Proposals in the French budget bill for 2006 and discussions in parliament last month could lead to significant changes in France’s public sector debt and risk management.
Agence France Trésor is being lined up to manage the risks incurred by government ministries, while the French parliament is discussing whether to consolidate the country’s different government-guaranteed borrowers.
AFT has discussed ways to improve risk management with various government departments, including the defence ministry. As a big fuel buyer, the ministry is exposed to oil price risk. The government also makes payments to some international organizations in dollars, so euro-dollar FX risk is relevant.
“Taking stock of what happens in the public sector, it might make sense to manage these risks and devise a hedging strategy,” says a senior figure familiar with the situation.
The budget bill proposes giving AFT a role analogous to that of a corporate treasurer. Each ministry or department will choose its hedging strategies, then mandate AFT to execute them. AFT has proposed that the French government create a segregated account where its hedging deals are registered. This would allow parliament and the French court of auditors to review AFT’s activities.