kingdom of spain economic policy and 2010 funding strategysme corporate tax reform -0.1 government...

Kingdom of Spain

Economic Policy and 2010 Funding Strategy

Secretary of State for the EconomyFebruary 2010y

• Highlights

• The long growth cycle and the crisis

Fi l lid ti d t t l f • Fiscal consolidation and structural reform

• Funding Strategy of the Kingdom of Spaing gy g p

~2009~1

Highlights

• Long growth cycle previous to the international crisis • Important challenges ahead: Unemployment and deficit, consequence of the crisis but also symptoms of underlying consequence of the crisis but also symptoms of underlying structural shortcomings• The Spanish Government is determined to act:p

• Fiscal consolidation: A cut of 5.7% of GDP in structural primary deficit in 2010-2013 S l f b i l GDP S i bl • Structural reforms to boost potential GDP: Sustainable Economy, Bank Reorganisation, Pensions, Labour Market

• Strengths: Sound financial system, low Debt/GDP,

2

Strengths: Sound financial system, low Debt/GDP, institutional ability for reform

• Highlights


• Fiscal consolidation and structural reform

• Funding Strategy of the Kingdom of Spain• Funding Strategy of the Kingdom of Spain

3

1994-2008: Convergence and Debt reduction

• GDP per capita has leapt forward, exceeding the average of EU-25

• Fiscal rigour during the good times allowed debt to GDP to be morethan halved

Debt to GDP(% nominal GDP)

than halved

GDP (Year on year real growth rates)

2%

4%

6%Spain

Euro-area 60%

70%

80%Euro-area

-6%

-4%

-2%

0%Euro-area

30%

40%

50%0 2 3 4 5 6 7 8 9

Spain

4Source: Eurostat.

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2000

2001

200 2

2003

2004

2005

2006

2007

2008

2009

Source: Eurostat.

Investment binge: housing and beyond

• What has fuelled domestic demand is a soaring investment rate,with the national savings rate staying close to Eurozone average

• The housing boom is part of the story, but not the whole story

Investment rate vs. Savings rate(% nominal GDP)

The housing boom is part of the story, but not the whole story

Savings rate (% nominal GDP)

20

25

30

(% o a G )

26

30

34

( )

10

15

20

Belgium Germany Spain France Italy

18

22

2699 00 01 02 03 04 05 06 07 08 09Belgium Germany Spain France Italy

2000 2005 2009*

5Source: Eurostat.* 2009Q3

199

200

200

200

200

200

200

200

200

200

200

Savings rate Investment rateSource: Eurostat.


• The residential real estate sector grabbed a non-sustainable shareof GDP and employment…

121314

Construction Sector: Gross Value Added and Employment (% Total Value Added and of Total Employment)

89

101112

678

995

996

997

998

999

000

001

002

003

004

005

006

007

008

009

19 19 19 19 19 20 20 20 20 20 20 20 20 20 20

Full-time equivalent employees Gross Value Added

6Source: National Statistics Institute, Spain.


• …but Spain has also invested heavily in equipment, infrastructureand Research and Development

8108

108

10

Investment in equipment (average growth, 1995-2008 in percent)

4 0

5.0Public Investment

(% of GDP)

2468

2468

2468

1.0

2.0

3.0

4.0

0 Germ

any

Netherlan

Finland

Austria

EU

-15

Denm

ark

UK

Italy

France

Spain

0 Germ

any

Netherlan

Finland

Austria

EU

-15

Denm

ark

UK

Italy

France

Spain

0 Germ

any

Netherlan

Finland

Austria

EU

-15

Denm

ark

UK

Italy

France

Spain

0.019

95

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

EU 27 GERMANY FRANCE ITALY UK SPAIN

7

y nds

ky nds

ky nds

k

Source: Eurostat.

EU-27 GERMANY FRANCE ITALY UK SPAIN

Intensive in employment

• Residential construction attracted low skilled labour, draggingproductivity lower

• Labour supply matched this demand with the help of immigration

Active population(Growth rates from 2005Q1 to 2009Q3)

Labor productivity(Relative to EU-27, PPP)

flows

6%

8%

10%

12%( e at e to U , )

104105106107

0%

2%

4%

6%

m y n e y m

100101102103

Bel

gium

Ger

man

y

Spai

n

Fran

ce Italy

Uni

ted

King

dom

8Source: Eurostat. Labor Force Survey.Source: Eurostat. Labor Force Survey.

