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NTMA chief criticises S&P for less than top rating Back  
Rapid internationalisation of Irish bond holdings.
Speaking at the launch of the NTMA’s annual report for 1999, its Chief Executive, Dr Michael Somers expressed frustration at the failure of Standard & Poor’s, uniquely among rating agencies, to give top ratings to Irish government long term debt. S&P currently rate short term debt A1+ and long term debt AA+. He said S&P had told the NTMA they were prepared to give an overall rating of AA+ to Irish debt (covering both long and short term) but the NTMA had rejected this ‘offer’.

Somers said Standard & Poor’s had expressed no concern about government borrowing and the national finances but had put forward ‘the ridiculous argument’ that Ireland’s membership of the euro now meant that Ireland could no longer print money. ‘In that case, the Weimar Republic should have been given a AAA rating,’ he said. S&P had queried the growth in private sector credit in the economy. ‘But we can’t control people’s borrowing habits’, Somers said. To much laughter, including that of Finance Minister Charlie McCreevy in attendance, Somers said that if S&P didn’t hurry up and revise their rating, ‘there’ll be no debt left to rate’.

Speaking to Finance, Konrad Reuss of Standard & Poor’s pointed out that other countries in the eurozone which had consolidated their public finances had the same rating as Ireland, ‘for example, Finland, with its AA+ rating’. He said the agency was interested to assess how the public finances would be if growth slowed down and pointed to ‘the risk of over-heating’ in the economy. Their concerns about private sector credit growth were an issue for bank ratings and not the sole reason for not granting a top rating to government debt. ‘We’re saying there should be no complacency about credit growth, it needs to be monitored very carefully,’ Reuss said.

S&P and the NTMA were to meet again in the coming weeks to discuss matters further, Somers said.

Meanwhile, the NTMA report shows that foreign holders of Irish government bonds increased dramatically in the first six months of this year, from 29.5 per cent of investors to 45 per cent at end June, according to the National Treasury Management Agency. This reflected the re-balancing of portfolios by Irish investment institutions, Michael Somers, Chief Executive of the NTMA said at the presentation of the Agency’s annual report.

The internationalisation was also reflected by Deutsche Bank becoming the largest player in new debt auctions in its first year as a primary dealer. It took 24 per cent of the IR?1 billion new debt issued in 1999, followed by NCB with 21 per cent. However, market shares among primary dealers of total turnover in bonds reflect the historical strength of brokers like Davys (at 30 per cent), ABN AMRO (24 per cent) and AIB (21 per cent).

The NTMA issued new debt even though the Government did not require borrowed funds, since maturing debt exceeded the amount the government and the Agency decided to retire.

General government debt as a proportion of GDP is expected to fall to 42 per cent by the end of this year, 36 per cent by the end of 2001 and 31 per cent by the end of 2002.

Somers said that the new role of the NTMA as a central treasury service for public sector entities could save the State about IR?2.5 million, as estimated three years ago. The scheme would be voluntary for public sector bodies. He compared it to a central treasury service for international corporations, ‘such as those you see in the IFSC’.

He also confirmed that the Agency will not use commercial insurance contracts in relation to its proposed State Claims Agency role, but was looking at the possibility of establishing a captive insurance company ‘some way down the road’.

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