HEARD ON THE STREET
Updated March 30, 2012, 8:31 p.m. ET
Smoke, Mirrors and Public Deficits
By RICHARD BARLEY
Are public debt and deficit numbers illusory? Perhaps, judging by the ruses employed by governments and identified by the International Monetary Fund's Timothy Irwin in a recent staff note. Deficit crises in developed countries may only increase the allure of such devices, although they may do little to help in the long run.
.European countries got creative as they strove to hit targets to join the single currency during the 1990s. In 2005, Organization for Economic Cooperation and Development researchers cataloged 192 cases of one-time measures and accounting maneuvers across Europe—50 in Greece alone—with effects ranging from negligible to 2% of GDP. In 1997, for instance, France took on the pension liabilities of France Télécom FTE +0.41% in exchange for a payment of €5.7 billion ($7.6 billion), or 0.5% of GDP.
.
But Europe wasn't alone in playing games. In 2003, the U.S. proposed buying 100 refueling planes via operating leases, which would have kept the cost from being recognized upfront. The Congressional Budget Office said that was federal borrowing in disguise and would prove more expensive than a normal purchase.
.
The euro-zone debt crisis has put these techniques front and center. Portugal hit its 2011 target only via a transfer of bank pension assets that shaved 3.5 percentage points off its deficit.
.
Likewise, the U.K. is taking on the Royal Mail's pension plan to pave the way for privatization. The plan brings with it £28 billion ($44.8 billion) of assets, thereby reducing the country's 2012-13 deficit. But the U.K. is also taking on long-term liabilities on behalf of the company with a present value of £37.5 billion—which aren't recognized immediately. So accounting transforms the Royal Mail's pension deficit into a short-term gain for the U.K. budget but at a long-term cost.
.
Keeping long-term liabilities out of the picture is a common tactic: In the U.S., debt was 62% of GDP in 2010, but including civil-service pension and other liabilities raises the total to 113%, Mr. Irwin notes. Public-private plans for infrastructure have also shifted upfront investment costs off-budget but have raised long-term debt risks—often through government guarantees.
.
The crisis has narrowed governments' options. One way to flatter the statistics is via optimistic growth assumptions, although skeptical markets and the rise of independent fiscal watchdogs such as the U.K. Office for Budget Responsibility make this difficult. Another way is to shift cash flows forward, as Germany, Greece, Portugal and Belgium did in the past via securitizations of future government revenue. This, too, may now prove a tricky sell.
.Investors trying to keep track of governments should remember Goodhart's law: As soon as an indicator becomes a target for conducting policy, it loses its informational value. It also becomes a target for manipulation.
.
That is a sobering thought given the euro zone's obsession with deficit targets. They might just conceal problems building up elsewhere.
0 comments:
Publicar un comentario