Kingdom of Spain Economic Policy and 2010 Funding Strategy

Secretary of State for the Economy
February 2010 y

• Highlights • The long growth cycle and the crisis • Fi Fiscal consolidation and structural reform l lid ti d t t l f • Funding Strategy of the Kingdom of Spain g gy g p

~2009~
1

Highlights
• Long growth cycle previous to the international crisis • Important challenges ahead: Unemployment and deficit, consequence of the crisis but also symptoms of underlying structural shortcomings p • The Spanish Government is determined to act: • Fiscal consolidation: A cut of 5.7% of GDP in structural primary deficit in 2010-2013 •S Structural reforms to boost potential GDP: Sustainable l f b i l GDP S i bl Economy, Bank Reorganisation, Pensions, Labour Market • Strengths: Sound financial system, low Debt/GDP, institutional ability for reform
2

• Highlights • The long growth cycle and the crisis • Fiscal consolidation and structural reform • Funding Strategy of the Kingdom of Spain

3

1994-2008: Convergence and Debt reduction
• GDP per capita has leapt forward, exceeding the average of EU-25 • Fiscal rigour during the good times allowed debt to GDP to be more than halved
GDP Debt to GDP

(Year on year real growth rates)
6% 4% 2% 0% -2% -4% -6% 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
40% 30% 2000 0 2002 2 80%

(% nominal GDP)
Euro-area 70% 60% 50% Spain

Spain Euro-area

2003 3

2004 4

2005 5

2006 6

2007 7

2008 8

Source: Eurostat.

Source: Eurostat.

2009 9

2001

4

Investment binge: housing and beyond
• What has fuelled domestic demand is a soaring investment rate, with the national savings rate staying close to Eurozone average • The housing boom is part of the story, but not the whole story
Savings rate Investment rate vs. Savings rate
(% nominal GDP) o a G )
34 30 26 22 18 199 99 200 00 200 01 200 02 200 03 200 04 200 05 200 06 200 07 200 08
Belgium Germany 2000
Source: Eurostat. * 2009Q3

( (% nominal GDP) )
30 25 20 15 10 Spain 2005 France 2009* Italy

Savings rate
Source: Eurostat.

Investment rate
5

200 09

Investment binge: housing and beyond
• The residential real estate sector grabbed a non-sustainable share of GDP and employment…
Construction Sector: Gross Value Added and Employment

14 13 12 11 10 9 8 7 6 19 995

(% Total Value Added and of Total Employment)

19 998

20 008

19 996

19 997

19 999

20 000

20 001

20 002

20 003

20 004

20 005

20 006

20 007

Full-time equivalent employees
Source: National Statistics Institute, Spain.

Gross Value Added
6

20 009

Investment binge: housing and beyond
• …but Spain has also invested heavily in equipment, infrastructure and Research and Development
Investment in equipment

(average growth, 1995-2008 in percent)

Public Investment
5.0 4.0 40 3.0 2.0 1.0 0.0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
7

10 8 6 4 2 0 UK UK UK E U -15 E U -15 E U -15 Italy G erm any G erm any G erm any y y y D enm ark D enm ark D enm ark k k k S pain S pain S pain N etherlan N etherlan N etherlan nds nds nds A ustria Finland France France France

(% of GDP)

EU-27 EU 27

GERMANY

FRANCE

ITALY

UK

SPAIN

Source: Eurostat.

Intensive in employment
• Residential construction attracted low skilled labour, dragging productivity lower • Labour supply matched this demand with the help of immigration flows
Active population
(Growth rates from 2005Q1 to 2009Q3)
12% 10% 8% 6% 4% 2% 0% Germany y Spain n Belgium m France e Italy y United m Kingdom

Labor productivity
( e at e (Relative to EU-27, PPP) U , )

107 106 105 104 103 102 101 100 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
8

Source: Eurostat. Labor Force Survey.

Source: Eurostat. Labor Force Survey.

