Financial risks to the Netherlands of international guarantees

Conclusions

The financial volume of the guarantees and interests that the Netherlands has given to the eight institutions audited has increased more than tenfold from €18.5 billion in 2008 to approximately €201 billion in 2012. This substantial rise has been accompanied by an increase in the lending capacity – and thus risk-taking – of the international institutions. The risks may ultimately be passed on to the countries that have given guarantees, such as the Netherlands. We therefore think it is important that parliament has a realistic insight into the risks that are being run, the measures taken by the institutions to mitigate them, the institutions' capital buffers to cushion losses and the size of the risks to the Netherlands. Since this information is not yet available in an orderly and comparable fashion, the report provides the following information on eight international institutions: 

• the institutions' financial ties with the Netherlands;
• the institutions' financial profiles;
• the institutions' risk mitigation measures.

Information on an institution's risk profile is necessary when a guarantee is given or amended because a guarantee may have to be honoured. We analysed three recent cases in which a guarantee was given to an institution or amended. The Minister of Finance could have informed the House of Representatives more specifically and concretely about the purpose, term and risks of the new or amended guarantees. This would be in keeping with the recommendations made by the Risk Arrangements Committee that the House be pro-actively informed and receive appropriate and concrete policy explanations of such guarantees.

Recommendations

Since Budget Day 2012 the Minister of Finance has included a comprehensive risk analysis in the national budget and the central government accounts to explain the risks to public finances. We recommend that the minister enrich the information provided in the risk analysis with an opinion on the financial health of the institutions and the financial risks to the Dutch budget. This would be in keeping with the recommendation made by the Risk Arrangements Committee that a separate section be included in the ministerial budgets to explain risks, whether the ministry has formed a reserve in its budget and, if not, how it will deal with any losses and how risks are mitigated. The indicators we used in our fact sheets on the institutions' financial profiles and risk profiles could serve as an example.

We recommend that when new financial arrangements are proposed the Minister of Finance inform parliament promptly and explicitly of:

• the considerations underlying the proposal (why this particular arrangement?);
• the specific relationship between the Netherlands and the institution concerned (what precisely is the term and what assets and events are being guaranteed?);
• how the guarantee would change the institution's financial profile (how does the new guarantee affect the institution's lending capacity and the risks to the Netherlands as a 'participant'?).

Response

The Minister of Finance responded to our draft report on 25 September 2013. The minister has serious objections to our recommendation that risk analyses be enriched with an opinion on the financial health of an individual institution and the financial risks to the Dutch budget. In his opinion a public opinion on the financial health of an international institution can have adverse consequences for the institution's creditworthiness. We understand the sensitivity but think that parliament should be informed correctly and properly of the financial risks the State assumes and of the cumulative risk to which it is exposed. A comprehensive opinion on an institution's financial health might be a bridge too far at present. We therefore suggest that the indicators used for the financial profiles and risk profiles serve as an example for the risk section in the ministerial budgets for 2015.