Spain Aims to Avoid Funding Gaps as Regional Governments Face Redemptions

Spain’s central government is in talks with cash-starved regions facing debt redemptions to ensure they have sufficient funds, Deputy Economy Minister Fernando Jimenez Latorre said.

Spanish ministers approved a credit line of as much as 15 billion euros ($19 billion) on Feb. 2 for regions to help them pay bills to suppliers and meet debt payments through June. The state-run Official Credit Institute, or ICO in Spanish, will organize the facility and offer a similar loan to municipalities.

“We are in contact with the regions that have the closest debt redemptions,” Jimenez Latorre told reporters in Madrid today. “What we want to avoid is any funding problem.”

The regions, which control about a third of public spending and have accumulated 135 billion euros of debt, have been shut out of public bond markets while Valencia and others have been downgraded to junk by Moody’s Investors Service. The government in Madrid has pledged not to let any regions fail, even though legislation forbids direct bailouts.

“Some regions would rather not use the ICO lines if they see alternative funding in the markets,” Jimenez Latorre said.

The credit line will be offered in exchange for “strict conditions,” Economy Minister Luis de Guindos said on Feb. 3. Regions tapping the facility will have to present budget-cutting plans and seek permission every time they take on debt, he said. A similar facility for municipal governments may be approved as soon as next week, Jimenez Latorre said.

To contact the reporters on this story: Angeline Benoit in Madrid at abenoit4@bloomberg.net; Emma Ross-Thomas in Madrid at erossthomas@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.