Spain’s plan to cancel €35bn debt from regional and local authorities

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By Julia Pastor, in Madrid | Spain’s government is about to attack another of the ills afflicting the country’s economy: the debt that regional governments and municipalities owe to their service providers. The minister of Finance Cristóbal Montoro announced Tuesday that the cabinet will finalise a macro financial operation to cancel this debt, which has reached the €35bn level and has been suffocating Spanish SMEs’ liquidity for years (SMEs’ weight in the country’s corporate sector stands at 90%). Of the whole debt, 60% corresponds to municipalities and the remaining 40% to regions, according to the estimations given by Cinco Días. The measure could be approved by the cabinet next Friday.


The financial operation will be managed through two different channels: the Instituto de Crédito Oficial (ICO), which has the status of State’s financial agency of Spain, will go on financing companies via credits, but it will work in cooperation with the biggest national banks. The government is negotiating with Santander, BBVA, La Caixa and Bankia, so that they make payments in advance of all due invoices.

In order to obtain this liquidity lines, companies will have to renounce to some of their acquired rights: for instance, the high interests of arrears generated during the crisis, which have double the inicial debt in some cases Furthermore, service providers will assume the management costs of receiving its money urgently from banks or cajas.

As far as the banks is concerned, the operation is a good bussiness since the State will ensure they recover the amount that they will give the companies in advance. As a compensation, the financial entities will earn a plus, which is still being studied.


Despite the measure’s encouraging nature, some commentators are not sure about the terms on which the plan could be developed. One of the challenges to face would be giving an appropiate regulating frame to the initiative; probably it would be proceeded as a law.

The greatest doubt is from where the government is going to seek the thousands of millions of euros needed to pay the banking sector back the advanced invoices.


These are some of the Ministry of Finance’s statements regarding the measure.

“This measure should help regional and local administrations to face up their debts in a term of some weeks or months […] The definite model, in which we are working along with the Ministry of Economy, aims at finding the most economical formula for the State.

 “This is not a way of bringing deficit to the surface, but the acknowledgement of a pending debt. The measure will help Spain to recover its external image.”


ACF’s financial experts see the macrooperation as good news,

“mainly for construction companies, which has been suffering an important deterioration of their funds, being the most benefited companies FCC and Sacyr Vallehermoso. The impact on ACS  and Ferrovial also would be very positive, but less significant on Acciona and OHL.”

About the Author

The Corner
The Corner has a team of on-the-ground reporters in capital cities ranging from New York to Beijing. Their stories are edited by the teams at the Spanish magazine Consejeros (for members of companies’ boards of directors) and at the stock market news site Consenso Del Mercado (market consensus). They have worked in economics and communication for over 25 years.

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