COUNTER SPIN: The Eurobond from 2005 was not for spending, but for paying back debts left from former Yugoslavia

The ruling party accuses that “the same government has spent the money then, built nothing, and today that meaningless debt of SDSM is being paid back”. However, the Eurobond was not issued due to investments, as the then Minister of Finance has pointed out, but for paying back the debt to the London Club, i.e. a debt inherited from former Yugoslavia

Spin:  …SDSM cannot deny the fact that the issuing of the Eurobond is a financial method of work of every European country and it had been implemented in Macedonia precisely by SDSM in 2004, the same government had spent the money then, built nothing, and today that meaningless debt of SDSM is being paid back.

[Source: VMRO-DPMNE, Date: 30 July 2016]

Counter spin: By reacting to SDSM’s press release, VMRO-DPMNE, in their press release from July 30, made a typical spin, spinning the facts about the Eurobond issued by SDSM’s government in 2005.

The problems with this attack of VMRO-DPMNE against SDSM start with one basic fact – the assertion that the first Eurobond had been issued in 2004. However, as we can see from the sources given in this article, the Eurobond had been issued the next year, in 2005 by the government of Vlado Buchkovski that had Nikola Popovski as a Minister of Finance.

The Eurobond will be on the London Stock Exchange and that will be first representation of Macedonia with such bond type. They are liquid and after the two credit ratings have been received, Macedonia is now mapped on the world finance stage, says the Minister of Finance Nikola Popovski.

This is it regarding the factual mistake, and now about the truth-spinning elements used by VMRO-DPMNE. The party in power accuses that “the same government had spent the money then, built nothing, and today that meaningless debt of SDSM is being paid back”. But the Eurobond was not issued due to investments, as the then Minister of Finance has pointed out, but for paying back the debt to the London Club, i.e. a debt inherited from former Yugoslavia. The London Club comprises private creditors such as foreign banks that former Yugoslavia had been indebted to. After the breakup, the debt had been allocated to the republics in accordance with their respective percentage. Besides the London Club, there is also a Paris Club that comprises the creditor states, particularly the most developed ones, members of OECD.

The money from the Eurobond will be used for paying back the debt Macedonia owes the London Club, because it is economically illogical to use a Eurobond for financing capital investment, the Minister of Finance Nikola Popovski explained yesterday.

Macedonia uses favorable credits for capital investments from EBRD, EIB, and World Bank. In this moment, we have 20 credits for infrastructure. The experts saying that we have to indebt ourselves with Eurobonds for capital investments are wrong, Popovski says.

The Minister of Finance also points out to another important thing – issuing a Eurobond for capital investments, when there are credits under favorable conditions from EBRD, EIB and World Bank, is completely illogical.

Nevertheless, some experts, even from the Prime Minister’s expert team have previously had an idea for using the money for public investments.

The Prime Minister’s expert team explains that they had the idea to use the money for public investments. “The pressure upon the monetary policy and the interests will be reduced by fresh euro flow. This is the first positive effect – reducing the active interests. With around 100 million euro, there is no need for cutting denar out of circulation for maintaining the exchange rate. And second, the private institutions have open doors to lend money abroad. The current LIBOR interest, which is a reference interest rate for lending on the international market, is 2 per cent. Eurobonds are not magic wand, but they open another perspective. The only problem is where to invest the money. If you invest them wisely – you have development. As a measure, it does not bring inflation effect because it is packed in a consistent macroeconomic package”, says this source for Vest daily.

But, as we saw from the aforementioned examples, Popovski, as a guard of the state budget, does not accept that.

The Eurobond had been issued in times when Macedonia had already received the first credit rating in 2004, and the then government announced the intention not to conclude arrangements with IMF and World Bank.

The announcement that now is the moment for starting this development measure was given by Popovski only a month after the first statement, when he said that the Eurobonds will be in play when Macedonia won’t be concluding arrangements with the IMF and World Bank.

The interest for the Macedonian Eurobond had been huge, so there were offered 593 million euro, four times more than the required amount of 150 million euro. The buyers were mostly British and German investors, followed by buyers from other European countries, whereas 12% from the buyers were from the USA.

Yesterday, the investors offered 593 million euro for the first Macedonian Eurobonds, which is four times more than the required amount of 150 million. The Ministry of Finance announced that the Eurobonds were bought by 56 investors, out of whom 33% are British, 31% are German, 22.5% are from other European countries (France, Italy, Switzerland, Greece, Slovenia, Cyprus). The Americans bought 12% from the Eurobonds, whereas 1.5% were bought by Asian investors.

The Eurobond obtained the 150 million euro for paying back the debt, and because of the switch of the variable to fixed interest and the substitution of the debt from USD to EUR, as Popovski has claimed then, Macedonia had the opportunity for significant savings every year.

Macedonia will save between 9.85 and 32 million euro per year for paying back the debt to the London Club with the money from the Eurobonds, sold for 150 million euro. These savings, according to the Minister of Finance Nikola Popovski, have resulted from the substitution of the debt from USD to EUR and the switch of the variable to fixed interest. – We switched the variable interest to fixed interest rate, highly favorable in this moment when the interest rates are the lowest, and we substituted the debt from USD to EUR, i.e. we will substitute it at the beginning of 2006 – the Minister Popovski said.

The objective with the Eurobond has been already reached at the beginning of 2006, when the debt to the London Club has been paid back with the received 150 million euro, besides the criticism of the experts.

“We finished the operation for paying back the debt. Now, we are no longer indebted to the London Club, which is comprised of many private creditors. We covered the debt with the Eurobond”, Popovski stated. He emphasized that Macedonia is no longer indebted to the London Club, and this debt is considered as rather costly and it is paid back with Eurobond that has longer deadline, i.e. only the interests will be paid back until 2015.

Nonetheless, at the very beginning, i.e. during the presentation of the Eurobond, it is emphasized that the Eurobond has 10-year deadline, meaning that all the money are almost certainly paid back.

At the meetings, the Minister has informed the investors about the characteristics of the 150-million euro Eurobond with 10-year deadline, as well as about the use of the assets obtained by the emission.

This, on the other hand, is contra VMRO-DPMNE’s assertion given in their press-release stating that “the money are still being paid back”. Quite the opposite, VMRO-DPMNE’s government itself paid back the debt of 150 million last year, but in order to do so, it issued new Eurobond worth 270 million euro.

The first Eurobond emission is part of the Strategy for Managing Public Debt from 2006 until 2008, which was adopted by the Parliament of the Republic of Macedonia in March 2006. It projected lowering of the public debt from 40.9% to 37% from the GDP.

The strategy also covers the risks that the debt portfolio is facing as well as recommendations for its managing. Regarding the GDP, Macedonia’s public debt at the end of 2005 was 40.9% or 1.8 billion euro. It is mostly denominated in a foreign currency, and only 6% in domestic currency.

The cognizance gained from the occurrences with the first Macedonian Eurobond emission shows that there is no actual ground for true accepting VMRO-DPMNE’s accusation that the then government of SDSM “has spent the money, built nothing, and today that meaningless debt of SDSM is being paid back”.

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