UNCTAD Virtual Institute for Trade and Development
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Sovereign Asset and Liability Management: An E-Learning Training Course
I. Institutional Setting
II.Asset and Liability Management Office
III.Debt Management Office
IV. Potential Conflicts of Interest Between the Central Government and Central Bank


Specific Asset and Liability Management offices or departments (“ALMO”) are rare amongst sovereigns.  As such, each sovereign must determine the appropriate institution in which to implement SALM based on finite resources.  The sovereign must also balance the need to develop an environment that both encourages cooperation and efficiency while also maintaining appropriate barriers and safeguards that will lead to effective policies.  In the absence of an ALMO, the sovereign must determine the appropriate location to implement and develop SALM according to its specific risk profile and long-term economic and other objectives. In this instance, the most logical place to carry out SALM is the sovereign’s Debt Management Office (“DMO”).  This is due to the fact that the DMO already manages one of the most salient features on the government’s balance sheet, the government’s debt.  The DMO will also be familiar with many of the practices and techniques utilized by SALM.

“For a SALM framework to be effectively implemented there should be a high level of institutional coordination between entities that control or manage sovereign financial assets and sovereign liabilities.  Ideally, coordination should be given an appropriate legislative setting, as different institutional objectives and the needed degree of coordination between the entities involved may lead to institutional frictions.  In case institutional constraints render an integrated asset and liability management strategy impossible to implement, more feasible second best options may take place” (Das et al., 2012).

Fragmentation in the operational management of sovereign assets and liabilities is often the norm and there is little coordination between the agencies or ministries handling these functions.  In the most integrated case, decision making authority for both assets and liabilities is assigned to one agency or ministry–e.g., the Ministry of Finance–who delegates responsibilities for day-to-day management–e.g. to the Central Bank (“CB”)–and coordinates the planning and execution of borrowing and investing programs (Canada).  In other cases, the mandates of the agencies in charge of SALM may be set following coordination or a delegation by a responsible ministry–Treasury or the Ministry of Finance (Australia).  Another more common coordination mechanism is instituting regular meetings between agencies involved in SALM (Hungary, Canada)” (Das et al., 2012).

In Module III we will examine the institutional factors that are needed for an effective SALM framework.  SALM within ALMO and the DMO will be detailed with a link to South Africa’s creation of the Asset and Liability Management Branch.  Operational issues will then be addressed along with potential conflicts of interest from both operational and institutional perspectives, namely potential conflicts between the central government and the CB.






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