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Panama, Republic of Panama
The Changing Role of the Debt Manager
Aracelly Méndez
Public Credit Director
Ministry of Economy and Finance
Fifth Inter-regional Debt Management Conference
Geneva, June 2005
The Changing Role of the Debt Manager
Agenda
Debt Stage Evolution: main drivers, DMO organizational charts,
objectives, functions and staff skills.
— The Multilateral Era
— The Brady Era
— The International Capital Market Era
— The Domestic Capital Market Era
Conclusions
Republic of Panama
Ministry of Economy and Finance
The Changing Role of the Debt Manager
Debt Stage Evolution
1990 - 1994 The Multilateral Era
1995 - 1997 The Brady Era
The International
1998 - 2001 Capital Market Era
2002 - 2005 The Domestic
Capital Market Era
Republic of Panama
Ministry of Economy and Finance
The Changing Role of the Debt Manager
The Multilateral Era (1990 – 1994)
First democratic Government in charge, after 20 years of military Goverment.
Country was recovering from economic crisis, which had resulted in debt default
in 1987.
Deficit was partly financed by decentralized institutions (such as: electricity and
telecommunications enterprises).
Primary sources of financing were loan instruments (with multilaterals and
commercial banks) and domestic non-market securities.
Debt Management Office was mainly focused on paying debt (current and
defaulted debt), lacking a sound public debt strategy.
Organizational Structure was not task-oriented.
Republic of Panama
Ministry of Economy and Finance
The Changing Role of the Debt Manager
The Multilateral Era (1990 – 1994)
Organizational Structure
Public Credit Director
Public Credit Director, Deputy
Legal Unit
Public Debt Department IT Unit
Republic of Panama
Ministry of Economy and Finance
The Changing Role of the Debt Manager
The Multilateral Era (1990 – 1994)
Objectives
•Continue with Paris Club Rescheduling.
•Validate the entire debt database.
• Implement first debt management system.
Front Office Middle Office Back Office
Data
Contract
Recordi
Functions
Negotiati
ng
on
&
(Decentr
alized) Validatio
n
•Knowledge of common financial terms and conditions.
Staff Skills
• Knowledge of payment and conciliation procedures.
• Basic knowledge of IT applications.
• No specific University degree required (diverse academic background).
• Reading-writing skills (Spanish & English).
Republic of Panama
Ministry of Economy and Finance
The Changing Role of the Debt Manager
The Brady Era (1995 – 1997)
Debt re-structuring plan was implemented by issuing Brady bonds for a face
value of US$3,228 million.
As a result, debt composition shifted from commercial bank debt to Brady bonds.
Credit-risk ratings were obtained from Moody’s and S&P.
Implementation of an external debt management strategy was initiated, supported
by the creation of a project control and risk analysis units.
Debt Management Office was re-organized by creditor type.
Republic of Panama
Ministry of Economy and Finance
The Changing Role of the Debt Manager
The Brady Era (1995 – 1997)
Organizational Structure
Public Credit Director
Public Credit Director, Deputy
Legal Unit IT Unit
Public Debt Department Project Control Unit Risk Analysis Unit
Multilaterals
Bilaterals
Commercial Banks
Brady Bonds
Republic of Panama
Ministry of Economy and Finance
The Changing Role of the Debt Manager
The Brady Era (1995 – 1997)
Objectives
•Re-access capital markets by issuing guaranteed securities (Brady Bonds).
• Get access to new financing sources.
• Obtain a credit-risk rating by Moody’s and S&P.
Front Office Middle Office Back Office
Data
Contract
Recordi
Functions
Negotiati Market
Strategy ng
on
Planning Monitoring &
(Decentr
alized) Validatio
n
•Specialized knowledge of financial terms and conditions by creditor type.
Staff Skills
• Intermediate knowledge of IT applications (such as: DMFAS, Bloomberg and
Reuters).
• Some specific staff qualifications are required (strategic planning skills).
• Reading-writing + listening-speaking skills (Spanish & English).
Republic of Panama
Ministry of Economy and Finance
The Changing Role of the Debt Manager
The International Capital Market Era (1998 – 2001)
Privatization process of decentralized institutions is initiated.