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

Cost competitiveness

• Loss of competitiveness has been moderate in the tradable sector

• Nominal divergence stems from non-tradables (where the bulk ofthe adjustment is taking place)

Unit labour cost index(Relative to eurozone 1999=100)

Manufacturing ULC index(Relative to eurozone 1999=100)

105110115120125

100110120130140

95100105

999

000

001

002

003

004

005

006

007

008

009

8090

100

999

000

001

002

003

004

005

006

007

008

009

19 20 20 20 20 20 20 20 20 20 20

Spain Italy Germany France

19 20 20 20 20 20 20 20 20 20 20

Spain Italy Germany France

9Source: Eurostat. Source: Eurostat

Exports show underlying improvement in supply

• In spite of brisk domestic demand and waning pricecompetitiveness…

• …Spain's market shares have outperformed most of peers

150120

Share in world merchandise exports(Index 2000=100)

Share in world exports of services*(Index 2000=100)

100

125

90

100

110

120

50

75

2000 2001 2002 2003 2004 2005 2006 2007 200860

70

80

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Spain Germany France United StatesSpain Germany France United States

10

Source: International Monetary Fund. Source: World Trade Organisation. * Services other than transportation and travel.

Services Exports’ market share has increased significantly

Share of service exports in the OCDE, by service

• Among others, services related to architecture, construction andengineering have more than doubled market share

8

102000

2007

4

6

0

2

otal

ion

rism

ons

al,

n, ng nce

cial

tion

es and

s r nal

to ent

ment

To

Transportat

services

Tou r

Communicatio

Architectura

construction

and engineeri

Insura

Financ

Inform

atservice

Royalties a

patents

Other

Professio

services

Entertainm

Governm

11Source: OECD.

FDI flows have increased significantly

• Outward FDI stock per capita has grown faster in Spain than inthe Eurozone

• Remains a major destination of international investment

Outward FDI stock per capita relative to Eurozone

2500000

Top receivers of FDI in 2008(Stock in millions of US $)

0.90

1000000

1500000

2000000

0.75

0.80

0.85

0

500000

Italy

tzer

land

Chi

na

Can

ada

Belg

ium

Spai

n

herla

nds

Ger

man

y

ng K

ong

UK

Fran

ce US

0.60

0.65

0.70

2002 2003 2004 2005 2006 2007 2008

12

Source: World Investment Report 2009

Swit

Net

h G

Ho

Source: World Investment Report 2009

2002 2003 2004 2005 2006 2007 2008

The crisis prompts an abrupt adjustment

• Rapid downsizing of residential sector: output, L (mainly intemporary contracts)

• Ripple effects on employment in other sectors

20Unemployment rate

(In percent)

Sectoral employment

12

16july 2008 sept 2009 dif %

Total 19.382.121 17.935.095 -1.447.026 (100)Construction 2.361.177 1.752.157 -609.021 (42,1)Industry 2.731.068 2.377.211 -353.857 (24,5)

(total number)

4

8

2005 2006 2007 2008 2009

Industry 2.731.068 2.377.211 353.857 (24,5)Services 13.150.027 12.599.061 -550.966 (38,1)

Sources: Eurostat. Labor Force Survey.

Spain Euro area (16 countries)

13

Sources: Eurostat. Labor Force Survey.

Changes in sectoral and external balances• Large swing in private sector balance: plummeting Investment and• Large swing in private sector balance: plummeting Investment and

soaring Savings

• Government Deficit jumps, but 2.5 points of GDP are one-off

• Current Account deficit has halved in 2009Sectoral balances

(% of GDP)

1,9

6,5

02468

%

Public Sector Balance

Private Sector

-4,1 -5,0

-10-8-6-4-20%

-11,4-11,0-14-12

2007 2008 200914Source: National Statistics Institute, Spain.

