EX-1 2 u47845exv1.htm RECENT DEVELOPMENTS exv1
 

Exhibit 1

 

Recent Developments update dated September 15, 2004

 

 

Recent Developments

     The information included in this section supplements the information about the Republic of Italy that is contained in Exhibit D to the Republic’s annual report on Form 18-K, as amended, for the fiscal year ended December 31, 2002. To the extent that the information included in this section differs from the information set forth in the annual report, you should rely on the information in this section.

The Italian Economy

     Italy’s real GDP grew at a seasonally adjusted rate of 0.3 per cent in the second quarter of 2004 and of 1.2 per cent during the year ended June 30, 2004, based on ISTAT data. Italy’s seasonally adjusted average unemployment rate remained substantially unchanged at 8.5 per cent during the first quarter of 2004, compared to the last quarter of 2003. Consumer prices, as measured by the harmonized EU consumer price index, had increased at an annual rate of 2.2 per cent during the twelve months ended July 31, 2004.

The 2005-2008 Program Document

     In July 2004 the Government finalized and presented to Parliament its 2005-2008 Program Document, which, consistent with the previous Program Document, contemplates as its main objective the gradual phase-out of extraordinary one-off measures and the implementation of an increasing number of structural reforms over the four-year period covered by the Program Document.

     While Italy’s budget deficit has remained below the three per cent threshold established by the Maastricht Treaty, Italy has increasingly relied on extraordinary one-off measures to achieve this budgetary target. Such measures included the sale of UMTS licenses in 2000, the disposal of state-owned assets in 2001 and 2002 and the tax amnesty implemented in 2003. One-off measures reduced Italy’s budget deficit by 0.5 per cent in 2001, 1.5 per cent in 2002 and 2.0 per cent in 2003. The Government estimated in 2003 that one-off measures in 2004 would represent two-thirds of the measures adopted by Italy to achieve its budgetary target. This proportion would be reduced to one-third in 2005 and phased-out entirely in 2006.

     Structural reforms over the four-year period will include the implementation of the pension reforms approved by Parliament in July 2004, the improvement of Italy’s infrastructure, incentives to small and medium sized enterprises aimed at increasing investment in research and development. Structural measures will also be aimed at further reducing tax evasion.

     Furthermore, Italy plans to accelerate the pace at which it is reducing public debt as a percentage of GDP through further privatizations of state-owned assets.

 

     The following table shows Italy’s principal public finance targets for the years indicated, as well as the gross domestic product, inflation and unemployment assumptions underlying the Program Document.

2005-2008 PROGRAM DOCUMENT OBJECTIVES

                                 
    2005
   2006
   2007
   2008
            (Target)        
Primary balance, as a percentage of GDP
     2.6       3.3       4.0       4.8  
Interest expense, as a percentage of GDP
     5.3       5.5       5.7       6.0  
Net borrowing, as a percentage of GDP
     (2.9 )     (2.2 )     (1.7 )     (1.2 )
Structural net borrowing, as a percentage of GDP
     (2.2 )     (1.9 )     (1.5 )     (1.1 )
Public debt, as a percentage of GDP
     104.1       101.9       99.3       98.1  
GDP (% real growth rate)
     2.1       2.2       2.3       2.3  
Inflation (% real growth)
     1.6       1.5       1.4       1.4  
Unemployment rate (%)
     8.2       7.6       7.3       7.0  

    Source: 2005-2008 Program Document.

     The Program Document targets real GDP growth of 2.1 per cent in 2005, substantially in line with the 2.2 per cent growth targeted in the 2004-2007 Program Document. It also targets annual budget deficit reductions with the budget deficit as a percentage of GDP decreasing from 2.9 per cent in 2005 to 1.2 per cent in 2008. The targeted reductions in budget deficits in the 2005-2008 Program Document are significantly less ambitious than those set forth in the 2004-2007 Program Document, which targeted a substantially balanced budget in 2007. This reflects lower targets for primary surplus as a percentage of GDP, increasing from 2.6 per cent in 2005 to 4.8 per cent in 2008, in the 2005-2008 Program Document, compared to targets of 3.5 per cent for 2005 and 5.1 per cent in 2007 in the 2004-2007 Program Document. Furthermore, while the 2005-2008 Program Document targets for interest expense as a percentage of GDP rose from 5.3 per cent in 2005 to 6.0 per cent in 2008, the 2004-2007 Program Document targets interest expense as a percentage of GDP as being substantially stable at 5.1 per cent through 2007.

