Portugal state pension fund plans to buy debt: report

LISBON (Reuters) – Portugal’s social security fund has been selling overseas financial assets in the last few days to help finance the country by buying its sovereign debt at auctions, two daily business newspapers reported on Wednesday.

The Social Security Financial Stabilization Fund (FEFSS) plans to buy Portuguese T-bills at an auction of up to 1 billion euros by debt agency IGCP on Wednesday, Jornal de Negocios and Dirio Economico reported without citing sources.

No one at the FEFSS was immediately available for comment.

Portugal’s leading banks, largely seen as key buyers of the country’s debt, on Tuesday threatened to stop buying government debt, urging the caretaker cabinet to seek a short-term loan to tide it over a pre-election limbo.

The social security fund, which runs a contingency plan to cover possible deficits in the state pension fund system, has 9.2 billion euros on its books.

The prospect of it buying the debt suggests that the government may have some more breathing space even given the threat of the buying strike by the banks.

Diario Economico quoted FEFSS head Manuel Baganha as saying that the fund’s financial operations are confidential, but added that it is “normal practice” for it to buy and sell assets.

Filipe Garcia, economist at Informacao de Mercados Financeiros consultants in Porto, said:

“It’s normal for a fund to buy sovereign debt, so long as it adheres to certain rules on the rating levels of those it buys from, and distributes its buying across issuers and maturity to hedge risks.”

He warned, however, that news of the fund selling assets to buy sovereign debt in the current context of the debt crisis raises some concerns.

“The independence of the fund’s management could be at risk. Though it is in the state’s perimeter, the fund is designed to make pensioners’ contributions more sustainable, not necessarily help the debt agency in its financing program,” he said.

“The other worry is that after a possible bailout, Portugal may not be able to ring-fence its pension fund, much like Greece after its rescue package. By using the fund to buy debt now, the state may lose any argument to protect it later,” he added.

Neither newspaper referred to how much debt the fund had bought in the last weeks or plans to buy in Wednesday’s sale.

Diario Economico added that insurance companies belonging to state-owned bank CGD have also recently been pressured into buying more sovereign debt than normally fits their risk profile, again without citing sources.

(Reporting by Shrikesh Laxmidas; Editing by Patrick Graham)

Portugal state pension fund plans to buy debt: report