Hi hli ht• Highlights



• Funding Strategy of the Kingdom of Spain

15

Policy Strategy for Sustainable Growth

• Prudent Macroeconomic Scenario 2010-2013

• Agreement on Fiscal Consolidation to bring the deficitg gback to 3% in 2013

• Structural Reforms:

• Structural Reforms in the goods markets

• Public Pensions System

• Labour Market

• Banking sector Restructuring

16

The Government’s Macroeconomic scenario

• The output gap will be closed by 2013, after peaking in 2010

• External demand contribution to GDP will gradually wane asdomestic demand gathers steamdo est c de a d gat e s stea

• Potential growth will recover from a trough of 0.6% in 2010 to1.6% in 2013

GDP -3.6 -0.3 1.8 2.9 3.1Final Consumption Expenditure -2.4 0.3 1.7 2.2 2.1Gross Fixed Capital Formation 15 7 6 5 0 3 4 2 5 9

2011 2012 2013Macroeconomic scenario 2009-2013 2009 2010 (Growth rate in percent)

Gross Fixed Capital Formation -15.7 -6.5 0.3 4.2 5.9National Demand (contribution to GDP growth) -6.4 -1.4 1.4 2.6 3.0Exports of Goods and Services -12.4 2.8 5.2 6.9 7.4Imports of Goods and Services -18.7 -1.3 3.7 5.8 6.8External demand (contribution to GDP growth) 2.8 1.1 0.4 0.3 0.1

17

Source: Annual update of the Stability Programme.

Fiscal consolidation strategy

• Substantial reduction in Spending and moderate increasein Revenuesin Revenues

• Already in 2010 a 2.2% cut in structural deficit

GDP -3.6 -0.3 1.8 2.9 3.1G l G t B d t B l (% f GDP) 11 4 9 8 7 5 5 3 3 0

2011 2012 2013 (Growth rate in percent)Fiscal Adjustment Path 2009-2013 2009 2010

General Government Budget Balance (% of GDP) -11.4 -9.8 -7.5 -5.3 -3.0General Government Gross Debt (% of GDP) 55.2 65.9 71.9 74.3 74.1Source: Annual update of the Stability Programme.

18

Starting and final points of fiscal consolidation

• Temporary measures (changes in tax collection, one offinvestment funds) account for 2.4% points of GDP in 2009’s totaldeficit

• Total size of fiscal policy adjustment (structural terms): 5.7% ofGDP

Fiscal position 2009 2013General Government Balance (1) -11,4 -3Cyclical component (2) -1,4 0Interest payments (3) -1 9 -3 1


Interest payments (3) 1,9 3,1Temporary measures (4) -2,5 0Structural Primary Balance (1)-(2)-(3)-(4) -5,6 0,1

19

Fiscal restraint measuresMeasures adopted and announced (% of GDP)

Revenues ExpendituresVAT 0.7Excise Taxes 0.3400€ Tax Rebate Reform 0.4

Measures adopted and announced (% of GDP)

2010 Budget Savings Tax Reform 0.1SME Corporate Tax Reform -0.1Government Expenditure -0.8Additional cut in 2010 Expenditure -0.5Central Government Austerity Plan 2011-2013 -2.6R i l d l l t S di t 0 5

2010 Budget

New Measures*


Regional and local government Spending cuts -0.5

• Restraint in wage outlays for all public administrations through:• 10% replacement rate

• No new temporary hiring

• Strong moderation in wages

20

• Sizable cuts in investment, transfers and subsidies

• We have done it in the past which proves our compromise the

Can we implement this?• We have done it in the past, which proves our compromise, the

quality of our public finances, and the success of our fiscaldiscipline.

• Shared commitment to fiscal discipline and margin to secure• Shared commitment to fiscal discipline and margin to securefurther reductions in the deficit

Net Lending (+)/Borrowing (-) of General Government(% nominal GDP EDP)

4 0

-2.0

0.0

2.0

4.0 (% nominal GDP, EDP)

-12.0

-10.0

-8.0

-6.0

-4.0

21

-14.0

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

*

2011

*

2012

*

2013

*

* Annual update of the Stability Programme.

Debt dynamics

• Even after the impact of strong stabilisation policies, Spain's Debtto GDP is significantly lower that the Eurozone average

125.0

2000-201090

2010F

Gross Debt-to-GDP (%) Gross Debt-to-GDP (%)

62 5

75.0

87.5

100.0

112.5 Eurozone Average: 84.0%

65.960

70

80FranceGermanySpain

12.5

25.0

37.5

50.0

62.5

55.2

65 9

39.7

30

40

50

60

0.0Spain Ireland France Germany Italy UK USA

22Sources: European Commission, Annual update of the Stability Programme and International Monetary Fund.

