management Agency.
Paul Bradford
Question:33 Mr. Bradford asked the Minister for Finance the basis for the projection of a saving of £100 million by the National Treasury Management Agency this year.
I propose to take Questions Nos. 13 and 33 together.
A key objective of the National Treasury Management Agency is to keep debt service costs to the lowest possible level consistent with the efficient and prudent management of the national debt. Pursuant to this objective the agency has been set debt service savings targets in each year of its operation to date. These targets were achieved in 1991 and 1992. In 1993 the agency has been set a savings target of £100 million and I am assured by the agency that present indicators are that this target will be fully realised.
The agency also inform me that it is not possible to specify in advance the precise mechanisms through which the savings of £100 million will be achieved as these will vary with market conditions throughout the year. As Deputies will appreciate the details of the agency's plans for its activities in particular markets must be confidential and of their very nature cannot be made known in advance. However, the experience since the establishment of the agency shows that it has the expertise in managing a debt portfolio of the size and complexity of the national debt to take advantage of opportunities to achieve savings which may emerge in any of the international markets while at the same time avoiding unacceptable levels of risk. The broad range of currencies and instruments in which the agency borrows, its presence in all the major capital markets as well as its active use of modern debt management techniques ensures that opportunities to achieve savings have been successfully exploited in the past and will continue to be so exploited in the future.
Now that the dust has settled in relation to the currency crisis, exactly how much did it cost the National Treasury Management Agency to follow the Minister's instructions and borrow in hard foreign currencies from September 1 to January 1? Will he agree that it was of the order of £180 million? Second, is the Taoiseach aware that there is widespread criticism of the National Treasury Management Agency because of the low level of our foreign debt denominated in sterling and because it has put forward very lame excuses, such as the security problems in London, for not raising the money in London? London is one of the big capital markets of the world dealing in every sort of bond and currency. The taxpayer could have been saved a fortune in terms of debt servicing costs, given what happened in relation to currency and our level of trade, if more of our debt was denominated in sterling.
The fact that our economy is performing well and that we now have interest rates of 8.5 per cent is directly the result of us having fought for our currency——
Does the Minister really believe that? No one else does.
Everyone believes it. We have already seen the difficulties Spain had with the peseta being devalued twice; if one cannot hold one's strength in one's own currency, and the parity of one's exchange rate, then one runs into difficulties. Apart from that, I am not aware of any criticism of the policies of the National Treasury Management Agency——
That does not surprise me.
——although I am regularly at the financial institution functions, I was at three last week and heard no criticism whatsoever. At the treasury conference last week there was not one word of criticism of the National Treasury Management Agency.
What level of the national debt is denominated in sterling? I think we will find it is extraordinarily low. Let the Minister not labour any longer the point about economic miracles, inflows of money and lowering of interest rates. These are due exclusively to the strength of sterling, our relationship with sterling and the international trend led by the Bundesbank in reducing rates. Nobody really believes the improvement was a result of the Minister's budget or his macro economic policies, which have increased borrowing by £400 million. Let the Minister stop pushing this myth because no one really believes it.
If Deputy Yates examined the facts he will see that it was not because countries devalued relative to the strength or weakness of another currency but belief in the market, the exchange rate and economic and fiscal factors within a country that decide whether markets invest. That is true, not only of this country but of any country. What has happened is not because of the strength of sterling. The money and resources that come back into the Irish market are not sterling related or from the UK markets.
Deputy Bruton's question seeks to establish the basis for the projection of the saving of £100 million by the National Treasury Management Agency. Does the Minister not agree that of all the games we play in this House with official figures this is the most absurd? How can one possibly measure what the debt service savings target will be in an agency charged with handling the State's portfolio over the period of a year? If it can be measured and one plans for savings of £100 million, why not say what the target should be, minus £100 million?
What is the point of this exercise? This is the particular jar of honey into which we were to dip before the fall of the last Government to fund the county enterprise boards. There was £60 million at that stage which was supposed to be left in the kitty. That was soon swept away in the events to which Deputy Yates referred. Can the Minister explain it to the House? I certainly think it is absurd.
This is not a perfect science because so many things happened in 1992, but the procedure is that the National Treasury Management Agency works against the benchmark of the JPR Morgan Index, a formula by which, when savings are achieved, the effect of the agency's activities can be proved or disproved as opposed to the effect of what happens in the market. It may not be perfect but it is used by many countries. The system used in the National Treasury Management Agency is attracting attention from other countries and at least three or four are now examining precisely how we are doing it.
What basis is used to prepare the figures for debt service costs in the central fund accounts? Is this saving of £100 million a saving by the National Treasury Management Agency as against the provision in the central fund accounts? If a saving of that kind can be made, does it not suggest the original provision in the central fund accounts is inaccurately inflated?
If the figure for the year is calculated at, say £2.4 million, the agency must put forward its plans and mechanisms for making a saving on that figure, for example, if the agency suggests that £100 million can be saved, the J. P. Morgan benchmark is used to calculate how much of that saving would have happened anyway, had the agency not used any of its expertise. That has been done for the past two years and it is an internationally recognised standard. Under the J. P. Morgan index the saving would not be £100 million. It might be £70 million or £75 million and it would be assumed that the £25 million would probably happen anyway.
Is it not possible that the original estimate of debt service costs was incompetently calculated if it is possible for competent people in the NTMA to save £100 million?
It is not. That would be extremely unfair because when the agency is given a target it must take calculated risks in making decisions.
Could there not be a loss?
The agency makes those decisions based on its ability to save on whatever figure is put forward. This is the professionalism of the people in the agency. When the agency was set up, it brought together experts who would deal with matters in a less traditional manner than is the case in the Department of Finance——
That is a reflection on the professionalism of the officials of the Department of Finance.
Deputy Bruton was Minister for Finance twice so he should know how the old system operated. The NTMA has brought in expertise which was not available in the Department of Finance.