Deficit financing was mostly funded by issuance of global bonds.
A Brady refinincing strategy is started (liability management transactions).
Debt composition is shifted from Brady bonds to global bonds.
As a result, access to capital markets is strengthened.
Market and risk analysis functions are reinforced. Some new issues are now
been addressed, such as: yield curve design, interest rate and FX analysis,
market research, monitoring of public debt ratios.
Republic of Panama
Ministry of Economy and Finance
The Changing Role of the Debt Manager
The International Capital Market Era (1998 – 2001)
Organizational Structure
Public Credit Director
Public Credit Director, Deputy
Legal Unit IT Unit
External Debt Department Project Control Unit Risk Analysis Unit
Multilaterals
Bilaterals
Commercial Banks
Brady Bonds
Global Bonds
Republic of Panama
Ministry of Economy and Finance
The Changing Role of the Debt Manager
The International Capital Market Era (1998 – 2001)
Objectives
•Minimize long-term financing costs.
• Build an efficient long-term yield curve.
• Extend and improve maturity profile.
• Minimize interest rate risk.
Front Office Middle Office Back Office
Data
Contract
Recordi
Functions
Negotiati
Strategy Risk Market ng
on
Planning &
(Centraliz Monitoring Monitoring
ed) Validatio
n
Staff Skills
• Specialized knowledge of market securities.
• Advanced knowledge of IT applications (modeling macros in excel).
• Specific staff qualifications are required (such as: proposal evaluation skills
and market & risk monitoring skills).
Republic of Panama
Ministry of Economy and Finance
The Changing Role of the Debt Manager
The Domestic Capital Market Era (2002 – 2005)
Due to privatizations, public Goverment finances are pressured by increasing
financing needs.
A fiscal Reponsability Law is passed.
An internal debt funding strategy is implemented.
Primary sources of financing are global bonds (long-term securities) and
treasury notes (medium-term securities), issued in the international and
domestic capital markets.
However, public debt strategy is mainly focused on the development of the
domestic capital markets and creation of an efficient short/medium-term yield
curve.
Organizational Chart is a mix of creditor and task-oriented set-up with a
backoffice department properly organized. Project control functions are
reinforced.
Republic of Panama
Ministry of Economy and Finance
The Changing Role of the Debt Manager
The Domestic Capital Market Era (2002 – 2005)
Organizational Structure
Public Credit Director
Public Credit Director, Deputy
Legal Unit IT Unit
External Debt Department Internal Debt Department Operations Department Project Control Unit Risk Analysis Unit
Multilaterals
Bilaterals
Commercial Banks
Brady Bonds
Global Bonds
Republic of Panama
Ministry of Economy and Finance
The Changing Role of the Debt Manager
The Domestic Capital Market Era (2002 – 2005)
Objectives
• Get access to low-cost financing sources.
• Develop domestic capital markets.
• Reinforce financial and budgetary controls.
• Continue with Brady bond refinancing (liability management strategy).
Front Office Middle Office Back Office
Data Monitor
Contract budget
Recordi
Functions
Negotiati
Strategy Risk Market ng &
on
Planning & financial
(Centraliz Monitoring Monitoring
ed) Validatio executio
n n
• Specialized knowledge of domestic market operations (auction types,
Staff Skills
pricing strategy, clearing issues, secondary market monitoring, MM programs).
• Advanced knowledge of IT applications (such as: negotiation systems and
electronic auction systems).
• IT design skills (to develop integrated systems).
• Enhanced monitoring skills (financial and budgetary).
Republic of Panama
Ministry of Economy and Finance
The Changing Role of the Debt Manager
Conclusions
Debt Management Offices are dynamic. Therefore, their organizational
charts and staff skill requirements change as a country matures as a borrower.
Countries at different levels of development need different organizational
structures for their debt office, which should be defined according to the types
of financing sources it has access.
Thus, there is not a unique organizational structure applicable to all Debt
Management Offices.
As more functions are undertaken by a Debt Office, greater reliance on
information management technology and team-work skills are required.
Republic of Panama
Ministry of Economy and Finance
The Changing Role of the Debt Manager
by Aracelly Méndez
Thank you
Fifth Inter-regional Debt Management Conference
Geneva, June 2005
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