302000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Lowest interest burden within affordable limits

11

13

Ratio of interests to GDP of General Government(% nominal GDP, EDP)

7

9

11

1

3

5

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

*20

10*

Spain Germany France Belgium Italy UK

23

Source: European Commission.* European Economic Forecast Autumn 2009, European Commission.

Structural Reforms in product markets

• Improving the institutional environment for business: bymodernizing and simplifying government activities as well asmodernizing and simplifying government activities as well asincreasing general government discipline

• Fostering competitiveness: by reducing the administrativeburden of creating companies and reducing red tapeburden of creating companies and reducing red tape

• Fostering modernization: promoting sectors that are at the baseof economic activity (R&D, innovation and training), improving

f h h ll l h dsupport for their integration into the overall value chain, andfacilitating the internationalization of businesses

Estimated impact on GDP + 0.32% in Potential GDP

24

Residential Real Estate Sector

• Phasing out fiscal incentives for housing ownership from2011 (deduction of mortgage payments)

• Removing barriers to the development of the rental market:• Same fiscal treatment than ownership

C ti f REITS• Creation of REITS

• Legal changes to strengthen certainty for landlords

• Tax Incentives for refurbishment provide some supportp pp

25

Preventive financial support measuresLiquidity

FAAF

Bank

guarant

Credit

ICO

ReorgaFenhancement

funding

Highqualitycollateral 19.3bn€ Defacto,phasedout. ees

(2008-2009

48bn€,around150bonds Extended30June2010.Butmarketsopen

stimulus

lines

Secondtierfunding Risksharing 20bn€since2007

anization

FROB

M&Abankingarmofsupervisor Independentfundingandmanagement 9bn€capital-27bn€guaranteedfundingauthorize

Capital enhancement

and Credit

stimulusLiquidity enhancement) reorganisation

26

The financial system remains resilient

• Main source of perceived vulnerability regards losses i f l di l d lstemming from lending to real estate developers

• Bank of Spain stress test: Operating income over 3 years is able to absorb losses of 40% of the portfolio years is able to absorb losses of 40% of the portfolio of lending to real estate developers.

• Extreme assumptions of stress test: PD of 40%(3 ti th k f 1993) d LGD f 100 % (hi hl times the peak of 1993) and LGD of 100 % (highly implausible)

27

FROB: a tool for restructuring the banking sector

Rationale for the initiative

- Overcoming fragmentation in thesavings and banks sector.

Governance

- Independent management.

Strong accountability to Parliament- Achievement of economies of scale todigest low interest margins and realestate impact.

- Strong accountability to Parliament.

- Authorized by DG Competition.

Asset Operations

- Support to integration processes subject

Funding

- Public-private mix of capital (9 bn€).to conditions set by the bankingsupervisor.

- Instrumented through convertiblepreference shares with market-oriented

- Agency-like funding programmecoordinated with the sovereignprogramme.

remuneration.

28

Pension System Reform

Proposed Measures:

• A progressive increase in the retirement age (to 67 years) years)

• Strengthening relationship between contributions and benefits

• A more flexible relationship between complementary social p p ysecurity and the public system

• Possible adjustment of other parameters of the current system

Expected Results: Sustainability of the pension system

29

Labour Market Reform

• Five main guidelines:

St bilit i l t b d i k t t ti • Stability in employment, by reducing market segmentation

• Reform of Collective Bargaining system

• Incentives for young workers’ employment and educationIncentives for young workers employment and education

• Promotion of the integration of women in the labour market

• Worker intermediation and greater control of temporary occupational disability claims

30

• Highlights



Funding Strategy of the Kingdom of Spain• Funding Strategy of the Kingdom of Spain

31

Highlights of Funding Strategy• Significant reduction in net funding requirements and persistence of sound risk metrics• Liquidity transparency and predictability will continue • Liquidity, transparency and predictability will continue as guiding principles for the execution of our auction program• As for syndications, timing is dictated by the limit size of the line to be replaced (16.5 bn for longer tenors) and market conditions.

