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Group of Contingent Liabilities |
What is a Contingent Liability?
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Group of Policies and Control |
What is a Contingent Liability?
It is the contract in which is granted the payment of a sum of money to the contractor, determined or determinable from factors identified by the occurrence of uncertain and future events.
What Kind of contingent obligations are valued by the Nation?
- Public Credit Operations
- Judicial proceedings
- Natural Disasters
- Infrastructure
What is the significance of the tax valuation of the Contingent Liabilities?
Do an adequate valuation of contingent liabilities, allows to asses the macroeconomic situation and the fiscal sustainability, where, the debt sustainability, it is essential to support a sustained economic growth over the long term. Eventhough, for the analysis it is necessary to have enough indicators that allows to control the capacity of the governments in order to meet it’s commitments that have been acquire over the time, before they become unsustainable.
What is a Contingency for Operations of Public Credit?
The Public Credit operations that are guaranteed by the Nation are Contingent Liabilities if there is a likelihood of default by the debtor to become enforceable and become a real liability, is the body that grants the warranty, and the responsible for the payment. In general, are commitments through which one party assumes the risk that the other party fails to comply with it’s payment obligations.
What is a Contingency for Natural Disasters?
The Government has the responsibility to evaluate the expected losses or contingent liabilities generated as a result of catastrophic events. The catastrophic risk management can be developed by defining levels of losses, coverage and management capacity that let them use different optimal and timely sources before high-impact events.
What is a contingency for Infrastructure?
It is the contract in which is granted by the Government the payment of a sum of money to the contractor, determined or determinable from factor identified by the occurrence of uncertain and future events.
What is a contingency for judicial proceedings?
Such kind of contingents obligations corresponds to the legal risk because of the judicial proceedings against the Nation .
What is the Catastrophic Risk coverage strategy?
Has been proposed to Colombia the development of a strategy of transfer catastrophic risk by layers, which justifies and gives the guideline for the development of financial instruments to be operated on the capital market as mean to cover the residual responsibilities of the State.
What is a Plan of Contributions in Infrastructure Projects?
It is the present value of the contingency, distributed over the time and through the life of the project or risk. With the plan of contributions is constructed the clearing asset which is the support in order to cover the contingencies or eventual payments required to carry out a project and a specific risk, in the development of a contractual agreement.
What is the purpose of the Contingency Assessment in Judgments and reconciliations?
The pricing model of contingencies in judgments and reconciliations is orientated towards the estimation of the probability of failure against each of the attending court proceedings against the Nation in each of its stages.
What is the Purpose of the Contingency Fund on judicial proceedings?
The main objective of the Fund is to manage the resources contributed by the Government Entities,that implement methodologies for contingent risk assessment, achieving an optimum handling of them, as well as their availability to attend the payment of contingent liabilities by judicial proceedings.
What is the debt profile of The National Central Government?
The debt profile of the National Central Government (NCG) is a monthly report that shows the debt situation to a specific date, which includes several aspects like: the debt balance and the domestic and external proportion of the debt, the composition of the debt organized by the currency in which it is called, the interest rate at which it was agreed and the source of funding. You can find additional details in the report as the main indicators for debt refinancing and the projected maturity profile (Amortization payments) for the next 30 years.
Which is the role of the Risk Department within the Direction of Public Credit and the National Treasury?
The Risk Department has within it’s core functions:
To propose the guidelines and collaborate in the design of management strategies of the National Treasury, the public debt and the handling of guarantees and counter-guarantees of the Nation, attending the macroeconomic targets, as well as the economic and financial situation nationally and internationally. Also, prepare a report that collects market behavior and evolution of the internal and external debt of the Nation, the behavior of internal and external financial markets, macroeconomic variables both internal and external, and other relevant aspects in order to make decisions by the General Direction of Public Credit and the National Treasury.
To design, recommend, check and develop methodologies for the estimation of projections and sustainability of the public debt, as well as the quantification, monitoring and controlling the associated risks, evaluating periodically the fulfillment of the defined guidelines and policies.
To evaluate new financial products that are offered in the market, and operate as public credit operations, finance and treasury securitizations, in order to recommend the best funding alternatives, following the goals set on the Nation Debt Profile.
What is and which is the use of the methodology of debt service at risk (DSaR)?
The Debt Service at Risk is a methodology, adapted from the VaR methodology, that tries to establish with some level of trust and a certain time horizon the maximum value, denominated in pesos, in which may increase the debt service by changes in interest rates and the currency in which the debt is denominated.
In short the methodology simulate the behavior of the variables in the horizons of time (Fiscal surveillance, 3 and 10 years) under two scenarios: Expected (baseline scenario) and Risky scenarios. Then proceeded to compare the two results gaining the maximum increase in the debt service at which the Nation is exposed.
Through this tool it’s possible to measure the risk to which the Nation is exposed under changes of the variables that impact on the future payments of debt that has been contracted. Additionally allows to predict and analyze the impact within the entire structure of debt, the recruitment of new debt borrowings or the issuance of assets with certain terms or conditions, and to assess the impact and usefulness of various hedging activities aimed to mitigate the identified risks.
What is the National Share of External Indebtedness?
The National Share of External Indebtedness is the authorization that is granted by law to the National Government to sign an agreement of public external credit operations, designed to finance the budgetary appropriations, programs and projects of economic and social development. The Act 781 of 2002, gives to the Nation a credit limit of 16,500 million of United States dollars or its equivalent in other currencies.
What are the ISDA agreements?
ISDA is the acronym for the International Swaps and Derivatives Association, Inc. The main purpose of that association is to promote prudent and efficient business of derivatives that are done privately (OTC market) through: The promotion of practices that lead to the efficient management of the business, including the development and maintenance of documentation of derivatives; promote the development of good risk management practices, promoting high standards of commercial conduct; promoting the public comprehension of the business; training on legislative and regulatory instruments, legal, documentation, accounting, tax, operational, technological and other issues that influence the realization of business with derivates; the creation of a forum, that represents the common interests of its members, for the analysis and discussion of these issues and it development.
As part of it’s labor, this association has developed a regulatory framework that support derivatives transactions. The ISDA contracts, as is known, contain the standard regulatory framework for the negotiation of swaps and other derivatives. This contract has been internationally accepted and is the benchmark for the Republic of Colombia hedge operations. The set of three contracts make up what is called a transaction. Those contracts are:
“Master Agreement”, Inmodificable contract that governs the legal and credit relationship between the counterparties, including the requirements to certify the representations of each one, the events of default, event of termination of the contract and the covenants.
“Schedule”, Contract that is used to make modifications to the standard specified resolutions in the Master Agreement
“ Confirmation”, Contract which specifies the financial terms of the transaction, or in other words where is define what kind of operation is going to be done(swap, forward, option, etc.) with other conditions such as time, amount, frequency of payment and currency, among others.
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