Agentúra pre riadenie dlhu a likvidity Debt and Liquidity Management Agency

1. Agentúra pre riadenie dlhu a likvidity Debt and Liquidity Management Agency Slovak Public Finance Reform and ARDAL World Bank September 6, 2005

2. REASONS OF ARDAL CREATION • To centralize and make more effective cash-flows of state and public finances • To make more effective management of the state debt, liquidity and public debt • To reduce risks of the state debt and cash portfolio • To ensure transparency of management of the debt and liquidity • To minimize cost of debt in medium and long term perspective • To achieve separation of the state debt and liquidity management apart from negative political influence • To use standard market instruments to manage the debt, liquidity and risks

3. DEBT AND LIQUIDITY MANAGEMENT AGENCY • The ARDAL was established within the reform of public finance management • Formation of the ARDAL is anchored in law of the State Treasury • The ARDAL is a budgetary institution which realizes transactionson money market and capital marketsfor the State Treasury and Ministry of Finance SR (MoF) • Supervising is the main responsibility of MoF SR regarding the ARDAL • The ARDAL is fully responsible for management of • liquidity • debt • related risks

4. DEBT AND LIQUIDITY MANAGEMENT AGENCY • Flexible organization – immediate reaction to market changes, straightforward communication with investors • Online access to domestic and foreign markets through standard dealing system – trading by Reuters Dealing 3000, • Online access to market information through information systems – Active8, Reuters 3000 „Xtra“ • Improvement of payment system via payment information system - ManEx • Enhancement of financial flows information – fund planning • Using Slovak Reuters Auction System to auction State debtsecurities • Activities of ARDAL are similar to treasury departments in commercial banks – resulting in use of treasury information system Finance Kit • ARDAL provided the performed activities with the working capacity of 14 employees in 2003 and of 16 employees in 2004

5. ARDAL ORGANIZATIONAL STRUCTURE Director Lawyer Supervisor Debt management department Departmernt of cash management and hedging operations Back office department Departmernt of risk management and Middle office Departmernt of General administration and personal office

6. STATE DEBT MANAGEMENT UNTIL THE END OF 2003 • Responsibility for debt and cash management was fully on the MoF • Debt management was passive • securities issue driven by estimated immediate needs of the State without considering market condition and development • using only simplest transactions • issuance of bonds • issuance of bills • loans • Absence of risk management • Absence of utilization of market instruments • Absence of MoFon the secondary market

7. RELATIONSHIPS AMONG THE INSTITUTIONS Subjects of liquidity management • MoF, i.e. State debt client • Central Bank • State Treasury • ARDAL Current situation Previous situation Ministry of Finance SR State Treasury ARDAL Central bank (NBS) Ministry of Finance SR Central bank (NBS)

8. COST SAVING PRINCIPLE Situation without using public sector temporary free funds e.g. SKK 2 bil. Commercial banks Public sector customers CA, Deposits (0,75;3%) Total margin for commercial banks was 2,00% - 4,25%. T-Bills 5% SKK 2 bil. at 5% Ministry of Finance SR

9. COST SAVING PRINCIPLE Current situation with using public sector temporary free funds Rate based on the market conditions e.g. SKK 2 bil. CA, deposits Public sector clients State Treasury Rate based on the market conditions In case of liquidity surplus ARDAL places free funds on Money Market MM deposits Commercial Banks ARDAL Rate based on the market conditions Cover of State Budget and Debt State Ministry of Finance SR e.g. SKK 2 bil.

10. ARDAL TASKS IN 2003 • Institutional building of ARDAL as a budgetary organisation • Preparation of conditions for ARDAL core activities (legislation, processes,...) • Implementation of State Treasury information system • Implementation of ARDAL information systems • Transfer of agenda from MoF SR to ARDAL • Security market and issues of T-Bonds in 2003 • Strategy of state debt management to year 2006 – first in Slovak history • Schedule of State securities auctions for whole year 2004 – first in Slovak history

11. ARDAL ACTIVITIES EVALUATION AND STRATEGY FULFILMENT • provision of trouble free state refinancing • transparency of the state issuing policy • supporting the money market stabilization • introducing the partnership approach towards investors • state debt cost reduction – saving of SKK 3,707 bln. on cash basis and • SKK 4,699 bln. on accrual basis against approved budget • active management of free liquidity of the state • benchmark issue of Slovak Eurobond • improvement of state bonds portfolio indicators • change of state securities issuance system – amount standardising, issues reduction • aproximation of state securities primary market to EU standarts • establishing of transparent and effective refinancing system between ST and MoF – saving by using ST funds was approximately SKK 241mil.

12. T - BILLS T-Bills Issues 12M BRIBOR and interest rate of T-bills 3M BRIBOR and interest rate of T-bills

13. T- BONDS – SKK • five T-Bond lines were opened on the domestic capital market • 27 auctions were realized • T-bonds at the nominal value of SKK 100,989 million were issued • Eurobond at nominal value of EUR 1 billion was issued – approximate SKK 195 million of costs saving compared to Slovak T-bonds • average interest rate reached in auctions, performed on the domestic market in 2004 was 4,821% p.a.(2,94% p.a. in 2005) T-Bonds issues * Value as per June 30, 2005

14. T-BOND – EUROBOND 2014

15. T-BOND – EUROBOND 2014

16. STRATEGY FULFILMENT – SELECTED INDICATORS *value as per June 30, 2005 *value as per June 30, 2005

17. THE DEBT AND LIQUIDITY EXPENDITURES State Debt to GDP ratio in 2004 = 39,5 % Debt and LiquidityExpenditures to State Budgetary Expenditures ratio in 2004 = 9,0 %

18. STATE POSITION IMPROVEMENT • from the beginning of the year 2004 ARDAL started active trading on money market with major local banks • at the end of year 2004 on behalf of state and State Treasury ARDAL traded with 15 banks and throughout 2004 ARDAL executed1 214 financial transactions – received interest were aproximately 979 mil. SKK • 25 refinancing transactions have been done throughout year 2004 with State Treasury • ARDAL intend to become a part of the interbank market using standard tools that the commercial banks have at disposal. ARDAL realized transaction on behalf of State Treasury and MoF SR with commercial banks in compliance with the authorized credit limits for individual domestic and foreign commercial banks.

19. THE ARDAL’S OBJECTIVES FOR THE FORTHCOMING YEARS • to extend electronic auctions to MM and secondary state securities market • ensuring the professional management of the debt and liquidity– optimizing the debt structure and related costs • alloving the separation of the operational debt and liquidity management from the policy defining and controlling observace of rules and directives • further improvement of communication with the market and investors – increasing the liquidity of the state securities market • ensuring flexibility of the operational debt management • increasing share of automatization in payments processing relating to the state debt installments • acting interactively in integrating financial market and public-finance financial management with the EU countries at the international level

20. ADDITIONAL DETAILS LOGO Address: Radlinského 32, 813 19 Bratislava Telephone: +421 2 57262503 Fax: +421 2 52450381 web: www.ardal.sk e-mail: ardal@ardal.sk Reuters Code: DLMA