Innovations for 2010: 18 month T bills reappear Euro • Innovations for 2010: 18-month T-bills reappear, Euro inflation linker still a project• Maintain our stable and diversified investor base

32

The funding strategy

Tesoro Funding in 2010(Billion euro)(Billion euro)

1: Funding requirement = Net Issuance 76.82: Redemptions bonds 2010 35.43: Net issuance medium long term 61.64 = 2 + 3 Gross Issuance Medium-Long Term 97,05: Net Increase T-Bills 15.26: Assumption of RTVE debt 1.57 = 3 + 5 + 6: Net change outstanding debt 78.37 3 + 5 + 6: Net change outstanding debt 78.38: Forecast Outstanding Central Government Debt at end 2010 553.5Source: General State Budgets Bill 2010

33

Funding programme in perspective

• Cut in Net Issuance: lower cash deficit and no exceptionalincrease in net financial assets

116.7120

140

2009 2010

Funding Programme. 2010 vs. 2009(Net issuance in billion Euro)

34 4

82.376.861.6

60

80

100

34.4

15.2

0

20

40

T t l N t I L t d l T t M di & l tTotal Net Issuance Letras del Tesoro netissues

Medium & long termnet issues*

(*) Includes foreign currency issues.

34Source: Dirección General del Tesoro y Política Financiera.

Short-term funding

• Net issuance in 2009 in line with initial announcement: 34.4 bn€.Gross issuance breakdown:

• 3-month Letras: 19.7 bn€

• 6-month Letras: 31.6 bn€

• 12-month Letras: 58.0 bn€12 month Letras: 58.0 bn€

• Innovations in 2010:

• Calendar change: 3- and 6-month Letras auction 4th Tuesday

• 18-month T-bills relaunched: auction 3rd Tuesday

35

Medium- and long-term funding

• Gross issuance: 2009 overshooting (ca. 25 bn €) due to higher thanexpected impact of the crisis

• Auction procedures unchanged: Quarterly calendar + potential off-the-run lines announced Friday prior to the auction

• Limit size per line: increased to 16.5 bn € for longer lines

• Bonos del Estado:

• New 5-year benchmark in March

• Current 3-year benchmark B 2.30% 04/2013 issued until 15 bn €

Obli i d l E t d• Obligaciones del Estado:

• New 10 year O 4.00% 04/2020 (5 bn €) successfully syndicated inJanuary

36

• Next syndication a 15 year line, to replace the matured O 4.80% Jan-2024), expected for February depending on market conditions

Diversification of funding sources

• Recent foreign currency issuance:

• Eurobond 2.75% March 2012 ($ 1.0 billion)

• Eurobond 2 00% October 2012 ($ 2 5 billion)• Eurobond 2.00% October 2012 ($ 2.5 billion)

• Tesoro Público is open to additional foreign currency issuance

• Floating Rate Note 3-Month EURIBOR-10 bps, October 2012• Floating Rate Note 3 Month EURIBOR 10 bps, October 2012(€ 3.0 billion). Possible retapping in 2010

• Projects:

• European inflation-linked issues (HICP-ex tobacco)

• Schuldschein loans

37

Main features of Treasury funding strategy

500

600

475

554Spanish debt portfolio(€ billion)

229

319 312300

400

307358

229

100

200

0

100

995

996

997

998

999

000

001

002

003

004

005

006

007

008

009

0 (f

)

19 19 19 19 19 20 20 20 20 20 20 20 20 20 20

2010

Foreign Currency Other Letras Bonos y Obligaciones38Source: Dirección General del Tesoro y Política Financiera.

Recent widening might be an opportunity

125

150Spread of the Spanish 10-year bond vs. main European peers

(in bps)

50

75

100

25

0

25

-75

-50

-25

07 07 07 07 08 08 08 8 08 08 08 8 08 08 08 08 09 09 09 9 09 09 09 9 09 09 09 09 0 0

Sep-

0O

ct-0

Nov

-0D

ec-0

Jan-

0Fe

b-0

Mar

-0Ap

r-0

May

-0Ju

n-0

Jul-0

Aug-

0Se

p-0

Oct

-0N

ov-0

Dec

-0Ja

n-0

Feb-

0M

ar-0

Apr-

0M

ay-0

Jun-

0Ju

l-0Au

g-0

Sep-

0O

ct-0

Nov

-0D

ec-0

Jan-

1Fe

b-1

Germany Italy France Belgium Netherlands39Source: Bloomberg.

