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

2 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 REASONS OF ARDAL CREATION

3 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 transactions on money market and capital markets for 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 DEBT AND LIQUIDITY MANAGEMENT AGENCY

4 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 debt securities 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 DEBT AND LIQUIDITY MANAGEMENT AGENCY

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 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 MoF on the secondary market STATE DEBT MANAGEMENT UNTIL THE END OF 2003

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

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

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

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-bills3M BRIBOR and interest rate of T-bills

13 T- BONDS – SKK T-Bonds issues 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) * Value as per June 30, 2005

14 T-BOND – EUROBOND 2014

15 T-BOND – EUROBOND 2014

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

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

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 executed 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, Bratislava Telephone: Fax: web: Reuters Code:DLMA