     Because the Program Document is based on assumptions with respect to future economic developments, including international economic trends, there can be no assurance that its objectives will be attained.

Public Debt

     The following table shows the total debt incurred by the Treasury as of the dates indicated. Total debt incurred by the Treasury differs from Italy’s total public debt as it does not include liabilities to holders of postal savings accounts and debt incurred by other state sector entities and other general government entities.

                 
    March 31, 2004
   June 30, 2004
    (millions of euro)
Short term bonds (BOT)
     141,605       144,550  
Medium and long term bonds (initially incurred or issued in Italy)
     964,210       989,228  
External bonds (initially incurred or issued outside Italy)
     90,743       92,110 (1)
     
     
 
Total debt incurred by the Treasury
     1,196,557       1,225,888  
     
     
 

    Source: Ministry of Economy and Finance
 
(1)   Italy often enters into currency swap agreements in the ordinary course of the management of its debt. The total amount of external bonds shown above takes into account the effect of these arrangements.
 
    In addition, the total amount of external bonds shown above includes (i) US$989 million of debt originally incurred outside Italy by Ferrovie dello Stato S.p.A., or FS, the State railway entity, and assumed by the Treasury by law in 1996 and (ii) approximately €4,990 million in obligations outstanding at June 30 under Italy’s €10 billion Commercial Paper program, with maturities of less than one year.
 
    The amount of external bonds shown above does not correspond to the total amount of external bonds indicated in the table “External Bonds of the Treasury as of June 30, 2004” below, which does not take into account (i) the effect of currency swaps, (ii) FS debt incurred outside Italy, and (iii) Italy’s Commercial Paper program.

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     The following table shows the external bonds of the Treasury issued and outstanding as of June 30, 2004.