Cheapening concentrated in the front endS d f th S i h 5 b d i E Spread of the Spanish 5-year bond vs. main European peers

(in bps)

125

150

50

75

100

-25

0

25

-75

-50

25

07 07 07 07 08 08 08 08 08 08 08 08 08 08 08 08 09 09 09 09 09 09 09 09 09 09 09 09 10 10

40Source: Bloomberg.

Sep-

0O

ct-0

Nov

-0D

ec-0

Jan-

0Fe

b-0

Mar

-0Ap

r-0

May

-0Ju

n-0

Jul-0

Aug-

0Se

p-0

Oct

-0N

ov-0

Dec

-0Ja

n-0

Feb-

0M

ar-0

Apr-

0M

ay-0

Jun-

0Ju

l-0Au

g-0

Sep-

0O

ct-0

Nov

-0D

ec-0

Jan-

1Fe

b-1

Germany Italy France Belgium Netherlands

An atractive market to invest in

Attractive prices Liquid instruments

Solid and efficientinfrastructure

Diversified investorbase

41

Increase in market liquidityA t t di i 13 5 b €

161820

3 90%3.25% 5.40%

4 20%4.40%

3 15% 5 50%

6.00%

4 10%4.10%

4 30%

On-the-run bonds

Average outstanding size: 13.5 bn €Target for average outstanding <10 years: 15 bn €Target for average outstanding >10 years: 15 bn €

10121416 4.20%3.90%

4.25%3.80%5.35%

5.00%6.15%

4.20%4.75%

3.15% 5.50%

5.75%4.90%

4.10%4.80%

2.75%

4.60%4.30%3.30%

2.30%

468

10

4.70%4.00%

024

-10

-11

-11

-11

-12

-12

-12

-13

-13

-13

-14

-14

-14

-15

-16

-17

-17

-18

-19

-19

-20

-24

-29

-32

-37

-40

-41


Jul

Apr

-

Jul

Oct

-

Apr

-

Jul

Oct

-

Jan-

Apr

-

Jul

Jan -

Jul

Oct

-

Jan-

Jan-

Jan-

Jul

Jul

Jul

Oct

-

Apr

-

Jan-

Jan-

Jul

Jan-

Jul

Jul

Low Debt Refinancing Risk…

45.000

50.000(Million Euros)

Redemption profile of Bonos & Obligaciones

30 000

35.000

40.000

20.000

25.000

30.000

5.000

10.000

15.000

02010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020-

20232024 2029 2032 2037 2040 2041

Source: Dirección General del Tesoro y Política Financiera. 43

Low Debt Refinancing Risk…

Central Government Debt refinancing risk(in % of the total portfolio)

42

30

40

50

24

7

182220

182121

10

20

30

(%)

01 year or less 1 to 3 years 3 to 5 years

31.12.1995 31.12.1999 31.01.2010

Source: Dirección General del Tesoro y Política Financiera.

44

…Thanks to relatively high duration and average life to maturity…

Duration & Average Life to Maturity of the Portfolio (Letras, Bonos and Obligaciones)

(in years)

6 786 69

8.0

4.77

6.78

4.79

6.695.526.0

4.164.0

France 6,24Average life

0.0

2.0 Netherlands 6,88Belgium 5,94Italy 7,07


0.02000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Duration Average life

…while achieving lower Funding Costs

Average Funding Costs(in percent)

5.5

6.0

4.32

4.0

4.5

5.0

3.49

2.27

3.81

2.5

3.0

3.5

1.0

1.5

2.0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010


2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Average cost of Debt outstanding Average cost at issuance

Reliance on foreign funding relatively moderate

90100

External public sector debt in 2009(% of GDP)

5060708090

1020304050

0

Gre

ece

Bel

gium Ita

ly

Aus

tria

Fran

ce

Irela

nd

herla

nds

Ger

man

y

Finl

and

Spa

in

Uni

ted

Sta

tes

Arg

entin

a

Uni

ted

Kin

gdom

47

Net

h G A K

Source: OECD.