Cost competitiveness
• Loss of competitiveness has been moderate in the tradable sector • Nominal divergence stems from non-tradables (where the bulk of the adjustment is taking place)
Unit labour cost index Manufacturing ULC index
(Relative to eurozone 1999=100)

(Relative to eurozone 1999=100)

125 120 115 110 105 100 95 19 999 20 000 20 001 20 002 20 003 20 004 20 005 20 006 20 007 20 008 20 009

140 130 120 110 100 90 80 19 999 20 000 20 001 20 002 20 003 20 004 20 005 20 006 20 007 20 008 20 009
9

Spain
Source: Eurostat.

Italy

Germany

France
Source: Eurostat

Spain

Italy

Germany

France

Exports show underlying improvement in supply
• In spite of brisk competitiveness… domestic demand and waning price

• …Spain's market shares have outperformed most of peers
Share in world merchandise exports
(Index 2000=100)
120 110 100 90 80
75 100 150

Share in world exports of services*
(Index 2000=100)

125

70 60 2000
50

2001

2002

2003

2004

2005

2006

2007

2008

2009

2000

2001

2002

2003

2004

2005

2006

2007

2008

Spain

Germany

France

United States

Spain

Germany

France

United States

Source: International Monetary Fund.

Source: World Trade Organisation. * Services other than transportation and travel.

10

Services Exports’ market share has increased significantly
• Among others, services related to architecture, construction and engineering have more than doubled market share
Share of service exports in the OCDE, by service
10 2000 2007 8 6 4 2 0
To otal  Tour rism Transportation services Communicatio ons Architectura al, construction n, and engineering Entertainm ent Royalties a and patents s Other r Professional services to ment Governm Informat tion service es Insurance cial Financ

Source: OECD.

11

FDI flows have increased significantly
• Outward FDI stock per capita has grown faster in Spain than in the Eurozone • Remains a major destination of international investment
Outward FDI stock per capita relative to Eurozone
0.90 0.85 0.80 0.75 0.70 0.65 0.60 2002 2003 2004 2005 2006 2007 2008
Source: World Investment Report 2009
2500000 2000000 1500000 1000000 500000 0 G Germany UK Belgium Neth herlands Swit tzerland Hong Kong Canada France China Italy Spain US

Top receivers of FDI in 2008
(Stock in millions of US $)

Source: World Investment Report 2009

12

The crisis prompts an abrupt adjustment
• Rapid downsizing of residential sector: output, L (mainly in temporary contracts) • Ripple effects on employment in other sectors
Unemployment rate
20 16 12 8 4 2005 2006 Spain 2007 2008 2009 Euro area (16 countries)
13
Total Construction Industry Services

(In percent)

Sectoral employment
(total number)
sept 2009 17.935.095 1.752.157 2.377.211 12.599.061 july 2008 19.382.121 2.361.177 2.731.068 13.150.027 dif -1.447.026 -609.021 -353.857 353.857 -550.966 % (100) (42,1) (24,5) (38,1)

Sources: Eurostat. Labor Force Survey.

Sources: Eurostat. Labor Force Survey.

Changes in sectoral and external balances
• Large swing in private sector balance: plummeting Investment and soaring Savings • Government Deficit jumps, but 2.5 points of GDP are one-off • Current Account deficit has halved in 2009
Sectoral balances (% of GDP)
8 6 4 2 % 0 -2 -4 -6 -8 -10 -12 -14
Public Sector Balance Private Sector

6,5

1,9

-4,1

-5,0

-11,0

-11,4

2007
Source: National Statistics Institute, Spain.

2008

2009
14

• Hi hli ht Highlights • The long growth cycle and the crisis • Fiscal consolidation and structural reform • Funding Strategy of the Kingdom of Spain

15

Policy Strategy for Sustainable Growth
• Prudent Macroeconomic Scenario 2010-2013 g g • Agreement on Fiscal Consolidation to bring the deficit back to 3% in 2013 • Structural Reforms:
• Structural Reforms in the goods markets • Public Pensions System • Labour Market • Banking sector Restructuring

