Agency chief raised concerns over infrastructure bond plan

THE CHIEF executive of the National Treasury Management Agency (NTMA) raised concerns last May about a potential State infrastructure bond proposed to the Government, saying it would undermine the State’s ability to raise borrowings.

Dr Michael Somers, who has since retired from the position, told Minister for Finance Brian Lenihan in a letter on May 6th, 2009, that to pay Irish pension and fund managers an extra 2.5 per cent over the current market rate on Irish Government bonds, as suggested, would send “the wrong signal to the markets”.

Dr Somers was responding to a report in The Irish Times, which cited a plan devised by the Construction Industry Council that was submitted to Mr Lenihan.

The plan proposed paying Irish pension funds the premium over Irish gilt rates in return for an investment of 20 to 25 years in infrastructural projects to secure about 70,000 construction jobs.

Dr Somers said that to pay a rate of 2.5 per cent over existing Irish gilt rates “would in one step raise the cost of Government borrowing to a level which could be taken to indicate a lack of confidence on our part in our ability to raise funds in the markets on normal terms and conditions”.

The Minister replied on May 11th, 2009, saying the meetings with the pension industry on investing in a possible State infrastructure bond were “purely exploratory”. “You can take it that my department is not and will not be doing anything to undermine your efforts to raise money from the bond markets,” he said.

The letters were released to The Irish Times by the Department of Finance under the Freedom of Information Act. They were among 29 records released in full or part.

Eight letters were withheld, two of which were sent by Mr Lenihan to Dr Somers last February relating to the NTMA’s role and “possible role”. Access to a letter from Dr Somers to Mr Lenihan relating to “NTMA functions” dated March 2nd, 2009, was also refused. The department cited “commercially sensitive information” in the “financial and economic interests of the State”.

A letter from Dr Somers to the Minister about the board of the National Asset Management Agency on November 11th was also withheld.