Banks financing of government debt in line with Eurozone average

25

Holdings of government debt November 2009(% of bank assets)

15

20

5

10

0

lova

kia

Belg

ium

Gre

ece

Italy

Spai

n

Fran

ce

ro a

rea

Irela

nd

erla

nds

erm

any

Aust

ria

ortu

gal

Finl

and

Sl B G F

Eur

Net

he Ge A Po F

48Source: Citi.

Spanish Banks’ funding from ECB around Eurozone average

10%

Recourse to ECB funding (% of total bank assets)

6%

8%

2%

4%

0%

NL

GE

IRL IT

ES

P

PO

GR

AU FI FR BE

jul 08 oct 09

49

jul-08 oct-09

Source: Deutsche Bank.

Stable and diversified investor base

Government Bonds by Holder(Term investment, % of total portfolio)

90%

100%Spanish off icialinstitutions

60%

70%

80% Non residents

Households &43.94%

33.37%

30%

40%

50%

60%Non financ.

Pension & MutualFunds

10%

20%

30% InsuranceCompanies

Credit Institutions


0%1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Stable and diversified investor base

Letras del Tesoro by Holder(Term investment, % of total portfolio)

90%

100%Spanish OfficialInstitutions

60%

70%

80%

90% Institutions

Non-Residents

Households & Non

40%

50%

60% Households & Nonfinanc.

Pension and MutualFunds

48.97%

10%

20%

30% Insurance companies

Credit Institutions

35.57%


0%1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Government Bonds by Holder

Stable and diversified investor baseGovernment Bonds by Holder

(Term investment, % of total portfolio)

25%

30%

20%

25%

10%

15%

0%

5%

France Japan Germany Italy BENELUX Rest of EU Asia, Afica America Rest of


and others Europe

2006 2007 2008 2009

Top Primary Dealers in 2009

Bonos y ObligacionesBarclays

BBVABBVA

Calyon

Santander

S iété Gé é lSociété Générale

LetrasBBVA

Santander

Société Générale

53

Thank you for your attentionJosé Manuel Campa Fernández– Secretary of State for the Economy

Soledad Núñez – Directora General del Tesoro y Política Financiera [email protected]

G l G í A d é S bdi t G l d G tió Fi i ió d l D d Públi

José Manuel Campa Fernández Secretary of State for the Economy

Gonzalo García Andrés – Subdirector General de Gestión y Financiación de la Deuda Pública ggarcí[email protected]

José Ramón Martí[email protected]

Rosa [email protected]

Leandro [email protected]

Pablo de Ramó[email protected]

Ignacio Vicenteivicente@tesoro meh es

For more information please contact:Phone: 34 91 209 95 29/30/31/32 - Fax:34 91 209 97 10

Reuters: TESORO

54

[email protected]

Rocío Chico [email protected]

Reuters: TESOROBloomberg: TESO

Internet: www.tesoro.es

Annex: the Social Security Reserve Fund

60

70 (Billon €)

Social Security Reserve Fund asset holdings

40

50

60

10

20

30

0

10

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

55

The Social Security Reserve Fund amounted in December 2009 to approximately 5.7%

(€ 60bn) of GDP.

Annex: Ley de Economía Sostenible & General Agreement on Fiscal Sustainability

Competitiveness

- Society of Information.- Science R&D

Tax measures

- Rental market: equal treatment withownership.

li i i f b i li fScience, R&D.- Internationalisation of SME’s.- Education.- Reduction of administrative burden.

- Elimination of tax rebates: i.e. reliefon mortgage payments, 400€ rebateon income tax.- Corporate Income Tax rebatesrelated to R&D and to theenvironment.

Environment Fiscal Sustainability

Spanish regions to formulate- Energy Policy.- CO2 Emission-reduction.- Efficiency of transport andinfrastructure.

- Spanish regions to formulatequarterly reports to the Fiscal PolicyCouncil.- Correction and surveillance of fiscaldeficits.

D bt/GDP ti t h li it f

56

- Debt/GDP ratio to reach limit of60% by 2013.

kingdom of spain economic policy and 2010 funding strategysme corporate tax reform -0.1 government...

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