Development of Debt Management IT Systems in Peru Mini nistry of - - PowerPoint PPT Presentation

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Development of Debt Management IT Systems in Peru Mini nistry of - - PowerPoint PPT Presentation

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R E P U B L I C O F P E R U Development of Debt Management IT Systems in Peru Mini nistry of of Econo nomy and and Fina nance Present ed t o: S overeign Debt Management Forum World Bank Washington DC, October 2012 Agenda

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SLIDE 1

Washington DC, October 2012

R E P U B L I C O F P E R U

Development of Debt Management IT Systems in Peru

Present ed t o: “ S

  • vereign Debt Management Forum”

World Bank

Mini nistry of

  • f Econo

nomy and and Fina nance

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SLIDE 2

Ministry of Economy and Finance

1

The first step – Developing t he syst em t o regist er t he debt and t he debt service

The second step – Supporting risk analysis and the design of the Debt Management Strategy

“In house” or Buying a Software – Things to take into account

Agenda

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SLIDE 3

Ministry of Economy and Finance

2

THE FIRST STEP Developing the system to register the debt and the debt service

  • From 1992-1998 S

tatistics Module, Cash Planning and Accounting were developed and implemented in Clipper. They were not integrated.

  • From 1998-2000, S

IGADE was implemented with a mixed team with international consultants and MEF staff, however some problems arose:

The complexit y of t he debt port folio.

S t ruct ural adj ust ment s were needed and involved a significant period of t ime and money.

Permanent dependence of S IGADE.

  • In 2000, we decided to start the developing of S

IAD (S istema Integrado de Administración de Deuda) “ in house” which started to operate in 2001.

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SLIDE 4

SIAD

Treasury

SIAF

Accounting

Transfer Administ rat ive Reg.

  • Disbursement s
  • Payment s
  • Commit ment s

New loan contracts Disbursements

Register Disbursement s Undisbursed balance

Budget

Internal Relationship

Payments Simulation

DMS & Risk

Cash Planning

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SLIDE 5

Ministry of Economy and Finance

4

The first step – Developing t he syst em t o regist er t he debt and t he debt service

The second step – S upport ing risk analysis and t he design of t he Debt Management S t rat egy

 “In house” or Buying a Software – Thingst o t ake int o account

Agenda

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SLIDE 6

Ministry of Economy and Finance

5

THE SECOND STEP S upport ing risk analysis and t he design of t he Debt Management S t rat egy

  • In 2002 we start ed to look how other countries quantify the risk of their debt portfolio.

As a result, we implement ed a det erministic model in a S imulation Module created in S IAD.

  • In 2004 there was an institutional decision to develop quantitative tools in order to:

Evaluate the effect of management operations in the Peruvian debt portfolio.

Analyze the sensitivity of public debt service to int erest rat es and exchange rat e shocks.  Find optimal composition of the public debt in order t o reduce market risks and refinancing risk.  Determine stress scenarios for public debt service.

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SLIDE 7

Ministry of Economy and Finance

6

  • We decided t o build a model for assessing Cost and Risk of the debt portfolio and

to find an Efficient Frontier because:  There were no models that would handle the complex structure of our debt portfolio.

  • Citibank: Did not incorporate the fiscal requirements.
  • ABN-AMRO: Only took into account interest rate risk

 High cost and dependency for its maintenance.  Lack of flexibility to undertake future changes in the model.

THE SECOND STEP S upport ing risk analysis and t he design of t he Debt Management S t rat egy

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SLIDE 8

Ministry of Economy and Finance

7

THE SECOND STEP S upport ing risk analysis and t he design of t he Debt Management S t rat egy

  • The S

imulation Module offers the flexibility to work with two type of models: Stochastic Monte Carlo Simulations  Allows for more complex analyses.  It allows the calculation of any percentile (90% , 95%and 99% ).  It incorporates the effect of correlations and volatilities.  Flexibility to incorporat e other st ochastic models f or the financial variables (exchange rates and interest rates). Deterministic model  S impler to design and use.  Individual analysis of changes in the financial variables and their effect on the public debt portfolio.  No dependency of parameters, except for the magnitude of the eff ect (that is selected previously).

