“Clos!” mutters a wealthy neighbour every time it rains, confident that doom is imminent for Barcelona’s dentally salient mayor. In fact the AA rating assigned by Standard and Poor’s to the latest offering of municipal debt is just another sign that Barcelona is in pretty good shape, [insert preposition here] 20 years of Catalan socialist rule. Here are S&P institutional ratings for Barcelona and several other Spanish and European cities:
|
city |
long term/outlook/short term |
|
Barcelona |
AA/stable/– |
|
Madrid |
AA+/stable/A-1+ |
|
Malaga |
A/stable/– |
|
San Sebastián |
AA/stable/– |
|
—- |
|
|
Avignon |
BBB/stable/– |
|
Boulogne-Billancourt |
AA/stable/A-1+ |
|
Budapest |
A-/stable/A-2 |
|
Istanbul |
B/positive/– |
|
Krakow |
BBB+/negative/– |
|
Paris |
AAA/stable/– |
|
Petersburg |
BB/stable/– |
|
Prague |
A-/stable/A-2 |
|
Tours |
A/Stable/– |
This chart would have looked rather different back at the beginning of the 90s when Barcelona was still being run by current Catalan president, Pasqual Maragall. Municipal debt then was approaching 170% of revenues (ie a level nowadays more typical of Spanish football clubs), a quarter of which were being spent on servicing. The first half of the 90s were devoted to cutting costs and risk by increasing debt life-span and diversifying away from domestic loans by accessing domestic and international capital markets, and since then the emphasis has been on gradual reduction. Clos likes to take credit for all this, despite the evidence of his involvement before 95 being sketchy.
Going forward, the most interesting story locally is likely to be the region of Catalonia, where there have been strong suspicions of Enronitis. Here’s what S&P says:
Standard & Poor’s expects Catalonia’s government to maintain its robust budgetary performance thanks to good revenue growth prospects and the region’s tight control over operating-expenditure growth. Specifically, health care spending control is likely to be the key challenge for the Catalan government in the next few years. Favorable economic growth prospects, driven by the closer link between economic performance and fiscal revenues, should help Catalonia to offset these spending pressures and meet the zero deficit objective established in the Budgetary Stability Law [entered into effect Jan 2003]. Although Catalonia’s direct debt is low and declining, tax-supported debt remains relatively high (at almost 90% of total operating revenues), as the region channels a good share of its investment projects through public companies. Given the tight budgetary requirements, Standard & Poor’s will closely monitor the evolution of Catalonia’s public company debt and other off-balance-sheet financing techniques, as well as their combined effect on financial flexibility. The regional elections of November 2003 have led to a change in the government, which is now headed by the Socialist party in coalition with the left-wing nationalists and the communists. The new government’s composition is likely to trigger some pressure on social spending, although financial discipline and commitment to a zero deficit are unlikely to change.
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I would no more trust S&P’s ratings for the Ajuntament or Generalitat than I would an auditor’s report on Parmalat. Quite simply, the real figures are not available, and while S&P suits may know more than me about bottom-line laundering through mixed public-private companies, S&P can’t factor in these covert manoevres, as they would have to face up to the illegality of such operations.
The Sindicatura de Comptes, the Generalitat’s official audit body, is three years behind and has yet to report fully on the Treball Case, involving over 30 million euros in ‘irregularities’ registered since the mid-nineties. Much of the paperwork has disappeared, and the new Sindicatura head, Joan Colom, has just stated that, while he is under-resourced to the tune of 50 workers, the Sindicatura was so slack last year that it actually had budget left over. And this is the OFFICIAL audit body, answerable to parliament.
The Institut Catala de Finances is rumoured (El Confidencial) to be on the brink of a major clearout by new economy conseller Antoni Castells, such is its opacity. Typical example: public funding of the recently-collapsed Puignero textile empire, propped up for a decade by ICF loans (never repaid) and written-off non-payment of Social Security contributions, was declared illegal state aid by the EC last summer. The Spanish press ignored this, and the Patronat Catala pro Europa and ICF both refused to return my calls regarding what should have been a hot topic.
What would happen to S&P’s ratings if Generalitat and Ajuntament suppliers suddenly decided to apply European law and start adding interest after 60 days at 7% above Euribor for their ‘noranta dies’ receivables?
And here’s the tip of the Marbella iceberg, sighted by SUR newspaper:
“The Andalusian Auditors investigating the accounts of Marbella Town Hall have found that between 1999 and 2000 the GIL-run authority sold municipal property to the value of 18.6 million euros in order to pay off debts. The practice of selling public property in order to pay current expenses is forbidden by law and at the time was denounced by the opposition parties. The Auditors have called for the Town Hall to adopt urgent measures to update its register of all municipal property. The Auditors’ report has been brought to light by the municipal PP group led by ángeles Muñoz.”
Oh, I give up. People, forget municipal bonds, forget legitimate investments, just go and buy a farm like everyone else. The tax perks are hard to find, but at least you can pay for it with Gazprom roubles.
On 24 March, ratings agency Fitch changed its note on the Autonomous Community of Valencia’s debt issue from ‘stable’ to ‘negative’. Bank of Spain figures (as unreliable as anyone else’s) puts Valencia’s debt at 10.6 billion euros, Catalonia’s at 9.7 billion. Those parsimonious Patxis in La Rioja are Spain’s most frugal, with only 164 million euros’ public debt.
Meanwhile, Roddy Rato looks set for the IMF’s top salary, riding on the myth of a balanced budget in Spain.
Re. above posting’s Gazprom roubles; five years ago the better half of IMF loans to Russia went AWOL, coinciding with the best year ever at Fira de Barcelona’s boat show, where high-cheekboned trophy Slavs were in gorgeous evidence.