Government defends borrowing strategy, accuses predecessor

Stung by criticism over its borrowing practices and debt servicing, the government yesterday blamed former Economy and Finance Minister Nikos Christodoulakis for the indebted state of the economy and for making unreliable predictions about the country’s borrowing requirements. At the same time, desperate for extra revenue, the government has discovered a better-than-expected windfall – the so-called «white hole» – from public organizations’ surpluses (social security and pension funds, hospitals, local authorities and public-law entities). When in opposition, that is, up to three months ago, the conservative New Democracy party had derided the «white hole» as yet another example of creative accounting by the previous Socialist government. Now, it is in the middle of a long quest for surpluses that will not be completed before the end of August, according to Manolis Kontopyrakis, general secretary of the National Statistics Service (NSS). Yesterday, the Ministry of Economy and Finance issued a statement in reply to Christodoulakis’s criticisms, made on Friday, that the government was wrong to issue a 30-year bond, that it had borrowed on the sly, without informing anyone, and that the yield rates were too high. «The borrowing was not secret. Besides the fact that loans are immediately entered into the public debt by the public accounting system, it is well known that, from the settlement date onward, the terms of the (bond) issues and the other technical data can be found down to the last detail, online, at the Reuters and Bloomberg sites. In any case, these titles are negotiable at the Athens and Luxembourg financial markets and, therefore, are the opposite of a secret loan,» the ministry’s statement said. The ministry also attacked Christodoulakis for his criticism that issuing a 30-year bond increases the average duration of borrowing excessively. The ministry rejected this criticism as «superficial» and panned Christodoulakis’s proposal that bond issues should not exceed 10 years. It reminded him that, between 2000 and 2003, a period during most of which he himself was the economy minister, the State had issued bonds with a 20-year maturity worth a total of 16.7 billion euros, and with yields ranging from 5.9 to 6.5 percent. As for the 30-year bond, the ministry said, its yield of 5.17 percent is just four basis points (0.04 percent) higher than a similar bond issued by Italy, whose credit rating is two levels higher than Greece’s. The ministry also rebutted Christodoulakis’s assertion that the State should not make private placements, also called «strategic placements,» saying that this was common practice. As for the two floating-rate issues, they were made at highly favorable rates. The ministry went on to attack Christodoulakis for having added to the debt burden through profligate spending and of having severely underestimated Greece’s borrowing needs for 2003. Instead of borrowing 26.9 billion euros, as Christodoulakis had estimated in the 2003 budget, Greece ended up borrowing over 38 billion euros. The NSS’s Kontopyrakis said yesterday that the estimated windfall from social security funds’ and hospitals’ surpluses is 6.68 billion euros, up from 5.7 billion estimated in the 2004 budget prepared by Christodoulakis. In 2003, the windfall had amounted to 5.05 billion euros. The NSS has already audited the finances of 50 percent of all social security funds, 80 percent of public hospitals, 35 percent of local authorities and 80 percent of other public-law entities, Kontopyrakis said.