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SLIDE 9

Ministry of Economy and Finance

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  • Challenges in developing the model

S

  • ftware: difficult to do in excel

S trong mathematical background needed to develop stochastic models

Iterative process, learning by doing

Lack of data for estimating the volatility and correlations of some financial variables

Lack

  • f

support f or implementing this model. S

  • me

authorities do not understand the importance and difficulties of doing this task

THE SECOND STEP S upport ing risk analysis and t he design of t he Debt Management S t rat egy

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SLIDE 10

Ministry of Economy and Finance

9

THE SECOND STEP S upport ing risk analysis and t he design of t he Debt Management S t rat egy

Simulation Averages Volatilities Correlations Stochastic Scenarios (Financial Variables) Modified Database Initial Database Financing Requirements PAEAD I N P U T S S I M U L A T I O N O U T P U T

Year 1 Year 2

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SLIDE 11

Ministry of Economy and Finance

10

0.0% 0.2% 0.4% 0.6% 0.8% 1.0% 1.2% 9 000 9 500 10 000 10 500 11 000 11 500 12 000 Values of Service (Mills. de soles) Relative frecuency

Pesimistic Density Optimistic Density Pesimistic Service Optimistic Service Worst Case Pesimist Worst Case Optimist

324 346 397

Item December 2012 Percentage of Nuevos Soles in the portfolio 48.1% - 53.7% Percentage of fixed rate debt in the portfolio 74.4% - 76.3% Average life (years) 12.7 - 13.4 Average life to refix (years) 11.3 - 12.2 Concentration of amortizations in the next 12 months 1_/ 4.1% - 3.7% Annual amortization payment concentration rate 2_/ 8.9% - 3.9% Percentage of financing flow with local currency 3_/ 52.7% - 70.9%

1_/Indicator that measures the most immediate pressure on payments 2_/Measures the deviation of the portfolio’ s amortizations payments over and above predetermined maximum levels. This indicator allows for an evaluation of the payments pressure for the next 5 years (refinancing risk), representing an additional element to define policy over the terms for the new debt to be contracted. 3_/Includes the financing of the debt management transactions.

Reference quantitative goals as of the closing of 2012

THE SECOND STEP S upport ing risk analysis and t he design of t he Debt Management S t rat egy

Service at Risk

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SLIDE 12

Ministry of Economy and Finance

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THE SECOND STEP S upport ing risk analysis and t he design of t he Debt Management S t rat egy

Con S n Ser ervicio en R

  • en Ries

esgo go

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SLIDE 13

Ministry of Economy and Finance

THE SECOND STEP S upport ing risk analysis and t he design of t he Debt Management S t rat egy

12

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SLIDE 14

Ministry of Economy and Finance

THE SECOND STEP S upport ing risk analysis and t he design of t he Debt Management S t rat egy

13

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SLIDE 15

Ministry of Economy and Finance

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  • ACHIEVEMENTS OF SIAD

 Efficient and effective Administration and Control of Public Debt information.  R

eliable and timely information about Outstanding Debt, Disbursements, Debt service (executed and proj ected payments).

 Allowed for more efficient integration with S

IAF (S istema de Administración Financiera).

 Offer the possibility to calculate risk debt indicators.  S

ervice at Risk Model to evaluate the impact of funding and liability management

  • perations in the debt portfolio structure and the redemption profile.

THE SECOND STEP S upport ing risk analysis and t he design of t he Debt Management S t rat egy

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SLIDE 16

Ministry of Economy and Finance

15

The first step – Developing t he syst em t o regist er t he debt and t he debt service

The second step – S upport ing risk analysis and t he design of t he Debt Management S t rat egy

 “In house” or Buying a Software – Thingst o t ake int o account

Agenda

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SLIDE 17

Ministry of Economy and Finance

“IN HOUSE” OR BUYING A SOFTWARE Things t o t ake int o account

Concept “In house” Off the shelf systems

Y

  • u can adapt t he syst em t o your current needs

x

Updat e t he syst em according t o your new specific needs

x

IT st aff in charge of t his act ivit y in t he ent it y

x

Time for developing t he soft ware

x

Cost

? ?

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SLIDE 18

Ministry of Economy and Finance

17

“IN HOUSE” OR BUYING A SOFTWARE Things t o t ake int o account

  • Institutional decision and support
  • Need to plan in advance

 Obj ect ives  Analysis of t he requirement s  Modeling  Design  Applicat ion Development  Test ing

  • Be aware of Operational Risk !!!!!!!!!

S t aff t urnover

Programming language

Document at ion

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SLIDE 19

Washington DC, October 2012

R E P U B L I C O F P E R U

Development of Debt Management IT Systems in Peru

Present ed t o: “ S

  • vereign Debt Management Forum”

World Bank

Mini nistry of

  • f Econo

nomy and and Fina nance