Austrian Speculation Ban ‘First Step,’ Hard to Monitor, S&P Says

Austria’s planned restrictions on municipalities’ and provinces’ financial investments are a first step toward limiting contingent risks and will be difficult to monitor, Standard & Poor’s Ratings Services said.

The agreement between the government and Austria’s nine provinces to abstain from borrowing in foreign currencies and from investing in derivatives for purposes other than hedging won’t have an effect on its rating, S&P said in a statement today. Austria is rated AA+ with a stable outlook by the company.

“We consider this attempt to regulate potentially risky financial activities a first step to limiting contingency elements of debt management,” S&P analysts Thomas Fischinger and Alois Strasser said. “We believe that the implementation and close monitoring of such rules may be challenging,” they said. The rules still “allow more risk-prone governments to incur higher risks than usually applied in local and regional governments’ debt management globally,” according to S&P.

Austria’s government decided to tighten rules on municipal and regional financial investments after a string of hidden assets and potential losses in the Alpine republic. Salzburg province was found to hold 1.35 billion euros ($1.8 billion) in undeclared investments last month. Lower Austria sold 4.4 billion euros of home loans and invested the proceeds in assets including hedge funds. The City of Linz was sued for 417 million euros over a swap with Bawag PSK Bank AG.

The deal, signed yesterday, still needs to be ratified by regional lawmakers and pass parliament with a two-thirds majority to become binding for municipalities.

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