Debt refinancing sought

The Finance Ministry is looking for ways to reduce the country’s public debt through refinancing, now that lower interest rates allow it. Last year, Greece’s debt fell below 100 percent of its gross domestic product (GDP) for the first time in almost a decade, to 99.6 percent. The figure is still the third highest among European Union countries, exceeded only by Italy’s and Belgium’s. They, and Greece, were admitted to the eurozone on condition that they reduce their debt-to-GDP ratio to about 60 percent by the end of the decade. This year, according to budget estimates, the debt will fall even further, to 97.2 percent of GDP. Servicing the debt, however, remains very costly. The budget sets aside over 3 trillion drachmas, almost 20 percent of the whole, for interest payments alone. Together with repayment of principal, the country’s debt-servicing needs for 2002 exceed 9 trillion drachmas. Future budgets are also expected to be burdened by creative accounting practices of the past that postponed debt payments for the future. In the years 1995-98, when the government first made a determined effort to lower the debt, which had climbed to over 110 percent of GDP, it had relied on bonds to transform some of the short-term debt into a medium- and long-term one. These bonds, with either a fixed or floating interest rate, were attractive because of their much higher yields compared to other European bonds. Now that the time has come to pay the principal on some of the bonds, with payments expected to exceed 15 trillion drachmas in the period 2002-2004, the government is looking at ways to refinance its debt As a first measure, Greece has agreed on a 5-billion-euro (1.7-trillion-drachma) syndicated loan, to be repaid over 10 years. National Bank of Greece, EFG Eurobank Ergasias, JP Morgan, Istituto Bancario San Paolo di Torino and Credit Suisse First Boston (CSFB) will provide the loan. The Public Debt Management Agency (PDMA) is also considering other ways to refinance the debt in order to lessen the burden of annual servicing. The idea is the same: Exchange high-interest debt with low-interest debt. Some of the instruments envisaged, such as synthetic swaps, carry considerable risks. The state will proceed with 16 issues of bonds and Treasury bills in 2002 in order to cover its needs in debt servicing. Among the new issues there will be 3-, 5-, 10- and 20-year bonds, with emphasis placed on 10-year bonds, which are the benchmark bonds throughout the eurozone. In a change from past practice, only 51.6 percent of the total securities volume will be auctioned off. The rest will be syndicated issues, managed by several banks, in order to widen the client base. The PDMA wants to be given greater leeway in managing securities issues and has asked Finance Minister Nikos Christodoulakis to make the necessary changes. He said that Greece was not alone in facing this problem as other eurozone countries have reported similar experiences.

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