16

The Government’s Macroeconomic scenario
• The output gap will be closed by 2013, after peaking in 2010 • External demand contribution to GDP will gradually wane as do est c de a d gat e s stea domestic demand gathers steam • Potential growth will recover from a trough of 0.6% in 2010 to 1.6% in 2013
Macroeconomic scenario 2009-2013
(Growth rate in percent)

2009
-3.6
-2.4 -15.7 15 7

2010
-0.3
0.3 -6.5 65

2011
1.8
1.7 0.3 03

2012
2.9
2.2 4.2 42

2013
3.1
2.1 5.9 59

GDP
Final Consumption Expenditure Gross Fixed Capital Formation

National Demand (contribution to GDP growth)
Exports of Goods and Services Imports of Goods and Services

-6.4
-12.4 -18.7

-1.4
2.8 -1.3

1.4
5.2 3.7

2.6
6.9 5.8

3.0
7.4 6.8

External demand (contribution to GDP growth)
Source: Annual update of the Stability Programme.

2.8

1.1

0.4

0.3

0.1

17

Fiscal consolidation strategy
• Substantial reduction in Spending and moderate increase in Revenues • Already in 2010 a 2.2% cut in structural deficit

Fiscal Adjustment Path 2009-2013
(Growth rate in percent)

2009
-3.6 -11.4 11 4 55.2

2010
-0.3 -9.8 98 65.9

2011
1.8 -7.5 75 71.9

2012
2.9 -5.3 53 74.3

2013
3.1 -3.0 30 74.1

GDP General G G l Government Budget Balance (% of GDP) tB d tB l f General Government Gross Debt (% of GDP)
Source: Annual update of the Stability Programme.

18

Starting and final points of fiscal consolidation
• Temporary measures (changes in tax collection, one off investment funds) account for 2.4% points of GDP in 2009’s total deficit • Total size of fiscal policy adjustment (structural terms): 5.7% of GDP
Fiscal position
General Government Balance (1) Cyclical component (2) Interest payments (3) Temporary measures (4) Structural Primary Balance (1)-(2)-(3)-(4)
Source: Annual update of the Stability Programme.

2009 -11,4 -1,4 -1 9 1,9 -2,5 -5,6

2013 -3 0 -3 1 3,1 0 0,1

19

Fiscal restraint measures
Measures adopted and announced (% of GDP)
VAT Excise Taxes 400€ Tax Rebate Reform 2010 Budget Savings Tax Reform SME Corporate Tax Reform Government Expenditure Additional cut in 2010 Expenditure New Measures* Central Government Austerity Plan 2011-2013 Regional and local government Spending cuts R i l dl l tS di t
Source: Annual update of the Stability Programme.

Revenues 0.7 0.3 0.4 0.1 -0.1

Expenditures

-0.8 -0.5 -2.6 -0.5 05

• Restraint in wage outlays for all public administrations through:
• 10% replacement rate • No new temporary hiring • Strong moderation in wages

• Sizable cuts in investment, transfers and subsidies
20

Can we implement this?
• We have done it in the past which proves our compromise the past, compromise, quality of our public finances, and the success of our fiscal discipline. • Shared commitment to fiscal discipline and margin to secure further reductions in the deficit
Net Lending (+)/Borrowing (-) of General Government
4.0 2.0 0.0 -2.0 40 -4.0 -6.0 -8.0 -10.0 -12.0 -14.0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010* 2011* 2012* 2013*

(% nominal GDP EDP) GDP,

* Annual update of the Stability Programme.

21

Debt dynamics
• Even after the impact of strong stabilisation policies, Spain's Debt to GDP is significantly lower that the Eurozone average
Gross Debt-to-GDP (%) 2000-2010
90 80 70 60 50 40
39.7 55.2 65 9 65.9

Gross Debt-to-GDP (%) 2010F
125.0 112.5 100.0 87.5 75.0 62.5 62 5 50.0 37.5 25.0 12.5 0.0 Spain Ireland France Germany Italy UK USA

France Germany Spain

Eurozone Average: 84.0%

30 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Sources: European Commission, Annual update of the Stability Programme and International Monetary Fund.