External Bonds of the Treasury
as of June 30, 2004

                                                         
    Interest   Initial Public                   Original
Principal		   Principal
Amount		   Equivalent
Title
   Rate(%)
   Offering Price
   Date of Issue
   Maturity Date
   Amount
   Outstanding
   in euro
US$(1)
$3,500,000,000		     6.875 %     98.725 %   September 27, 1993   September 27, 2023     3,500,000,000       3,500,000,000       2,879,473,468  
$1,500,000,000
     6.025%-6.88 %     100.000 %   March 5, 1996   Mar 5, 2004/12     1,500,000,000       1,500,000,000       1,234,060,058  
$750,000,000
     5.81%-6.70 %     100.000 %   March 5, 1996   Mar 5, 2002/10     750,000,000       750,000,000       617,030,029  
$1,500,000,000
     5.97% -6.25 %     100.000 %   December 20, 1996   Dec 20, 2004/12     1,500,000,000       1,500,000,000       1,234,060,058  
$2,500,000,000
     6.000 %     99.755 %   May 29, 1998   May 29, 2008     2,500,000,000       2,500,000,000       2,056,766,763  
$2,000,000,000
     7.250 %     99.682 %   February 7, 2000   February 7, 2005     2,000,000,000       2,000,000,000       1,645,413,410  
$2,000,000,000
     6.000 %     99.274 %   February 22, 2001   February 22, 2011     2,000,000,000       2,000,000,000       1,645,413,410  
$2,000,000,000
     5.250 %     99.506 %   April 5, 2001   April 5, 2006     2,000,000,000       2,000,000,000       1,645,413,410  
$100,000,000
     5.000 %     99.635 %   May 15, 2001   May 15, 2005     100,000,000       100,000,000       82,270,671  
$3,000,000,000
     4.375 %     99.468 %   October 25, 2001   October 25, 2006     3,000,000,000       3,000,000,000       2,468,120,115  
$2,000,000,000
     4.375 %     98.007 %   January 28, 2002   October 25, 2006     2,000,000,000       2,000,000,000       1,645,413,410  
$2,000,000,000
     5.625 %     99.893 %   March 1, 2002   June 15, 2012     2,000,000,000       2,000,000,000       1,645,413,410  
$2,000,000,000
     4.625 %     99.594 %   March 22, 2002   June 15, 2005     2,000,000,000       2,000,000,000       1,645,413,410  
$1,000,000,000
     5.625 %     99.392 %   May 8, 2002   June 15, 2012     1,000,000,000       1,000,000,000       822,706,705  
$300,000,000
   3 mth libor - 0.065%     100.000 %   August 1, 2002   August 1, 2007     300,000,000       300,000,000       246,812,012  
$3,000,000,000
     3.625 %     99.721 %   September 4, 2002   September 4, 2007     3,000,000,000       3,000,000,000       2,468,120,115  
$3,000,000,000
     2.500 %     99.767 %   January 30, 2003   March 31, 2006     3,000,000,000       3,000,000,000       2,468,120,115  
$2,000,000,000
     5.375 %     98.436 %   February 27, 2003   June 15, 2033     2,000,000,000       2,000,000,000       1,645,413,410  
$2,000,000,000
     4.375 %     99.694 %   February 27, 2003   June 15, 2013     2,000,000,000       2,000,000,000       1,645,413,410  
$1,250,000,000
     3.250 %     99,949 %   May 6, 2003   May 6, 2008     1,250,000,000       1,250,000,000       1,028,383,381  
$2,000,000,000
     2.500 %     99.521 %   July 3, 2003   July 15, 2008     2,000,000,000       2,000,000,000       1,645,413,410  
$3,000,000,000
     2.750 %     99.901 %   November 13, 2003   December 15, 2006     3,000,000,000       3,000,000,000       2,468,120,115  
$100,000,000
     4.170 %     100.000 %   November 14, 2003   November 15, 2010     100,000,000       100,000,000       82,270,671  
$100,000,000
     4.060 %     100.000 %   December 9, 2003   December 9, 2010     100,000,000       100,000,000       82,270,671  
$2,000,000,000
     2.75 %     100.239 %   January 14, 2004   December 15, 2006     2,000,000,000       2,000,000,000       1,645,413,410  
$2,000,000,000
     3.25 %     99.515 %   March 3, 2004   May 15, 2009     2,000,000,000       2,000,000,000       1,645,413,410  
$2,000,000,000
     3.75 %     99.783 %   June 30, 2004   December 14, 2007     2,000,000,000       2,000,000,000       1,645,413,410  
 
Euro(2)
€1,000,000,000		   3mth libor     100.000 %   October 30, 1990   October 30, 2005     1,000,000,000       1,000,000,000       1,000,000,000  
€2,500,000,000
     9.250 %     98.160 %   March 7, 1991   March 7, 2011     2,500,000,000       2,500,000,000       2,500,000,000  
€1,022,583,762
   3 mth libor+ 0.0625%     99.887 %   December 11, 1995   December 20, 2002/10     1,022,583,762       1,022,583,762       1,022,583,762  
€567,225,275
     6.250 %     100.790 %   May 29, 1997   May 29, 2012     567,225,275       567,225,275       567,225,275  
€762,245,086
     5.875 %     101.594 %   July 2, 1997   July 2, 2007     762,245,086       762,245,086       762,245,086  
€1,533,875,644
     5.750 %     101.663 %   July 10,1997   July 10, 2007     1,533,875,644       1,533,875,644       1,533,875,644  
€60,000,000
   FRN/FX     99.610 %   October 8, 1998   October 8, 2018     60,000,000       60,000,000       60,000,000  
€300,000,000
   Index linked     101.425 %   October 15, 1998   October 15, 2018     300,000,000       300,000,000       300,000,000  
€1,000,000,000
     4.000 %     99.342 %   October 26, 1998   October 26, 2005     1,000,000,000       1,000,000,000       1,000,000,000  
€1,000,000,000
   CMS     99.950 %   May 6, 1999   May 6, 2019     1,000,000,000       1,000,000,000       1,000,000,000  
€1,000,000,000
   CMS     101.600 %   June 28, 1999   June 28, 2029     1,000,000,000       905,000,000       905,000,000  
€1,000,000,000
   CMS     100.750 %   August 30, 1999   August 30, 2019     1,000,000,000       1,000,000,000       1,000,000,000  
€1,000,000,000
     5.250 %     99.952 %   March 10, 2000   March 10, 2005     1,000,000,000       1,000,000,000       1,000,000,000  
€2,000,000,000
     4.750 %     99.706 %   January 23, 2001   January 23, 2006     2,000,000,000       2,000,000,000       2,000,000,000  
€150,000,000
   Zero Coupon     100.000 %   February 20, 2001   February 20, 2031     150,000,000       150,000,000       150,000,000  
€3,000,000,000
     5.750 %     100.040 %   July 25, 2001   July 25, 2016     3,000,000,000       3,000,000,000       3,000,000,000  
€400,000,000
   3 mth libor - 0.06%     100.000 %   January 22, 2002   January 22, 2012     400,000,000       400,000,000       400,000,000  
€1,000,000,000
   3 mth euribor - 0.06%     100.000 %   July 24, 2003   January 24, 2007     1,000,000,000       1,000,000,000       1,000,000,000  
€150,000,000
   84.5% cms 10Y     100.000 %   April 26, 2004   April 26, 2019     150,000,000       150,000,000       150,000,000  

