Will Belgium clear the final hurdle? Belgium's leap of faith
Just how seriously does the Belgian government take its debt management programme? Deadly seriously, discovered 400 analysts and investors invited to question prime minister, finance minister and National Bank governor at a recent roadshow.
It's seven years since the Belgian government first took a professional approach to borrowing. In 1989, the finance ministry set up competitive auctions for the monthly sale of public debt (Obligation Linéaire Obligatie - OLOs) and treasury certificates (CTs). A new system of primary dealers followed in 1991. This introduced proper market-making and improved liquidity for Belgian government bonds. Smaller changes have been made since, including regular investor roadshows and the appointment of an interprimary dealer.
The ministry was rewarded with better liquidit and transparency, more foreign investors and, above all, cheaper funding. Finance minister Philippe Maystadt reckons the reform and development of the government bond market cut debt management costs by around Bfr70 billion ($2.2 billion) each year.
The auction system eliminated commission paid to intermediaries, saving Bfr71 billion between 1991 and 1995. Over the same period, the liquidity premium on outstanding OLOs - although not eliminated - was reduced by 25 basis points, making borrowing cheaper.