22

Lowest interest burden within affordable limits
Ratio of interests to GDP of General Government
13 11 9 7 5 3 1
19 95 19 96 19 97 19 98 19 99 20 00 20 01 20 02 20 03 20 04 20 05 20 06 20 07 20 08 20 09 * 20 10 *

(% nominal GDP, EDP)

Spain

Germany

France

Belgium

Italy

UK

Source: European Commission. * European Economic Forecast Autumn 2009, European Commission.

23

Structural Reforms in product markets
• Improving the institutional environment for business: by modernizing and simplifying government activities as well as increasing general government discipline • Fostering competitiveness: by reducing the administrative burden of creating companies and reducing red tape • Fostering modernization: promoting sectors that are at the base of economic activity (R&D, innovation and training), improving support f for their integration into the overall value chain, and h h ll l h d facilitating the internationalization of businesses Estimated impact on GDP + 0.32% in Potential GDP

24

Residential Real Estate Sector
• Phasing out fiscal incentives for housing ownership from 2011 (deduction of mortgage payments) • Removing barriers to the development of the rental market:
• Same fiscal treatment than ownership • C Creation of REITS ti f • Legal changes to strengthen certainty for landlords

• Tax Incentives for refurbishment provide some support p pp

25

Preventive financial support measures

9 b n € c a E p x i t I t e n a n d l M d e & e p A d e 4 2 H n 8 7 b 3 D i d a S 0 e g e 2 b b n e h n 0 n n k c f J t € iq o a u b R , € n n c u fn i g d e t 1 a u s a g o 9 l n € k r u a t , 2 . i d o a r i 0 3 it s u r m e p 1 y i n h n a r 0 h b n g a d n o .n a c c r t f€ f s o a e i 1 u e B l n n 5 e s n d u l d 2 g 0 u d t a 0 p i o t 0 m b f e n m u e a 7 o u r g a t r n n n v . r a a d d il k g s i s e e n o t m g r s e n a o t u p t e h n o r i z e

B a n L k i q g u C u R ia r e F e d r o A d iI a r A iC t n g F O y t t a F e n R f e s e l i O u t n s i z B n in h a d m a ( e t i n u 2 s i n c l0 o g e u 0 n s m 8 e n 2 t 0 0 9 )

Liquidity enhancement

Credit stimulus

Capital enhancement and reorganisation

26

The financial system remains resilient

• Main source of perceived vulnerability regards losses stemming from lending to real estate developers i f l di l d l • Bank of Spain stress test: Operating income over 3 years is able to absorb losses of 40% of the portfolio of lending to real estate developers. • Extreme assumptions of stress test: PD of 40%(3 times th peak of 1993) and LGD of 100 % (hi hl ti the k f d f (highly implausible)

27

FROB: a tool for restructuring the banking sector
Rationale for the initiative
- Overcoming fragmentation savings and banks sector. in the

Governance
- Independent management. - Strong accountability to Parliament Parliament. - Authorized by DG Competition.

- Achievement of economies of scale to digest low interest margins and real estate impact.

Asset Operations
- Support to integration processes subject to conditions set by the banking supervisor. - Instrumented through convertible preference shares with market-oriented remuneration.

Funding
- Public-private mix of capital (9 bn€). - Agency-like coordinated programme. funding with the programme sovereign

28

Pension System Reform
Proposed Measures: • A progressive increase in the retirement age (to 67 years) • Strengthening relationship between contributions and benefits p p y • A more flexible relationship between complementary social security and the public system • Possible adjustment of other parameters of the current system Expected Results: Sustainability of the pension system

29

Labour Market Reform
• Five main guidelines: • St bilit in employment, by reducing market segmentation Stability i l t b d i k t t ti • Reform of Collective Bargaining system workers • Incentives for young workers’ employment and education • Promotion of the integration of women in the labour market • Worker intermediation and greater control of temporary occupational disability claims

30

• Highlights • The long growth cycle and the crisis • Fiscal consolidation and structural reform • Funding Strategy of the Kingdom of Spain

