SANTO DOMINGO.-The Pension Fund Administrators liquidated financial instruments for 40 billion pesos that they had in the Central Bank to buy the same amount as Treasury bonds, with a higher yield and that will also allow the government to use those resources in the plans. that they have raised to counteract the social and economic effects of the restrictive measures by Covid-19.
The Dominican Association of Pension Funds (ADAFP) explained to EL DÍA that the Central Bank bought back the titles that the AFPs had so that they could have the liquidity for the operation.
“In order to achieve the operation that has made this special investment possible, resources have been mobilized from the Central Bank to the Ministry of Finance (coordinating the repurchase of the securities in circulation by the Central Bank from the AFPs to dispose of liquidity and thus acquire the securities of the Ministry of Finance) ”, indicates ADFP in a statement.
The entity makes the reservation that the operation has a null effect on the amount of public debt because the AFP’s investment involves passing the 40 billion that they had invested in a public entity (the Central Bank) to another government entity (Ministry of the Treasury).
However, the AFPs managed to get the government to increase the interest rates that it will pay by passing the funds from the Central Bank to the Treasury.
Although the placement of 40 billion pesos was immediately authorized, the maturity and interest rate are different, although in all cases it is from 10 percent per year.
The four issues worth 10 billion pesos each were authorized to be issued on May 1, but with an expiration date of February 28, 2030, February 18, 2035, and February 28, 2040 (two of the four issues expire on this date).
The Securities Superintendency authorized an issue of 246 thousand 295.8 million pesos, of which the placement of the 40 thousand million acquired by four pension fund administrators was arranged.
The approved interest rate was 10 percent for the 10 billion that will sell in 2030, 10.25 percent for the 10 billion that will sell in 2035, and 10.875 percent for the 20 billion (divided into two 10-issue issues). billion) due in 2040.
The offer of the bonds was directed to “the four pension fund administrators with the largest assets in the Dominican financial system”, which are Popular, Grow, Reserves and Planting, which placed 10 billion pesos each.
The yield on the financial instruments of these pension fund managers in the Central Bank was 9.33 percent for Crecer, 9.22 percent for Popular, 9.32 percent for Reserves and 9.21 percent for Siembra.
That brings the average yield to 9.27 percent at the Central Bank. While for bonds purchased from the Treasury, the average yield is 10.5 percent, which represents an increase of 13 percent in the interest that the State will now pay for the same funds.
Change of hands
The difference is that while the resources were in the Central Bank, the Government was unable to make use of them for the mitigation plans of the negative effects of the restrictive measures adopted to contain the expansion of Covid-19 in the country and energize the economy.
The fourth bond issue (for 10 billion pesos) is specialized for infrastructure works, as stated in the public offer made by the Securities Superintendence.
In the resolution of the Ministry of Finance, by means of which it issues the bonds, it indicates in one of its recitals “that as part of the plan to reactivate the economy, the inclusion of infrastructure works in priority sectors would be of great importance to promote economic activity ”.
It also indicates that the measures adopted by Covid-19 have caused a drop in demand (consumption), which in turn has had a negative impact on the Government’s tax collections.
“As a consequence of the Covid-19 pandemic, there has been a decrease in state revenues, and in turn financial resources, originally not foreseen, have been dedicated to containment of the virus and financial assistance to the most affected” , indicates the resolution of the Treasury.
In addition to financing social plans, the Government has proposed to use these funds to support small and medium-sized enterprises.
The AFPs obtained liquidity by liquidating instruments from the Central Bank.
The Government could not make the funds available in the BC, but now it will be able to use them.
—3— The Regulator
The issue was approved by the Superintendency of Securities
Controversial proposed return of funds
Draft. A group of legislators are promoting a bill for the AFPs to return to workers up to 30 percent of what is saved in the Pension Funds, on the understanding that it could be an incentive amid the economic contraction derived from the measures imposed to counter the Covid-19.
However, others have opposed the initiative, alleging that this would generate macroeconomic problems since those funds are invested in the financial sector. Among those who have spoken is the Governor of the Central Bank.
— El Día to eldia.com.do