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Spain to start 2013 funding, will cover regions' needs

By Julien Toyer and Carlos Ruano

MADRID (Reuters) - Spain's central government is ready to start funding itself as well as its indebted regions for 2013 after having nearly completed its funding program for this year, the country's head of Treasury told Reuters on Wednesday.

"As we speak, my funding needs for this year are almost covered, at 95 percent, and my intention is to start funding the Treasury for next year so that we can start the year with our homework done," Secretary General of Treasury Inigo Fernandez de Mesa said in an interview.

Fernandez de Mesa declined to say if and when Spain may seek European aid and trigger an unlimited bond-buying program from the European Central Bank but noted market conditions had improved drastically with foreign investors now being the main buyers of Spanish debt at auctions.

"There has been a big liquidity jump on the secondary market. The fall of the spread is real... The participation of international investors first stabilized and what we're seeing now is a rebound in this participation," he said, adding foreign investors have bought between 50 percent and 80 percent of debt offered at recent auctions.

This is helping Spain's banks to keep their exposure to national debt in check after it increased earlier in the year when the Treasury had to rely almost exclusively on its national lenders to fund the state.

Fernandez de Mesa said Spain's public sector debt accounted only for 15 percent of Spanish banks' balance sheets, a low level compared to the 20 percent German banks hold in their country and to a euro zone average of 17 percent.

He also said financing problems for Spain's 17 autonomous regions would soon be fully solved as the Treasury has now funded 12 billion euros out of 18 billion euros of a central government emergency liquidity fund.

The Treasury has made a payment of 4 billion euros to the fund while a six-billion-euro loan subscribed by the state lottery had received strong interest from Spanish and international banks, he said, denying a press report that the deal may be postponed due to tepid bank interest.

For next year, regions that need to cover maturing debt and finance their deficit can be included on a voluntary basis in the central government funding program. Details will be known in December, he said.

Asked about which details the ECB would still need to provide for Spain to take a final decision on seeking a European rescue - something Prime Minister Mariano Rajoy has said was needed - Fernandez de Mesa said it already had been very explicit.

"I think the ECB has been very explicit when it comes to explaining how the OMT (Outright Monetary Transactions) would work. It has been explicit when it comes to explaining how it would stabilise the secondary debt market."

(Reporting by Julien Toyer and Carlos Ruano; Editing by Tracy Rucinski)

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