31

Highlights of Funding Strategy
• Significant reduction in net funding requirements and persistence of sound risk metrics • Liquidity transparency and predictability will continue Liquidity, as guiding principles for the execution of our auction program • As for syndications, timing is dictated by the limit size of the line to be replaced (16.5 bn for longer tenors) and market conditions. • Innovations for 2010: 18 month T bills reappear Euro 18-month T-bills reappear, inflation linker still a project • Maintain our stable and diversified investor base
32

The funding strategy

(Billion euro)

Tesoro Funding in 2010
76.8 35.4 61.6 97,0 15.2 1.5 78.3 553.5

1: Funding requirement = Net Issuance 2: Redemptions bonds 2010 3: Net issuance medium long term 4 = 2 + 3 Gross Issuance Medium-Long Term
5: Net Increase T-Bills 6: Assumption of RTVE debt

7 = 3 + 5 + 6: Net change outstanding debt 8: Forecast Outstanding Central Government Debt at end 2010
Source: General State Budgets Bill 2010

33

Funding programme in perspective
• Cut in Net Issuance: lower cash deficit and no exceptional increase in net financial assets
Funding Programme. 2010 vs. 2009
140 120 100 80 60 40 20 0 Total N t I T t l Net Issuance
(*) Includes foreign currency issues.

(Net issuance in billion Euro)

116.7

2009

2010

76.8

82.3 61.6 34.4 34 4 15.2

Letras del Tesoro net M di L t d lT t Medium & long term l t issues net issues*
34

Source: Dirección General del Tesoro y Política Financiera.

Short-term funding
• Net issuance in 2009 in line with initial announcement: 34.4 bn€. Gross issuance breakdown: • 3-month Letras: 19.7 bn€ • 6-month Letras: 31.6 bn€ • 12-month Letras: 58.0 bn€ 12 month • Innovations in 2010: • Calendar change: 3- and 6-month Letras auction 4th Tuesday • 18-month T-bills relaunched: auction 3rd Tuesday

35

Medium- and long-term funding
• Gross issuance: 2009 overshooting (ca. 25 bn €) due to higher than expected impact of the crisis • Auction procedures unchanged: Quarterly calendar + potential offthe-run lines announced Friday prior to the auction • Limit size per line: increased to 16.5 bn € for longer lines • Bonos del Estado: • New 5-year benchmark in March • Current 3-year benchmark B 2.30% 04/2013 issued until 15 bn € • Obli Obligaciones d l E t d i del Estado: • New 10 year O 4.00% 04/2020 (5 bn €) successfully syndicated in January • Next syndication a 15 year line, to replace the matured O 4.80% Jan2024), expected for February depending on market conditions
36

Diversification of funding sources
• Recent foreign currency issuance: • Eurobond 2.75% March 2012 ($ 1.0 billion) • Eurobond 2 00% October 2012 ($ 2 5 billion) 2.00% 2.5 • Tesoro Público is open to additional foreign currency issuance • Floating Rate Note 3-Month EURIBOR-10 bps, October 2012 3 Month EURIBOR 10 (€ 3.0 billion). Possible retapping in 2010 • Projects: • European inflation-linked issues (HICP-ex tobacco) • Schuldschein loans

37

Main features of Treasury funding strategy
600 500 400
319 312 307 358

Spanish debt portfolio
(€ billion)

554 475

300
229

200 100 0 19 995 19 996 19 997 19 998 19 999 20 000 20 001 20 002 20 003 20 004 20 005 20 006 20 007 20 008 20 009 2010 (f) 0

Foreign Currency

Other

Letras

Bonos y Obligaciones
38

Source: Dirección General del Tesoro y Política Financiera.

100 125 150

25 -25 50 75 25

-75 0 Sep-0 07 Oct-0 07

-50

Recent widening might be an opportunity

Spread of the Spanish 10-year bond vs. main European peers

Source: Bloomberg.

