PUBLIC DEBT

Finance Ministry's "men in black" to oversee regional bailouts

Government attaches harsh conditions to central rescue fund Provisions of 18 billion euros being prepared

Spain's cash-strapped regions can now ask Madrid for a bailout of their own. In a decree published in the Official State Bulletin on Saturday, the government announced a system of liquidity injection similar in appearance to the European Union (EU) rescue packages handed to Ireland, Greece, Portugal and, for bank recapitalization, Spain.

Although the word "bailout" did not figure in the 14-page document, the rescued has nonetheless become the rescuer. Much as the EU sent financial envoys to Madrid to pore over the state of the nation's bank balance sheets, Finance Minister Cristóbal Montoro can dispatch teams of what he once termed as "men in black" to probe regional accounts before awarding rescue funds, which will be paid in installments with harsh budgetary and fiscal conditions attached.

The reserve has been dubbed the Regional Liquidity Fund (FLA). It will be financed largely by state-administered public debt, although the government stated last week it hopes to obtain a loan from the national lottery agency to the tune of six billion euros to beef up the bailout coffers. It remains to be seen if the proposed 18-billion-euro fund will be sufficient to meet the needs of the regions, many of which are faced with crippling debt repayments and fiscal consolidation obligations imposed on them by the central government, which has targeted an 18-billion-euro reduction in expenditure on the part of the regions for this year. It is expected that the fund will need to be amplified in 2013.

If a region wishes to avail itself of the FLA, it will have to meet stringent conditions laid out by Madrid. Chief among these will be to report every credit transaction in the short and long term and hand over to the central government the administration of its debt repayments. A deficit-reduction plan will also have to be presented, along with detailed debt repayment forecasts for the next 10 years.

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