Spain Said to Weigh Using Treasury to Pay Off Town Hall Debts

Spain is considering using Treasury cash instead of bank loans to pay off as much as 7 billion euros ($9.5 billion) of commercial debts on behalf of regional governments and town halls, according to two people familiar with the matter.

Government officials are considering this option to reduce the reliance on banks, which financed the program last year, as funding conditions in the bond markets are improving, said one of the people, who asked not to be named before a decision on the matter. Officials still have to decide how much of the cash will come from the Treasury and how much from banks, the person said.

Spain borrowed about 35 billion euros from 26 banks in May last year to finance the first part of the plan, which aims to channel liquidity to companies threatened by local administrations that haven’t paid their bills. Since then, the yield on Spanish bonds has tumbled and the Treasury’s cash reserves have risen 65 percent, allowing officials to bypass the banking system and use cheaper market funding.

A spokesman for the Economy Ministry, which runs the Treasury, declined to comment when contacted by Bloomberg News.

The government expects to make the payments in November, one of the people said. The Budget Ministry has to review the adjustment plans submitted by the regions and local authorities next month before the payments can be made to suppliers, said a ministry spokesman who asked not to be named in line with government policy.

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