Germany Italy France Nov-0 08 Dec-0 08 Jan-0 09 Feb-0 09 Mar-0 09 Apr-09 09 May-0 Jun-0 09 Jul-0 09 Aug-09 09 Sep-0 Oct-0 09 Nov-0 09 Dec-0 09 Jan-10 Feb-10 Belgium Netherlands
39

Nov-0 07 Dec-0 07 Jan-0 08 Feb-0 08 Mar-0 08 Apr-08 08 May-0 Jun-0 08 Jul-0 08 Aug-08 08 Sep-0 Oct-0 08

(in bps)

125

150

100

-75 50 75 25 0 Sep-0 07 Oct-0 07 Nov-0 07 Dec-0 07

-50

-25 25

Cheapening concentrated in the front end

Source: Bloomberg.

Spread of th S S d f the Spanish 5 i h 5-year bond vs. main European peers b d i E

Germany Italy Aug-0 08 Sep-0 08 Oct-0 08 Nov-0 08 Dec-0 08 France Belgium Jun-0 09 Jul-0 09 Aug-0 09 Sep-0 09 Oct-0 09 Nov-0 09 Dec-0 09 Jan-1 10 Feb-1 10 Netherlands
40

Jan-0 08 Feb-0 08 Mar-0 08 Apr-0 08 May-0 08 Jun-0 08 Jul-0 08

(in bps)

Jan-0 09 Feb-0 09 Mar-0 09 Apr-0 09 May-0 09

An atractive market to invest in

Attractive prices

Liquid instruments

Solid and efficient infrastructure

Diversified investor base

41

Increase in market liquidity
20 18 16 14 12 10 8 6 4 2 0
Jul-14 Jul-17 Jul-18 Jul-19 Jul-32 Jul-40 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-24 Jan-29 Apr-12 Apr-13 Apr-20 -37 JanApr-11 Oct-11 Oct-12 Oct-14 Oct-19 Jul-41
42
4.00% 4.70% 3.25% 5.40% 4.10% 4 10% 5.35% 3.90% 3 90% 5.00% 6.15% 2.30%

Average outstanding size: 13 5 b € A t t di i 13.5 bn Target for average outstanding <10 years: 15 bn € Target for average outstanding >10 years: 15 bn € On-the-run bonds 4.10%
4.20% 4 20% 4.25% 4.40% 3.15% 3 15% 3.30% 5.50% 5 50% 4.30% 4 30% 4.60% 4.75% 3.80%

6.00% 4.20% 4.80% 5.75% 4.90%

2.75%

Jul-10

Jul-11

Jul-12

Source: Dirección General del Tesoro y Política Financiera.

Jul-13

Low Debt Refinancing Risk…
Redemption profile of Bonos & Obligaciones
(Million Euros)

50.000 45.000 40.000 35.000 30.000 30 000 25.000 20.000 15.000 10.000 5.000 0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020- 2024 2029 2032 2037 2040 2041 2023

Source: Dirección General del Tesoro y Política Financiera.

43

Low Debt Refinancing Risk…
Central Government Debt refinancing risk
(in % of the total portfolio)
50 40
42

(%)

30
20

20 10 0

21

24

22

21 7

18

18

1 year or less

1 to 3 years
31.12.1999

3 to 5 years
31.01.2010

31.12.1995

Source: Dirección General del Tesoro y Política Financiera.

44

…Thanks to relatively high duration and average life to maturity…
Duration & Average Life to Maturity of the Portfolio
8.0
(Letras, Bonos and Obligaciones) (in years)

6.69 6 69 6.0 5.52 4.79 4.0 4.16

6.78 6 78

4.77

2.0

Average life France 6,24 Netherlands 6,88 Belgium 5,94 Italy 7,07

0.0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Duration Average life
45

Source: Dirección General del Tesoro y Política Financiera.

…while achieving lower Funding Costs
Average Funding Costs
(in percent)
6.0 5.5 5.0 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Average cost of Debt outstanding Average cost at issuance
46

4.32

3.81

3.49

2.27

Source: Dirección General del Tesoro y Política Financiera.

Reliance on foreign funding relatively moderate
External public sector debt in 2009
(% of GDP)

Italy

A Argentina

100 90 80 70 60 50 40 30 20 10 0
Greece Belgium

G Germany

France

Austria

Ireland

Spain

Finland

United

Neth herlands

Source: OECD.

