State lender sets up credit line to help out the regions

The Spanish Cabinet on Friday approved a royal decree authorizing the state lender Instituto de Crédito Oficial (ICO) to set up a credit line of up to 15 billion euros for the country's cash-strapped regions.

Speaking at a news conference, Economy Minister Luis de Guindos said the credit line would be for an initial 10 billion euros, increasable to 15 billion pending Cabinet approval.

The funds to be made available will consist of two tranches, one of which will be to help the regions pay off suppliers with bills pending from before the start of this year. The other leg will allow the regions to settle financial debt incurred before the start of the year that had previously be accounted for as part of their deficits.

The debt-servicing tranche will entail a loan with a maximum maturity of three years and carrying an initial interest rate of the ICO's reference rate plus 225 basis points. The loans to pay off suppliers will have a maturity of 11 months, with an interest rate of the ICO's reference rate plus 175 basis points.

"This is not an unconditional credit line," De Guindos hastened to emphasize. He said the regions will be required to send detailed reports of their debt operations to the central government.

The regions were the main reason for the state's failure to meet its deficit-reduction target. Instead of the goal of 6 percent of GDP, the shortfall came in at over 8 percent