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    Interest   Initial Public                   Original
Principal		   Principal
Amount		   Equivalent
Title
   Rate(%)
   Offering Price
   Date of Issue
   Maturity Date
   Amount
   Outstanding
   in euro
Swiss Francs(3)
ChF 300,000,000		   Zero Coupon     30.873 %   December 11, 1985   December 11, 2005     300,000,000       300,000,000       196,824,564  
ChF 1,000,000,000
     3.250 %     102.250 %   July 1, 1997   July 1, 2004     1,000,000,000       1,000,000,000       656,081,879  
ChF 1,000,000,000
     3.500 %     102.900 %   September 25, 1998   September 25, 2008     1,000,000,000       1,000,000,000       656,081,879  
ChF 1,500,000,000
     3.125 %     99.825 %   January 15, 1999   July 15, 2010     1,500,000,000       1,500,000,000       984,122,819  
ChF 1,000,000,000
   3 mth libor - 0.1%     100.060 %   March 24, 2000   March 24, 2005     1,000,000,000       1,000,000,000       656,081,879  
ChF 1,000,000,000
     3.625 %     100.820 %   January 10, 2001   January 10, 2006     1,000,000,000       1,000,000,000       656,081,879  
ChF 1,000,000,000
     3.000 %     100.180 %   February 11, 2002   August 11, 2006     1,000,000,000       1,000,000,000       656,081,879  
ChF 1,000,000,000
     2.000 %     100.470 %   January 30, 2003   April 30, 2009     1,000,000,000       1,000,000,000       656,081,879  
ChF 1,000,000,000
     1.250 %     99.775 %   August 11, 2003   February 9, 2007     1,000,000,000       1,000,000,000       656,081,879  
ChF 1,000,000,000
     1.750 %     100.090 %   February 3, 2004   March 3, 2008     1,000,000,000       1,000,000,000       656,081,879  
 
Pounds Sterling(4)
£400,000,000		     10.500 %     100.875 %   April 28, 1989   April 28, 2014     400,000,000       400,000,000       596,347,372  
£1,500,000,000
     6.000 %     98.565 %   August 4, 1998   August 4, 2028     1,500,000,000       1,500,000,000       2,236,302,646  
£105,000,000
   6mth libor - 0.3%     99.700 %   May 2, 2000   May 2, 2005     105,000,000       105,000,000       156,541,185  
£600,000,000
   3mth libor - 0.15%     100.000 %   March 5, 2003   March 5, 2008     600,000,000       600,000,000       894,521,059  
 
Norwegian Kroners(5)
NOK 2,000,000,000		     6.150 %     100.000 %   September 25, 2002   September 25, 2012     2,000,000,000       2,000,000,000       237,065,134  
NOK 2,000,000,000
     4.34 %     100.000 %   June 23, 2003   June 23, 2015     2,000,000,000       2,000,000,000       237,065,134  
 
