State agrees to help boost IKA
The government said yesterday it plans to fund the Social Security Foundation (IKA) from the general budget and via issues of 15-year bonds, with the size of its contribution tied to the country’s growth rate. The announcement, which came a day before the plenary body of umbrella trade organization GSEE meets to discuss social security and wage issues and was intended to bring trade unionists back to the bargaining table, received a cautious welcome from the union. Economy and Finance Minister Nikos Christodoulakis said the proposal would ensure IKA’s viability up to 2032 and would form the model for other funds in need of state financial aid. IKA insures 70 percent of the country’s workforce. He said the government has decided on a combination of budget revenues and bonds because the current tripartite funding system governing IKA cannot cover the organization’s liabilities now or in the future. «The funds will provide for IKA’s liabilities, settle the State’s obligations and help create a reserve fund for the organization’s future liabilities,» he said. The proposed funding arrangements will cover two periods, from 2003 to 2008 and from 2009 to 2032. In the first phase, the State will inject funds equivalent to an average 1 percent of national output into IKA. With GDP expected to average around 4 percent to 2010, this will mean an average infusion of 1.7 billion euros annually. The State’s contribution in the second phase is a fixed 1 percent of GDP, projected at 2 billion euros in 2009 and reaching 5.9 billion euros in 2032. The minister said GDP growth in the second decade is expected to slow down to 3 percent. Under the proposals, the State is scheduled to issue the first bonds in 2008 with a value of 1.4 billion euros, with the proceeds going toward setting up a reserve fund for IKA. The 15-year, non-tradeable bonds will have a fixed 3-year interest rate. The second issue of bonds is projected at 2.37 billion euros, with the largest issue set at 16.79 billion euros in 2024. The size of the issues gradually tapers off and is expected to fall to 4.4 billion euros in 2032. With payment pushed to the future, the bonds are not expected to add to public debt and, therefore, would not fall under Eurostat’s scrutiny, Christodoulakis said. The European Union statistical office last month said it plans to set new rules on the accounting treatment of securitization operations in July, in a move which could force governments to modify their debt and deficit figures. Greece is one of the biggest users of this innovative financial technique, to date securing 5.8 billion euros from share convertible bonds and privatization certifications. The minister said the bond issues notwithstanding, the government is still focused on reducing public debt, which fell to 99.7 percent of GDP last year and is projected to decline to 60 percent of GDP by 2010. Welcoming the government’s proposals, GSEE said the move is «a significant development toward creating a viable [social security] system.»
