The General Council of Economists (CGE) values the new financing measures to avoid the closure of companies, although it sees a “Very serious incongruity” in the Government when considering “absolutely irrational” that part of the credits have to be used to pay taxes and fees to Social Security, when “it would be so easy to postpone these payments until the crisis is over.” In addition, it asks to make the aid more flexible and to clarify the guarantee procedures.
This has been stated by the president of the CGE, Valentín Pich, who insists that with the postponement of taxes and fees the amount of the credits requested would be reduced, as well as the risks that the bank and the State will have to assume. However, it values the “good step” given with the publication of the characteristics of the first section of the ICO line of guarantees for companies and freelancers, although it warns that economists will be expectant before the way to implement them.
The resolution published this Thursday in the BOE mandates the Official Credit Institute (ICO) so that within the ten days following the adoption of this agreement by the Council of Ministers, it has what is necessary for the effective implementation of this line of endorsements.
Likewise, it points out that the establishment of a first tranche of 20,000 million is “insufficient”, so it defends that an expansion of the following tranches should be done automatically, once the first one has been consumed, in order not to slow down the injection process of liquidity for companies affected by Covid-19.
It also considers that it should opt for “maximum flexibility” possible for the calculation of the rule of minimums and State aid, a power that was announced by the EU and therefore applicable by each country, while defending that the destination of the guaranteed loans allows to face the unpaid and other financing needed due to problems caused by the coronavirus; spending short-term and long-term debt in order to face the post-crisis with ease, and the option of “new” money to continue operating, not only to cancel unpaid positions with the bank, but even to undertake new investments.
At the same time, it asks to establish ad-hoc risk committees and procedures for the entry of specific files; that the banks dedicate resources to it in a specific way and that the ICO participates, in a certain way, in the risk committees or there is a very fluid communication to ensure the speed of the process, not a posteriori.
It also indicates that nothing is established regarding the request for additional guarantees to the financial institution or about the limitation of the interest rates to apply and, regarding expenses, it is only indicated that the expenses of the guarantee will be borne by the entity, however, does not specify who will pay the management and administration fee of 0.05%, which will probably be borne by the applicant.
In addition, they warn that it is not established no limit to interest rate to apply or other expenses, so it asks for measures to subsidize the interest rates and the cost of all this extra financing as a result of Covid-19. In addition, they see the limitation of the term to September 30 is “short” and should be until December 31.
Likewise, it advocates that the loans guaranteed in such a high percentage do not count in the total risk limit of the client that the financial institution has, in order not to harm other financing operations that the client may have. Lastly, the CGE requests that the risk criteria and procedure of financial institutions be published on the ICO website.