Debt Management agency speeds Ireland's economic recover
Recent article in the Financial Times on how the National Treasury Management Agency are supporting Ireland’s recovery – with comment from Dr. Tom Conlon of UCD Business.
FT Article below:
When Ireland’s debt management office was trying to engineer the country’s return capital markets in 2012, a few years after the Irish financial collapse, it was in for a shock.
Staff at the National Treasury Management Agency, as the office is knowns, had a reputation as the smartest guy ibn the room in its first two decades of operations. During the 1990s and early 2000s, Ireland’s credit rating climbed to AAA on the back of its Celtic Tiger economy; sovereign debt shrank to a fraction of economic output. Investors loved Irish government debt, ranking it on a par with that of Germany.
By 2012, however, Ireland was deep into a three-year, €67bn bailout after its banks collapsed when a property-price bubble burst in2008. The collapse saw its credit rating sink below investment-grade, and its sovereign debt yield soared. The message from investors was too subtle, says Conor O’Kelly, the NTMA’s chief executive.
“Normally, our guys would have been meeting blue-chip, triple-A-buying investors, and suddenly they were being told, ‘sorry, guys, you’re down the hall with the junk bond buyers and emerging markets teams’,” Mr O’ Kelly said.
It says much about the volatility of investor sentiment that, today, Ireland’s reputation for financial respectability is back. This year, the economy should grow by 7 per cent- the fastest in the eurozone. Yield-starved investors are again clamouring for Irish sovereign debt. In 2015, the MTMA refinanced €18bn of expensive crisis-era debt, and issued the state’s first 30-year bond. This year, it will issue up to €10bn in additional long-term debt.“The investor base has changed substantially again because we recovered faster than anybody expected, and [rating agencies] started to upgrade us. So Ireland is moving back up the corridor, “Mr O’Kelly said. A key reason, he says, is the weak euro, from which Ireland benefit’s more than its eurozone peers because of the nature of its economy.
Managing the shifts in investor sentiment is a fact of life at the MTMA. It was set up in 1990, before the economic boom of the 1990s and early 2000s. Then, as now, the country was heavily indebted- it had total foreign debt of €34bn in 1990, equivalent to 95 percent of gross domestic product. Today, Ireland’s total sovereign debt is €204bn, or 107 per cent GDP. In2006, Ireland’s sovereign debt was just 25 percent of economic output.
The crisis that hit Ireland between 2008 and 2010, leading to the bailout, damaged the credibility of many Irish institutions-the central bank, the finance ministry, the big banks, property developers, and regulators. The NTMA, by contrast, has largely escaped the opprobrium, thanks to its image-not just in official and financial circles but also with the public –as a solver rather than a creator of problems.
Standing at the nexus of the private and public sectors, the NTMA has become the go-to institution when the Irish state needs to interact with the financial markets. This reflects its technocratic competence as much as its financial nous. ”It is the most decisive and astute institution we have,” said Thomas Conlon, a lecturer in banking and finance at UCD Business School.
The NTMA today is different institution to what its founders envisaged. It has more responsibilities, for a start. It is the parents (though largely in the technical sense) of Nama, the “bad bank” set up clear the wreckage of the banking collapse. It also runs the Ireland Strategic Investment Fund, a fledgling sovereign wealth fund with assets of about €8bn (excluding stakes in Irish banks).
Still, its core activity is managing the debt. Mr O’Kelly says Ireland has gained “semi core” status in the eurozone debt market- more on a par with France than Germany. “We have been fundamentally rerated [since the end of the bailout], and policymakers, can take credit for that achievement,” he said.