Japanese Yen(6)
¥200,000,000,000		     5.000 %     99.540 %   December 15, 1994   December 15, 2004     200,000,000,000       200,000,000,000       1,510,574,018  
¥125,000,000,000
     5.500 %     100.000 %   December 15, 1994   December 15, 2014     125,000,000,000       125,000,000,000       944,108,761  
¥225,000,000,000
     3.750 %     100.000 %   June 8, 1995   June 8, 2005     225,000,000,000       225,000,000,000       1,699,395,770  
¥125,000,000,000
     4.500 %     100.000 %   June 8, 1995   June 8, 2015     125,000,000,000       125,000,000,000       944,108,761  
¥150,000,000,000
     3.800 %     100.000 %   April 4, 1996   March 27, 2008     150,000,000,000       150,000,000,000       1,132,930,514  
¥100,000,000,000
     3.700 %     100.000 %   November 14, 1996   November 14, 2016     100,000,000,000       100,000,000,000       755,287,009  
¥100,000,000,000
     3.450 %     99.800 %   March 24, 1997   March 24, 2017     100,000,000,000       100,000,000,000       755,287,009  
¥100,000,000,000
     1.800 %     99.882 %   February 23, 2000   February 23, 2010     100,000,000,000       100,000,000,000       755,287,009  
¥100,000,000,000
     0.375 %     99.936 %   October 10, 2001   October 10, 2006     100,000,000,000       100,000,000,000       755,287,009  
¥100,000,000,000
     0.375 %     99.800 %   April 2, 2002   October 10, 2006     100,000,000,000       100,000,000,000       755,287,009  
¥100,000,000,000
     0.650 %     99.995 %   April 14, 2004   March 20, 2009     100,000,000,000       100,000,000,000       755,287,009  
 
Australian Dollar(7)
A$1,000,000,000		     5.88 %     99.803 %   February 27, 2004   August 14, 2008     1,000,000,000       1,000,000,000       569,670,730  
 
                                                    
 		  
TOTAL OUTSTANDING
                                                     81,454,431,186 (8)
 
                                                    
 		  

    Source: Ministry of Economy and Finance
 
(1)   U.S. dollar amounts have been converted into euro at $1.2155/€1.00, the exchange rate prevailing at June 30, 2004.
(2)   External debt denominated in currencies of countries that have adopted the euro have been converted into euro at the fixed rate at which those currencies where converted into euro upon their issuing countries becoming members of the European Monetary Union.
(3)   Swiss Franc amounts have been converted into euro at ChF1.5242/€1.00, the exchange rate prevailing at June 30, 2004.
(4)   Pounds Sterling amounts have been converted into euro at £0.67075/€1.00, the exchange rate prevailing at June 30, 2004.
(5)   Norwegian Kroner amounts have been converted into euro at NOK8.4365/€1.00, the exchange rate prevailing at June 30, 2004.
(6)   Japanese Yen amounts have been converted into euro at ¥132.4/€1.00, the exchange rate prevailing at June 30, 2004.
(7)   Australian Dollar amounts have been converted into euro at A$1.7554/€1.00, the exchange rate prevailing at June 30, 2004.
(8)   Italy often enters into swap agreements in the ordinary course of the management of its debt. The total amount shown above does not give effect to these arrangements. The following table summarizes the effects on the Treasury’s external bonds after giving effect to currency swaps. Total external bonds before and after swap do not include US$989 million of debt originally incurred outside Italy by FS and assumed by the Treasury by law in 1996.
                 
    As of June 30, 2004
Currency
   Before Swap
   After Swap
US Dollars
     49.09 %     8.92 %
Euro
     23.76 %     66.89 %
Swiss Francs
     7.89 %     8.03 %
Pounds Sterling
     4.77 %     3.35 %
Norwegian Kroner
     0.58 %     0.00 %
Japanese Yen
     13.21 %     12.80 %
Australian Dollar
     0.70 %     0.00 %
Total External Bonds (in millions of Euro)
   € 81,454     € 86,306  

     The total amount shown above does not include approximately €4,990 million outstanding under Italy’s Commercial Paper program.

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