K Kingdom

States

United

47

Banks financing of government debt in line with Eurozone average
Holdings of government debt November 2009
(% of bank assets)

25 20 15 10 5
Ge ermany Eur area ro Sl lovakia Po ortugal B Belgium G Greece F France Ireland Nethe erlands F Finland Italy

0

Spain

Source: Citi.

A Austria

48

Spanish Banks’ funding from ECB around Eurozone average
Recourse to ECB funding
(% of total bank assets)

10% 8% 6% 4% 2% 0% IRL IT NL FI GR PO GE AU FR ESP BE

jul-08 jul 08
Source: Deutsche Bank.

oct-09 oct 09

49

Stable and diversified investor base
(Term investment, % of total portfolio)
100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Source: Dirección General del Tesoro y Política Financiera.

Government Bonds by Holder

Spanish official institutions 33.37% Non residents 43.94% Households & Non financ. Pension & Mutual Funds Insurance Companies Credit Institutions

50

Stable and diversified investor base
(Term investment, % of total portfolio)
100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
51
Source: Dirección General del Tesoro y Política Financiera.

Letras del Tesoro by Holder

Spanish Official Institutions Non-Residents

Households & Non financ. Pension and Mutual Funds 48.97% Insurance companies 35.57% Credit Institutions

Stable and diversified investor base
(Term investment, % of total portfolio)
30% 25% 20% 15% 10% 5% 0%
France Japan Germany Italy BENELUX Rest of EU Asia, Afica and others America Rest of Europe

Government Bonds by Holder

2006

2007

2008

2009
52

Source: Dirección General del Tesoro y Política Financiera.

Top Primary Dealers in 2009
Bonos y Obligaciones
Barclays BBVA Calyon Santander Société Gé é l S iété Générale

Letras
BBVA Santander Société Générale

53

Thank you for your attention
José Manuel Campa Fernández– Secretary of State for the Economy Fernández Soledad Núñez – Directora General del Tesoro y Política Financiera DirectorTesoro@tesoro.meh.es Gonzalo G G l García A d é – S bdi í Andrés Subdirector G t General d Gestión y Financiación de la Deuda Pública l de G tió Fi i ió d l D d Públi ggarcía@tesoro.meh.es José Ramón Martínez jrmartinez@tesoro.meh.es Rosa Moral rmmoral@tesoro.meh.es Leandro Navarro lnavarro@tesoro.meh.es Pablo de Ramón-Laca pramonlaca@tesoro.meh.es Ignacio Vicente ivicente@tesoro.meh.es ivicente@tesoro meh es Rocío Chico mrchico@tesoro.meh.es

For more information please contact: Phone: 34 91 209 95 29/30/31/32 - Fax:34 91 209 97 10 Reuters: TESORO Bloomberg: TESO Internet: www.tesoro.es
54

Annex: the Social Security Reserve Fund
Social Security Reserve Fund asset holdings

70 60 50 40 30 20 10

(Billon €)

2000

2001

2002

2003

2004

2005

2006

2007

2008

The Social Security Reserve Fund amounted in December 2009 to approximately 5.7% (€ 60bn) of GDP.
55

2009

0

Annex: Ley de Economía Sostenible & General Agreement on Fiscal Sustainability
Competitiveness
Society of Information. Science, R&D. Science R&D Internationalisation of SME’s. Education. Reduction of administrative burden.

Tax measures
- Rental market: equal treatment with ownership. - Elimination of tax rebates: i li i i f b i.e. relief li f on mortgage payments, 400€ rebate on income tax. - Corporate Income Tax rebates related to R&D and to the environment.

Environment
- Energy Policy. - CO2 Emission-reduction. - Efficiency of transport infrastructure.

Fiscal Sustainability
- Spanish regions to formulate quarterly reports to the Fiscal Policy Council. - Correction and surveillance of fiscal deficits. - D bt/GDP ratio t Debt/GDP ti to reach li it of h limit f 60% by 2013.
56

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